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<SEC-DOCUMENT>0000038777-00-000380.txt : 20001208
<SEC-HEADER>0000038777-00-000380.hdr.sgml : 20001208
ACCESSION NUMBER:		0000038777-00-000380
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		13
CONFORMED PERIOD OF REPORT:	20000930
FILED AS OF DATE:		20001207

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			FRANKLIN RESOURCES INC
		CENTRAL INDEX KEY:			0000038777
		STANDARD INDUSTRIAL CLASSIFICATION:	INVESTMENT ADVICE [6282]
		IRS NUMBER:				132670991
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			0930

	FILING VALUES:
		FORM TYPE:		10-K
		SEC ACT:		
		SEC FILE NUMBER:	001-09318
		FILM NUMBER:		785027

	BUSINESS ADDRESS:	
		STREET 1:		777 MARINERS ISLAND BLVD
		STREET 2:		6TH FLOOR
		CITY:			SAN MATEO
		STATE:			CA
		ZIP:			94404
		BUSINESS PHONE:		6503122000

	MAIL ADDRESS:	
		STREET 1:		FRANKLIN RESOURCES INC
		STREET 2:		901 MARINERS ISLAND BLVD 6TH FLOOR
		CITY:			SAN MATEO
		STATE:			CA
		ZIP:			94404
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>0001.txt
<DESCRIPTION>FORM 10-K
<TEXT>

<PAGE>

                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                                   (Mark One)
            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                  For the fiscal year ended September 30, 2000
                                       OR

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                        For the transition period from to

                          Commission file number 1-9318

                            FRANKLIN RESOURCES, INC.
             (Exact name of registrant as specified in its charter)

DELAWARE                                                        13-2670991
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                               Identification No.)

777 MARINERS ISLAND BLVD., SAN MATEO, CA                          94404
(Address of principal executive offices)                        (Zip Code)
Registrant's telephone number, including Area Code             (650) 312-2000
Securities registered pursuant to Section 12(b) of the Act:

Title of each class                    Name of each exchange on which registered
COMMON STOCK,PAR VALUE $.10 PER SHARE            NEW YORK STOCK EXCHANGE,
                                                 PACIFIC EXCHANGE, INC. AND
                                                 LONDON STOCK EXCHANGE

           Securities registered pursuant to Section 12(g) of the Act:
                     COMMON STOCK, PAR VALUE $.10 PER SHARE
                                (Title of class)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) or the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days. YES  X    NO
                                                ---      ---


<PAGE>

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

Aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing price of $36.57 on December 1, 2000 on the
New York Stock Exchange was $4,751,245,257. Calculation of holdings by
non-affiliates is based upon the assumption, for these purposes only, that
executive officers, directors, nominees, Registrant's Profit Sharing Plan and
persons holding 5% or more of Registrant's Common Stock are affiliates. Number
of shares of the Registrant's common stock outstanding at December 1, 2000:
243,618,404

DOCUMENTS INCORPORATED BY REFERENCE:
Certain portions of the Registrant's proxy statement for its Annual Meeting of
Stockholders to be held on January 25, 2001, which shall be filed under cover of
Schedule 14A with the Securities and Exchange Commission (the "SEC") in
December, 2000 (the "Proxy Statement"), are incorporated by reference into Part
III of this report.




<PAGE>




                    INDEX TO ANNUAL REPORT ON FORM 10-K

                                                            PAGE
                                                           NUMBER
FORM 10-K                                             REFERENCE TO THIS
REQUIRED INFORMATION                                  2000 ANNUAL REPORT
- --------------------                                     ON FORM 10-K
                                                     --------------------

PART I

      ITEM 1.     BUSINESS
                  General Business Summary
                  Investment Advisory and Related Services
                  Banking/Finance Operations
                  Regulatory Considerations
                  Competition
                  Company History
                  Financial Information About Industry Segments

      ITEM 2.     PROPERTIES

      ITEM 3.     LEGAL PROCEEDINGS

      ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF
                    SECURITY HOLDERS

PART II

      ITEM 5.     MARKET FOR REGISTRANT'S COMMON
                    EQUITY AND RELATED STOCKHOLDER
                    MATTERS

      ITEM 6.     SELECTED FINANCIAL DATA

      ITEM 7.     MANAGEMENT'S DISCUSSION AND
                    ANALYSIS OF FINANCIAL CONDITION
                    AND RESULTS OF OPERATIONS

      ITEM 7A.    QUANTITATIVE AND QUALITATIVE
                    DISCLOSURES ABOUT MARKET RISK

      ITEM 8.     FINANCIAL STATEMENTS AND
                    SUPPLEMENTARY DATA


<PAGE>

      ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH
                    ACCOUNTANTS ON ACCOUNTING AND
                    FINANCIAL DISCLOSURE

PART III

      ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS
                    OF THE REGISTRANT
                  Proxy: "Proposal 1: Election of Directors"*

      ITEM 11.    EXECUTIVE COMPENSATION
                  Proxy: "Proposal 1: Election of Directors"*

      ITEM 12.    SECURITY OWNERSHIP OF CERTAIN
                    BENEFICIAL OWNERS AND
                    MANAGEMENT
                  Proxy: "Principal Holders of Voting Securities"
                    and "Security Ownership of Management"*

      ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED
                    TRANSACTIONS
                  Proxy: "Proposal 1: Election of Directors -
                    Certain Relationships and Related Transactions" *

PART IV

      ITEM 14.    EXHIBITS, FINANCIAL STATEMENT
                    SCHEDULES, AND REPORTS ON
                    FORM 8-K
                  Consolidated Financial Statements
                  Reports on Form 8-K
                  List of Exhibits

* Incorporated by reference to the Proxy Statement.


<PAGE>

Franklin  Resources,  Inc.  files  reports with the SEC.  Copies of any of these
filings  can be  obtained  from the  SEC's  Public  Reference  Room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Information on the operation of the Public
Reference Room can be obtained by calling the SEC at 1-800-SEC-0330.

We also file reports with the SEC electronically via the Internet. The SEC
maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC, at http://www.sec.gov. Additional information about Franklin
Resources, Inc. can also be obtained at our website at
http://www.franklintempleton.com.




<PAGE>

                                     PART I

"FORWARD-LOOKING  STATEMENTS."  When used in this  Annual  Report on Form  10-K,
words or phrases  about the future such as  "expected  to," "could  have," "will
continue,"    "anticipates,"    "estimates,"   or   similar    expressions   are
"forward-looking  statements"  as defined in the Private  Securities  Litigation
Reform Act of 1995.  Statements  in  "Business,"  "Management's  Discussion  and
Analysis"  ("MD&A"),  and elsewhere in this document that speculate about future
events are  "forward-looking  statements." These types of statements are subject
to certain  risks and  uncertainties  as  described  below,  including  the risk
factors explained in MD&A. These risks and uncertainties could cause our current
expectations  and  predictions  in the  forward-looking  statements to be wrong.
Forward-looking  statements  are our best  prediction  at the time that they are
made, and you should not rely on them. If a circumstance  occurs that causes any
of our forward-looking  statements to be inaccurate,  Franklin  Resources,  Inc.
does not have an obligation to publicly announce the change to our expectations,
or to make any revision to the forward-looking statements.

ITEM 1.  BUSINESS

GENERAL BUSINESS SUMMARY

Franklin  Resources,  Inc. ("FRI" or the "Company") was organized in Delaware in
November  1969.  FRI and its  predecessors,  have been engaged in the  financial
services  business  since 1947.  The common stock of FRI is traded in the United
States  ("U.S.")  primarily  on the New  York  Stock  Exchange  and the  Pacific
Exchange,  Inc.  under the ticker symbol "BEN" and under the ticker symbol "FKR"
in the London Stock Exchange. The term "Franklin(R) Templeton(R) Investments" as
used in this document,  refers to Franklin Resources,  Inc. and its consolidated
subsidiaries.

The majority of our operating revenues, operating expenses and net income are
derived from providing investment advisory and related services to retail mutual
funds, institutional and private accounts, and other investment products
globally. Related services include transfer agency, fund administration,
custodial, trustee and fiduciary services. This is our primary business activity
and operating segment. The mutual funds and other products that we advise,
collectively called our "sponsored investment products", are sold to the public
under three brand names: Franklin, Templeton, and Mutual Series (TM). Our
sponsored investment products, include 240 broad range domestic and
global/international equity, fixed-income and money market mutual funds, as well
as other investment products that meet a wide variety of investment needs of
individuals and institutions. From time to time, we also participate in various
investment management joint ventures. On a consolidated worldwide basis,
Franklin Templeton Investments provides U.S. and international individual and
institutional investors with a broad range of investment products and services


<PAGE>

designed to meet varying investment objectives. This affords our clients the
opportunity to allocate their investment resources among various alternative
investment products as changing worldwide economic and market conditions
warrant.

Our secondary business activity and operating segment is banking/finance. Our
banking/finance group offers consumer lending and selected retail banking
services directly to the public.

Franklin Templeton Investments' equity investment products include some that are
value-oriented  and  others  that  reflect a growth  style of  investing.  Value
investing  focuses on  identifying  companies  which our  research  analysts and
portfolio managers believe are undervalued based on a number of factors.  Growth
investing relies on the review of macro-economic,  industry and sector trends to
identify  companies that exhibit superior growth potential  relative to industry
peers and the  broad  market.  Unlike  other  management  styles  that  focus on
short-term  market  trends,  our growth  portfolio  investment  management  team
invests in companies demonstrating  long-term growth potential,  based mainly on
proprietary in-house analysis and research.

We originated our fund business with the Franklin Funds(R) and added the other
fund brand names through acquisitions, which are described in the "Company
History" section below. When used in this report, the following terms generally
apply unless otherwise noted. Information in this report is given as of
September 30, 2000 unless otherwise noted.

"Franklin Templeton
mutual funds" or "Franklin
Templeton funds" means:                All of the Franklin, Templeton and Mutual
                                       Series mutual funds.


"sponsored investment products" means: All of the Franklin, Templeton and Mutual
                                       Series mutual funds;closed-end investment
                                       companies; foreign-based investment
                                       products; and other U.S. and
                                       international private and institutional
                                       accounts.

Our revenues are largely dependent upon the level and relative composition of
assets under management. To a lesser degree, our revenues also depend upon the
level of mutual fund sales and the number of mutual fund shareholder accounts.
These factors are discussed below under "Investment Advisory and Related
Services - Assets Under Management."


<PAGE>

As of September 30, 2000, total assets under management by Franklin Templeton
Investments were $229.9 billion. Assets under management included $180.9 billion
in the U.S.-registered mutual funds (including insurance dedicated funds), and
$49.0 billion in closed-end investment companies, foreign-based investment
products and U.S. and foreign private and institutional accounts. At September
30, 2000, we employed approximately 6,500 people in 29 countries, serving
customers on six different continents.


I.    INVESTMENT ADVISORY AND RELATED SERVICES

Franklin  Templeton   Investments'  principal  line  of  business  is  providing
investment advisory and management services. In support of our core business, we
provide  the  following  support  services;  fund  administration,   shareholder
processing,  distribution  and related  services  for our  sponsored  investment
products.  Fund shares are offered to individual  investors,  qualified  groups,
trustees,  tax-deferred (such as IRA) or money purchase plans,  employee benefit
and  profit  sharing  plans,   trust  companies,   bank  trust  departments  and
institutional investors. In addition,  various management and advisory services,
commingled and pooled accounts,  wrap fee arrangements and various other private
investment  management services are offered to certain private and institutional
investors.

As  discussed  below in "MD&A,"  our  revenues  are derived  primarily  from its
investment  management  operating segment. Our revenues and income are dependent
upon many  factors,  such as the  level  and  composition  of our  assets  under
management,  the  numbers  and  types  of  shareholders  in our  funds  and  our
agreements with the advisers that sell our products to the public. These factors
are described below in the following sections:

      a. Assets Under Management
      b. Asset Mix
      c. Investment Management and Related Services
      d. Types of Shares Offered by Our Funds
      e. Distribution, Marketing and Related Services
      f. Shareholder Servicing
      g. Investment Objectives of Funds
      h. Product Categorization


a. ASSETS UNDER MANAGEMENT ("AUM")

Franklin Templeton Investments' revenues depend to a large extent upon the
dollar value of assets under management because we earn most of our fees based
upon the amount of assets in the accounts that we are advising. As of September
30, 2000, the type of assets under management held by investors on a worldwide
basis was:

<PAGE>


TYPE OF ASSETS                   VALUE IN BILLIONS    % OF TOTAL AUM

EQUITY

                                   $ 151.5                  65.9%
Growth potential, income potential or various combinations thereof.

FIXED-INCOME

                                   $  63.8                  27.8%
Both long and short-term.

HYBRID FUNDS

                                   $   9.3                   4.0%
Asset allocation, balanced, flexible and income-mixed funds.

MONEY FUNDS

                                   $   5.3                   2.3%
Short-term liquid assets.

b. ASSET MIX

As  discussed  above,  our  revenues  are  derived   primarily  from  investment
management  activities.  Broadly  speaking,  the change in the net assets of the
funds depends upon two factors: (1) the level of sales of shares of the funds as
compared to redemptions of shares of the funds; and (2) the increase or decrease
in the market value of the securities  owned by the funds.  As our asset mix has
shifted since 1992 from predominantly  fixed-income  securities to a majority of
equity  assets,  we have  become  subject  to an  increased  risk of asset,  and
therefore  revenue,  volatility  from changes in the domestic and global  equity
markets.  In addition,  because we generally  derive higher  revenues and income
from our equity assets, a shift in assets from equity to fixed-income would have
a greater than proportional reduction on total income and revenues. Despite such
volatility,  management believes that in the long run we are more competitive as
a result of the  greater  diversity  of  investment  products  available  to our
customers.


<PAGE>

Many factors affect market values, including the general condition of national
and world economics and the direction and volume of changes in interest rates
and/or inflation rates. Fluctuations in interest rates and in the yield curve
affect the value of fixed-income assets under management as well as the flow of
monies to and from fixed-income funds. In turn, this affects our revenues from
those funds. The multiplicity of factors impacting asset mix make it difficult
to predict the net effect of any particular set of conditions.

Although our assets under  management are subject to political and currency risk
due  to  our  international  investment  activities,   our  direct  exposure  to
fluctuations  in foreign  currency  markets is more limited,  as is discussed in
more detail in "MD&A."

c. INVESTMENT MANAGEMENT AND RELATED SERVICES

Franklin Templeton Investments provides investment advisory, portfolio
management, transfer agency, business management agent and other administrative
services to our sponsored investment products. Various Franklin Templeton
Investments subsidiary companies manage and implement the investment activities
of sponsored mutual funds and provide the business management and/or
administrative services which are necessary to the operation of each fund's
business. Subsidiary companies also conduct research and provide the investment
advisory services and determine which securities the funds will purchase, hold
or sell as directed by each fund's board of trustees, directors or
administrative managers. In addition, the subsidiary companies take all steps
necessary to implement such decisions, including selecting brokers and dealers,
executing and settling trades in accordance with detailed criteria set forth in
the management agreement for each fund, and applicable law and practice. Similar
services are rendered with respect to the closed-end investment companies,
foreign-based funds and other U.S. and international private and institutional
accounts.

The investment advisory services provided by Franklin Templeton Investments
include fundamental investment research and valuation analyses, including
original economic, political, industry and company research, company visits and
inspections, and the utilization of such sources as company public records and
activities, management interviews, company prepared information, and other
publicly available information, as well as analyses of suppliers, customers and
competitors. In addition, research services provided by brokerage firms are used
to support our findings.

In some instances, brokerage firms agree to pay third-party providers for
research provided to Franklin Templeton Investments' advisory subsidiaries in
recognition of brokerage business which may be (but is not contractually
required to be) directed to those brokerage firms by Franklin Templeton
Investments' advisory subsidiaries in accordance with regulations adopted by the
SEC. In accordance with the provisions of the Securities Exchange Act of 1934
(the " '34 Act") and as permitted by fund prospectuses and contracts with


<PAGE>

individual accounts, the investment adviser may also direct brokerage to firms
for execution services as permitted by the National Association of Securities
Dealers (the "NASD"). Subject to receiving best execution, advisory subsidiaries
may direct trades to brokers who sell shares of the funds advised by the
advisory subsidiaries.

Fixed-income research includes economic, credit and value analysis. The economic
analysis function monitors and evaluates numerous factors that influence the
supply and demand for credit on a worldwide basis. Credit analysis researches
the creditworthiness of debt issuers and their individual short-term and
long-term debt issues. Value analysis reviews yield spread differential and the
relative value of market sectors that represent buying and selling
opportunities.

Investment  management and related services are provided  pursuant to agreements
in  effect  with  each  of  our  U.S.-registered  Franklin  Templeton  open  and
closed-end   mutual   funds.   Comparable   agreements   are  in   effect   with
foreign-registered  funds and with private accounts.  In general, the management
agreements for our U.S.-registered Franklin Templeton open and closed-end mutual
funds must be renewed  each year,  and must be  specifically  approved  at least
annually by a vote of such funds' board of trustees or directors or by a vote of
the holders of a majority  of such  funds'  outstanding  voting  securities.  In
either  event,  renewal  must be  approved  by a  majority  vote of such  funds'
trustees  or  directors  who are not  parties to such  agreement  or  interested
persons of any such  party  (other  than as  members  of the  board)  within the
meaning of the Investment  Company Act of 1940 (the " '40 Act"),  cast in person
at a meeting  called for that  purpose.  Foreign-registered  funds have  various
termination rights, review and renewal provisions that are not discussed in this
report.

Each U.S. management or advisory agreement between Franklin Templeton
Investments and each fund automatically terminates in the event of its
"assignment" (as defined in the '40 Act). "Assignment" is defined in the '40 Act
as including any direct or indirect transfer of a controlling block of voting
stock of the investment adviser to a fund. "Control" is defined as the power to
exercise a controlling influence over the management or policies of a company.
Therefore, if there was a change in control of Franklin Templeton Investments,
such as through a merger or an acquisition, the majority of the U.S. management
and advisory agreements with the sponsored investment products would
automatically terminate. In addition, either party may terminate the agreement
without penalty after written notice ranging from 30 to 60 days.

If management agreements representing a significant portion of our assets under
management were terminated, it would have a material adverse impact on our
company. To date, no management agreements of Franklin Templeton Investments
with any of the Franklin Templeton funds have been involuntarily terminated.

The funds themselves have no paid employees. Generally, Franklin Templeton
Investments provides and pays the salaries of personnel who serve as officers of
the Franklin Templeton funds, including the President and other administrative
personnel as necessary to conduct such funds' day-to-day business operations.
These personnel provide information, ensure compliance with securities
regulations, maintain accounting systems and controls, prepare annual reports
and perform other administrative activities. Various subsidiaries have contracts


<PAGE>
with the funds to provide additional services including maintaining a fund's
portfolio records, answering shareholder inquiries, and creating and publishing
literature.

The funds generally pay their own expenses such as legal, custody and auditing
fees, reporting costs, board and shareholder meeting costs, SEC and state
registration fees and similar expenses. The funds also pay Franklin Templeton
Investments a fee payable monthly in arrears based upon a fund's net assets.
Annual fee rates under the various global investment management agreements
generally range from 0.15% to a maximum of 2.00% and are often reduced as net
assets exceed various threshold levels.

Our investment management agreements permit Franklin Templeton Investments to
serve as an adviser to more than one fund so long as our ability to render
services to each of the funds is not impaired, and so long as purchases and
sales appropriate for all of the advised funds are made on a proportionate or
other equitable basis. The management personnel of Franklin Templeton
Investments and the fund directors or boards of trustees regularly review the
fund advisory and other administrative fee structures in light of fund
performance, the level and range of services provided, industry conditions and
other relevant factors. Advisory and other administrative fees are generally
waived or voluntarily reduced when a new fund is established and then increased
to contractual levels within an established timeline or as net asset values
reach certain levels.

Franklin Templeton Investments uses a "master/feeder" fund structure in limited
situations. This structure allows an investment adviser to manage a single
portfolio of securities at the "master fund" level and have multiple "feeder
funds" invest all of their respective assets into the master fund. Individual
and institutional shareholders invest in the "feeder funds" which can offer a
variety of service and distribution options. An advisory fee is charged at the
master fund level, and administrative and shareholder servicing fees are charged
at the feeder fund level.

d. TYPES OF SHARES OFFERED BY OUR FUNDS

Most of the  U.S.-registered  Franklin  Templeton funds have a multi-class share
structure.  Franklin  Templeton  Investments  adopted  this share  structure  to
provide investors with greater sales charge  alternatives for their investments.
Class A shares represent a traditional fee structure whereby the investor pays a
commission at the time of purchase to the broker/dealer.  During fiscal 1999 and
continuing  thereafter in fiscal 2000, we introduced  Class B shares for many of
our funds,  which have no front-end  sales  charges but instead have a declining
schedule of sales charges  (called  contingent  deferred  sales  charges) if the
investor  redeems  within  the first  six (6)  years.  For  Class B shares,  the
commission is advanced by the fund's distributor to pay the broker/dealer. Class
C shares  have a hybrid,  level  load  pricing  structure  combining  aspects of
conventional front-end, back-end and level-load pricing.


<PAGE>

In the U.S., we also offer Advisor Class shares in Franklin and Templeton  funds
and Z Class shares in Mutual Series funds on a limited basis, both of which have
no sales charges. The Advisor and Z Class shares are sold to officers, directors
and current and former employees of Franklin Templeton Investments, and are also
offered to institutions  and investment  advisory  clients (both  affiliated and
unaffiliated), as well as individuals investing $5 million or more. In addition,
shareholders  who held  shares  of the  Mutual  Series  funds  at the time  that
Franklin Templeton  Investments acquired the assets of the investment advisor to
the Mutual  Series  funds may  continue  to  purchase Z Class  shares.  Franklin
Templeton Investments also sells money market funds to investors without a sales
charge.  Under the terms and  conditions  described in the  prospectuses  or the
statements  of  additional  information  for some funds,  certain  investors can
purchase  shares at net asset value or at reduced  sales  charges.  In addition,
investors may generally  exchange  their shares of a fund at net asset value for
shares  within  the  same  class  of  another  fund  in the  Franklin  Templeton
Investments group without having to pay additional sales charges.

The Franklin Templeton  insurance product funds generally have a two class share
structure,  Class 1 and Class 2, which are offered at net asset value  without a
sales  load  directly  to  the   insurance   company   separate   accounts  (the
shareholder). The only difference between the two classes is that Class 2 shares
pay  a  distribution   and  service   ("12b-1")  fee  (as  described   below  in
"Distribution,   Marketing  and  Related   Services")   to  Franklin   Templeton
Investments, the insurance company or others for the expenses of activities that
are  primarily  intended  to sell  shares  of the  class or  variable  contracts
offering shares of the class.  These 12b-1 fees are generally assessed quarterly
at an annual rate of 0.25% of the average daily net assets of the class.

The following table  summarizes the U.S. retail fund sales and  distribution fee
structure for various share classes.  The fees below generally apply to our U.S.
registered retail funds, however,  there are exceptions to this fee schedule for
some funds.


<PAGE>

FEES PAID BY SHAREHOLDERS TO FRANKLIN TEMPLETON INVESTMENTS FOR MOST
U.S.-REGISTERED RETAIL FUNDS


- ---------------------------------------------------------------------------
U.S. RETAIL FUNDS   CLASS A SHARES    CLASS B SHARES (c)    CLASS C SHARES
- ---------------------------------------------------------------------------

Sales Charge
At Time of Sale

     Equity         5.75%  (a)        None.                 1.00%
     Fixed-income   4.25%  (a)        None.                 1.00%
- ---------------------------------------------------------------------------

Contingent          None.  (b)        4% maximum            1% if
Deferred Sales                        declining to zero     shareholder
Charge                                after 6 years of      sells shares
                                      each investment.      within 18 months
                                                            of investment.
- ---------------------------------------------------------------------------

Maximum Yearly
12b-1 Plan Fees

     Equity         0.25%             1.00%                 1.00%
     Fixed-income
          Taxable   0.25%             0.65%                 0.65%
          Tax-free  0.10%             0.65%                 0.65%
- ---------------------------------------------------------------------------

Types of investors  Any.              Any.                  Any.
that may purchase
this share class
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
U.S. RETAIL FUNDS   ADVISOR CLASS SHARES            Z CLASS SHARES (d)
- --------------------------------------------------------------------------------

Sales Charge
At Time of Sale     None.                           None.
     Equity
     Fixed-income
- --------------------------------------------------------------------------------

Contingent          None.                           None.
Deferred Sales
Charge
- --------------------------------------------------------------------------------

Maximum Yearly      None.                           None.
12b-1 Plan Fees
- --------------------------------------------------------------------------------

Types of investors  Officers, directors             Officers, directors and
that may purchase   and current and former          current and former employees
this share class    employees of Franklin           of Franklin Templeton
                    Templeton Investments;          Investments; Institutions,
                    Institutions, investment        investment advisory clients,
                    advisory clients,               individuals investing $5
                    individuals investing $5        million or more in Mutual
                    million or more in Franklin     Series funds and
                    or Templeton funds.             shareholders that hold
                                                    shares of the Mutual Series
                                                    funds reclassified as Z
                                                    shares.
- --------------------------------------------------------------------------------


<PAGE>

(a)  Reductions in the maximum sales charges may be available depending upon the
     amount  invested  and the type of  investor.  In some  cases  noted in each
     fund's prospectus or statement of additional information, certain investors
     may  invest  in Class A shares  at net  asset  value  (with  no  load).  In
     connection  with  certain of these  no-load  purchases,  Franklin/Templeton
     Distributors,  Inc.  may  make a  payment  out of its  own  resources  to a
     broker/dealer involved with that sale.
(b)  For NAV purchases  over $1 million,  a contingent  deferred sales charge of
     1.0% may apply to shares redeemed within one year of investment.
(c)  Class B  shares  convert  to  Class A  shares  after  eight  (8)  years  of
     ownership.
(d)  When the Company  entered into  management  contracts for the Mutual Series
     funds,  the existing  shares of Mutual Series funds were  reclassified as Z
     Class  shares in  exchange  for the  shares  that  they held at that  time.
     Shareholders  who held shares of the Mutual  Series  funds at the time that
     Franklin  Templeton  Investments began to advise Mutual Series may continue
     to purchase Z Class shares.

e. DISTRIBUTION, MARKETING AND RELATED SERVICES

Franklin/Templeton Distributors, Inc. ("Distributors"), a wholly-owned
subsidiary of the Company, acts as the principal underwriter and distributor of
shares of the U.S.-registered open-end Franklin Templeton funds. Distributors
has entered into underwriting agreements with the funds, which generally provide
for Distributors to pay the commission expenses for sales of fund shares.
Franklin Templeton fund shares are sold primarily through a large network of
independent intermediaries, including broker/dealers, banks and other similar
investment advisers. We are heavily dependent upon these distribution channels
and business relationships. There is increasing competition for access to these
channels, which has caused our distribution costs to rise and could cause
further increases in the future as competition continues and service
expectations increase. In addition, many intermediaries also have mutual funds
offered for sale under their own names that compete directly with our products.
These intermediaries could decide to limit or restrict the sale of our fund
shares, which could lower our future sales, increase redemption rates, and cause
our revenues to decline. As of September 30, 2000, approximately 3,900 local,
regional and national securities brokerage firms offered shares of the
U.S.-registered Franklin Templeton funds for sale to the investing public. In
the United States, Franklin Templeton Investments has approximately 64 general
wholesalers and six (6) retirement plan wholesalers who interface with the
broker/dealer community.

Broker/dealers receive various fees from Distributors, including fees from
investors and the funds, for services in matching investors with funds whose
investment objectives match such investors' goals and risk profiles.
Broker/dealers may also receive fees for their assistance in explaining the
operations of the funds, in servicing the investor's account, reporting and
various other distribution services.


<PAGE>

Most of the U.S.-registered Franklin Templeton funds, with the exception of
certain Franklin Templeton money market funds, have adopted distribution plans
(the "Plans") under Rule 12b-1 promulgated under the '40 Act ("Rule 12b-1"). The
Plans are established for an initial term of one (1) year and, thereafter, must
be approved annually by the particular fund's board and by a majority of
disinterested fund directors. All such Plans are subject to termination at any
time by a majority vote of the disinterested directors or by the particular fund
shareholders. The Plans permit the funds to bear certain expenses relating to
the distribution of their shares, such as expenses for marketing, advertising,
printing and sales promotion. Fees under the Plans for the different share
classes are shown above in the chart under "Types of Shares Offered by Our
Funds." The implementation of the Plans provided for a lower fee on Class A
shares acquired prior to the adoption of such Plans. Fees from the Plans are
paid primarily to third-party dealers who provide service to the shareholder
accounts, and engage in distribution activities. Distributors may also receive
reimbursement from the funds for various expenses that Distributors incurs
involved in distributing the funds, such as marketing, advertising, printing and
sales promotion subject to the Plans' limitations on amounts. Each fund has a
percentage limit for these type of expenses based on average assets under
management.

Class B and C shares are generally more costly to us in the year of sale, but
they allow us to be competitive by increasing our presence in various
distribution channels. Franklin Templeton Investments finances payments of the
Class B share broker commissions. The repayment of the financing advances is
limited to the cash flows generated by the funds' 12b-1 Plans and by any
contingent deferred sales charges collected in connection with early redemptions
(within six years after purchase).

The fees below generally apply to our U.S.-registered retail funds, however,
there are exceptions to this fee schedule for some funds.




<PAGE>

FEES  PAID  BY  FRANKLIN  TEMPLETON  INVESTMENTS  TO  BROKER/DEALERS  AND  OTHER
INTERMEDIARIES FOR MOST U.S.-REGISTERED RETAIL FUNDS

- -------------------------------------------------------------------------------
U.S. RETAIL FUNDS   CLASS A SHARES       CLASS B SHARES          CLASS C SHARES
- -------------------------------------------------------------------------------
Dealer Commission
 At Time of Sale

     Equity               5.00%               4.00%                    2.00%
     Fixed-income         4.00%               3.00%                    2.00%
- -------------------------------------------------------------------------------
Maximum Yearly
 12b-1 Plan Fees

     Equity               0.25%               1.00% (a)                1.00% (c)
     Fixed-income
          Taxable         0.25%               0.65% (b)                0.65% (d)
          Tax-free        0.10%               0.65% (b)                0.65% (d)
- -------------------------------------------------------------------------------

(a)  Franklin Templeton  Investments retains a fee equal to 0.75% and pays 0.25%
     to the  broker/dealer  of the average assets in the account.  After 8 years
     from the date of the investment,  Class B shares are converted into Class A
     shares.
(b)  Franklin Templeton  Investments retains a fee equal to 0.50% and pays 0.15%
     to the  broker/dealer  of the average assets in the account.  After 8 years
     from the date of the investment,  Class B shares are converted into Class A
     shares.
(c)  Franklin Templeton  Investments retains a fee equal to 0.75% of the average
     assets in the account for the first twelve (12) months  following the sale,
     after which it is paid annually to the broker/dealer.
(d)  Franklin Templeton  Investments  retains a fee equal to 0.50% of the assets
     in the account for the first twelve (12) months  following the sale,  after
     which it is paid annually to the broker/dealer.

f. SHAREHOLDER SERVICING

Franklin/Templeton  Investor  Services,  Inc.  ("FTISI") is a Franklin Templeton
Investments  subsidiary which provides  shareholder  record keeping services and
acts as  transfer  agent  and  dividend-paying  agent  for  the  U.S.-registered
Franklin  Templeton  open-end  funds.  FTISI  is  registered  with  the SEC as a
transfer agent under the '34 Act.  FTISI is compensated  under an agreement with
each fund on the basis of an annual fee per account,  which varies with the fund
and the type of services being  provided,  and is reimbursed  for  out-of-pocket
expenses.  In  addition,  certain  funds  reimburse  FTISI based on assets under
management.  Other subsidiaries  provide the same services to the open-end funds
offered for sale in Canada,  Europe and Asia under similar fee arrangements.  As
of September 30, 2000, there were approximately 9.2 million shareholder accounts
in the Franklin Templeton Investments group worldwide.


<PAGE>

g. INVESTMENT OBJECTIVES OF FUNDS

Franklin Templeton Investments' sponsored investment products accommodate a
variety of investment goals, including capital appreciation, growth and income,
income, tax-free income and preservation of capital. In seeking to achieve such
objectives, each portfolio emphasizes different investment securities.
Portfolios that seek capital appreciation invest primarily in equity securities
in a wide variety of international and U.S. markets; some seek broad national
market exposure, while others focus on narrower sectors such as precious metals,
health care, emerging technology, large-cap companies, small-cap companies, real
estate securities and utilities. Portfolios seeking income generally focus on
taxable and tax-exempt money market instruments, tax-exempt municipal bonds,
global fixed-income securities, fixed-income debt securities of corporations and
of the U.S. government and its agencies and instrumentalities such as the
Government National Mortgage Association, the Federal National Mortgage
Association, and the Federal Home Loan Mortgage Corporation. Still others focus
on investments in particular countries and regions, such as emerging markets. A
majority of the assets managed are equity-oriented.

Franklin Templeton Investments also provides investment management and related
services to a number of closed-end investment companies whose shares are traded
on various major U.S. and some international stock exchanges. In addition,
Franklin Templeton Investments provides investment management, marketing and
distribution services to certain sponsored investment companies organized in the
Grand Duchy of Luxembourg (called "SICAV Funds"), which are distributed in
marketplaces outside of North America, to certain investment funds and
portfolios in Canada as well as to certain other international portfolios in the
United Kingdom and elsewhere.

In addition to closed-end funds, our sponsored investment products also include
portfolios managed for some of the world's largest corporations, endowments,
charitable foundations, pension funds, wealthy individuals and other
institutions. Franklin Templeton Investments uses various investment techniques
to focus on specific client objectives for these specialized portfolios.

As of September 30, 2000, the net assets under management of our five (5)
largest funds were Franklin Small-Cap Growth - I ($15.8 billion), Templeton
Growth Fund ($13.8 billion), Franklin California Tax-Free Income Fund, Inc.
($13.3 billion), Templeton Foreign Fund ($12.3 billion), and the Templeton World
Fund ($9.4 billion). These five (5) mutual funds represented, in the aggregate,
28.0% of all Franklin Templeton Investments' assets under management.

Prior to May 1, 2000, a total of 35 funds in two trusts were available in the
United States to insurance company separate accounts as investment options for


<PAGE>

variable annuity and variable life insurance.  In February 2000, shareholders of
one trust approved an agreement and plan of reorganization  and as the result of
the reorganization, including the merger of certain funds, effective May 1, 2000
the insurance product funds were consolidated into a single trust with 27 funds,
thus  eliminating  some  duplicative  expenses.  Most of the  funds  related  to
variable insurance  contracts have been fashioned after some of the more popular
funds offered to the general public and are managed,  in most cases, by the same
investment  adviser.  In  November  1999,  one of the trusts  added a fund which
included a third class to be offered  exclusively  to pension  plans.  Two other
insurance  product  funds were also added in May 2000,  bringing the total to 29
funds with assets of $10.1 billion as of September 30, 2000.

h. PRODUCT CATEGORIZATION

The  Investment  Company  Institute  (the  "ICI"),  an  industry  group of which
Franklin Templeton  Investments is a member, has developed detailed  definitions
for the  investment  objectives  of  U.S.-registered  mutual  funds and variable
annuity and variable life sub-accounts.  In addition to the open-end mutual fund
assets described in the chart below, Franklin Templeton Investments also manages
approximately  $54.9  billion,  24%  of our  assets,  in  closed-end  investment
companies,  foreign-based  funds and other U.S.  and  international  private and
institutional accounts.  Approximately $22.7 billion of these assets are held in
separate  accounts.  The  investment  objectives of these  accounts vary but are
primarily equity-oriented.  Approximately $22.2 billion of these assets are held
in international-based  funds whose investment objectives vary but are primarily
international and global equity-oriented.  Amounts invested by our institutional
clients  across  product  types,  including  mutual funds,  trusts,  and private
accounts, were $48.2 billion at September 30, 2000.

From time to time, as business reasons, market conditions or investor demand
warrant, Franklin Templeton Investments introduces new funds, merges existing
funds, or liquidates existing funds. The following chart shows the types of our
U.S.-registered mutual funds and dedicated insurance product funds as of
September 30, 2000. The categories used in this chart are more precise than the
broad investment objective categories used in "MD&A" and in our "Consolidated
Financial Statements." The following chart is categorized using the ICI
definitions.




<PAGE>


<TABLE>

<CAPTION>

               FRANKLIN TEMPLETON FUNDS - U.S.-REGISTERED OPEN-END

- ----------------------------------------------------------------------------------------------------------------------------------
            CATEGORY
     (AND APPROXIMATE ASSETS                                                                                     NO. OF
        UNDER MANAGEMENT,                         INVESTMENT OBJECTIVE                   NO. OF MUTUAL         INSURANCE
        IN BILLIONS AS OF                                                                    FUNDS           PRODUCT FUNDS
       SEPTEMBER 30, 2000)
<S> <C>                             <C>                                                       <C>                  <C>

- -----------------------------------------------------------------------------------------------------------------------------------

I.  EQUITY FUNDS ($106.1)

- -----------------------------------------------------------------------------------------------------------------------------------

A.  Capital Appreciation Funds      Seek capital appreciation; dividends are not a
    ($32.5)                         primary consideration.

- -----------------------------------------------------------------------------------------------------------------------------------

    1. Aggressive Growth Funds      Invest primarily in common stocks of small, growth           4                    2
                                    companies.

- -----------------------------------------------------------------------------------------------------------------------------------

    2. Growth Funds                 Invest primarily in common stocks of                         8                    3
                                    well-established companies.

- -----------------------------------------------------------------------------------------------------------------------------------

    3. Sector Funds                 Invest primarily in common stocks of companies in            8                    4
                                    related fields.

- -----------------------------------------------------------------------------------------------------------------------------------


<PAGE>
            CATEGORY
     (AND APPROXIMATE ASSETS                                                                                     NO. OF
        UNDER MANAGEMENT,                         INVESTMENT OBJECTIVE                   NO. OF MUTUAL         INSURANCE
        IN BILLIONS AS OF                                                                    FUNDS           PRODUCT FUNDS
       SEPTEMBER 30, 2000)
- -----------------------------------------------------------------------------------------------------------------------------------
B.  World Equity Funds ($55.1)      Invest primarily in stocks of foreign companies.

- -----------------------------------------------------------------------------------------------------------------------------------

    1. Emerging Market Funds        Invest primarily in companies based in developing            2                    1
                                    regions of the world.

- -----------------------------------------------------------------------------------------------------------------------------------

    2. Global Equity Funds          Invest primarily in equity securities traded                 8                    3
                                    worldwide, including those of U.S. companies.

- -----------------------------------------------------------------------------------------------------------------------------------

    3. International Equity Funds   Must invest in equity securities of companies                3                    2
                                    located outside the U.S. and cannot invest in U.S.
                                    company stocks.

- -----------------------------------------------------------------------------------------------------------------------------------

    4. Regional Equity Funds        Invest in companies based in a specific part of the          4                    1
                                    world.
- -----------------------------------------------------------------------------------------------------------------------------------

C.  Total Return Funds ($18.5)      Seek a combination of current income and capital
                                    appreciation.

- -----------------------------------------------------------------------------------------------------------------------------------

    1. Growth and Income Funds      Invest primarily in common stocks of established             7                    3
                                    companies with the potential for growth and a
                                    consistent record of dividend payments.

- -----------------------------------------------------------------------------------------------------------------------------------

<PAGE>
            CATEGORY
     (AND APPROXIMATE ASSETS                                                                                     NO. OF
        UNDER MANAGEMENT,                         INVESTMENT OBJECTIVE                   NO. OF MUTUAL         INSURANCE
        IN BILLIONS AS OF                                                                    FUNDS           PRODUCT FUNDS
       SEPTEMBER 30, 2000)
- -----------------------------------------------------------------------------------------------------------------------------------

II. HYBRID FUNDS ($8.6)             May invest in a mix of equity, fixed-income
                                    securities and derivative instruments.

- -----------------------------------------------------------------------------------------------------------------------------------

A.  Asset Allocation Funds ($0.7)   Invest in various asset classes including, but not           3                    1
                                    limited to, equities, fixed-income securities and
                                    money market instruments.  They seek high total
                                    return by maintaining precise weightings in asset
                                    classes.

- -----------------------------------------------------------------------------------------------------------------------------------

B.  Flexible Portfolio Funds ($0.2) Invest in common stocks, bonds and other debt
                                    securities, and money market securities to provide           1                    0
                                    high total return.  These funds may invest up to 100
                                    percent in any one type of security and may easily
                                    change weightings depending upon market conditions.

- -----------------------------------------------------------------------------------------------------------------------------------

C.  Income-mixed Funds ($7.8)       Invest in a variety of income-producing securities,
                                    including equities and fixed-income securities.              1                    1
                                    These funds seek a high level of current income
                                    without regard to capital appreciation.

- -----------------------------------------------------------------------------------------------------------------------------------


<PAGE>
            CATEGORY
     (AND APPROXIMATE ASSETS                                                                                     NO. OF
        UNDER MANAGEMENT,                         INVESTMENT OBJECTIVE                   NO. OF MUTUAL         INSURANCE
        IN BILLIONS AS OF                                                                    FUNDS           PRODUCT FUNDS
       SEPTEMBER 30, 2000)
- -----------------------------------------------------------------------------------------------------------------------------------

III.  TAXABLE BOND FUNDS
      ($12.1)
- -----------------------------------------------------------------------------------------------------------------------------------

A.  High Yield Funds ($3.1)         Invest two-thirds or more of their portfolios in
                                    lower rated U.S. corporate bonds (Baa or lower by            1                    1
                                    Moody's and BBB or lower by Standard and Poor's
                                    rating services).

- -----------------------------------------------------------------------------------------------------------------------------------

B.  World Bond Funds ($0.3)         Invest in debt securities offered by foreign
                                    companies and governments.  They seek the highest
                                    level of current income available worldwide.

- -----------------------------------------------------------------------------------------------------------------------------------


<PAGE>
            CATEGORY
     (AND APPROXIMATE ASSETS                                                                                     NO. OF
        UNDER MANAGEMENT,                         INVESTMENT OBJECTIVE                   NO. OF MUTUAL         INSURANCE
        IN BILLIONS AS OF                                                                    FUNDS           PRODUCT FUNDS
       SEPTEMBER 30, 2000)
- -----------------------------------------------------------------------------------------------------------------------------------

    1. Global Bonds Funds: General  Invest in worldwide debt securities with no stated
                                    average maturity or an average maturity of five              2                    1
                                    years or more. These funds may invest up to 25% of
                                    assets in companies located in the U. S.

- -----------------------------------------------------------------------------------------------------------------------------------

    2. Global Bond Funds:           Invest in debt securities worldwide with an average          2                    0
         Short Term                 maturity of one to five years. These funds may
                                    invest up to 25% of assets in companies located in
                                    the U.S.

- -----------------------------------------------------------------------------------------------------------------------------------

    3. Other World Bonds Funds      Such as international bond and emerging market debt          1                    0
                                    funds, invest in foreign government and corporate
                                    debt instruments.

- -----------------------------------------------------------------------------------------------------------------------------------



<PAGE>
            CATEGORY
     (AND APPROXIMATE ASSETS                                                                                     NO. OF
        UNDER MANAGEMENT,                         INVESTMENT OBJECTIVE                   NO. OF MUTUAL         INSURANCE
        IN BILLIONS AS OF                                                                    FUNDS           PRODUCT FUNDS
       SEPTEMBER 30, 2000)
- -----------------------------------------------------------------------------------------------------------------------------------

C.  Government Bond Funds ($8.1)    Invest in U.S. Government bonds of varying
                                    maturities.  They seek high current income.

- -----------------------------------------------------------------------------------------------------------------------------------

    1. Government Bond Funds:       Invest two-thirds or more of their portfolios in
         Intermediate Term          U.S. Government securities with an average maturity          0                    1
                                    of five to ten years.  Securities utilized by
                                    investment managers may change with market
                                    conditions.

- -----------------------------------------------------------------------------------------------------------------------------------

    2. Government Bond Funds:       Invest two-thirds or more of their portfolios in
         Short Term                 U.S. Government securities with an average maturity          1                    0
                                    of one to five years. Securities utilized by
                                    investment managers may change with market
                                    conditions.

- -----------------------------------------------------------------------------------------------------------------------------------

    3. Mortgage-backed Funds        Invest two-thirds or more of their portfolios in             3                    0
                                    pooled mortgage-backed securities.
- -----------------------------------------------------------------------------------------------------------------------------------

D.  Strategic Income Funds ($0.5)   Invest in a combination of U.S. fixed-income                 2                    4
                                    securities to provide a high level of current income.

- -----------------------------------------------------------------------------------------------------------------------------------


<PAGE>
            CATEGORY
     (AND APPROXIMATE ASSETS                                                                                     NO. OF
        UNDER MANAGEMENT,                         INVESTMENT OBJECTIVE                   NO. OF MUTUAL         INSURANCE
        IN BILLIONS AS OF                                                                    FUNDS           PRODUCT FUNDS
       SEPTEMBER 30, 2000)
- -----------------------------------------------------------------------------------------------------------------------------------

IV.  TAX-FREE  BOND FUNDS
       ($44.0)
- -----------------------------------------------------------------------------------------------------------------------------------


A.  State Municipal Bond Funds      Invest primarily in municipal bonds issued by a
    ($30.3)                         particular state.  These funds seek high after-tax
                                    income for residents of individual states.

- -----------------------------------------------------------------------------------------------------------------------------------


    1. State Municipal Bond Funds:  Invest primarily in the single-state municipal bonds
       general                      with an average maturity of greater than five years         31                    0
                                    or no specific stated maturity. The income from
                                    these funds is largely exempt from federal as
                                    well as state income tax for residents of the
                                    state.

- -----------------------------------------------------------------------------------------------------------------------------------


B.  National Municipal Bond Funds   Invest primarily in the bonds of various municipal
    ($13.7)                         issuers in the U.S.  These funds seek high current
                                    income free from federal tax.

- -----------------------------------------------------------------------------------------------------------------------------------


    1. National Municipal Bond      Invest primarily in municipal bonds with an average          4                    0
       Funds: general               maturity of more than five years or no specific
                                    stated maturity.
- -----------------------------------------------------------------------------------------------------------------------------------


<PAGE>
            CATEGORY
     (AND APPROXIMATE ASSETS                                                                                     NO. OF
        UNDER MANAGEMENT,                         INVESTMENT OBJECTIVE                   NO. OF MUTUAL         INSURANCE
        IN BILLIONS AS OF                                                                    FUNDS           PRODUCT FUNDS
       SEPTEMBER 30, 2000)
- -----------------------------------------------------------------------------------------------------------------------------------

V.     MONEY MARKET FUNDS
       ($4.2)
- -----------------------------------------------------------------------------------------------------------------------------------

A.  Taxable Money Market Funds      Invest in short-term, high-grade money market
    ($3.3)                          securities and must have average maturity of 90 days
                                    or less.  These funds seek the highest level of
                                    income consistent with preservation of capital (i.e.
                                    maintaining a stable share price).

- -----------------------------------------------------------------------------------------------------------------------------------

1.  Taxable Money Market            Invest primarily in U.S. Treasury obligations and            2                    0
    Funds: government               other financial instruments issued or guaranteed by
                                    the U.S. Government, its agencies or its
                                    instrumentalities.
- -----------------------------------------------------------------------------------------------------------------------------------

2.  Taxable Money Market            Invest in a variety of money market instruments,             5                    1
    Funds: non-government           including certificates of deposit from large banks,
                                    commercial paper and bankers' acceptances.

- -----------------------------------------------------------------------------------------------------------------------------------


<PAGE>
            CATEGORY
     (AND APPROXIMATE ASSETS                                                                                     NO. OF
        UNDER MANAGEMENT,                         INVESTMENT OBJECTIVE                   NO. OF MUTUAL         INSURANCE
        IN BILLIONS AS OF                                                                    FUNDS           PRODUCT FUNDS
       SEPTEMBER 30, 2000)
- -----------------------------------------------------------------------------------------------------------------------------------

B.  Tax Exempt Money Market         Invest in short-term municipal securities and must
    Funds ($0.9)                    have average maturities of 90 days or less.  These
                                    funds seek the highest level of income - free
                                    from federal and, in some cases, state and
                                    local taxes - consistent with preservation of
                                    capital.

- -----------------------------------------------------------------------------------------------------------------------------------

    1. National Tax-Exempt Money    Invest primarily in short-term securities of various         1                    0
       Market Funds                 U.S. municipal issuers.

- -----------------------------------------------------------------------------------------------------------------------------------

    2. State Tax-Exempt Money       Invest primarily in short-term securities of                 2                    0
       Market Funds                 municipal issuers in a single state to achieve the
                                    highest level of tax-free income for residents of
                                    that state.

- -----------------------------------------------------------------------------------------------------------------------------------

</TABLE>


<PAGE>

i. RECENT FUND INTRODUCTIONS AND CHANGES

During the fiscal year ended September 30, 2000, a number of new funds were
introduced, both within the U.S. and internationally. In the U.S., the Franklin
Technology Fund and Franklin Small Cap Growth Fund II were added to the Franklin
Strategic Series. Additionally, the Company launched the Franklin Large Cap
Value Fund within the Franklin Value Investors Trust. The Company launched under
the Franklin Templeton Variable Insurance Products Trust the Franklin S&P 500
Index Fund, the Franklin Technology Securities Fund and the Franklin Aggressive
Growth Securities Fund. In the U.S., we also added the Templeton Overseas Growth
Fund, the Templeton Global Restructuring Fund and the Franklin Floating Rate
Trust.

Internationally,  we launched several new SICAV sub-funds  including:  FTIF High
Yield Euro, FTIF  Technology,  FTIF Emerging Markets  Innovations,  FTIF Biotech
Discovery,  FTIF Aggressive Growth and FTIF Mutual European Fund.  Additionally,
in the United  Kingdom we launched  the  Franklin  Biotechnology  Fund,  another
sub-fund in Franklin Templeton Funds. In Asia, we launched the FTF Franklin Life
Sciences Discovery Fund, the TIF Japan Fund and the TIF Global Balanced Fund. In
Latin  America,  we  introduced  Bradesco  Templeton  Funds,  in which there are
currently two sub-funds, the Brazilian High Income Fund and the Brazilian Equity
Fund.  We have also  incorporated  Franklin  Floating  Rate Fund,  a feeder fund
located in Dublin,  Ireland,  which invests in the Franklin Floating Rate Master
Trust. In Canada,  we launched nine funds which are similar versions of Franklin
equity  growth-style  funds,  including  Franklin  U.S.  Large Cap Growth  Fund,
Franklin U.S. Aggressive Growth Fund, Franklin World Health Sciences and Biotech
Fund, Franklin World Telecom Fund, Franklin Technology Fund, Franklin U.S. Money
Market Fund,  Templeton Global Balanced RSP Fund, Franklin U.S. Small Cap Growth
RSP Fund and Mutual Beacon RSP Fund. We also  introduced  some  country-specific
funds,  including  four funds that are both  managed and  distributed  in India,
including  Templeton Monthly Income Plan,  Franklin India Growth Fund,  Franklin
India Index Fund and Franklin India Balanced Fund.

During the fiscal year ended September 30, 2000, one (1) Templeton fund was
liquidated, seven (7) variable annuity funds merged into other variable annuity
funds, three (3) Templeton funds merged into other Templeton funds, and one (1)
Franklin Templeton fund merged into another Franklin Templeton fund.
Internationally, we liquidated one (1) Templeton fund.

II.   BANKING/FINANCE OPERATIONS

Franklin  Templeton  Investments'  second operating segment is  banking/finance,
through which we offer banking products and services.  A more detailed  analysis
of the  financial  effects of loan  losses  and  delinquency  rates in  Franklin
Templeton  Investments'  consumer lending and dealer auto loan business, as well
as the funding of this activity,  is contained in Note 3 in the Notes to the
Financial Statements.


<PAGE>

These activities are carried out by the subsidiaries described below.

Franklin Templeton Bank & Trust, F.S.B. ("Bank"), a subsidiary of FRI, with
total assets of $117.9 million, as of September 30, 2000, provides FDIC insured
deposit accounts and general customer loan products such as credit card loans
and auto loans. The Bank (formerly known as Franklin Bank) became chartered as a
federal savings bank on May 1, 2000 when the Office of Thrift Supervision
approved the Bank's application to convert from a California state banking
charter to a Federal thrift charter.

Immediately following the conversion of the Bank's state charter to a federal
thrift charter, Franklin Templeton Trust Company, a California chartered trust
company, was merged into the Bank and continues to perform its prior activities
as a division of the Bank. The Bank exercises full trust powers and through its
Trust Division serves primarily as custodian of Individual Retirement Accounts
and business retirement plans whose assets are invested in the Franklin
Templeton funds. It also serves as trustee or fiduciary of private trusts and
retirement plans.

Franklin  Capital  Corporation  ("FCC") is a subsidiary  of FRI formed to expand
Franklin  Templeton  Investments'  lending  activities  related primarily to the
purchase,  securitization  and servicing of retail  installment  sales contracts
("automobile contracts") originated by independent automobile dealerships.  FCC,
headquartered in Utah,  conducts its business primarily in the Western region of
the United States and is a finance company organized and licensed under the laws
of Utah. As of September 30, 2000, FCC's total assets included $168.7 million of
outstanding   automobile   contracts.   During  fiscal  2000,  FCC   securitized
approximately  $124.9 million of automobile  contract  receivables  for which it
maintains servicing rights. FCC continues to service $193 million of receivables
that have been  securitized  to date.  See Note 3 in the Notes to the  Financial
Statements.

Our securitized consumer receivables business is subject to marketplace
fluctuation and competes with businesses with significantly larger portfolios.
Auto loan and credit card portfolio losses can be influenced significantly by
trends in the economy and credit markets which reduce borrowers' ability to
repay loans.

III.  REGULATORY CONSIDERATIONS

Virtually all aspects of Franklin Templeton Investments' businesses are subject
to various foreign, and U.S. federal and state, laws and regulations. As
discussed above, Franklin Templeton Investments and a number of our subsidiaries
are registered with various foreign, and U.S. federal and state, governmental
agencies. These supervisory agencies have broad administrative powers, including
the power to limit or restrict Franklin Templeton Investments from carrying on
our business if we fail to comply with applicable laws and regulations. In the


<PAGE>

event of non-compliance, the possible sanctions which may be imposed include
disciplinary action against individual employees, limiting Franklin Templeton
Investments' (or a subsidiary's) ability to engage in business for specified
periods of time, revoking the investment adviser or broker/dealer registrations,
or similar foreign registrations, as well as censures and fines.

Franklin Templeton Investments' compliance procedures meet the standards
outlined in the most recent guidelines of the ICI related to securities
transactions by employees, officers and directors of investment companies.
Franklin Templeton Investments' officers, directors and employees may from time
to time own securities which are also held by the funds. Franklin Templeton
Investments' internal policies with respect to individual investments by certain
employees, including officers and directors who are employed by Franklin
Templeton Investments, require prior clearance and reporting of most
transactions and restrict certain transactions to address the possibility of
conflicts of interest.

To the extent that existing or future regulations cause or contribute to reduced
sales of fund shares or investment products or impair the investment performance
of the funds or such other investment products, our assets under management and
revenues might be adversely affected. Changes in regulations affecting free
movement of international currencies might also adversely affect Franklin
Templeton Investments.

Since 1993, the NASD Conduct Rules have limited the amount of aggregate sales
charges which may be paid in connection with the purchase and holding of
investment company shares sold through brokers. The effect of the rule might be
to limit the amount of fees that could be paid pursuant to a fund's 12b-1 Plan
to Distributors, a subsidiary of FRI that earns underwriting commissions on the
distribution of fund shares. Such limitations would apply in a situation where a
fund has no, or limited, new sales for a prolonged period of time. None of the
Franklin Templeton funds are in, or close to, that situation at the present
time.

IV.   COMPETITION

The financial services industry is highly competitive and has increasingly
become a global industry. There are over 8,000 open-end investment companies of
varying sizes, investment policies and objectives whose shares are being offered
to the public in the United States. Due to Franklin Templeton Investments'
international presence and varied product mix, it is difficult to assess our
market position relative to other investment managers on a worldwide basis, but
Franklin Templeton Investments believes that we are one of the more widely
diversified investment managers in the United States. Franklin Templeton
Investments believes that our equity and fixed-income asset mix coupled with our
global presence will serve our competitive needs well over the long term.
Franklin Templeton Investments continues to focus on service to customers,
performance of investment products and extensive marketing activities with our


<PAGE>

strong broker/dealer and other financial institution distribution network.

Franklin Templeton Investments faces strong competition from numerous stock
brokerage and investment banking firms, insurance companies, banks, savings and
loan associations and other financial institutions which also offer a wide range
of financial services. In recent years, there has been a trend of consolidation
in the financial services industry, resulting in stronger competitors with
greater financial resources than Franklin Templeton Investments.

Although we rely on intermediaries to sell and distribute Franklin Templeton
fund shares, many of these intermediaries also have mutual funds under their own
names that compete directly with our products. The banking industry also
continues to expand its sponsorship of proprietary funds. These intermediaries
could decide to limit or restrict the sale of our fund shares, which could lower
our future sales and cause our revenues to decline. Franklin Templeton
Investments has and continues to pursue sales relationships with all types of
intermediaries to broaden our distribution network. We are currently expanding
our Internet e-business to compete with the rapidly developing and evolving
capabilities being offered with this technology. It is not currently possible to
predict the effect of the Internet on Franklin Templeton Investments or on the
financial services industry overall.

As investor interest in the mutual fund industry has increased, competitive
pressures have increased on sales charges of broker/dealer distributed funds.
Franklin Templeton Investments believes that, although this trend will continue,
a significant portion of the investing public still relies on the services of
the broker/dealer community, particularly during weaker market conditions.
Franklin Templeton Investments has experienced increased demand for payments to
its distribution channels and anticipates that this trend will continue.

We believe that we are well positioned to deal with changes in marketing trends
as a result of our already extensive advertising activities and broad based
marketplace recognition. Franklin Templeton Investments does significant
advertising and conducts sales promotions through various media sources to
promote brand recognition. We advertise in major national financial
publications, as well as on radio and television to promote brand name
recognition and to assist its distribution network. Such activities included
purchasing network and cable programming, sponsorship of sporting events, such
as the "Franklin Templeton Investments Shark Shoot-Out", sponsorship of The
Nightly Business Report on public television, and extensive newspaper and
magazine advertising.

Diverse and strong competition affects the banking/finance segment of our
business as well, and limits the interest rates that we can charge on consumer
loans. We compete with many types of institutions for consumer loans, including
the finance subsidiaries of large automobile manufacturers.


<PAGE>

V. COMPANY HISTORY

In October 1992, Franklin Templeton Investments acquired substantially all of
the assets and liabilities of the investment adviser to the Templeton, Galbraith
& Hansberger Ltd. financial services business. This acquisition added the
Templeton family of funds to our company.

In November 1996, Franklin Templeton Investments acquired certain assets and
liabilities of Heine Securities Corporation, which provided investment
management services to various accounts and investment companies, including
Mutual Series Fund Inc., now known as Franklin Mutual Series Fund Inc. ("Mutual
Series"). Subsequent to the Mutual Series acquisition, Franklin Templeton
Investments has managed Mutual Series on a unified basis with its other business
operations.

The  purchase  price paid at the closing of the Mutual  Series  acquisition  was
funded  through a  combination  of available  cash,  securities  and the sale of
commercial  paper.  The base purchase  price  consisted of $551 million in cash,
including  acquisition  expenses,  and the delivery of 3.3 million shares of FRI
common  stock.  The  purchase  price  included  the deposit  into escrow of $150
million to be invested in shares of Mutual  Series.  The escrow money shares are
being released over a five-year period from the date of the acquisition,  with a
minimum $100 million retention for the full five-year period. In addition to the
base purchase price, the transaction  included a contingent payment ranging from
$96.25 million to $192.5 million under certain conditions if certain agreed-upon
growth  targets are met over the five years  following  the  closing.  The first
contingent  payment of $64.2 million related to these agreed-upon growth targets
was made in the third  quarter of fiscal 1998 and was  accounted for as goodwill
related to the additional  purchase price of the Mutual Series  acquisition.  No
payments were made in fiscal 1999 or 2000. A final contingent payment may be due
in November 2001 if agreed upon growth targets are met. See Note 10 in the Notes
to the Financial Statements.

On September 11, 1998, Franklin Templeton  Investments entered into an agreement
with FEP Capital II, L.L.C. to form Lightning Finance Company Limited ("LFL"), a
private limited liability company incorporated in Ireland on March 13, 1998. LFL
is in the  business  of  financing  the  up-front  sales  commissions  paid  to
distributors  for the sale of  open-end  mutual  fund  shares sold on a deferred
sales charge basis globally. Franklin Templeton Investments owns 49% of LFL, and
currently  finances  the  payment of  commissions on its Class B share  sales in
Canada, the United States and Europe through LFL.


On July 25, 2000, Franklin Templeton Investments purchased all of the remaining
outstanding shares of a Korean asset management company in which Franklin
Templeton Investments formerly held a 44% interest. The purchase price for the
shares was approximately $20.3 million.

On August 1, 2000, Franklin Templeton Investments entered into an agreement with
Nedcor Investment Bank Holdings, Ltd., a South African company, to form Franklin
Templeton NIB Asset Management ("FTNIB"). Franklin Templeton Investments
contributed cash and other assets with a value of approximately $27 million to
the venture in return for a 50% ownership interest in FTNIB.

On October 2, 2000, pursuant to an offer to purchase all of the outstanding
shares of Bissett & Associates Investment Management, Ltd. ("Bissett"), FTI
Acquisition Inc., a wholly-owned subsidiary of Templeton Management Limited, an


<PAGE>

indirect,  wholly-owned  subsidiary of FRI,  acquired  6,817,817  common shares,
representing  98.1%  of the  issued  and  outstanding  shares  of  Bissett,  for
CDN$20.50 per share (equivalent to approximately $US 13.62). On October 3, 2000,
FRI exercised its right to acquire the remaining 1.9% outstanding Bissett shares
(subject  to any  appraisal  rights  that may be asserted as to the amount to be
paid  for  the  remaining   shares).   The  cash   transaction  was  valued  at
approximately CDN $140 million (equivalent to approximately US $95 million).

Bissett provides investment advisory services throughout Canada to a broad range
of clients including: institutional clients such as pension and other savings
plans of corporations, municipalities, universities, endowments, and charitable
foundations; mutual funds and pooled trusts including Bissett's own family of
retail mutual funds as well as third party mutual funds; and private clients of
both Bissett and other financial institutions. Bissett had approximately $5.5
billion (CND)($US 3.8 billion) under management as of June 30, 2000.

On October 25,  2000,  after the close of the fiscal year,  the Company  entered
into an Agreement and Plan of Share  Acquisition (the  "Acquisition  Agreement")
with Fiduciary Trust Company International,  a bank organized under the New York
State Banking Law ("Fiduciary"),  providing for the acquisition by FRI of all of
the outstanding  shares of common stock, par value $1.00 per share, of Fiduciary
("Fiduciary  Common Stock").  The acquisition will be accomplished by way of the
exchange  of shares of common  stock,  par value  $.10 per  share,  of FRI ("FRI
Common Stock") for shares of Fiduciary  common stock,  par value $1.00 per share
of pursuant to the  procedures  set forth in Section 143-a of the New York State
Banking  Law  (the  "Share  Exchange").  The  stock  transaction  is  valued  at
approximately $825 million. In addition, there is a provision for an $85 million
retention pool to cover, among other things, various payments aimed at retaining
certain key employees of  Fiduciary.  The  completion  of the Share  Exchange is
subject to the receipt of necessary  governmental  approvals (including approval
of the Board of Governors of the Federal Reserve System),  Fiduciary shareholder
approval and other customary closing  conditions,  and costs, and is expected to
close in the second quarter of fiscal 2001.

VI.   FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

Information on Franklin Templeton Investments' operations in various geographic
areas of the world and a breakout of business segment information is contained
in Note 6 in the Notes to the Financial Statements.


<PAGE>

ITEM 2.  PROPERTIES

GENERAL DESCRIPTION

As of September 30, 2000,  Franklin  Templeton  Investments leased its principal
executive and  administrative  offices located at 777 Mariners Island Boulevard,
San  Mateo,  California  and  offices  and  facilities  in eight (8)  additional
locations in the immediate vicinity of its headquarters.  In addition,  Franklin
Templeton Investments owns seven (7) buildings near Sacramento,  California,  as
well as seven (7)  buildings in St.  Petersburg,  Florida,  two (2) buildings in
Nassau,  Bahamas as well as space in office  buildings in  Argentina,  China and
Singapore.  Certain  properties  of Franklin  Templeton  Investments  were under
construction  during fiscal 2000 as described  below.  Since Franklin  Templeton
Investments is operated on a unified basis,  corporate activities,  fund related
activities,  accounting  operations,  sales, real estate and banking operations,
auto  loans  and  credit  cards,   management   information  system  activities,
publishing and printing  operations,  shareholder  service  operations and other
business  activities and operations  take place in a variety of such  locations.
Franklin  Templeton  Investments  or its  subsidiaries  also lease  office space
domestically in Florida,  New York, and Utah and  internationally  in Australia,
Brazil,  Canada, China,  England,  France,  Germany,  Holland, Hong Kong, India,
Italy, Japan, Korea, Luxembourg,  Poland, Russia, Scotland, South Africa, Spain,
Switzerland, Taiwan, and Turkey.



<PAGE>

I.    LEASED PROPERTIES

As of September 30, 2000, Franklin Templeton Investments leased properties at
the locations set forth below:

                                Approximate     Approximate
                                     Square     Current Base          Expiration
 LOCATION                           FOOTAGE   MONTHLY RENTAL                DATE

777 Mariners Island Boulevard
San Mateo, CA  94404                176,000         $585,000           July 2001

500 East Broward Boulevard
Ft. Lauderdale, FL  33394           135,000         $293,000           June 2011

555 Airport Boulevard
Burlingame, CA  94010                94,000         $229,000           July 2001

1800 Gateway Drive
San Mateo, CA  94404(a)              70,000         $214,000        October 2001

1810 Gateway Drive
San Mateo, CA  94404(b)              48,000         $177,000           June 2001

1950 Elkhorn Court
San Mateo, CA  94403(c)              37,000          $46,000           July 2001

901 Mariners Island Blvd.
San Mateo, CA  94404                 16,000          $44,000         August 2001


951 Mariners Island Blvd.                                      Between July 2001
San Mateo, CA  94404                  9,000          $30,000     and August 2001


5130 Hacienda Drive                  49,000         $111,000            May 2007
Dublin, CA  94568

2000 Alameda de las Pulgas           36,000         $125,000       February 2005
San Mateo, CA 94403

51 JFK Parkway
Short Hills, NJ  07028               28,000          $80,000            May 2005

4760 Eastgate Mall
San Diego, CA  92121(d)              47,000          $55,000          March 2009



<PAGE>

4780 Eastgate Mall                   47,000          $55,000          March 2009
San Diego, CA  92121(e)

4810 Eastgate Mall                   93,321         $144,647          April 2010
San Diego, CA  92121(f)

4820 Eastgate Mall                   63,532          $98,474            May 2010
San Diego, CA  92121(g)

1400 Fashion Island Boulevard
San Mateo, CA  94404                 13,000          $44,000           June 2001

Other U.S. Locations                 64,000             --                --

Foreign Locations                   257,000             --                --


(a)  Franklin Templeton Investments, at its option, may terminate the lease by
     providing the lessor with six (6) months notice to terminate.

(b)  Franklin  Templeton  Investments  subleased  4,000  square feet of the 1810
     Gateway Drive property to a third party until July 1, 2001.

(c)  Franklin Templeton Investments subleased the 1950 Elkhorn Court property to
     a third party until July 31, 2001.

(d)  Franklin Templeton Investments subleased the 4760 Eastgate Mall property to
     a third party until August 31, 2007.

(e)  Franklin Templeton Investments subleased the 4780 Eastgate Mall property to
     a third party until March 31, 2009.

(f)  Franklin Templeton Investments subleased the 4810 Eastgate Mall property to
     a third party until April 30, 2010.

(g)  Franklin Templeton Investments subleased the 4820 Eastgate Mall Property to
     a third party until May 31, 2010.



<PAGE>

II.   OWNED PROPERTIES

In Rancho Cordova, California, Franklin Templeton Investments owns five (5)
office buildings totaling approximately 424,000 square feet, plus a data
center/warehouse facility of approximately 162,000 square feet and a warehouse
building of approximately 69,000 square feet.

In St. Petersburg, Florida, Franklin Templeton Investments owns seven (7) office
buildings totaling approximately 670,000 square feet, as well as an approximate
117,000 square foot facility devoted to a computer data center, training,
warehouse and mailing operations in St. Petersburg, Florida.

Franklin Templeton Investments owns two (2) office buildings in Nassau, Bahamas,
of approximately 14,000 square feet and approximately 25,000 square feet,
respectively, as well as a nearby condominium residence. Franklin Templeton
Investments also owns three (3) separate office-building floors of approximately
1,200, 8,000 and 10,000 square feet in Shanghai, China, Buenos Aires, Argentina,
and Singapore, respectively.

III.  SALE OF CORPORATE HEADQUARTERS

On July 11, 2000, Franklin Templeton Investments finalized the sale of its 60%
interest in its current headquarters in San Mateo, California to an independent
third party. The total purchase price for the property was $80.0 million of
which approximately $22.0 million was applied toward the payment of an
outstanding loan secured by the property. Franklin Templeton Investments
received proceeds from the sale of approximately $34.0 million, net of closing
costs and will record a gain on sale of approximately $32.8 million, net of the
write-off of certain leasehold improvements on the property. Franklin Templeton
Investments will recognize this gain over a 12-month period ending July 31,
2001, the anticipated period over which Franklin Templeton Investments have
agreed to leaseback the property pending completion of construction of its new
corporate headquarters in San Mateo, California.

IV.   NEW CORPORATE HEADQUARTERS

In June 1999, Franklin Templeton Investments acquired approximately 32 acres of
undeveloped land ("Bay Meadows") located in San Mateo, California for a total
purchase price of $21.6 million. In connection with this purchase, Franklin
Templeton Investments deposited with the seller and the City of San Mateo $22
million representing an estimate of our share of certain off-site improvements.
A final reconciliation of the actual amount due to the seller will be made after
the improvements have been completed.

In June 2000, Franklin Templeton Investments entered into a five-year operating
lease agreement in connection with the construction of the new corporate


<PAGE>

headquarters to be located on a portion of Bay Meadows, which Franklin Templeton
Investments has ground leased to a special purpose lessor trust. The total cost
of the corporate headquarters covered by this lease agreement is limited to $170
million. The lease provides for a substantial residual value guarantee
(approximately 85% of the total cost) by Franklin Templeton Investments which is
due on termination of the lease. The lease includes renewal options that can be
exercised at the end of the initial lease period, and purchase options that can
be exercised prior to the expiration of the lease term. Upon termination of the
lease, Franklin Templeton Investments can either exercise our purchase option,
or the property can be sold to a third party. Franklin Templeton Investments'
interest in the portion of the Bay Meadows property covered by this lease
(including our interest as owner of the fee interest in the land) is collateral
for our obligations under the lease agreement, including our obligations to pay
the residual value guaranty. FRI has provided a guaranty of the obligations of
the subsidiary that signed the lease agreement, in a manner substantially
similar to the guaranty for our revolving line of credit agreements.



<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

Franklin  Templeton  Investments   previously  reported  that  three  individual
plaintiffs,  James C.  Roumell,  Michael J. Wetta and Richard  Waksman,  filed a
consolidated  complaint in the U.S.  District Court for the Southern District of
Florida  against  Templeton  Vietnam  Opportunities  Fund,  Inc.  (now  known as
Templeton  Vietnam and Southeast Asia Fund,  Inc.);  Templeton Asset Management,
Ltd., an indirect  wholly-owned  subsidiary of FRI and the investment manager of
the closed-end investment company; certain of the fund's officers and directors;
FRI; and Templeton  Worldwide,  Inc., an FRI subsidiary.  The plaintiffs in that
action,  captioned In Re:  Templeton  Securities  Litigation  (Civil  Action No.
98-6059),  moved to certify a class with respect to certain claims raised in the
consolidated complaint. The court has not ruled on the motion to certify a
class.

Other than as stated above, there have been no material developments in this
litigation during the past fiscal year.

Franklin Templeton Investments is involved from time to time in litigation
relating to claims arising in the normal course of business. Management is of
the opinion that the ultimate resolution of such claims will not materially
affect Franklin Templeton Investments' business or financial position.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fourth quarter of the fiscal year covered by this report, no matter
was submitted to a vote of security holders.

                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

INFORMATION ABOUT FRANKLIN TEMPLETON INVESTMENTS' COMMON STOCK

FRI's common stock is traded on the New York Stock Exchange ("NYSE") and the
Pacific Exchange, Inc. under the ticker symbol BEN and the London Stock Exchange
under the ticker symbol FKR. On September 30, 2000, the closing price of FRI's
common stock on the NYSE was $44.43 per share. At December 1, 2000, there were
approximately 4,900 shareholders of record. Based on nominee solicitation, we
believe that there are approximately 25,000 beneficial shareholders whose
shares are held in street name.

The following table sets forth the high and low sales prices for FRI's common
stock on the NYSE. See Note 16 in the Notes to the Financial Statements.


                                  2000 FISCAL YEAR           1999 FISCAL YEAR
                                  ----------------           ----------------
QUARTER                            HIGH         LOW          HIGH          LOW
- --------------------------------------------------------------------------------
October-December                  35.00        27.44         45.62        26.50
January-March                     39.19        24.63         38.38        27.00
April-June                        36.25        28.19         45.00        27.12
July-September                    45.63        30.00         43.44        29.75


Franklin Templeton Investments declared dividends of $0.24 per share in fiscal
2000 and $0.22 per share in fiscal 1999. Franklin Templeton Investments expects
to continue paying dividends on a quarterly basis to common stockholders
depending upon earnings and other relevant factors.




<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

FINANCIAL HIGHLIGHTS

in millions, except assets under
management and per share amounts

AS OF AND FOR THE
YEARS ENDED SEPTEMBER 30,       2000      1999      1998      1997     1996
- ---------------------------------------------------------------------------

SUMMARY OF OPERATIONS

  Operating revenues        $2,340.1  $2,262.5  $2,577.3  $2,163.3 $1,519.5
  Net income                   562.1     426.7     500.5     434.1    314.7
FINANCIAL DATA
  Total assets               4,042.4   3,666.8   3,480.0   3,095.2  2,374.2
  Long-term debt               294.1     294.3     494.5     493.2    399.5
  Stockholders' equity       2,965.5   2,657.0   2,280.8   1,854.2  1,400.6
  Operating cash flow          701.7     584.5     693.7     428.5    359.6

ASSETS UNDER MANAGEMENT
in billions
   Period ending               229.9     218.1     208.6     226.0    151.6
   Simple monthly average      227.7     219.8     226.9     192.0    141.1
PER COMMON SHARE
  Earnings
   Basic                        2.28      1.69      1.98      1.72     1.30
   Diluted                      2.28      1.69      1.98      1.71     1.25
  Cash dividends                0.24      0.22      0.20      0.17     0.15
  Book value                   12.17     10.59      9.06      7.36     5.82


ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

FORWARD-LOOKING STATEMENTS
In this  section,  we  discuss  our  results  of  operations  and our  financial
condition.  We also make some statements relating to the future which are called
"forward-looking" statements. Although we do our best to make clear and accurate
forward-looking   statements,   the  actual   results  and  outcomes   could  be


<PAGE>

significantly  different from those that we discuss in this  document.  For this
reason, you should not rely too heavily on these forward-looking  statements. We
encourage you to read the "Risk Factors"  section below,  where we discuss these
statements in more detail.

GENERAL
The majority of our operating revenues, operating expenses and net income are
derived from providing investment advisory and related services to retail mutual
funds, institutional and private accounts, and other investment products. This
is our primary business activity and operating segment. The mutual funds and
other products that we advise, collectively called our sponsored investment
products, are distributed to the public via three main brand names:

o Franklin
o Templeton
o Mutual Series

Our sponsored investment products include a broad range of domestic and
global/international equity, balanced, fixed-income, sector and money market
mutual funds, as well as other investment products that meet a wide variety of
specific investment needs of individuals and institutions.

In fiscal 2001, we anticipate broadening our product lines with funds currently
offered by two companies. In October 2000, the acquisition of Bissett and
Associates Investment Management Ltd. ("Bissett"), added 12 funds to our
Canadian product line, primarily in the balanced and growth asset classes. It
also brought a number of institutional and private clients to the group. In
October 2000, we also announced the proposed acquisition of Fiduciary Trust
Company International ("Fiduciary"), a bank and trust the deposits of which are
insured by the Federal Deposit Insurance Corporation. Fiduciary provides
investment management services to institutions and private clients, primarily in
the growth style. The acquisition is subject to approval by Fiduciary
shareholders and various governmental regulatory authorities, and if approved,
the acquisition is expected to be completed in the second quarter of fiscal
2001.

The level of our revenues is largely dependent upon the level and relative
composition of assets under management. To a lesser degree, our revenues are
also dependent on the level of mutual fund sales and the number of mutual fund
shareholder accounts. The fees charged for our services are based on contracts
between our subsidiary entities and our sponsored investment products or our
clients. These arrangements could change in the future.

Our secondary business activity and operating segment is banking/finance. Our
banking/finance group offers consumer lending and selected retail banking
services to individuals.


<PAGE>

Franklin Templeton Investments operates primarily in the United States, but we
also provide services and earn revenues in Canada, the Bahamas, Europe, Asia,
South America, Africa and Australia. The majority of these revenues and
associated expenses, however, are denominated in U.S. dollars. Therefore, our
exposure to foreign currency fluctuations in our revenues and expenses is not
material at this time. This situation may change in the future as our business
continues to grow outside the United States.

At September 30, 2000, we employed approximately 6,500 people in 29 countries,
serving customers on six different continents.

<TABLE>
<CAPTION>
Assets Under Management
(in billions)
                                                                                    2000        1999
as of September 30,                          2000        1999          1998      vs 1999     vs 1998
- -----------------------------------------------------------------------------------------------------------------------
<S>                                           <C>         <C>           <C>           <C>        <C>
Equity
   Global/international                       $97.6       $96.8         $84.8         1%         14%
   Domestic (U.S.)                             53.9        37.6          37.6        43%          --
   Total equity                               151.5       134.4         122.4        13%         10%
- -----------------------------------------------------------------------------------------------------------------------
Hybrid Funds                                    9.3        10.2          11.2       (9)%        (9)%
Fixed-income
   Tax-free                                    44.0        48.2          50.5       (9)%        (5)%
   Taxable
     Domestic                                  15.6        15.8          16.0       (1)%        (1)%
     Global/international                       4.2         3.9           3.7         8%          5%
   Total fixed-income                          63.8        67.9          70.2       (6)%        (3)%
- -----------------------------------------------------------------------------------------------------------------------
Money Funds                                     5.3         5.6           4.8       (5)%         17%
- -----------------------------------------------------------------------------------------------------------------------
   Total                                     $229.9      $218.1        $208.6         5%          5%
- -----------------------------------------------------------------------------------------------------------------------
Simple monthly average for the year/1/       $227.7      $219.8        $226.9         4%        (3)%

</TABLE>

/1/ Investment management fees from approximately 60% of our assets under
management at September 30, 2000 are calculated using a daily average assets
under management figure.


Our assets under management at the end of fiscal 2000 were $229.9 billion, 5%
higher than the prior fiscal year end. The simple monthly average value of these
assets during fiscal 2000 was $227.7 billion as compared to $219.8 billion in
fiscal 1999, a 4% increase. As was evident in fiscal 1999, the change in the
simple monthly average assets under management is generally more indicative of
investment management fee revenue trends than the period end change year over
year. Equity assets comprised 66% of our ending assets under management at
September 30, 2000, as compared to 62% at the same time last year.


<PAGE>

The change in our assets under management was as follows.

Assets Under Management
(in billions)
<TABLE>
<CAPTION>
                                                                                    2000        1999
year ended September 30,                     2000        1999          1998      vs 1999     vs 1998
- -----------------------------------------------------------------------------------------------------------------------
<S>                                          <C>         <C>           <C>            <C>       <C>
Beginning assets under management            $218.1      $208.6        $226.0         5%        (8)%
Sales                                          51.7        41.8          56.5        24%       (26)%
Reinvested dividends                            8.7         3.9           4.7       123%       (17)%
Redemptions                                   (62.8)      (59.5)        (45.9)        6%         30%
Appreciation (depreciation)                    14.2        23.3         (32.7)     (39)%          --
- -----------------------------------------------------------------------------------------------------------------------
Ending assets under management               $229.9      $218.1        $208.6         5%          5%

</TABLE>


During fiscal 2000 and fiscal 1999, our sponsored investment products
experienced overall net cash outflows in contrast to the net cash inflows
experienced in fiscal 1998. Gross sales increased 24% in fiscal 2000 on average
across our sponsored investment products, but sales increases were strongest in
the equity products, which accounted for 62% of total sales during the fiscal
year. In fiscal 2000 and fiscal 1999, net outflows were offset by market
appreciation. In fiscal 1998, market depreciation, principally in the fourth
quarter, offset net inflows.

RESULTS OF OPERATIONS
The table below presents the highlights of our operations for the last three
fiscal years.

<TABLE>
<CAPTION>
(in millions except per share amounts)
                                                                                    2000        1999
                                             2000        1999          1998      vs 1999     vs 1998
- -----------------------------------------------------------------------------------------------------------------------
<S>                                          <C>         <C>           <C>           <C>       <C>
Net Income                                   $562.1      $426.7        $500.5        32%       (15)%
Earnings Per Share
   Basic                                       $2.28       $1.69         $1.98       35%       (15)%
   Diluted                                     $2.28       $1.69         $1.98       35%       (15)%
   Without restructuring charge                $2.28       $1.86         $1.98       23%        (6)%
Operating Margin
   As reported                                 28%         24%           25%          --          --
   Without restructuring charge                28%         26%           25%          --          --
EBITDA Margin/1/
   As reported                                 36%         30%           30%          --          --
   Without restructuring charge                36%         33%           30%          --          --

</TABLE>

/1/ EBITDA margin is earnings before interest, taxes on income, depreciation and
the amortization of intangibles divided by total revenues.


Net income and diluted earnings per share for fiscal 2000 increased by 32% and
35%, respectively, principally as a result of increased investment management
fees from increased average assets under management and as a result of a
restructuring charge taken in fiscal 1999. Net income and diluted earnings per
share for fiscal 1999 decreased by 15%, principally as a result of the $58.5
million pretax restructuring charge in fiscal 1999 and decreased investment
management fee revenues.


<PAGE>

The table below presents the percentage change in each category between fiscal
2000 and fiscal 1999 and between fiscal 1999 and fiscal 1998.

<TABLE>
<CAPTION>
Operating Revenues
                                             2000        1999        As a percentage of total revenues
                                          vs 1999     vs 1998          2000         1999        1998
- -----------------------------------------------------------------------------------------------------------------------
<S>                                            <C>       <C>             <C>          <C>         <C>
Investment management fees                     4%        (5)%            60%          59%         55%
Underwriting and distribution fees           (1)%       (27)%            30%          32%         38%
Shareholder servicing fees                    14%         15%             9%           8%          6%
Other, net                                    12%       (13)%             1%           1%          1%
- -----------------------------------------------------------------------------------------------------------------------
Total operating revenues                       3%       (12)%           100%         100%        100%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>

SUMMARY
In fiscal 2000, total operating revenues increased 3% due primarily to increased
simple monthly average assets under management and shareholder servicing fee
increases. In fiscal 1999, operating revenues fell 12% from fiscal 1998 levels
as investment management and underwriting and distribution fees declined
consistent with decreases in the simple monthly average value of our assets
under management and sales volumes.

INVESTMENT MANAGEMENT FEES
Investment management fees, the largest component of our operating revenues,
include both investment advisory and business management fees. These fees are
generally calculated under contractual arrangements with our sponsored
investment products as a percentage of the market value of assets under
management. Annual rates vary and generally decline as the average net assets of
the portfolios exceed certain threshold levels. In return for these fees, we
provide investment advisory, administrative and other management services.

Investment management fees increased 4% in fiscal 2000, primarily due to 4%
higher simple monthly average assets under management. Our effective investment
management fee rate remained relatively constant during the year at 0.61%;
however, future changes in the composition of assets under management could
affect our effective investment management fee rate. In fiscal 1999, investment
management fees decreased 5%, primarily due to 3% lower average simple assets
under management and a 2% shift in our asset mix towards lower-fee fixed-income
products.

UNDERWRITING AND DISTRIBUTION FEES
Underwriting commissions are earned from the sale of certain classes of mutual
funds that have a sales commission paid at the time of purchase. Distribution
fees are paid by our sponsored mutual funds in return for sales and marketing
efforts on their behalf. Distribution fees include 12b-1 plan fees that are
subject to maximum pay-out levels, based upon a percentage of the assets in each
fund. A significant portion of underwriting commissions and distribution fees
are paid to the brokers and other intermediaries who sell our sponsored
investment products to the investing public on our behalf. See the description
of underwriting and distribution expenses below.

Overall, underwriting and distribution fees decreased 1% in fiscal 2000, despite
a 24% increase in product sales. The decrease resulted from a decline in
commissionable sales year over year, which led to a 12% reduction in aggregate
sales commission revenues. Sales at reduced or zero commissions are offered on
certain classes of shares and for sales to shareholders or intermediaries that

<PAGE>


exceed specified minimum amounts. Thus, as the mix of sales change, so will our
commission revenue. The decline in sales commission revenue was offset by an
increase in distribution fees during fiscal 2000. This increase was primarily
due to the increased simple monthly average assets under management.

Underwriting and distribution fees decreased 27% in fiscal 1999 primarily due to
reduced commission revenues from lower mutual fund sales and distribution fees
from the 3% decrease in simple average assets under management.

SHAREHOLDER SERVICING FEES
Shareholder servicing fees are generally fixed charges per shareholder account
that vary with the particular type of fund and the service being rendered,
although some funds are charged fees based on the level of assets under
management. Fees are received as compensation for providing transfer agency
services which include providing customer statements, transaction processing,
customer service and tax reporting. Current agreements with the sponsored
investment products provide that closed accounts in a given calendar year remain
billable through the second quarter of the following calendar year at a reduced
rate.

In fiscal 2000, shareholder servicing fees increased 14% over fiscal 1999. This
was due to increased fees from funds whose servicing fees are based on assets
under management and increases in the per account charge, partially offset by a
decrease in the average number of billable accounts for the fiscal year. In
fiscal 1999, shareholder servicing fees increased 15% over fiscal 1998 as a
result of a 2.0 million (24%) increase in average billable shareholder accounts,
a substantial portion of which were closed accounts, and an increase in the per
account charge.

OTHER, NET
Other, net consists primarily of revenues from our banking/finance operating
segment:

o operating revenues, consisting primarily of interest on loans outstanding and
  servicing income
o interest expense
o provision for loan losses

Other, net has remained relatively constant during the three-year period.
Securitization of a portion of the auto loan portfolio in March 2000 resulted in
a loss that was offset by revenues from the residual portfolio. Another
securitization is planned during fiscal 2001.

We have considered the potential impact of the effect on the banking/finance
segment of a 100 basis point (1%) movement in market interest rates and we do
not expect it would have a material impact on our operating revenues or
consolidated results of operations.


<PAGE>

<TABLE>
<CAPTION>
Operating Expenses
                                             2000        1999        As a percentage of total expenses
                                          vs 1999     vs 1998          2000         1999        1998
- -----------------------------------------------------------------------------------------------------------------------
<S>                                         <C>         <C>              <C>          <C>         <C>
Underwriting and distribution                  --       (26)%            37%          36%         43%
Compensation and benefits                      4%        (7)%            32%          30%         29%
Information systems, technology
 and occupancy                                 1%         17%            13%          12%          9%
Advertising and promotion                    (4)%       (16)%             6%           6%          7%
Amortization of deferred sales
 commissions                                (13)%        (9)%             5%           6%          5%
Amortization of intangible assets              --          1%             2%           2%          2%
Other                                          5%       (14)%             5%           5%          5%
Restructuring charges                      (100)%        100%           n/a            3%        n/a
- -----------------------------------------------------------------------------------------------------------------------
Total operating expenses                     (3)%       (11)%           100%         100%        100%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>

SUMMARY
In fiscal 2000, operating expenses decreased 3% primarily due to the
restructuring charge of fiscal 1999. In fiscal 1999, operating expenses fell 11%
principally due to reduced underwriting and distribution expenses offset by the
restructuring charge.


<PAGE>


UNDERWRITING AND DISTRIBUTION
Underwriting and distribution includes sales commissions and distribution fees
paid to brokers and other third parties for selling, distributing and providing
ongoing services to investors in our sponsored investment products. During
fiscal 2000, underwriting and distribution expenses remained at 1999 levels.
Total sales increased in fiscal 2000 by 24%, but a significant number of those
additional sales were at a low or zero commission rate, resulting in a smaller
proportional increase in the commissions paid to intermediaries in fiscal 2000
compared to fiscal 1999. Distribution fees increased consistent with the growth
in simple monthly average assets under management which more than offset the
reduced commission expense.

During fiscal 1999, underwriting and distribution expenses decreased 26%,
consistent with the downward trend in underwriting and distribution revenues.

COMPENSATION AND BENEFITS
Compensation and benefits increased 4% in fiscal 2000, primarily due to annual
salary increases awarded in October 1999 and market adjustments awarded
throughout fiscal 2000 for certain employees, partially offset by a 14% decrease
in the average employee headcount during fiscal 2000 as compared to fiscal 1999.
The number of employees at September 30, 2000 was approximately 6,500 as
compared to the approximately 6,700 at the same time last year. In order to hire
and retain our key employees in the current low unemployment labor market, we
are committed to keeping our salaries and benefit packages competitive, which
means that the level of compensation and benefits may increase more quickly than
our revenues. Compensation and benefits decreased 7% in fiscal 1999, primarily
due to a reduction in the overall number of employees following the
restructuring plan of fiscal 1999 and decreased temporary labor costs and
employee overtime.

INFORMATION SYSTEMS, TECHNOLOGY AND OCCUPANCY
Information systems, technology and occupancy costs increased 1% in fiscal 2000.
This increase is not indicative of the actual increase in technology expenses,
as we have significantly increased our expenditure on technology intiatives in
fiscal 2000. However, that increase was offset by a decrease in Year 2000
expenses and increased capitalization of technology costs following the adoption
of a new accounting rule. During the past year, we embarked on a number of
significant system upgrades, successfully transitioned to the Year 2000, and
developed e-business strategies to improve our service levels, work environment
and productivity. We expect that such major system undertakings will continue to
have an impact on our overall expenditures through fiscal 2001 and beyond. In
addition, during fiscal 2000, we incurred slightly higher occupancy costs
related to our site consolidation efforts, new facilities and the pending
relocation to our San Mateo worldwide headquarters. We capitalized information
systems and technology costs of $70.5 million, $45.4 million and $101.2 million
during fiscal 2000, 1999 and 1998, respectively. Information systems, technology
and occupancy costs increased 17% in fiscal 1999 as compared to fiscal 1998,
primarily as a result of Year 2000 planning, remediation and testing
expenditures.


<PAGE>

ADVERTISING AND PROMOTION
Advertising and promotion expenses decreased 4% in fiscal 2000. We initiated a
number of campaigns to increase the visibility of our three major Franklin
Templeton Investments brand names: Franklin, Templeton and Mutual Series. This
increased expenditure was partially offset by cost efficiencies associated with
printing and marketing material production expenditures. In fiscal 1999, we
reduced expenditures on media advertising and reduced other promotional
activities in line with our general restructuring efforts.

AMORTIZATION OF DEFERRED SALES COMMISSIONS
Amortization of deferred sales commissions decreased 13% in fiscal 2000 and 9%
in fiscal 1999, principally as a result of lower class C sales in the U.S.
Certain fund classes, namely classes B and C, are sold without a front-end sales
charge to shareholders, while, at the same time, our distribution subsidiaries
pay a commission to selling brokers and other intermediaries. Similarly, class A
shares are sold without a front-end sales charge to shareholders when certain
minimum investment criteria are met, yet our U.S. distribution subsidiaries pay
a commission on the sale. We have arranged to sell certain deferred commission
assets ("DCA") arising from our U.S. operations to Lightning Finance Company
Limited, ("LFL"). DCA that remains on our books, principally class A and C
shares, is capitalized and amortized. Our Canadian and European sponsored
investment products have arranged for financing of these sales commissions
directly with LFL. As a result of these arrangements, Canadian and European DCA
are not recorded in our financial statements. During the fiscal year, we sold or
financed sales commissions globally totaling $56.0 million to LFL, compared to
$69.3 million in fiscal 1999.

RESTRUCTURING CHARGE
During fiscal 1999, we recognized pretax restructuring charges of $58.4 million.
These charges were related to a plan announced and initiated by management in
the first quarter of fiscal 1999. We do not expect to incur any incremental
charges with respect to this plan. All of the $58.4 million total restructuring
charge was utilized at September 30, 2000. The anticipated lost revenues
associated with products discontinued in connection with such restructuring are
not expected to have a material impact on ongoing results of operations.

OTHER INCOME (EXPENSE)
Investment and other income is comprised primarily of:

o dividends from investments in our sponsored mutual funds
o interest income from investments in bonds and government securities
o realized gains and losses on investments
o foreign currency exchange gains and losses

Investment income increased 61% in fiscal 2000, due to higher average available
cash balances to invest, higher interest rates, and greater realized gains.
Realized gains of $8.2 million were included in other income related to the
$32.9 million gain on the sale of our headquarters building in San Mateo, which
is being recognized over the 12-month leaseback period. In fiscal 1999, higher
interest income was offset by lower dividend income and reduced realized gains
from the sale of investments.


<PAGE>

Interest expense decreased 33% and 7% in fiscal 2000 and fiscal 1999,
respectively, following a reduction in our average outstanding debt.

TAXES ON INCOME
Our effective income tax rate for fiscal 2000 declined to 24% on an annual basis
compared to 26% in fiscal 1999 and fiscal 1998. The effective tax rate will
continue to be reflective of the relative contributions of foreign earnings that
are subject to reduced tax rates and that are not currently included in U.S.
taxable income.

LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, we had $746.0 million in cash and cash equivalents, as
compared to $819.2 million at September 30, 1999. Liquid assets, which consist
of cash and cash equivalents, investments available-for-sale and current
receivables increased to $1,677.1 million at September 30, 2000 from $1,490.1
million at September 30, 1999. At September 30, 2000, approximately $643.4
million was available to Franklin Templeton Investments under unused commercial
paper and medium-term note programs. Revolving credit facilities at September
30, 2000 totaled $550 million, of which $250 million was available under a
364-day facility. The remaining $300 million facility will expire in May 2003.

Cash provided by operating activities increased to $701.7 million in fiscal 2000
from $584.5 million in fiscal 1999. This increase was due mainly to higher net
income resulting from lower operating expenses, increased revenues and a reduced
effective tax rate. In fiscal 2000, we purchased $254.1 million of investments,
net of sales; invested net cash of $77.4 million in the banking/finance segment;
and used $108.4 million to purchase property and equipment, using a total of
$435.8 million in investing activities. Net cash used in financing activities
during the year was $339.1 million, compared to $348.6 million in 1999. We used
approximately $250.0 million in cash to purchase 8.4 million shares of common
stock and paid approximately $58.0 million in dividends.

Outstanding  debt declined to $362.9 million at September 30, 2000,  compared to
$403.2 million at September 30, 1999. Debt primarily consisted of fixed-interest
medium-term  notes and commercial paper that carried interest at variable rates.
As described in Note 7 in Notes to the financial  statements,  we participate in
the  financial  derivatives  markets  solely to manage our  exposure to variable
interest-rate  fluctuations  on a  portion  of  commercial  paper.  Our  overall
weighted average  interest rate on outstanding  commercial paper and medium-term
notes  was 6.5%  and  6.2%,  at  September  30,  2000 and  September  30,  1999,
respectively.  Through our current interest-rate swap agreements and medium-term
note  program  we  have  fixed  the  rates  of  interest  we  pay  on 49% of our
outstanding  debt.  Interest-rate  swaps of $90 million matured in October 2000.
Medium-term notes of $60 million mature in March 2001. Other fixed-rate debt has
various maturity dates through October 2003.

We have entered into a series of agreements to finance the construction of a new
corporate headquarters on a 32-acre site in San Mateo, California. An
owner-lessor trust has been set up to finance the construction and lease the
completed facility. The construction is substantially on target and we expect to


<PAGE>

move into our new headquarters in the summer of 2001. The lease agreements are
not expected to impact our cash flows or financial condition materially during
the initial five-year lease period.

We have arranged with LFL for non-recourse financing of sales commissions
related to our class B shares globally. We are currently negotiating with LFL to
purchase the DCA related to class C shares in fiscal 2001. At September 30,
2000, the cumulative sales commissions advanced by us which we have sold to or
financed through LFL approximated $215.6 million.

We expect that the principal uses of cash will be to increase assets under
management through expansion, make strategic acquisitions, fund property and
equipment acquisitions, enhance our technology infrastructure, improve our
business processes, pay shareholder dividends and repay and service debt. We
expect to finance future increases in investment in our banking/finance
activities through operating cash flows, debt, or the securitization of a
portion of the receivables from consumer lending activities. We believe that our
existing liquid assets, together with the expected continuing cash flow from
operations, our borrowing capacity under current credit facilities, our sales
commission financing arrangement and our ability to issue stock will be
sufficient to meet our present and reasonably foreseeable operating cash needs.

RISK FACTORS
"FORWARD-LOOKING STATEMENTS." When used in this Annual Report, words or phrases
about the future such as "expected to," "will continue," "anticipates,"
"estimates," or similar expressions are "forward-looking statements" as defined
in the Private Securities Litigation Reform Act of 1995. Statements about key
employee compensation; financing construction of our new corporate headquarters;
financing up front sales commissions paid; the acquisition of Fiduciary; our
future cash needs and the expected sources of future cash inflows are also
"forward-looking statements." These types of statements are subject to certain
risks and uncertainties, such as the factors described in the risk factors
outlined below. These risks and uncertainties could cause our current
expectations and predictions in the forward-looking statements to be wrong.
Forward-looking statements are our best prediction at the time that they are
made, and you should not rely on them. Rather, you should read the
forward-looking statements in conjunction with the risk disclosures in this
Annual Report. If a circumstance occurs that causes any of our forward-looking
statements to be inaccurate, we have no obligation to publicly announce the
change in our expectations, or to revise the forward-looking statements.

WE FACE STRONG  COMPETITION  FROM NUMEROUS AND SOMETIMES  LARGER  COMPANIES.  We
compete  with  numerous  investment   management   companies,   stock  brokerage
investment  banking  firms,  insurance  companies,  banks,  online and  Internet
investment   sites,   savings  and  loan   associations   and  other   financial
institutions. These companies also offer financial services and other investment
alternatives.  Recent  consolidation  in the  financial  services  industry  has
created  stronger  competitors  with  greater  financial  resources  and broader
distribution channels than our own. In addition, the online services that we may
offer may fail to compete  effectively  with  other  alternatives  available  to
investors.  To the extent that existing or potential  customers decide to invest
with our competitors, our market share, revenues and net income could decline.

<PAGE>

COMPETING SECURITIES DEALERS AND BANKS COULD RESTRICT SALES OF OUR FUNDS. Many
of the securities dealers on whom we rely to sell and distribute Franklin,
Templeton and Mutual Series fund shares also have mutual funds under their own
names that compete directly with our products. The banking industry also
continues to expand its sponsorship of proprietary funds. These firms or banks
could decide to limit or restrict the sale of our fund shares, which could lower
our future sales and cause our revenues to decline.

CHANGES  IN THE  DISTRIBUTION  CHANNELS  ON WHICH WE  DEPEND  COULD  REDUCE  OUR
REVENUES  AND  HINDER OUR  GROWTH.  We derive  nearly  all of our sales  through
broker/dealers and other similar investment advisors.  Increasing competition in
these distribution  channels has caused our distribution costs to rise and could
cause further increases in the future.  Higher  distribution costs lower our net
revenues and earnings.  Additionally, if one of the major financial advisors who
distributes our products were to cease operations, even for a few days, it could
have a significant  adverse impact on our revenues and earnings.  Moreover,  our
failure to maintain  strong  business  relationships  with these  advisors would
impair our  ability to  distribute  and sell our  products,  which  would have a
negative effect on our level of assets under  management,  related  revenues and
overall business and financial condition.

NEW SHARE CLASSES THAT WE HAVE INTRODUCED YIELD LOWER REVENUES AND HAVE REDUCED
OPERATING MARGINS. Although we receive reduced or no sales charge at the time of
initial investments in our class A shares that are related to tax deferred plans
and involve sales of more than $1 million, and in our class B shares and C
shares, we must nonetheless pay the related dealer commission. In addition, due
to industry competition, the dealer commissions that we pay on these types of
shares are now higher than in the past and may increase in the future. This
could have a negative effect on our liquidity and operating margins.

IF OUR ASSET MIX SHIFTS TO PREDOMINANTLY FIXED-INCOME PRODUCTS, OUR REVENUES
COULD DECLINE. We derive higher fee revenues and income from the equity assets
that we manage. Changing market conditions may cause a shift in our asset mix
towards fixed-income products and a decline in our income and revenue.

WE HAVE BECOME SUBJECT TO AN INCREASED RISK OF ASSET VOLATILITY FROM CHANGES IN
THE GLOBAL EQUITY MARKETS. As our asset mix has shifted since 1992 from
predominantly fixed-income to a majority of equity assets, we have become
subject to an increased risk of asset volatility from changes in global equity
markets. Declines in these markets have caused in the past, and would cause in
the future, a decline in our income and revenue.

THE LEVELS OF OUR ASSETS UNDER MANAGEMENT ARE SUBJECT TO SIGNIFICANT
FLUCTUATIONS. Global economic conditions, interest rates, inflation rates and
other factors that are difficult to predict affect the mix, market values, and
levels of our assets under management. Fluctuations in interest rates and in the
yield curve affect the value of fixed-income assets under management as well as
the flow of funds to and from fixed-income funds. In turn, this affects our


<PAGE>

asset management revenues from those assets. Similarly, changes in the equity
marketplace may significantly affect the level of our assets under management.
The factors above often have opposite effects on equity funds and fixed-income
funds, making it difficult for us to predict the net effect of any particular
set of conditions on our business and to devise effective strategies to
counteract those conditions.

WE FACE RISKS ASSOCIATED WITH CONDUCTING OPERATIONS IN NUMEROUS FOREIGN
COUNTRIES. We sell mutual funds and offer investment advisory and related
services in many different regulatory jurisdictions around the world, and intend
to continue to expand our operations internationally. Regulators in these
jurisdictions could change their policies or laws in a manner that might
restrict or otherwise impede our ability to distribute or register investment
products in their respective markets, which could force us to revise our
business strategy.

GENERAL ECONOMIC AND SECURITIES MARKETS FLUCTUATIONS MAY REDUCE OUR SALES AND
MARKET SHARE. Adverse general securities market conditions, increased market
volatility, currency fluctuations, governmental regulations and recessionary
global economic conditions could reduce our mutual fund share sales and other
financial services products sales. Increased and unusual market volatility and
high valuations in the technology sector and many "new economy" stocks could
also reduce our mutual fund share sales to the extent that customers decided to
shift to predominately fixed-income products. Similarly, our securitized
consumer receivables business is subject to marketplace fluctuation. General
economic and credit market downturns could reduce the ability of our customers
to repay loans, which could cause our consumer loan portfolio losses to
increase.

OUR INABILITY TO MEET CASH NEEDS COULD HAVE A NEGATIVE EFFECT ON OUR FINANCIAL
CONDITION AND BUSINESS OPERATIONS. Our ability to meet anticipated cash needs
depends upon factors including our asset value, our creditworthiness as
perceived by lenders and the market value of our stock. Similarly, our ability
to securitize and hedge future portfolios of auto loan and credit card
receivables, and to obtain continued financing for class B shares, is also
subject to the market's perception of those assets, finance rates offered by
competitors, and the general market for private debt. If we are unable, for any
reason, to obtain these funds and financing, we may be forced to incur
unanticipated costs or revise our business plan.

WE FACE INCREASED COMPETITION IN HIRING AND RETAINING QUALIFIED EMPLOYEES. Our
continued success will depend upon our ability to attract and retain qualified
personnel. Competition to hire these employees has increased, particularly in
certain geographic locations where the majority of our workforce is employed. We
may be forced to offer compensation and benefits to these employees at a level
that exceeds inflation. With historically low unemployment in the United States,
qualified personnel are now moving between firms and starting their own
companies with greater frequency. If we are not able to attract and retain
qualified employees, our overall business condition and revenues could suffer.

OUR EMERGING MARKET PORTFOLIOS AND RELATED REVENUES ARE VULNERABLE TO POLITICAL
AND ECONOMIC RISKS ASSOCIATED WITH EMERGING MARKETS. Our emerging market
portfolios and revenues derived from managing these portfolios are subject to
significant risks of loss from political and diplomatic developments, currency
fluctuations, social instability, changes in governmental polices,


<PAGE>

expropriation, nationalization, asset confiscation and changes in legislation
related to foreign ownership. Foreign trading markets, particularly in some
emerging market countries are often smaller, less liquid, less regulated and
significantly more volatile than the U.S. and other established markets.

DIVERSE AND STRONG COMPETITION LIMITS THE INTEREST RATES THAT WE CAN CHARGE ON
CONSUMER LOANS. We compete with many types of institutions for consumer loans,
including the finance subsidiaries of large automobile manufacturers. Some of
these competitors can provide loans at significantly below-market interest rates
in connection with automobile sales. Our inability to compete effectively
against these companies or to maintain our relationships with the various
automobile dealers through which we offer consumer loans could harm the growth
of our consumer loan business.

RISK FACTORS RELATING TO THE POOLING OF INTERESTS COMBINATION WITH FIDUCIARY
THE TRANSACTION IS SUBJECT TO REGULATORY AND SHAREHOLDER APPROVAL. Our Agreement
and Plan of Share Acquisition with Fiduciary is subject to the approval of the
share exchange by various governmental and regulatory agencies. The share
exchange is also subject to the approval of the shareholders of Fiduciary. There
is no assurance that all the necessary approvals will be obtained.

WE MAY BE SUBJECT TO A SUBSTANTIAL TERMINATION FEE IF WE CANCEL THE TRANSACTION.
The Agreement and Plan of Acquisition requires us to pay a termination fee of
$25 million if, under certain circumstances, the Agreement and Plan of
Acquisition is terminated.

THE COMBINED BUSINESSES MAY NOT BE FULLY OR SUCCESSFULLY INTEGRATED. The success
of the pooling of interests combination of Franklin Templeton Investments and
Fiduciary depends in large part on the ability of the businesses of each company
to be integrated fully and successfully. The revenue synergies and cost savings
from the transaction may not be fully realized or may take longer to achieve
than anticipated. Delays and/or disruptions arising from and during the
integration and transition in connection with the business combination could
make it more difficult for us and Fiduciary to attract and maintain business
relationships with clients, retain employees, expand and compete effectively.

FOLLOWING THE TRANSACTION, WE WILL BE SUBJECT TO FEDERAL RESERVE BOARD
REGULATION. We expect to become a bank holding company and financial holding
company that will be subject to Federal Reserve Board regulation under the Bank
Holding Company Act of 1956. Following the transaction, we and our subsidiaries
will be subject to certain banking regulations, including minimum capital
requirements. Additionally, prior approval of the Federal Reserve Board may be
required in order to effect a change in control of us.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the normal course of business, the financial position of Franklin Templeton
Investments is subjected to a variety of risks, including market risk associated
with interest rate movements. Franklin Templeton Investments is exposed to
changes in interest rates primarily in its debt transactions. Through its
interest-rate swap agreements and its medium-term note program Franklin
Templeton Investments has effectively fixed the rate of interest it pays on 49%
of its debt outstanding at September 30, 2000. As a result, Franklin Templeton
Investments does not believe that the effect of reasonably possible near-term
changes in interest rates on Franklin Templeton Investments' financial position,
results of operations or cash flow would be material.

We have considered the potential impact of the effect on the banking/finance
segment of a 100 basis point (1%) movement in market interest rates and we do
not expect it would have a material impact on our operating revenues or results
of operations.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index of Consolidated Financial Statements for the years ended September 30,
2000, 1999 and 1998.



<PAGE>

CONTENTS

Consolidated Financial Statements of Franklin Resources, Inc.:

                                                                      Page

Consolidated Statements of Income
   for the years ended September 30, 2000, 1999, and 1998

Consolidated Balance Sheets
   as of September 30, 2000 and 1999

Consolidated Statements of Stockholders' Equity
   and Comprehensive Income
   as of and for the years ended September 30, 2000, 1999, and 1998

Consolidated Statements of Cash Flows
   for the years ended September 30, 2000, 1999, and 1998

Notes to Consolidated Financial Statements

Report of Independent Accountants


All schedules have been omitted as the information is provided in the financial
statements or in related notes thereto or is not required to be filed as the
information is not applicable.



<PAGE>

CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)

<TABLE>
<CAPTION>

For the years ended September 30,                                          2000                1999                 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>                 <C>                  <C>
Operating Revenues
   Investment management fees                                           $1,399,121          $1,340,612           $1,413,273
   Underwriting and distribution fees                                      709,285             718,871              982,647
   Shareholder servicing fees                                              211,416             184,948              160,560
   Other, net                                                               20,318              18,066               20,792
- -----------------------------------------------------------------------------------------------------------------------------
   Total operating revenues                                              2,340,140           2,262,497            2,577,272
Operating Expenses
   Underwriting and distribution                                           623,144             620,047              841,706
   Compensation and benefits                                               535,710             515,137              553,085
   Information systems, technology and occupancy                           213,670             212,495              181,665
   Advertising and promotion                                               101,196             105,935              125,925
   Amortization of deferred sales commissions                               83,627              95,948              105,405
   Amortization of intangible assets                                        37,163              37,220               36,857
   Other                                                                    82,187              78,152               90,533
   Restructuring charges                                                        --              58,455                   --
- -----------------------------------------------------------------------------------------------------------------------------
   Total operating expenses                                              1,676,697           1,723,389            1,935,176
   Operating income                                                        663,443             539,108              642,096
Other Income (Expense)
   Investment and other income                                              90,108              55,934               56,723
   Interest expense                                                        (13,960)            (20,958)             (22,535)
- -----------------------------------------------------------------------------------------------------------------------------
   Other income, net                                                        76,148              34,976               34,188
   Income before taxes on income                                           739,591             574,084              676,284
   Taxes on income                                                         177,502             147,373              175,834
- -----------------------------------------------------------------------------------------------------------------------------
   Net Income                                                             $562,089            $426,711             $500,450
- -----------------------------------------------------------------------------------------------------------------------------
   Earnings per Share
     Basic and diluted                                                       $2.28               $1.69                $1.98

</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.



<PAGE>

CONSOLIDATED BALANCE SHEETS
(in thousands)

<TABLE>
<CAPTION>

As of September 30,                                                        2000                1999
- -----------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                 <C>
ASSETS
Current Assets
   Cash and cash equivalents                                              $734,071            $811,300
   Receivables
     Sponsored investment products                                         241,282             225,132
     Other                                                                  27,105              33,178
   Investment securities, available-for-sale                               635,819             392,022
   Prepaid expenses and other                                               18,017              24,257
- -----------------------------------------------------------------------------------------------------------------------
   Total current assets                                                  1,656,294           1,485,889
Banking/Finance Assets
   Cash and cash equivalents                                                11,934               7,944
   Loans receivable, net                                                   256,416             186,185
   Investment securities, available-for-sale                                26,851              20,484
   Other                                                                     4,361               3,165
- -----------------------------------------------------------------------------------------------------------------------
   Total banking/finance assets                                            299,562             217,778
Other Assets
   Deferred sales commissions                                               86,754             103,289
   Property and equipment, net                                             444,694             416,395
   Intangible assets, net                                                1,169,485           1,202,777
   Receivable from banking/finance group                                   168,496             107,148
   Other                                                                   217,158             133,514
- -----------------------------------------------------------------------------------------------------------------------
   Total other assets                                                    2,086,587           1,963,123
- -----------------------------------------------------------------------------------------------------------------------
   Total Assets                                                         $4,042,443          $3,666,790
- -----------------------------------------------------------------------------------------------------------------------

</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.



<PAGE>

CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)

<TABLE>
<CAPTION>

As of September 30,                                                         2000                1999
- -----------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                 <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
   Compensation and benefits                                              $180,743            $162,842
   Current maturities of long-term debt                                     68,776             108,985
   Accounts payable and accrued expenses                                    72,646              80,966
   Commissions                                                              76,965              61,971
   Income taxes                                                             61,661              57,968
   Other                                                                    28,768              13,758
- -----------------------------------------------------------------------------------------------------------------------
   Total current liabilities                                               489,559             486,490
Banking/Finance Liabilities
   Payable to Parent                                                       168,496             107,148
   Deposits                                                                 54,846              58,216
   Other                                                                    15,612              11,042
- -----------------------------------------------------------------------------------------------------------------------
   Total banking/finance liabilities                                       238,954             176,406
Other Liabilities
   Long-term debt                                                          294,090             294,260
   Other                                                                    54,347              52,640
- -----------------------------------------------------------------------------------------------------------------------
   Total other liabilities                                                 348,437             346,900
   Total liabilities                                                     1,076,950           1,009,796
- -----------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 10)
Stockholders' Equity
   Preferred stock, $1.00 par value, 1,000,000 shares
 authorized; none issued                                                        --                  --
   Common stock, $0.10 par value, 500,000,000 shares
 authorized; 243,730,140 and 251,006,541 shares
 issued and outstanding for 2000 and 1999, respectively                     24,373              25,101
   Capital in excess of par value                                               --              69,631
   Retained earnings                                                     2,932,166           2,566,048
   Other                                                                    (3,422)             (3,532)
   Accumulated other comprehensive income                                   12,376                (254)
- -----------------------------------------------------------------------------------------------------------------------
   Total stockholders' equity                                            2,965,493           2,656,994
- -----------------------------------------------------------------------------------------------------------------------
   Total Liabilities and Stockholders' Equity                           $4,042,443          $3,666,790
- -----------------------------------------------------------------------------------------------------------------------

</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.



<PAGE>


CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(in thousands)
<TABLE>
<CAPTION>

                                      Shares
- ---------------------------------------------------------------------------------
                                                                      Capital in
As of and for the years ended     Common Treasury  Common   Treasury  Excess of
September 30, 2000, 1999 and 1998  Stock    Stock   Stock      Stock  Par Value
- ---------------------------------------------------------------------------------
<S>                              <C>        <C>   <C>       <C>         <C>
Balance October 1, 1997          126,231    (200) $12,623   $(11,070)   $91,207
Net Income
Other Comprehensive Income:
   Net unrealized losses on investments
   Currency translation adjustments
   Market value of interest rate swaps
Total comprehensive income
Retirement of stock                (205)     205      (20)    12,600    (12,580)
Issuance of 2-for-1 stock split 126,357            12,636
Purchase of stock                (1,279)    (31)     (129)    (2,941)   (39,522)
Cash dividends on common stock
Issuance of restricted shares, net  397      (3)       40       (116)    37,773
Other                               241      29        24      1,527     16,155
Balance September 30, 1998      251,742      --    25,174         --     93,033
- ---------------------------------------------------------------------------------
Net Income
Other Comprehensive Income:
   Net unrealized gains on investments
   Currency translation adjustments
Total comprehensive income
Purchase of stock                (2,064)             (206)              (64,128)
Cash dividends on common stock
Issuance of restricted shares, net1,036               104                30,560
Employee stock plan (ESIP) shares   299                30                 9,002
Other                                (6)               (1)                1,164
Balance September 30, 1999      251,007      --    25,101         --     69,631
- ---------------------------------------------------------------------------------
Net Income
Other Comprehensive Income:
   Net unrealized gains on investments
   Currency translation adjustments
Total comprehensive income
Purchase of stock                (8,442)             (844)             (112,046)
Cash dividends on common stock
Issuance of restricted shares, net  989                99                30,081
Employee stock plan (ESIP) shares   349                34                11,030
Other                              (173)              (17)                1,304
Balance September 30, 2000      243,730      --   $24,373         --         --
- ---------------------------------------------------------------------------------

Table continued...

<PAGE>

- --------------------------------------------------------------------------------------------------------
                                                                 Accumulated
                                                                       Other        Total          Total
As of and for the years ended                 Retained         Comprehensive Stockholders' Comprehensive
September 30, 2000, 1999 and 1998             Earnings    Other       Income       Equity         Income
- --------------------------------------------------------------------------------------------------------
<S>                                          <C>        <C>           <C>      <C>              <C>
Balance October 1, 1997                      $1,757,536 $(5,895)      $9,820   $1,854,221
Net Income                                      500,450                           500,450       $500,450
Other Comprehensive Income:
   Net unrealized losses on investments                              (17,647)     (17,647)       (17,647)
   Currency translation adjustments                                  (14,580)     (14,580)       (14,580)
   Market value of interest rate swaps                                (5,638)      (5,638)        (5,638)
                                                                                                ---------
Total comprehensive income                                                                      $462,585
Retirement of stock                                                                    --
Issuance of 2-for-1 stock split                 (12,636)                               --
Purchase of stock                                                                 (42,592)
Cash dividends on common stock                  (50,515)                          (50,515)
Issuance of restricted shares, net                        1,665                    39,362
Other                                                                              17,706
Balance September 30, 1998                    2,194,835  (4,230)     (28,045)   2,280,767
- --------------------------------------------------------------------------------------------------------
Net Income                                      426,711                           426,711       $426,711
Other Comprehensive Income:
   Net unrealized gains on investments                                24,061       24,061         24,061
   Currency translation adjustments                                    3,730        3,730          3,730
                                                                                                --------
Total comprehensive income                                                                      $454,502
Purchase of stock                                                                 (64,334)
Cash dividends on common stock                  (55,498)                          (55,498)
Issuance of restricted shares, net                          698                    31,362
Employee stock plan (ESIP) shares                                                   9,032
Other                                                                               1,163
Balance September 30, 1999                    2,566,048  (3,532)      (254)     2,656,994
- --------------------------------------------------------------------------------------------------------
Net Income                                      562,089                           562,089   $562,089
Other Comprehensive Income:
   Net unrealized gains on investments                              22,511         22,511     22,511
   Currency translation adjustments                                 (9,881)        (9,881)    (9,881)
                                                                                            --------
Total comprehensive income                                                                  $574,719
Purchase of stock                              (137,152)                         (250,042)
Cash dividends on common stock                  (58,819)                          (58,819)
Issuance of restricted shares, net                                     110         30,290
Employee stock plan (ESIP) shares                                                  11,064
Other                                                                               1,287
Balance September 30, 2000                   $2,932,166 $(3,422)   $12,376     $2,965,493
- --------------------------------------------------------------------------------------------------------

</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.



<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

<TABLE>
<CAPTION>

For the years ended September 30,                                            2000               1999                 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                 <C>                  <C>
Net Income                                                                $562,089            $426,711             $500,450
Adjustments to reconcile net income to net cash
 provided by operating activities
   Increase in receivables, prepaid expenses and other                     (63,098)            (55,039)             (15,711)
   Advances of deferred sales commissions                                  (67,091)            (75,729)            (109,376)
   Increase in other current liabilities                                    33,229              25,676               54,031
   (Decrease) increase in income taxes payable                              (2,079)             (9,351)              35,411
   Increase in commissions payable                                          14,996               8,797                7,049
   Increase in accrued compensation and benefits                            44,999              34,822               37,728
   Depreciation and amortization                                           199,639             200,014              191,374
   (Decrease) increase in restructuring liabilities                         (2,564)             28,965                   --
   Gains on disposition of assets                                          (18,407)               (399)              (7,293)
- ---------------------------------------------------------------------------------------------------------------------------
   Net cash provided by operating activities                               701,713             584,467              693,663
   Purchase of investments                                                (628,206)           (731,798)            (494,495)
   Liquidation of investments                                              374,102             909,110               88,310
   Purchase of banking/finance investments                                 (32,788)            (24,891)             (23,863)
   Liquidation of banking/finance investments                               26,449              31,557               26,277
   Proceeds from securitization of loans receivable                        123,048             106,375              131,362
   Net (originations) collections of loans receivable                     (194,100)           (131,979)               5,930
   Addition of property and equipment                                     (108,432)           (135,168)            (162,181)
   Proceeds from sale of property                                            4,088               4,083               14,517
   Acquisition                                                                  --                  --              (64,333)
- ---------------------------------------------------------------------------------------------------------------------------
   Net cash (used in) provided by investing activities                    (435,839)             27,289             (478,476)
   Decrease in bank deposits                                                (3,372)            (29,566)             (10,623)
   Exercise of common stock options                                          1,142               1,456                2,891
   Dividends paid on common stock                                          (57,953)            (54,279)             (49,274)
   Purchase of stock                                                      (250,042)            (64,334)             (42,592)
   Issuance of debt                                                        497,118              64,140              168,927
   Payments on debt                                                       (526,006)           (265,972)            (171,214)
- ---------------------------------------------------------------------------------------------------------------------------
   Net cash used in financing activities                                  (339,113)           (348,555)            (101,885)
   (Decrease) increase in cash and cash equivalents                        (73,239)            263,201              113,302
   Cash and cash equivalents, beginning of year                            819,244             556,043              442,741
- ---------------------------------------------------------------------------------------------------------------------------
   Cash and cash equivalents, end of year                                 $746,005            $819,244             $556,043
Supplemental disclosure of cash flow information
   Cash paid during the year for:
   Interest, including banking/finance group interest                      $26,370             $30,361              $40,801
   Income taxes                                                           $180,098            $163,425             $104,306
   Acquisition of Korean asset management company,
     primarily cash and cash equivalents                                   $20,253                  --                   --
Supplemental disclosure of non-cash information
   Value of common stock issued in other transactions,
 principally restricted stock                                              $30,181             $30,664              $37,697

</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.



<PAGE>

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Franklin Resources, Inc. and its consolidated subsidiaries ("Franklin Templeton
Investments") derive substantially all of their revenues and net income from
providing investment management, administration, distribution and related
services to the Franklin, Templeton and Mutual Series funds, institutional and
private accounts and other investment products (our "Sponsored Investment
Products"). Our primary business is in the United States but we also operate in
Canada, the Bahamas, Europe, Asia, South America, Africa and Australia under
various rules and regulations set forth from time to time by the Securities and
Exchange Commission, individual state agencies and foreign governments. Services
to our Sponsored Investment Products are provided under contracts that set forth
the fees to be charged for these services. The majority of these contracts are
subject to periodic review and approval by each Mutual Fund's Board of
Directors/Trustees and/or its shareholders. Currently, no one Sponsored
Investment Product's revenues represent more than 10% of total revenues. Our
revenues are largely dependent on the total value and composition of assets
under management, which include domestic and global/international equity and
debt portfolios. Accordingly, fluctuations in financial markets and in the
composition of assets under management impact our revenues and operating
results.

BASIS OF PRESENTATION. The consolidated financial statements are prepared in
accordance with generally accepted accounting principles that require us to
estimate certain amounts. Actual amounts may differ from these estimates.
Certain 1998 amounts have been reclassified to conform to current year
presentation.

The consolidated financial statements include the accounts of Franklin
Resources, Inc. and its majority-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated except the intercompany payable
from the banking/finance group to the parent to fund auto and credit card loans.
Operating revenues of the banking/finance group are included in Other, net and
are presented net of related interest expense and the provision for loan losses.
Accordingly, reported interest expense excludes interest expense attributable to
the banking/finance group.

CASH AND CASH EQUIVALENTS include cash on hand, demand deposits with banks, debt
instruments with original maturities of three months or less and other highly
liquid investments, including money market funds, which are readily convertible
into cash.

INVESTMENT SECURITIES, AVAILABLE-FOR-SALE are carried at fair value. Fair values
for investments in our sponsored investment products are based on the last
reported net asset value. Fair values for other investments are based on the
last reported price on the exchange on which they are traded. Realized gains and
losses are included in investment income currently based on specific
identification. Unrealized gains and losses are recorded net of tax as part of
Accumulated other comprehensive income until realized.

DERIVATIVES. Franklin Templeton Investments does not hold or issue derivative
financial instruments for trading purposes. We enter into interest-rate swap
agreements to reduce variable interest-rate exposure with respect to our
commercial paper. Under these contracts Franklin Templeton Investments agrees to


<PAGE>

exchange, at specified intervals, the difference between fixed- and
variable-interest amounts calculated by reference to an agreed-upon notional
principal amount. The interest-rate differential between the fixed pay-rate and
the variable receive-rate is reflected as an adjustment to interest expense over
the life of the swaps. Interest-rate swaps are carried at an estimate of their
termination costs.

Unrealized gains and losses on these instruments are recorded net of tax as a
part of Accumulated other comprehensive income. These unrealized gains and
losses would be recognized only on early termination of the agreements. We have
not, and do not intend to, terminate these agreements prior to their normal
expiration.

LOANS RECEIVABLE. We accrue interest on auto installment loans principally using
the rule of 78s method. If interest had been recorded using the interest method,
revenues would not be materially different from those presented. Interest on all
other loans is accrued using the simple interest method. An allowance for loan
losses is established monthly based on historical experience, including
delinquency and loss trends. Securitized loans and the associated allowance for
loan losses are excluded from the balance sheet and the associated interest
revenues and provision for loan losses are excluded from our results of
operations. A loan is charged to the allowance for loan losses when it is deemed
to be uncollectible, taking into consideration the value of the collateral, the
financial condition of the borrower and other factors. Recoveries on loans
previously charged off as uncollectible are credited to the allowance for loan
losses.

DEFERRED SALES COMMISSIONS. Sales commissions paid to brokers and other
investment advisors in connection with the sale of shares of our mutual funds
sold without a front-end sales charge are capitalized and amortized over periods
not exceeding six years - the periods in which we estimate that they will be
recovered from distribution plan payments and from contingent deferred sales
charges.

PROPERTY AND EQUIPMENT are recorded at cost and are depreciated on the
straight-line basis over their estimated useful lives. Expenditures for repairs
and maintenance are charged to expense when incurred. Leasehold improvements are
amortized on the straight-line basis over their estimated useful lives or the
lease term, whichever is shorter.

SOFTWARE DEVELOPED FOR INTERNAL USE. Certain internal and external costs
incurred in connection with developing or obtaining software for internal use
are capitalized in accordance with the American Institute of Certified Public
Accountants' Statement of Position No.98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." These capitalized costs are
included in Property and Equipment, net on the Consolidated Balance Sheets and
are amortized when the software project is complete, over the estimated useful
life of the software that was put into production.

INTANGIBLE ASSETS, consisting principally of the estimated value of mutual fund
management contracts and goodwill resulting from our acquisition of the assets
of Templeton, Galbraith & Hansberger Ltd. and Heine Securities Corporation, are
being amortized on a straight-line basis over various lives ranging from five to
40 years. We have evaluated the potential impairment of our intangible assets on

the basis of the expected future undiscounted operating cash flows without
interest charges to be derived from these assets in relation to the carrying
values and determined that there is no impairment. At some future period, if
such evaluations indicate that the carrying value of these assets cannot be
recovered using this test, the assets will be adjusted to their fair values.

RECOGNITION OF REVENUES. Investment management fees, shareholder servicing fees,
investment income and distribution fees are all recognized as earned.
Underwriting commissions related to the sale of shares of our sponsored
investment products are recorded on the trade date.

ADVERTISING AND PROMOTION. We expense costs of advertising and promotion as
incurred.

FOREIGN CURRENCY TRANSLATION. Assets and liabilities of foreign subsidiaries are
translated at current exchange rates as of the end of the accounting period, and
related revenues and expenses are translated at average exchange rates in effect
during the period. Net exchange gains and losses resulting from translation are
excluded from income and are recorded as part of Accumulated other comprehensive
income. Foreign currency transaction gains and losses are reflected in income
currently.


<PAGE>

STOCK SPLIT. All common shares and per share amounts have been adjusted to give
retroactive effect to a two-for-one stock split in January 1998.

DIVIDENDS. During the years ended September 30, 2000, 1999 and 1998, we declared
dividends to common stockholders of $0.24, $0.22 and $0.20 per share,
respectively.

STOCK-BASED COMPENSATION. As allowed under the provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"), we have elected to apply Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for our stock-based plans. Accordingly, no
compensation costs are recognized with respect to stock options granted, or with
respect to shares issued under the Employee Stock Investment Plan. Compensation
expense is recognized for the matching contribution that we may elect to make in
connection with the Employee Stock Investment Plan over the 18-month holding
period and for the full cost of restricted stock grants in the year that they
are earned.

COMPREHENSIVE INCOME. Total comprehensive income is reported in the consolidated
statements of stockholders equity and includes net income and unrealized gains
on investment securities available-for-sale, net of income taxes.

The changes in net unrealized gains (losses) on investments include
reclassification adjustments relating to the net realized gains on investment
sales of $9.9 million, $0.1 million and $6.1 million during fiscal 2000, 1999
and 1998, respectively. The tax effect of the change in unrealized gains
(losses) on investments was $7.1 million, $4.8 million and $(8.4) million during
fiscal 2000, 1999 and 1998, respectively.

EARNINGS PER SHARE. Earnings per share were computed as follows:

(in thousands except per share amounts)
<TABLE>
<CAPTION>

                                                                         2000             1999              1998
<S>                                                                  <C>              <C>               <C>
- -----------------------------------------------------------------------------------------------------------------------
Net income                                                           $562,089         $426,711          $500,450
- -----------------------------------------------------------------------------------------------------------------------
Weighted-average shares outstanding - basic                           246,116          252,122           252,723
Incremental shares from assumed conversions                               508              635               218
- -----------------------------------------------------------------------------------------------------------------------
Weighted-average shares outstanding - diluted                         246,624          252,757           252,941
- -----------------------------------------------------------------------------------------------------------------------
Earnings per share:
   Basic and diluted                                                    $2.28            $1.69             $1.98

</TABLE>



<PAGE>


NOTE 2 - INVESTMENT SECURITIES
Investment securities, available-for-sale at September 30, 2000 and 1999,
consisted of the following:

<TABLE>
<CAPTION>
(in thousands)
                                                                   Gross unrealized
                                                    Amortized      ----------------          Fair
                                                      cost        Gains       Losses         value
- -----------------------------------------------------------------------------------------------------------------------
<S>                                               <C>           <C>          <C>          <C>
2000
   Sponsored investment products                  $208,125      $55,685      $(2,763)     $261,047
   Debt (primarily U.S. Government)                397,611           71         (256)      397,426
   Equities                                          1,552        2,658          (13)        4,197
- -----------------------------------------------------------------------------------------------------------------------
   Total                                          $607,288      $58,414      $(3,032)     $662,670
- -----------------------------------------------------------------------------------------------------------------------
1999
   Sponsored investment products                  $160,159      $25,630      $(4,083)     $181,706
   Debt (primarily U.S. Government)                227,168            2         (496)      226,674
   Equities                                          3,113        1,034          (21)        4,126
- -----------------------------------------------------------------------------------------------------------------------
   Total                                          $390,440      $26,666      $(4,600)     $412,506
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>

At September 30, 2000, substantially all of our debt securities mature within
one year.

NOTE 3 - Banking/Finance Group Loans and Allowance for Loan Losses
The banking/finance segment's loans receivable primarily consist of auto loan
and credit card receivables from individuals that are collectively described
below as installment loans. Changes in these loans and in the associated
allowance for loan losses during 2000 and 1999 are shown in the following
tables.

<TABLE>
<CAPTION>
(in thousands)
                                           2000                                                                        2000
                                      beginning                              Charge-                     Loans       ending
                                        balance    Additions     Paydowns       offs   Recoveries  securitized      balance
- ---------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>          <C>         <C>          <C>           <C>       <C>           <C>
Installment loans                      $189,771     $311,725    $(109,685)   $(5,622)      $1,830    $(126,632)    $261,387
Allowance for loan losses                (3,586)      (6,925)          --      5,622       (1,830)       1,748       (4,971)
- ---------------------------------------------------------------------------------------------------------------------------
Loans receivable, net                  $186,185     $304,800    $(109,685)        --           --    $(124,884)    $256,416
- ---------------------------------------------------------------------------------------------------------------------------

(in thousands)
                                           1999                                                                        1999
                                      beginning                              Charge-                     Loans       ending
                                        balance    Additions     Paydowns       offs   Recoveries  securitized      balance
- ---------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>          <C>          <C>         <C>           <C>       <C>           <C>
Installment loans                      $167,455     $194,626     $(58,823)   $(4,793)      $1,520    $(110,214)    $189,771
Allowance for loan losses                (2,381)      (5,271)          --      4,793       (1,520)         793       (3,586)
- ---------------------------------------------------------------------------------------------------------------------------
Loans receivable, net                  $165,074     $189,355     $(58,823)        --           --    $(109,421)    $186,185
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>

For the fiscal years ended September 30, 2000, 1999 and 1998, the interest
expense of the banking/finance segment included in other operating revenues, net
was $11.4 million, $9.7 million and $17.8 million, respectively.



<PAGE>

The following table presents delinquency and loss information for fiscal 2000,
1999 and 1998.
<TABLE>
<CAPTION>
(in thousands)
                                                                         2000             1999              1998
- -----------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>              <C>               <C>
Charge-offs as a percentage of average loans                                1.7%             2.1%              1.7%
Installment loans, 90 days or more delinquent                            $683             $785            $2,188

In March 2000, May 1999 and September 1998, the banking/finance segment sold
portions of its auto loans receivable to securitization trusts. The table below
shows the assumptions that were used to calculate the gain on sale and the
details of the transactions.

(in millions)
                                                                   March 2000      May 1999       September 1998
- -----------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>           <C>                  <C>
Proceeds                                                                 $123.0        $106.4               $131.4
Book value of loans sold                                                 $124.9        $109.4               $134.3
(Loss)/gain on sale                                                       $(0.9)         $1.2                   --
Discount rate                                                               12%           12%                  12%
Cumulative credit loss rate                                               3.66%         3.44%                2.02%

NOTE 4 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at September 30, 2000 and
1999:

(in thousands)
                                                                 Useful lives
                                                                     in years             2000              1999
- -----------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>       <C>               <C>
Furniture, software and equipment                                           3-5       $428,501          $343,798
Premises and leasehold improvements                                         5-35       202,978           196,440
Land                                                                          --        69,625           64,078
- -----------------------------------------------------------------------------------------------------------------------
                                                                                       701,104           604,316
Less: Accumulated depreciation and amortization                                       (256,410)         (187,921)
- -----------------------------------------------------------------------------------------------------------------------
Property and equipment, net                                                           $444,694          $416,395
- -----------------------------------------------------------------------------------------------------------------------

NOTE 5 - INTANGIBLE ASSETS
The following is a summary of intangible assets at September 30, 2000 and 1999:

(in thousands)
                                                                 Amortization
                                                              period in years             2000              1999
- -----------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>        <C>               <C>
Goodwill                                                                   20-40      $846,017          $842,178
Management contracts                                                          40       510,490           510,490
Other intangibles                                                           5-15        31,546            31,546
- -----------------------------------------------------------------------------------------------------------------------
                                                                                     1,388,053         1,384,214
Less: Accumulated amortization                                                        (218,568)         (181,437)
- -----------------------------------------------------------------------------------------------------------------------
Intangible assets, net                                                              $1,169,485        $1,202,777

</TABLE>



<PAGE>

NOTE 6 - SEGMENT INFORMATION
We have two operating segments: investment management and banking/finance. The
investment management segment derives substantially all of its revenues and net
income from providing investment advisory, fund administration, distribution and
related services to our sponsored investment products. The banking/finance
segment offers consumer lending and selected retail banking services to
individuals.

Financial information for our two operating segments for the years ended
September 30, 2000, 1999 and 1998 is presented in the table below. Operating
revenues of the banking/finance segment are reported net of interest expense.
See Note 3.
<TABLE>
<CAPTION>
(in thousands)
                                                                      Operating       Interest            Income
                                                      Assets           revenues        expense      before taxes
- -----------------------------------------------------------------------------------------------------------------------
<S>                                               <C>                <C>               <C>              <C>
2000
   Investment management                          $3,742,881         $2,320,755        $13,960          $739,030
   Banking/finance                                   299,562             19,385            n/a               561
   Company Totals                                 $4,042,443         $2,340,140        $13,960          $739,591
- -----------------------------------------------------------------------------------------------------------------------
1999
   Investment management                          $3,449,012         $2,246,767        $20,958          $570,120
   Banking/finance                                   217,778             15,730            n/a             3,964
   Company Totals                                 $3,666,790         $2,262,497        $20,958          $574,084
- -----------------------------------------------------------------------------------------------------------------------
1998
   Investment management                          $3,269,282         $2,558,449        $22,535          $671,632
   Banking/finance                                   210,767             18,823            n/a             4,652
   Company Totals                                 $3,480,049         $2,577,272        $22,535          $676,284
- -----------------------------------------------------------------------------------------------------------------------

The investment management segment incurs substantially all of our depreciation
and amortization costs and expenditures on long-lived assets.

We conduct operations in five principal geographic areas of the world: the
United States, Canada, the Bahamas, Europe, Asia, South America, Africa and
Australia. For segment reporting purposes, we have combined Asia, South America,
Africa and Australia into one category - Other. Revenues by geographic area
include fees and commissions charged to customers and fees charged to
affiliates.

Information is summarized below:

(in thousands)
                                                                         2000             1999              1998
- -----------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>              <C>               <C>
Operating revenues:
   United States                                                   $1,596,712       $1,591,093        $1,814,458
   Canada                                                             250,778          233,013           228,834
   Bahamas                                                            284,518          281,437           305,612
   Europe                                                             126,111          122,744           135,026
   Other                                                              191,095          144,657           159,391
   Eliminations                                                      (109,074)        (110,447)          (66,049)
- -----------------------------------------------------------------------------------------------------------------------
   Total                                                           $2,340,140       $2,262,497        $2,577,272
- -----------------------------------------------------------------------------------------------------------------------

</TABLE>



<PAGE>


<TABLE>
<CAPTION>

(in thousands)
                                                                         2000             1999              1998
- -----------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>              <C>               <C>
Property and equipment, net:
   United States                                                     $387,197         $356,050          $288,733
   Canada                                                               7,096            5,890             5,216
   Bahamas                                                              8,126            8,723             9,070
   Europe                                                               6,692            7,478             8,784
   Other                                                               35,583           38,254            37,426
- -----------------------------------------------------------------------------------------------------------------------
   Total                                                             $444,694         $416,395          $349,229
- -----------------------------------------------------------------------------------------------------------------------


NOTE 7 - DEBT
Debt at September 30, 2000 and 1999 was as follows:

(in thousands)
                                                                    2000 Weighted
                                                                 average interest rate    2000              1999
- -----------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>       <C>               <C>
Commercial paper                                                            6.47%     $254,381          $186,842
Medium-term notes                                                           6.56%       60,000           160,000
Other                                                                      --           48,485            56,403
- -----------------------------------------------------------------------------------------------------------------------
                                                                                       362,866           403,245
- -----------------------------------------------------------------------------------------------------------------------
Less current maturities                                                                 68,776           108,985
Long-term debt                                                                        $294,090          $294,260
- -----------------------------------------------------------------------------------------------------------------------

As of September 30, 2000, maturities of long-term debt are as follows:

2001                                                                $265,556
2002                                                                  10,802
2003                                                                   2,967
2004                                                                   2,883
2005                                                                   3,065
Thereafter                                                             8,817
- ----------------------------------------------------------------------------
   Long-term debt                                                   $294,090
</TABLE>

We have revolving credit agreements with a group of commercial banks that will
allow us, at our option, to refinance commercial paper borrowings through May
2003. In accordance with our intention and ability to refinance these
obligations on a long-term basis, all of our commercial paper borrowings at
September 30, 2000 were classified long-term. The credit agreements include
various restrictive covenants, including: a capitalization ratio, interest
coverage ratio, minimum working capital and limitation on additional debt. We
were in compliance with all covenants as of September 30, 2000. At September 30,
2000, amounts available for issuance under the commercial paper program were
$293.4 million.

At September 30, 2000, we held interest-rate swap agreements maturing through
October 2000, which effectively fixed interest rates on $90 million of
commercial paper. Our primary objective of holding these swap agreements is to


<PAGE>

hedge volatility in interest rates on our commercial paper. These financial
instruments are placed with major financial institutions. The creditworthiness
of the counterparties is subject to continuous review and full performance is
anticipated. Any potential loss from failure of the counterparties to perform is
deemed to be immaterial.

During 2000, $100 million of medium-term notes at an average interest rate of
6.08% were retired at maturity. The interest rate on all of our outstanding
notes at September 30, 2000 was 6.56%. These notes mature in March 2001. At
September 30, 2000, the amount available for issuance under our medium-term note
program was $350 million.

NOTE 8 - INVESTMENT INCOME
<TABLE>
<CAPTION>

(in thousands)
                                                                         2000             1999              1998
- -----------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>              <C>               <C>
Dividends                                                             $12,294          $12,473           $16,540
Interest                                                               57,025           40,845            29,969
Realized gains, net                                                    19,718            2,323             8,271
Foreign exchange losses, net                                           (1,311)          (1,924)             (978)
Other                                                                   2,382            2,217             2,921
- -----------------------------------------------------------------------------------------------------------------------
Investment income                                                     $90,108          $55,934           $56,723
- -----------------------------------------------------------------------------------------------------------------------

Substantially all of our dividend income was generated by investments in our
sponsored investment products.

We realized a gain of $32.9 million on the sale of our headquarters building in
San Mateo in July 2000. That gain is being amortized over 12 months, the period
of our leaseback on the building. Accordingly, $24.7 million of the gain is
recorded in deferred income and is included within Other current liabilities and
$8.2 million has been recognized within Other income at September 30, 2000.

NOTE 9 - TAXES ON INCOME
Taxes on income for the years ended September 30, 2000, 1999 and 1998 were as
follows:

(in thousands)
                                                                         2000             1999              1998
- -----------------------------------------------------------------------------------------------------------------------
Current
   Federal                                                            $96,074          $91,141           $87,148
   State                                                               18,558           24,797            30,903
   Foreign                                                             59,590           45,193            45,797
Deferred expense (benefit)                                              3,280          (13,758)           11,986
- -----------------------------------------------------------------------------------------------------------------------
Total provision                                                      $177,502         $147,373          $175,834
- -----------------------------------------------------------------------------------------------------------------------

</TABLE>

Included in income before taxes was $446.0 million, $356.9 million and $387.5
million of foreign income for the years ended September 30, 2000, 1999 and 1998,
respectively.



<PAGE>


The major components of the net deferred tax liability/asset as of September 30,
2000 and 1999 were as follows:
<TABLE>
<CAPTION>
(in thousands)
                                                                                          2000              1999
- -----------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>               <C>
Deferred tax assets
   State taxes                                                                          $6,511            $4,400
   Loan loss reserves                                                                    3,165             1,864
   Deferred compensation                                                                 6,006             6,926
   Restricted stock compensation plan                                                   37,094            40,766
   Net operating loss and foreign tax carry-forwards                                    53,627            45,336
   Deferred gain on sale of headquarters                                                10,511                --
   Other                                                                                10,874            19,478
- -----------------------------------------------------------------------------------------------------------------------
   Total deferred tax assets                                                           127,788           118,770
   Valuation allowance for tax carry-forwards                                          (53,627)          (45,336)
- -----------------------------------------------------------------------------------------------------------------------
   Deferred tax assets, net of valuation allowance                                      74,161            73,434
- -----------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities
   Investments                                                                          12,750             3,768
   Depreciation on fixed assets                                                         18,148            13,591
   Prepaid expenses                                                                      2,068             9,031
   Amortization of goodwill                                                             38,085            28,597
   Deferred commissions                                                                  8,473             8,152
   Other                                                                                 1,662             3,151
- -----------------------------------------------------------------------------------------------------------------------
   Total deferred tax liabilities                                                       81,186            66,290
- -----------------------------------------------------------------------------------------------------------------------
   Net deferred tax (liability) asset                                                  $(7,025)           $7,144
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>

At September 30, 2000, there were approximately $44 million of foreign net
operating loss carry-forwards, approximately $36 million of which expire between
2001 and 2008 with the remaining carry-forwards having an indefinite life. In
addition, there are approximately $525 million in state net operating loss
carry-forwards that expire between 2008 and 2020. A valuation allowance has been
recognized to offset the related deferred tax assets due to the uncertainty of
realizing the benefit of the loss carry-forwards.

We have made no provision for U.S. taxes on $1,431 million of cumulative
undistributed earnings of foreign subsidiaries as those earnings are intended to
be reinvested for an indefinite period of time. Determination of the potential
amount of unrecognized deferred U.S. income tax liability related to such
reinvested income is not practicable because of the numerous assumptions
associated with this hypothetical calculation; however, foreign tax credits
would be available to reduce some portion of this amount.



<PAGE>

The following is a reconciliation between the amount of tax expense at the
federal statutory rate and taxes on income as reflected in operations for the
years ended September 30, 2000, 1999 and 1998:
<TABLE>
<CAPTION>
(in thousands)
                                                                         2000             1999              1998
- -----------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>              <C>               <C>
U.S. federal statutory rate                                                35%              35%               35%
Federal taxes at statutory rate                                      $258,857         $200,929          $236,699
State taxes, net of federal tax effect                                 17,586           15,819            20,973
Foreign earnings subject to reduced tax rates for which
 no U.S. tax is provided                                              (96,260)         (83,954)          (78,826)
Other                                                                  (2,681)          14,579            (3,012)
- -----------------------------------------------------------------------------------------------------------------------
Actual tax provision                                                 $177,502         $147,373          $175,834
Effective tax rate                                                         24%              26%               26%
</TABLE>

NOTE 10 - COMMITMENTS AND CONTINGENCIES
We lease office space and equipment under long-term operating leases expiring at
various dates through fiscal year 2017. Lease expense aggregated $43.1 million,
$38.7 million and $37.2 million for the fiscal years ended September 30, 2000,
1999 and 1998, respectively. Future minimum lease payments under non-cancelable
operating leases are not material.

We have entered into an operating lease for the construction of our new
corporate headquarters in San Mateo, California. In connection with this lease,
we are contingently liable under residual guarantees, for approximately $145
million, representing approximately 85% of the estimated total construction
costs of $170 million.

At September 30, 2000, the banking/finance segment had commitments to extend
credit aggregating $242.2 million, principally under its credit card lines.

We are involved in various claims and legal proceedings that are considered
normal in our business. While it is not feasible to predict or determine the
final outcome of these proceedings, we do not believe that they should have a
material adverse effect on our financial position, results of operations or
liquidity.

In connection with the acquisition of Heine Securities Corporation in November
1996, we agreed to make contingent payments ranging from $96.25 to $192.5
million if certain agreed-upon growth targets are met. Agreed-upon growth
targets range from 12.5% to 17.5% of management fee revenues over a five-year
period from the date of the acquisition. We made the first contingent payment of
$64.2 million in 1998 and accounted for that payment as goodwill related to
additional purchase price of the acquisition. No payments were made in fiscal
1999 or 2000. A final payment is due in November 2001 if growth targets are met.

NOTE 11 - EMPLOYEE STOCK AWARD AND OPTION PLANS
Franklin Templeton  Investments sponsors two universal stock plans and an Annual
Incentive  Compensation Plan ("AICP").  Under the terms of these plans, eligible
employees  may  receive  cash and  stock  awards.  Under  the terms of the AICP,
restricted stock awards are based on our pretax operating income.  The universal
stock plans  provide for the  issuance of up to 16 million  shares of the common
stock for various stock-related awards,  including those related to the AICP. As
of  September  30,  2000,  we had  approximately  6.9 million  shares  remaining
available for grant under the universal stock plans,  including those related to
the AICP. In addition to the annual award of stock under the plans, we may award
options  and other  forms of  stock-based  compensation  to  certain  employees.
Currently,  only  restricted  stock and stock  options  have been  granted.  The
Compensation  Committee  of the  Board of  Directors  determines  the  terms and
conditions of awards under the plans.  Total  compensation  cost  recognized for
stock-based  compensation  during fiscal 2000,  1999 and 1998 was $28.9 million,
$37.9 million and $30.3 million, respectively.
<PAGE>

Information regarding stock options is as follows:
<TABLE>
<CAPTION>
(shares in thousands)
                                                           2000                           1999                         1998
- ---------------------------------------------------------------------------------------------------------------------------
                                                       Weighted                       Weighted                     Weighted
                                                        average                        average                      average
                                                       exercise                       exercise                     exercise
                                            Shares        price           Shares         price          Shares        price
- ---------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>         <C>                <C>         <C>                <C>       <C>
Outstanding, beginning of year               1,315       $32.02             193         $29.32             333       $15.21
Granted                                      1,108       $32.60           1,243         $31.39              73       $47.16
Exercised/cancelled                           (201)      $29.73            (121)        $21.24            (213)      $13.25
- ---------------------------------------------------------------------------------------------------------------------------
Outstanding, end of year                     2,222       $32.52           1,315         $32.02             193       $29.32
Exercisable, end of year                       437       $34.44             117         $34.44             119       $23.65
</TABLE>
The range of exercise prices for these options at September 30, 2000, was from
$28.19 to $47.16. Of these, 82% were exercisable at prices ranging from $29.61
to $33.25. The weighted-average remaining contractual life for the options was
five years.

If we had determined compensation costs for our stock option plans and our
Employee Stock Investment Plan (See Note 12) based upon fair values at the grant
dates in accordance with the provisions of FAS 123, our net income and earnings
per share would have been reduced to the pro forma amounts indicated below. For
pro forma purposes, the estimated fair value of options is amortized to expense
over the options' vesting period.
<TABLE>
<CAPTION>
For the years ended September 30,                                        2000             1999              1998
- -----------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>              <C>               <C>
Net income (in millions)
   As reported                                                           $562.1           $426.7            $500.5
   Pro forma                                                             $553.4           $422.5            $499.1
- -----------------------------------------------------------------------------------------------------------------------
Basic earnings per share
   As reported                                                            $2.28            $1.69             $1.98
   Pro forma                                                              $2.25            $1.67             $1.97
- -----------------------------------------------------------------------------------------------------------------------
Diluted earnings per share
   As reported                                                            $2.28            $1.69             $1.98
   Pro forma                                                              $2.24            $1.67             $1.97
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>


<PAGE>

The weighted-average estimated fair value of options granted on the date of
grant using Black-Scholes option-pricing model was as follows:
<TABLE>
<CAPTION>

For the years ended September 30,                                        2000             1999              1998
- -----------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>              <C>               <C>
Weighted-average fair value of options granted                            $15.31           $11.33            $12.08
Assumptions made:
   Dividend yield                                                           1%               1%                1%
   Expected volatility                                                     38%              36%               27%
   Risk-free interest rate                                                  6%               5%                6%
   Expected life                                                     6 months-        6 months-         6 months-
                                                                       8 years          8 years           8 years
</TABLE>

NOTE 12 - EMPLOYEE STOCK INVESTMENT PLAN
We have a qualified, non-compensatory Employee Stock Investment Plan ("ESIP")
which allows participants who meet certain eligibility criteria to purchase
shares of our common stock at 90% of their market value on certain defined
dates. The ESIP is open to substantially all employees of U.S. subsidiaries and
certain employees of non-U.S. subsidiaries. Participants made their first
purchase of stock under this plan effective as of July 31, 1998. Our
stockholders approved 4 million shares of common stock for issuance under the
ESIP. At September 30, 2000, approximately 651,000 shares had been purchased on
a cumulated basis under the ESIP at a weighted average price of $31.53.

In connection with the ESIP, we may provide matching grants to participants in
the ESIP of whole or partial shares of common stock. While reserving the right
to change such determination, we have initially indicated that we will provide
one half-share for each share held by a participant for a minimum period of 18
months. During 2000, we made our first matching grants and issued approximately
84,000 shares at an average market price of $35.52.

NOTE 13 - RESTRUCTURING
In December 1998, we adopted a restructuring plan estimated to cost
approximately $58.4 million and designed to reduce costs, improve service levels
and reprioritize our business activities. All of the total estimated charges
were utilized at September 30, 2000.

NOTE 14 - FAIR VALUES
The fair value of a financial instrument represents the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation. The methods and assumptions used to
estimate fair values of our financial instruments are described below.

Due to the short-term nature and liquidity of Cash and cash equivalents and
Receivables, the carrying amounts of these assets in the consolidated balance
sheets approximated fair value.



<PAGE>

Investment securities, available-for-sale are carried at fair market value as
required by generally accepted accounting principles. See Note 1.

Loans receivable,  net are valued using interest rates that consider the current
credit and interest rate risk inherent in the loans and the current economic and
lending conditions.  The amounts in the consolidated balance sheets approximated
fair value.

Deposits of the banking/finance segment are valued using interest rates offered
by comparable institutions on deposits with similar remaining maturities. The
amounts in the consolidated balance sheets approximated fair value.

Interest-rate swap agreements that expire in October 2000 are carried at their
fair value of approximately zero as of September 30, 2000.

Debt is valued using publicly-traded debt with similar maturities, credit risk
and interest rates. The amounts in the consolidated balance sheet approximate
fair values.

NOTE 15 - ACQUISITIONS
On July 25, 2000, we purchased all of the remaining outstanding shares of a
Korean asset management company in which we formerly held a 44% interest. The
purchase price for the shares was approximately $20 million. Goodwill of $3.8
million with an estimated life of 20 years was created as a result of the
transaction.

On August 1, 2000, we entered into an agreement with Nedcor Investment Bank
Holdings, Ltd., a South African company, to form Franklin Templeton NIB Asset
Management ("FTNIB"). We contributed cash and other assets with a value of
approximately $27 million to the venture in return for a 50% ownership interest
in FTNIB. We are accounting for our investment using the equity method.

On October 2, 2000, we acquired all of the issued and outstanding shares of
Bissett & Associates Investment Management Ltd., a Canadian asset management
company. The all-cash transaction was valued at approximately $95 million.
Intangible assets of approximately $89 million with lives ranging from 5-20
years were created as a result of the acquisition.

On October 25, 2000, we announced a definitive agreement with Fiduciary Trust
Company International (OTC: FCNY) ("Fiduciary"), under which Franklin Templeton
Investments will acquire Fiduciary in an all-stock transaction valued at
approximately $825 million. In addition to the purchase price, there is also
provision for an $85 million retention pool to cover various payments aimed at
retaining certain key employees of Fiduciary. The transaction, which is subject
to Fiduciary shareholder and regulatory approvals and other customary closing
conditions and costs, is expected to be completed in the second quarter of
fiscal 2001.



<PAGE>

<TABLE>
<CAPTION>

NOTE 16 - QUARTERLY INFORMATION (UNAUDITED)

(in thousands)

Quarter                                                         First            Second             Third            Fourth
- ---------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>               <C>               <C>               <C>
2000
   Revenues                                                  $565,667          $612,526          $568,897          $593,050
   Operating income                                          $167,635          $172,077          $168,832          $154,899
   Net income                                                $137,522          $143,374          $140,370          $140,823
   Earnings per share:
     Basic                                                      $0.55             $0.58             $0.58             $0.58
     Diluted                                                    $0.55             $0.58             $0.58             $0.58
   Dividend per share                                           $0.06             $0.06             $0.06             $0.06
   Common stock price per share:
     High                                                      $35.00            $39.19            $36.25            $45.63
     Low                                                       $27.44            $24.63            $28.19            $30.00
- ---------------------------------------------------------------------------------------------------------------------------
1999
   Revenues                                                  $567,679          $554,071          $566,775          $573,972
   Operating income                                           $90,765          $131,120          $156,506          $160,717
   Net income                                                 $68,492          $102,471          $123,307          $132,441
   Earnings per share:
     Basic                                                      $0.27             $0.41             $0.49             $0.53
     Diluted                                                    $0.27             $0.41             $0.49             $0.52
   Dividend per share                                          $0.055            $0.055            $0.055            $0.055
   Common stock price per share:
     High                                                      $45.62            $38.38            $45.00            $43.44
     Low                                                       $26.50            $27.00            $27.12            $29.75
- ---------------------------------------------------------------------------------------------------------------------------
1998
   Revenues                                                  $632,399          $673,691          $672,596          $598,586
   Operating income                                          $167,442          $163,424          $168,219          $143,011
   Net income                                                $130,515          $126,669          $131,013          $112,253
   Earnings per share:
     Basic                                                      $0.52             $0.50             $0.52             $0.44
     Diluted                                                    $0.52             $0.50             $0.52             $0.44
   Dividend per share                                           $0.05             $0.05             $0.05             $0.05
   Common stock price per share:
     High                                                      $51.88            $57.25            $57.88            $54.88
     Low                                                       $39.75            $38.00            $47.56            $25.75
- ---------------------------------------------------------------------------------------------------------------------------

</TABLE>

Our common stock is traded on the New York Stock Exchange ("NYSE") and the
Pacific Exchange, Inc. under the ticker symbol BEN and the London Stock Exchange
under the ticker symbol FKR. On September 30, 2000, the closing price of our
common stock on the NYSE was $44.43 per share. At November 1, 2000, there were
approximately 4,800 stockholders of record.


<PAGE>


REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors of Franklin Resources, Inc.:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, stockholders' equity and comprehensive income
and cash flows present fairly, in all material respects, the consolidated
financial position of Franklin Resources, Inc. and its subsidiaries at September
30, 2000 and 1999, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended September 30, 2000,
in conformity with accounting principles generally accepted in the United States
of America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
San Francisco, California

October 25, 2000




<PAGE>


ITEM 9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

None.


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

EXECUTIVE OFFICERS OF REGISTRANT

The following information on the executive officers of Franklin Templeton
Investments, including their principal occupations for the past five (5) years,
is given as of December 1, 2000.

JENNIFER J. BOLT
AGE 36

Vice President of FRI since June 1994; officer and/or director of other Company
subsidiaries; employed by FRI or subsidiaries in various other capacities for
more than the past six (6) years.

HARMON E. BURNS
AGE 55  DIRECTOR SINCE 1991

Vice Chairman and Director of FRI, formerly Executive Vice President and
director of the Company for more than the past six (6) years; officer and/or
director of many other Company subsidiaries; officer and/or director or trustee
of 52 of the investment companies in the Franklin Templeton group of funds.


<PAGE>

MARTIN L. FLANAGAN
AGE 40

President, Member - Office of the President, Chief Financial Officer and Chief
Operating Officer of FRI; formerly Senior Vice President; Chief Financial
Officer of FRI since December 1995; officer and/or director of many other
Company subsidiaries; officer, director and/or trustee of 52 of the investment
companies in the Franklin Templeton group of funds.

BARBARA GREEN
AGE 53

Vice  President  and Deputy  General  Counsel of FRI since  January  2000;  Vice
President,  Franklin  Templeton  Companies,  Inc. since March 2000;  Senior Vice
President,  Templeton Worldwide, Inc.; officer of 53 of the investment companies
in the Franklin Templeton group of funds.

ALLEN J. GULA, JR.
AGE 46

President, Member - Office of the President, formerly Senior Vice President and
Chief Information Officer of FRI since September 1999; officer of two other
Company subsidiaries since August 1999. Previously, Executive Vice President and
Chief Technology Officer of KeyCorp, a bank holding company, from October 1998
to August 1999. Chairman and Chief Executive Officer of Key Services, a
subsidiary of KeyCorp, and Executive Vice President of KeyCorp from February
1994 to October 1998.

DONNA S. IKEDA
AGE 44

Vice President of FRI since October 1993. Previously employed by FRI from 1982
to 1990 as Director of Human Resources.

CHARLES B. JOHNSON
AGE 67
DIRECTOR SINCE 1969

Chairman of the Board, Chief Executive Officer and director of the Company;
officer and/or director of many other Company subsidiaries; officer and/or
director or trustee of 49 of the investment companies in the Franklin Templeton
group of funds.


<PAGE>

CHARLES E. JOHNSON
AGE 44
DIRECTOR SINCE 1993

President, Member - Office of the President, and director of the Company;
formerly Senior Vice President and director of the Company for more than the
past five (5) years; officer and/or director of many other Company subsidiaries;
officer and/or director or trustee of 33 of the investment companies in the
Franklin Templeton group of funds.

GREGORY E. JOHNSON
AGE 39

President, Member - Office of the President; formerly Vice President of FRI for
more than the past five (5) years; officer of many other Company subsidiaries
and of one investment company in the Franklin Templeton group of funds.

RUPERT H. JOHNSON, JR.
AGE 60
DIRECTOR SINCE 1969

Vice Chairman, formerly Executive Vice President and director of the Company for
more than the past five (5) years; officer and/or director of many other Company
subsidiaries; officer and/or director or trustee of 52 of the investment
companies in the Franklin Templeton group of funds.

LESLIE M. KRATTER
AGE 55

Senior Vice President of FRI since January 2000 and Secretary since March 1998;
formerly Vice President of FRI since March 1993; officer of many other Company
subsidiaries.

KENNETH A. LEWIS
AGE 39

Vice President of FRI since September 1996; formerly Corporate Controller of
FRI; officer of many other Company subsidiaries. Prior to the Templeton
acquisition, employed by various Templeton entities since 1989.


<PAGE>

WILLIAM J. LIPPMAN
AGE 75

Senior  Vice  President  of FRI since  March 1990;  officer  and/or  director or
trustee of other Company  subsidiaries and of six of the investment companies in
the  Franklin  Templeton  group of funds.  Until  June  1988,  President,  Chief
Executive  Officer  and  director  of L.F.  Rothschild  Fund  Management,  Inc.,
Director of L.F.  Rothschild Asset  Management,  Inc.,  Administrative  Managing
Director and director of L.F. Rothschild & Co., Incorporated.

CHARLES R. SIMS
AGE 39

Vice President of Finance, Chief Accounting Officer and Treasurer of FRI since
June 2000; and Treasurer of FRI and various subsidiaries since September 1997;
and assistant treasurer of 53 of the investment companies in the Franklin
Templeton group of funds. Prior to September 1997, employed as Vice President
and Chief Financial Officer of Franklin Templeton Investments Corp. formerly
know as Templeton Management Limited. Employed by Franklin Templeton Investments
since 1989.

MURRAY L. SIMPSON
AGE 63

Executive Vice President and General Counsel of FRI since January 2000; Officer
of 53 of the investment companies of the Franklin Templeton group of funds.
Previously Managing Director and Chief Executive Officer Templeton Franklin
Investment Services (Asia), Limited from 1994-2000.

Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.  Peter M. Sacerdote,
a director  of FRI,  is a  brother-in-law  of Charles B.  Johnson  and Rupert H.
Johnson,  Jr. Charles E. Johnson is the son of Charles B. Johnson, the nephew of
Rupert H. Johnson, Jr. and Peter Sacerdote and the brother of Gregory E. Johnson
and  Jennifer  Bolt.  Gregory E. Johnson is the son of Charles B.  Johnson,  the
nephew of Rupert H. Johnson, Jr. and Peter Sacerdote and the brother of Jennifer
Bolt and  Charles  E.  Johnson.  Jennifer  Bolt is the  daughter  of  Charles B.
Johnson,  the niece of Rupert H. Johnson, Jr. and Peter Sacerdote and the sister
of Charles E. Johnson and Gregory E. Johnson.


<PAGE>

Information regarding the biographies of the directors of FRI and compliance
with Section 16(a) of the Exchange Act is incorporated by reference to the Proxy
Statement section entitled "Proposal 1: Election of Directors."

ITEM 11. EXECUTIVE COMPENSATION

Incorporated by reference to the Proxy Statement  section entitled  "Proposal 1:
Election of Directors."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Incorporated by reference to the Proxy Statement section entitled "Principal
Holders of Voting Securities" and "Security Ownership of Management."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated by reference to the Proxy Statement section entitled "Proposal 1:
Election of Directors - Certain Relationships and Related Transactions."




<PAGE>

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

  (a)(1)  Please see the  index in Item 8 for a list of the financial statements
          filed as part of this report

     (2)  Please see the index in Item 8 for a list of the  financial  statement
          schedules filed as part of this report

     (3)  The following exhibits are filed as part of this report:

          (3)(i)(a) Registrant's  Certificate of  Incorporation,  as filed
                    November  28,  1969, incorporated  by  reference to Exhibit
                    (3)(i) to the  Company's Annual Report on Form 10-K for the
                    fiscal  year ended  September 30,  1994 (the  "1994  Annual
                    Report")

          (3)(i)(b) Registrant's Certificate of Amendment of Certificate of
                    Incorporation,  as filed  March  1,  1985,  incorporated  by
                    reference to Exhibit (3)(ii) to the 1994 Annual Report

          (3)(i)(c) Registrant's Certificate of Amendment of Certificate of
                    Incorporation,  as filed  April  1,  1987,  incorporated  by
                    reference to Exhibit (3)(iii) to the 1994 Annual Report

          (3)(i)(d) Registrant's Certificate of Amendment of Certificate of
                    Incorporation,  as filed February 2, 1994,  incorporated  by
                    reference to Exhibit (3)(iv) to the 1994 Annual Report

           (3)(ii)  Registrant's   Amended  and  Restated   By-laws  adopted
                    December 10, 1999

     (4)  Indenture   between  the  Registrant  and  The  Chase  Manhattan  Bank
          (formerly  Chemical  Bank),  as  trustee,  dated  as of May 19,  1994,
          incorporated  by reference to Exhibit 4 to the Company's  Registration
          Statement on Form S-3, filed on April 14, 1994

     10.1 Representative  Distribution  Plan between Templeton Growth Fund, Inc.
          and  Franklin/Templeton   Investor  Services,   Inc.  incorporated  by
          reference to Exhibit 10.1 to the Company's  Annual Report on Form 10-K
          for the  fiscal  year  ended  September  30,  1993 (the  "1993  Annual
          Report")


<PAGE>

     10.2 Representative Transfer Agent Agreement between Templeton Growth Fund,
          Inc. and  Franklin/Templeton  Investor Services,  Inc. incorporated by
          reference to Exhibit 10.3 to the 1993 Annual Report

     10.3 Representative   Investment  Management  Agreement  between  Templeton
          Growth  Fund,   Inc.  and  Templeton,   Galbraith  &  Hansberger  Ltd.
          incorporated by reference to Exhibit 10.5 to the 1993 Annual Report

     10.4 Representative  Management Agreement between Advisers and the Franklin
          Group  of Funds  incorporated  by  reference  to  Exhibit  10.1 to the
          Company's  Annual  Report  on Form  10-K  for the  fiscal  year  ended
          September 30, 1992 (the "1992 Annual Report")

     10.5 Representative  Distribution  12b-1 Plan between  Distributors and the
          Franklin Group of Funds  incorporated  by reference to Exhibit 10.3 to
          the 1992 Annual Report

     10.6 Amended Annual Incentive  Compensation  Plan approved January 24, 1995
          incorporated by reference to the Company's Proxy Statement filed under
          cover of Schedule  14A on December  28,  1994 in  connection  with its
          Annual Meeting of Stockholders held on January 24, 1995 *

     10.7 Universal  Stock  Plan  approved  January  19,  1994  incorporated  by
          reference to the Company's 1995 Proxy  Statement  filed under cover of
          Schedule  14A on  December  29,  1993 in  connection  with its  Annual
          Meeting of Stockholders held on January 19, 1994 *

     10.8 Representative  Amended and Restated  Distribution  Agreement  between
          Franklin/Templeton  Distributors,  Inc. and Franklin  Federal Tax-Free
          Income  Fund,  incorporated  by  reference  to  Exhibit  10.1  to  the
          Company's Quarterly Report on Form 10-Q for the quarterly period ended
          June 30, 1995 (the "June 1995 Quarterly Report")

     10.9 Distribution 12b-1 Plan for Class II shares between Franklin/Templeton
          Distributors,   Inc.  and  Franklin   Federal  Tax-Free  Income  Fund,
          incorporated  by reference to Exhibit 10.2 to the June 1995  Quarterly
          Report

    10.10 Representative   Investment  Management  Agreement  between  Templeton
          Global  Strategy SICAV and Templeton  Investment  Management  Limited,
          incorporated  by reference to Exhibit 10.3 to the June 1995  Quarterly
          Report


<PAGE>

    10.11 Representative    Sub-Distribution    Agreement   between   Templeton,
          Galbraith & Hansberger Ltd. and BAC Corp. Securities,  incorporated by
          reference to Exhibit 10.4 to the June 1995 Quarterly Report

    10.12 Representative    Dealer    Agreement    between    Franklin/Templeton
          Distributors,  Inc. and Dealer,  incorporated  by reference to Exhibit
          10.5 to the June 1995 Quarterly Report

    10.13 Representative   Investment  Management  Agreement  between  Templeton
          Investment Counsel, Inc. and Client (ERISA), incorporated by reference
          to Exhibit 10.6 to the June 1995 Quarterly Report

    10.14 Representative   Investment  Management  Agreement  between  Templeton
          Investment  Counsel,  Inc.  and Client  (NON-ERISA),  incorporated  by
          reference to Exhibit 10.7 to the June 1995 Quarterly Report

    10.15 Representative  Amended and Restated  Transfer  Agent and  Shareholder
          Services Agreement between Franklin/Templeton  Investor Services, Inc.
          and Franklin Custodian Funds,  Inc., dated July 1, 1995,  incorporated
          by reference to Exhibit 10.16 to the  Company's  Annual Report on Form
          10-K for the fiscal year ended  September  30, 1995 (the "1995  Annual
          Report")

    10.16 Representative  Amended and Restated  Distribution  Agreement  between
          Franklin/Templeton  Distributors,  Inc. and Franklin  Custodian Funds,
          Inc.,  incorporated  by reference to Exhibit  10.17 to the 1995 Annual
          Report

    10.17 Representative  Class II Distribution Plan between  Franklin/Templeton
          Distributors,  Inc. and Franklin  Custodian Funds,  Inc., on behalf of
          its Growth Series,  incorporated  by reference to Exhibit 10.18 to the
          1995 Annual Report

    10.18 Representative    Dealer    Agreement    between    Franklin/Templeton
          Distributors,  Inc. and Dealer,  incorporated  by reference to Exhibit
          10.19 to the 1995 Annual Report

    10.19 Representative  Mutual Fund Purchase and Sales  Agreement for Accounts
          of  Bank  and  Trust  Company  Customers,   effective  July  1,  1995,
          incorporated by reference to Exhibit 10.20 to the 1995 Annual Report

    10.20 Representative  Management  Agreement between Franklin Value Investors
          Trust,  on  behalf of  Franklin  MicroCap  Value  Fund,  and  Franklin
          Advisers, Inc., incorporated by reference to Exhibit 10.21 to the 1995
          Annual Report


<PAGE>


    10.21 Representative    Sub-Distribution    Agreement   between   Templeton,
          Galbraith &  Hansberger  Ltd.  and  Sub-Distributor,  incorporated  by
          reference to Exhibit 10.22 to the 1995 Annual Report

    10.22 Representative  Non-Exclusive Underwriting Agreement between Templeton
          Growth Fund, Inc. and Templeton  Franklin  Investment  Services (Asia)
          Limited,  dated  September  18,  1995,  incorporated  by  reference to
          Exhibit 10.23 to the 1995 Annual Report

    10.23 Representative      Shareholder     Services     Agreement     between
          Franklin/Templeton  Investor  Services,  Inc. and  Templeton  Franklin
          Investment   Services  (Asia)  Limited,   dated  September  18,  1995,
          incorporated by reference to Exhibit 10.24 to the 1995 Annual Report

    10.24 Agreement to Merge the  Businesses  of Heine  Securities  Corporation,
          Elmore Securities Corporation and Franklin Resources, Inc., dated June
          25,  1996,  incorporated  by  reference  to Exhibit 2 to  Registrant's
          Report on Form 8-K dated June 25, 1996

    10.25 Subcontract  for  Transfer  Agency  and  Shareholder   Services  dated
          November 1, 1996 by and between Franklin Investor  Services,  Inc. and
          PFPC Inc., incorporated by reference to Exhibit 10.25 to the Company's
          Annual  Report on Form 10-K for the fiscal  year ended  September  30,
          1996 (the "1996 Annual Report")

    10.26 Representative  Sample of Franklin/Templeton  Investor Services,  Inc.
          Transfer Agent and  Shareholder  Services  Agreement,  incorporated by
          reference to Exhibit 10.26 to the 1996 Annual Report

    10.27 Representative   Administration  Agreement  between  Templeton  Growth
          Fund,  Inc. and Franklin  Templeton  Services,  Inc.,  incorporated by
          reference to Exhibit 10.27 to the 1996 Annual Report

    10.28 Representative  Sample of Fund Administration  Agreement with Franklin
          Templeton Services,  Inc.,  incorporated by reference to Exhibit 10.28
          to the 1996 Annual Report

    10.29 Representative  Subcontract for Fund  Administrative  Services between
          Franklin  Advisers,  Inc.  and  Franklin  Templeton  Services,   Inc.,
          incorporated by reference to Exhibit 10.29 to the 1996 Annual Report


<PAGE>

    10.30 Representative  Investment  Advisory Agreement between Franklin Mutual
          Series Fund Inc. and Franklin Mutual Advisers,  Inc.,  incorporated by
          reference to Exhibit 10.30 to the 1996 Annual Report

    10.31 Representative  Management  Agreement between Franklin Valuemark Funds
          and  Franklin  Mutual  Advisers,  Inc.,  incorporated  by reference to
          Exhibit 10.31 to the 1996 Annual Report

    10.32 Representative  Investment  Advisory  and Asset  Allocation  Agreement
          between   Franklin   Templeton  Fund  Allocator  Series  and  Franklin
          Advisers, Inc., incorporated by reference to Exhibit 10.32 to the 1996
          Annual Report

    10.33 Representative   Management   Agreement   between  Franklin  New  York
          Tax-Free Income Fund, Inc. and Franklin  Investment Advisory Services,
          Inc.,  incorporated  by reference to Exhibit  10.33 to the 1996 Annual
          Report

    10.34 1998  Employee  Stock  Investment  Plan  approved  January  20,  1998,
          incorporated by reference to the Company's Proxy Statement filed under
          cover of Schedule  14A on December  17,  1997 in  connection  with its
          Annual Meeting of Stockholders held on January 20, 1998

    10.35 System  Development and Services Agreement dated as of August 29, 1997
          by and between Franklin/Templeton  Investor Services, Inc. and Sungard
          Shareholder Systems, Inc.,  incorporated by reference to Exhibit 10.35
          to the 1997 Annual Report

    10.36 1998 Universal Stock  Incentive Plan approved  October 16, 1998 by the
          Board of Directors,  incorporated  by reference to the Company's Proxy
          Statement  filed under cover of Schedule  14A on December  23, 1998 in
          connection  with its  Annual  Meeting  of  Stockholders  to be held on
          January 28, 1999 *

    10.37 Amendment  No. 3 to the  Agreement  to Merge the  Businesses  of Heine
          Securities  Corporation,  Elmore  Securities  Corporation and Franklin
          Resources, Inc., dated December 17, 1997, incorporated by reference to
          Exhibit 10.1 to the  Company's  Quarterly  Report on Form 10-Q for the
          quarterly period ended December 31, 1997

    10.38 Representative  Agreement for the Supply of Investment  Management and
          Administration  Services,  dated  February  16,  1998,  by and between
          Templeton   Funds  and  Templeton   Investment   Management   Limited,
          incorporated  by reference to Exhibit 10.1 to the Company's  Quarterly
          Report on Form 10-Q for the quarterly period ended March 31, 1998


<PAGE>

    10.39 Representative   Investment  Management  Agreement  between  Templeton
          Investment Counsel, Inc. and Client (ERISA), as amended,  incorporated
          by reference to Exhibit 10.39 to the  Company's  Annual Report on Form
          10-K/A for the fiscal year ended  September 30, 1998 (the "1998 Annual
          Report")

    10.40 Representative   Investment  Management  Agreement  between  Templeton
          Investment  Counsel,   Inc.  and  Client   (NON-ERISA),   as  amended,
          incorporated by reference to Exhibit 10.40 to the 1998 Annual Report

    10.41 Representative  Variable Insurance Fund Participation  Agreement among
          Templeton  Variable  Products Series Fund or Franklin  Valuemark Fund,
          Franklin/Templeton   Distributors,   Inc.  and  an  insurance  company
          incorporated  by reference  from Exhibit 10.1 to the form 10-Q for the
          quarter ended December 31, 1998

    10.42 Purchase  Agreement  between  Mariners  Island  Co-Tenancy and Keynote
          Systems,  Inc.  dated  April 25, 2000  incorporated  by  reference  to
          Exhibit  10 to the  Company's  Report  on Form  10-Q for the quarterly
          period ended June 30, 2000

    10.43 Acquisition  Agreement  dated July 26, 2000 among Franklin  Resources,
          Inc., FTI Acquisition and Bissett & Associates Investment  Management,
          Ltd.,  incorporated  by reference to  Registrant's  Report on Form 8-K
          dated August 1, 2000

    10.44 Agreement and Plan of Share  Acquisition  between Franklin  Resources,
          Inc. and Fiduciary Trust Company International dated October 25, 2000,
          incorporated  by  reference  to  Registrant's  Report  on  Form  8-K/A
          (Amendment No. 1) dated October 25, 2000 and filed on October 26, 2000

    10.45 Representative  Amended  and  Restated  Distribution  Agreement  among
          Templeton  Emerging  Markets  Fund,   Templeton  Canadian  Bond  Fund,
          Templeton  International  Stock Fund,  Templeton  Canadian Stock Fund,
          Templeton Global Smaller  Companies Fund,  Templeton Global Bond Fund,
          Templeton   Treasury  Bill  Fund,   Templeton  Global  Balanced  Fund,
          Templeton   International  Balanced  Fund,  Templeton  Canadian  Asset
          Allocation  Fund,  Mutual Beacon Fund,  Franklin U.S. Small Cap Growth
          Fund,  Templeton Balanced Fund, Templeton Growth Fund, Ltd., Templeton
          Management Limited and FEP Capital, L.P. dated December 31, 1998

    10.46 Representative   Purchase   and   Sales   Agreement   by   and   among
          Franklin/Templeton  Distributors,  Inc., Franklin Resources,  Inc. and
          Lightning Finance Company Limited dated August 1, 1999

    10.47 Representative  Advisory  Agreement  between Templeton Global Advisers
          Limited and Templeton Asset Management Limited dated December 21, 1999

    10.48 Representative   Amended  and  Restated  Commission  Paying  Agreement
          between  Templeton  Global Strategy Funds,  Templeton  Global Advisors
          Limited,  Templeton  Global  Strategic  Services  S.A.,  and Lightning
          Finance Company Limited dated January 31, 2000

    10.49 Representative  Variable Insurance Fund Participation  Agreement among
          Franklin   Templeton   Variable  Insurance  Products  Trust  (formerly
          Franklin Valuemark Funds),  Franklin/Templeton  Distributors, Inc. and
          CUNA Mutual Life Insurance Company dated May 1, 2000

    10.50 Stock Purchase  Agreement  between Good Morning  Securities  Co., Ltd.
          and Templeton Investment Counsel, Inc. dated June 29, 2000

    10.51 Agreement   entered  into  between  NEDCOR  Investment  Bank  Holdings
          limited,  NEDCOR  Investment  Bank Limited,  Templeton  International,
          inc.,  Franklin Templeton Asset Management  (Proprietary)  Limited and
          Templeton Global Advisors Limited dated August 1, 2000

    10.52 Representative  Amended and Restated  Distribution  Agreement  between
          Franklin-Templeton  Distributors,  Inc. and Franklin Growth and Income
          Fund dated August 10, 2000

     12   Computation of Ratios of Earnings to Fixed Charges

     21   List of Subsidiaries

     23   Consent of Independent Accountants

     27   Financial Data Schedule

          * Compensatory Plan

  (b)(1)  Report on Form 8-K dated  July 11,  2000 was filed on July 13,  2000
          under Items 5 and 7

  (b)(2)  Report on Form 8-K dated  July 26,  2000 was filed on August 1, 2000
          under Items 5 and 7


<PAGE>

  (b)(3)  Report on Form 8-K dated July 27, 2000 was filed on August 2, 2000
          attaching Registrant's press release dated July 27, 2000 under Items 5
          and 7

  (b)(4)  Report on Form 8-K dated and filed on October 25, 2000 under Items 5
          and 7

  (b)(5)  Report on Form 8-K/A  (Amendment  No. 1) dated  October 25, 2000 was
          filed on October 26, 2000 under Items 5 and 7

  (c)     See Item 14(a)(3) above

  (d)     No separate financial statements are required;  schedules are included
          in Item 8



<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.

FRANKLIN RESOURCES, INC.

Date:       December 7, 2000  By:   /S/ CHARLES B. JOHNSON
                                    ----------------------
                                    Charles B. Johnson, Chairman, Chief
                                    Executive Officer, and Member-Office of the
                                    Chairman

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:

Date:       December 7, 2000  By:   /S/ CHARLES B. JOHNSON
                                    ----------------------
                                    Charles B. Johnson,
                                    Chairman, Chief Executive Officer,
                                    Member-Office of the Chairman, and Director

Date:       December 7, 2000  By:   /S/ HARMON E. BURNS
                                    -------------------
                                    Harmon E. Burns,
                                    Vice Chairman, Member - Office of the
                                    Chairman, and Director

Date:       December 7, 2000  By:   /S/ MARTIN L. FLANAGAN
                                    ----------------------
                                    Martin L. Flanagan,
                                    President, Member-Office of the President,
                                    and Chief Financial Officer

Date:       December 7, 2000  By:   /S/ ALLEN J. GULA, JR.
                                    ----------------------
                                    Allen J. Gula, Jr.,
                                    President, and Member-Office of the
                                    President

Date:       December 7, 2000  By:   /S/ CHARLES E. JOHNSON
                                    ----------------------
                                    Charles E. Johnson,
                                    President, Member-Office of the
                                    President, and Director

Date:       December 7, 2000  By:   /S/ GREGORY E. JOHNSON
                                    ----------------------
                                    Gregory E. Johnson,
                                    President, and Member-Office of the
                                    President

Date:       December 7, 2000  By:   /S/ RUPERT H. JOHNSON, JR.
                                    --------------------------
                                    Rupert H. Johnson, Jr.,
                                    Vice Chairman, Member - Office of
                                    the Chairman, and Director

Date:       December 7, 2000  By:   /S/ HARRY O. KLINE
                                    ------------------
                                    Harry O. Kline, Director


<PAGE>

Date:       December 7, 2000  By:   /S/ JAMES A. MCCARTHY
                                    ---------------------
                                    James A. McCarthy, Director

Date:       December 7, 2000  By:   /S/ PETER M. SACERDOTE
                                    ----------------------
                                    Peter M. Sacerdote, Director

Date:       December 7, 2000  By:   /S/ CHARLES R. SIMS
                                    -------------------
                                    Charles R. Sims, Vice President - Finance,
                                    Chief Accounting Officer, and Treasurer

Date:       December 7, 2000  By:   /S/ LOUIS E. WOODWORTH
                                    ----------------------
                                    Louis E. Woodworth, Director



<PAGE>

Exhibits (other than 12, 21 and 23) deleted, but filed with the Securities and
Exchange Commission.

                                  EXHIBIT INDEX

EXHIBIT NO.

         (3)(i)(a)  Registrant's  Certificate of  Incorporation,  as filed
                    November  28,  1969,  incorporated  by  reference to Exhibit
                    (3)(i) to the  Company's  Annual Report on Form 10-K for the
                    fiscal  year ended  September  30,  1994 (the  "1994  Annual
                    Report")

         (3)(i)(b)  Registrant's Certificate of Amendment of Certificate of
                    Incorporation,  as filed  March  1,  1985,  incorporated  by
                    reference to Exhibit (3)(ii) to the 1994 Annual Report

         (3)(i)(c)  Registrant's Certificate of Amendment of Certificate of
                    Incorporation,  as filed  April  1,  1987,  incorporated  by
                    reference to Exhibit (3)(iii) to the 1994 Annual Report

         (3)(i)(d)  Registrant's Certificate of Amendment of Certificate of
                    Incorporation,  as filed February 2, 1994,  incorporated  by
                    reference to Exhibit (3)(iv) to the 1994 Annual Report

         (3)(ii)    Registrant's   Amended  and  Restated   By-laws  adopted
                    December 10, 1999

     (4)  Indenture   between  the  Registrant  and  The  Chase  Manhattan  Bank
          (formerly  Chemical  Bank),  as  trustee,  dated  as of May 19,  1994,
          incorporated  by reference to Exhibit 4 to the Company's  Registration
          Statement on Form S-3, filed on April 14, 1994

     10.1 Representative  Distribution  Plan between Templeton Growth Fund, Inc.
          and  Franklin/Templeton   Investor  Services,   Inc.  incorporated  by
          reference to Exhibit 10.1 to the Company's  Annual Report on Form 10-K
          for the  fiscal  year  ended  September  30,  1993 (the  "1993  Annual
          Report")

     10.2 Representative Transfer Agent Agreement between Templeton Growth Fund,
          Inc. and  Franklin/Templeton  Investor Services,  Inc. incorporated by
          reference to Exhibit 10.3 to the 1993 Annual Report


<PAGE>

     10.3 Representative   Investment  Management  Agreement  between  Templeton
          Growth  Fund,   Inc.  and  Templeton,   Galbraith  &  Hansberger  Ltd.
          incorporated by reference to Exhibit 10.5 to the 1993 Annual Report

     10.4 Representative  Management Agreement between Advisers and the Franklin
          Group  of Funds  incorporated  by  reference  to  Exhibit  10.1 to the
          Company's  Annual  Report  on Form  10-K  for the  fiscal  year  ended
          September 30, 1992 (the "1992 Annual Report")

     10.5 Representative  Distribution  12b-1 Plan between  Distributors and the
          Franklin Group of Funds  incorporated  by reference to Exhibit 10.3 to
          the 1992 Annual Report

     10.6 Amended Annual Incentive  Compensation  Plan approved January 24, 1995
          incorporated by reference to the Company's Proxy Statement filed under
          cover of Schedule  14A on December  28,  1994 in  connection  with its
          Annual Meeting of Stockholders held on January 24, 1995 *

     10.7 Universal  Stock  Plan  approved  January  19,  1994  incorporated  by
          reference to the Company's 1995 Proxy  Statement  filed under cover of
          Schedule  14A on  December  29,  1993 in  connection  with its  Annual
          Meeting of Stockholders held on January 19, 1994 *

     10.8 Representative  Amended and Restated  Distribution  Agreement  between
          Franklin/Templeton  Distributors,  Inc. and Franklin  Federal Tax-Free
          Income  Fund,  incorporated  by  reference  to  Exhibit  10.1  to  the
          Company's Quarterly Report on Form 10-Q for the quarterly period ended
          June 30, 1995 (the "June 1995 Quarterly Report")

     10.9 Distribution 12b-1 Plan for Class II shares between Franklin/Templeton
          Distributors,   Inc.  and  Franklin   Federal  Tax-Free  Income  Fund,
          incorporated  by reference to Exhibit 10.2 to the June 1995  Quarterly
          Report

    10.10 Representative   Investment  Management  Agreement  between  Templeton
          Global  Strategy SICAV and Templeton  Investment  Management  Limited,
          incorporated  by reference to Exhibit 10.3 to the June 1995  Quarterly
          Report

    10.11 Representative    Sub-Distribution    Agreement   between   Templeton,
          Galbraith & Hansberger Ltd. and BAC Corp. Securities,  incorporated by
          reference to Exhibit 10.4 to the June 1995 Quarterly Report


<PAGE>

    10.12 Representative    Dealer    Agreement    between    Franklin/Templeton
          Distributors,  Inc. and Dealer,  incorporated  by reference to Exhibit
          10.5 to the June 1995 Quarterly Report

    10.13 Representative   Investment  Management  Agreement  between  Templeton
          Investment Counsel, Inc. and Client (ERISA), incorporated by reference
          to Exhibit 10.6 to the June 1995 Quarterly Report

    10.14 Representative   Investment  Management  Agreement  between  Templeton
          Investment  Counsel,  Inc.  and Client  (NON-ERISA),  incorporated  by
          reference to Exhibit 10.7 to the June 1995 Quarterly Report

    10.15 Representative  Amended and Restated  Transfer  Agent and  Shareholder
          Services Agreement between Franklin/Templeton  Investor Services, Inc.
          and Franklin Custodian Funds,  Inc., dated July 1, 1995,  incorporated
          by reference to Exhibit 10.16 to the  Company's  Annual Report on Form
          10-K for the fiscal year ended  September  30, 1995 (the "1995  Annual
          Report")

    10.16 Representative  Amended and Restated  Distribution  Agreement  between
          Franklin/Templeton  Distributors,  Inc. and Franklin  Custodian Funds,
          Inc.,  incorporated  by reference to Exhibit  10.17 to the 1995 Annual
          Report

    10.17 Representative  Class II Distribution Plan between  Franklin/Templeton
          Distributors,  Inc. and Franklin  Custodian Funds,  Inc., on behalf of
          its Growth Series,  incorporated  by reference to Exhibit 10.18 to the
          1995 Annual Report

    10.18 Representative    Dealer    Agreement    between    Franklin/Templeton
          Distributors,  Inc. and Dealer,  incorporated  by reference to Exhibit
          10.19 to the 1995 Annual Report

    10.19 Representative  Mutual Fund Purchase and Sales  Agreement for Accounts
          of  Bank  and  Trust  Company  Customers,   effective  July  1,  1995,
          incorporated by reference to Exhibit 10.20 to the 1995 Annual Report

    10.20 Representative  Management  Agreement between Franklin Value Investors
          Trust,  on  behalf of  Franklin  MicroCap  Value  Fund,  and  Franklin
          Advisers, Inc., incorporated by reference to Exhibit 10.21 to the 1995
          Annual Report

    10.21 Representative    Sub-Distribution    Agreement   between   Templeton,
          Galbraith &  Hansberger  Ltd.  and  Sub-Distributor,  incorporated  by
          reference to Exhibit 10.22 to the 1995 Annual Report


<PAGE>

    10.22 Representative  Non-Exclusive Underwriting Agreement between Templeton
          Growth Fund, Inc. and Templeton  Franklin  Investment  Services (Asia)
          Limited,  dated  September  18,  1995,  incorporated  by  reference to
          Exhibit 10.23 to the 1995 Annual Report

    10.23 Representative      Shareholder     Services     Agreement     between
          Franklin/Templeton  Investor  Services,  Inc. and  Templeton  Franklin
          Investment   Services  (Asia)  Limited,   dated  September  18,  1995,
          incorporated by reference to Exhibit 10.24 to the 1995 Annual Report

    10.24 Agreement to Merge the  Businesses  of Heine  Securities  Corporation,
          Elmore Securities Corporation and Franklin Resources, Inc., dated June
          25,  1996,  incorporated  by  reference  to Exhibit 2 to  Registrant's
          Report on Form 8-K dated June 25, 1996

    10.25 Subcontract  for  Transfer  Agency  and  Shareholder   Services  dated
          November 1, 1996 by and between Franklin Investor  Services,  Inc. and
          PFPC Inc., incorporated by reference to Exhibit 10.25 to the Company's
          Annual  Report on Form 10-K for the fiscal  year ended  September  30,
          1996 (the "1996 Annual Report")

    10.26 Representative  Sample of Franklin/Templeton  Investor Services,  Inc.
          Transfer Agent and  Shareholder  Services  Agreement,  incorporated by
          reference to Exhibit 10.26 to the 1996 Annual Report

    10.27 Representative   Administration  Agreement  between  Templeton  Growth
          Fund,  Inc. and Franklin  Templeton  Services,  Inc.,  incorporated by
          reference to Exhibit 10.27 to the 1996 Annual Report

    10.28 Representative  Sample of Fund Administration  Agreement with Franklin
          Templeton Services,  Inc.,  incorporated by reference to Exhibit 10.28
          to the 1996 Annual Report

    10.29 Representative  Subcontract for Fund  Administrative  Services between
          Franklin  Advisers,  Inc.  and  Franklin  Templeton  Services,   Inc.,
          incorporated by reference to Exhibit 10.29 to the 1996 Annual Report

    10.30 Representative  Investment  Advisory Agreement between Franklin Mutual
          Series Fund Inc. and Franklin Mutual Advisers,  Inc.,  incorporated by
          reference to Exhibit 10.30 to the 1996 Annual Report


<PAGE>

    10.31 Representative  Management  Agreement between Franklin Valuemark Funds
          and  Franklin  Mutual  Advisers,  Inc.,  incorporated  by reference to
          Exhibit 10.31 to the 1996 Annual Report

    10.32 Representative  Investment  Advisory  and Asset  Allocation  Agreement
          between   Franklin   Templeton  Fund  Allocator  Series  and  Franklin
          Advisers, Inc., incorporated by reference to Exhibit 10.32 to the 1996
          Annual Report

    10.33 Representative   Management   Agreement   between  Franklin  New  York
          Tax-Free Income Fund, Inc. and Franklin  Investment Advisory Services,
          Inc.,  incorporated  by reference to Exhibit  10.33 to the 1996 Annual
          Report

    10.34 1998  Employee  Stock  Investment  Plan  approved  January  20,  1998,
          incorporated by reference to the Company's Proxy Statement filed under
          cover of Schedule  14A on December  17,  1997 in  connection  with its
          Annual Meeting of Stockholders held on January 20, 1998

    10.35 System  Development and Services Agreement dated as of August 29, 1997
          by and between Franklin/Templeton  Investor Services, Inc. and Sungard
          Shareholder Systems, Inc.,  incorporated by reference to Exhibit 10.35
          to the 1997 Annual Report

    10.36 1998 Universal Stock  Incentive Plan approved  October 16, 1998 by the
          Board of Directors,  incorporated  by reference to the Company's Proxy
          Statement  filed under cover of Schedule  14A on December  23, 1998 in
          connection  with its  Annual  Meeting  of  Stockholders  to be held on
          January 28, 1999 *

    10.37 Amendment  No. 3 to the  Agreement  to Merge the  Businesses  of Heine
          Securities  Corporation,  Elmore  Securities  Corporation and Franklin
          Resources, Inc., dated December 17, 1997, incorporated by reference to
          Exhibit 10.1 to the  Company's  Quarterly  Report on Form 10-Q for the
          quarterly period ended December 31, 1997

    10.38 Representative  Agreement for the Supply of Investment  Management and
          Administration  Services,  dated  February  16,  1998,  by and between
          Templeton   Funds  and  Templeton   Investment   Management   Limited,
          incorporated  by reference to Exhibit 10.1 to the Company's  Quarterly
          Report on Form 10-Q for the quarterly period ended March 31, 1998


<PAGE>

    10.39 Representative   Investment  Management  Agreement  between  Templeton
          Investment Counsel, Inc. and Client (ERISA), as amended,  incorporated
          by reference to Exhibit 10.39 to the  Company's  Annual Report on Form
          10-K/A for the fiscal year ended  September 30, 1998 (the "1998 Annual
          Report")

    10.40 Representative   Investment  Management  Agreement  between  Templeton
          Investment  Counsel,   Inc.  and  Client   (NON-ERISA),   as  amended,
          incorporated by reference to Exhibit 10.40 to the 1998 Annual Report

    10.41 Representative  Variable Insurance Fund Participation  Agreement among
          Templeton  Variable  Products Series Fund or Franklin  Valuemark Fund,
          Franklin/Templeton   Distributors,   Inc.  and  an  insurance  company
          incorporated  by reference  from Exhibit 10.1 to the form 10-Q for the
          quarter ended December 31, 1998

    10.42 Purchase  Agreement  between  Mariners  Island  Co-Tenancy and Keynote
          Systems,  Inc.  dated  April 25, 2000  incorporated  by  reference  to
          Exhibit  10 to the  Company's  Report  on Form  10-Q for the quarterly
          period ended June 30, 2000

    10.43 Acquisition  Agreement  dated July 26, 2000 among Franklin  Resources,
          Inc., FTI Acquisition and Bissett & Associates Investment  Management,
          Ltd.,  incorporated  by reference to  Registrant's  Report on Form 8-K
          dated August 1, 2000

    10.44 Agreement and Plan of Share  Acquisition  between Franklin  Resources,
          Inc. and Fiduciary Trust Company International dated October 25, 2000,
          incorporated  by  reference  to  Registrant's  Report  on  Form  8-K/A
          (Amendment No. 1) dated October 25, 2000 and filed on October 26, 2000

    10.45 Representative  Amended  and  Restated  Distribution  Agreement  among
          Templeton  Emerging  Markets  Fund,   Templeton  Canadian  Bond  Fund,
          Templeton  International  Stock Fund,  Templeton  Canadian Stock Fund,
          Templeton Global Smaller  Companies Fund,  Templeton Global Bond Fund,
          Templeton   Treasury  Bill  Fund,   Templeton  Global  Balanced  Fund,
          Templeton   International  Balanced  Fund,  Templeton  Canadian  Asset
          Allocation  Fund,  Mutual Beacon Fund,  Franklin U.S. Small Cap Growth
          Fund,  Templeton Balanced Fund, Templeton Growth Fund, Ltd., Templeton
          Management Limited and FEP Capital, L.P. dated December 31, 1998

    10.46 Representative   Purchase   and   Sales   Agreement   by   and   among
          Franklin/Templeton  Distributors,  Inc., Franklin Resources,  Inc. and
          Lightning Finance Company Limited dated August 1, 1999

    10.47 Representative  Advisory  Agreement  between Templeton Global Advisers
          Limited and Templeton Asset Management Limited dated December 21, 1999

    10.48 Representative   Amended  and  Restated  Commission  Paying  Agreement
          between  Templeton  Global Strategy Funds,  Templeton  Global Advisors
          Limited,  Templeton  Global  Strategic  Services  S.A.,  and Lightning
          Finance Company Limited dated January 31, 2000

    10.49 Representative  Variable Insurance Fund Participation  Agreement among
          Franklin   Templeton   Variable  Insurance  Products  Trust  (formerly
          Franklin Valuemark Funds),  Franklin/Templeton  Distributors, Inc. and
          CUNA Mutual Life Insurance Company dated May 1, 2000

    10.50 Stock Purchase  Agreement  between Good Morning  Securities  Co., Ltd.
          and Templeton Investment Counsel, Inc. dated June 29, 2000

    10.51 Agreement   entered  into  between  NEDCOR  Investment  Bank  Holdings
          limited,  NEDCOR  Investment  Bank Limited,  Templeton  International,
          inc.,  Franklin Templeton Asset Management  (Proprietary)  Limited and
          Templeton Global Advisors Limited dated August 1, 2000

    10.52 Representative  Amended and Restated  Distribution  Agreement  between
          Franklin-Templeton  Distributors,  Inc. and Franklin Growth and Income
          Fund dated August 10, 2000

     12   Computation of Ratios of Earnings to Fixed Charges

     21   List of Subsidiaries

     23   Consent of Independent Accountants

     27   Financial Data Schedule

          * Compensatory Plan

  (b)(1)  Report on Form 8-K dated  July 11,  2000 was filed on July 13,  2000
          under Items 5 and 7

  (b)(2)  Report on Form 8-K dated  July 26,  2000 was filed on August 1, 2000
          under Items 5 and 7


<PAGE>

  (b)(3)  Report on Form 8-K dated  July 27,  2000 was filed on August 2, 2000
          attaching Registrant's press release dated July 27, 2000 under Items 5
          and 7

  (b)(4)  Report on Form 8-K dated and filed on October 25, 2000 under Items 5
          and 7

  (b)(5)  Report on Form 8-K/A  (Amendment  No. 1) dated  October 25, 2000 was
          filed on October 26, 2000 under Items 5 and 7

     (c)  See Item 14(a)(3) above

     (d)  No separate financial statements are required;  schedules are included
          in Item 8
<PAGE>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.45
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>AMENDED AND RESTATED DISTRIBUTION AGREEMENT
<TEXT>

                   AMENDED AND RESTATED DISTRIBUTION AGREEMENT

            THIS AGREEMENT made as of the 31st day of December, 1998.


A M O N G:

            TEMPLETON EMERGING MARKETS FUND ("TEMF"),
            TEMPLETON CANADIAN BOND FUND ("TCBF"),
            TEMPLETON INTERNATIONAL STOCK FUND ("TISF"),
            TEMPLETON CANADIAN STOCK FUND ("TCSF"),
            TEMPLETON GLOBAL SMALLER COMPANIES FUND ("TGSCF"),
            TEMPLETON GLOBAL BOND FUND ("TGBF"),
            TEMPLETON TREASURY BILL FUND ("TTBF"),
            TEMPLETON GLOBAL BALANCED FUND ("TGBAF"),
            TEMPLETON INTERNATIONAL BALANCED FUND ("TIBF"),
            TEMPLETON CANADIAN ASSET ALLOCATION FUND ("TCAAF"),
            MUTUAL BEACON FUND ("MBF"),
            FRANKLIN U.S. SMALL CAP GROWTH FUND ("FSCF") AND
            TEMPLETON BALANCED FUND ("TBF"), by their manager/trustee Templeton
            Management Limited, a corporation incorporated under the laws of the
            Province of Ontario with its registered office at Suite 2101,
            1 Adelaide Street East, Toronto, Ontario

            (hereinafter referred to as the "Trustee")


                                                            OF THE FIRST PART;


                                     -and-


            TEMPLETON  GROWTH FUND, LTD., a corporation  incorporated  under the
            laws of Canada with its registered  office at Suite 2101, 1 Adelaide
            Street East, Toronto, Ontario

            (hereinafter referred to as the "TGF" or the "Corporate Fund")


                                                           OF THE SECOND PART;



<PAGE>

                                     -and-

            TEMPLETON MANAGEMENT LIMITED, a corporation incorporated under the
            laws of the Province of Ontario with its registered office at Suite
            2101, 1 Adelaide Street West, Toronto, Ontario

            (hereinafter referred to as the "Manager"),

                                                            OF THE THIRD PART;

                                     -and-

            FEP CAPITAL,  L.P., a limited  partnership  formed under the laws of
            the State of Texas,  and having an office at 201 Main  Street,  Fort
            Worth, Texas 76102

            (hereinafter referred to as "FEP"),

                                                           OF THE FOURTH PART.


RECITALS:

(1)   Each of the Trust Funds (as hereinafter defined) are open-end mutual fund
      trusts established under the laws of Ontario by the Declarations (as
      hereinafter defined).

(2)   Pursuant to the Declarations and the Management Agreements, the Manager is
      the manager-trustee and principal distribution agent of each of the Trust
      Funds and, accordingly, may from time to time in its discretion appoint or
      remove distribution agents for each of the Trust Funds.

(3)   The Corporate Fund is an open-end mutual fund corporation incorporated by
      letters patent under the laws of Canada. TML acts as the principal
      distributor of the shares of the Corporate Fund pursuant to the TGF
      Distribution Agreement (as hereinafter defined) and may from time to time
      in its discretion delegate its functions to other distribution agents.

(4)   The Trustee, on behalf of each of the Trust Funds (as hereinafter
      defined), the Corporate Fund, the Manager and FEP entered into a
      distribution agreement dated as of the 31st day of December, 1997 whereby
      the Manager, as principal distributor for the Trust Funds and the
      Corporate Fund, retained FEP to arrange for the distribution of the
      Deferred Charge Securities (as hereinafter defined) on the terms and
      conditions set out therein.
<PAGE>
                                       3


(5)   The parties wish to amend and restate the Distribution Agreement dated
      December 31, 1997 to reflect certain agreed amendments to the terms and
      conditions thereof.

AGREEMENT:

      NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:

                                    ARTICLE 1

                                   DEFINITIONS

1.1 DEFINITIONS. Whenever used in this Agreement and the schedules, unless there
is something inconsistent in the subject matter or context, the following words
and terms shall have the following meaning:

      "Account  Rate" means the lesser of: (i) the senior  debt rate of FEP; and
      (ii) LIBOR plus 1.50%.

      "Additional Fund" means any other open-end mutual fund created or
      reorganized by, or the management and distribution rights of which are
      acquired by the Manager, from time to time, which distributes its
      Securities generally on the same basis (including fee structure) as the
      Funds and the Securities of which the Manager, at its option, permits
      investors to purchase immediately with the proceeds of redemption of
      Deferred Charge Securities without payment of a redemption fee in respect
      of such redemptions added to this Agreement, or any closed-end fund added
      to this Agreement, in accordance with the provisions of section 10.1
      hereof.

      "Adjustment Account" in respect of a Quarterly Pool, means the amount of
      the Monthly Fees paid or payable to FEP in respect of the period beginning
      on the first day of the Quarterly Pool and ending on the Sales Cutoff Date
      accrued daily at the Account Rate from the Sales Cutoff Date to the
      Anniversary of the Sales Cutoff.

      "Adverse Effect" when used alone or in conjunction with other terms means
      the occurrence or existence of any act, circumstance, condition, event,
      fact, or combination of the foregoing which, in the reasonable judgement
      of FEP, creates a significant probability of any material adverse effect
      upon (i) the timing or amount of any payment of any Fees; or (ii) the
      timely receipt by FEP of any Fees; or (iii) the Manager or any of the
<PAGE>
                                       4


      Funds' ability to pay or perform their obligations under this Agreement in
      a timely manner; or (iv) the remedies and other rights of FEP under this
      Agreement.

      "Advisory Agreements" means the investment management agreements between
      each of the Funds and the applicable portfolio manager as described in
      Schedule "A" hereto as supplemented or amended from time to time.

      "Affiliate" has the meaning provided to that term under the Securities Act
      (Ontario).

      "Agreement" means this Agreement, as the same may from time to time be
      amended, supplemented, waived or modified.

      "Anniversary of the Sale Cutoff Date" means, in respect of any particular
      Quarterly Pool, the date which is 7 years following the Sale Cutoff Date
      in respect of that Quarterly Pool or, in respect of any particular
      Quarterly Pool which is subject to a DCA Takeout Transaction, the date
      determined by FEP which is 7 years or less following the Sale Cutoff Date
      in respect of that Quarterly Pool.

      "Base Amount" means, on an annualized basis, in respect of each Quarterly
      Pool, .96% for each month in each of the first six years and .92% for each
      month in the remaining seventh year, except in respect of securities of
      TTBF forming part of such Quarterly Pool for which the base amount shall
      be .50% for each month in each of the seven years.

      "Business Day" means any day, other than a Saturday, Sunday or any
      statutory holiday in the province of Ontario, on which banks are generally
      open for business in Toronto, Ontario.

      "Calculated Percentage" means in respect of any Quarterly Pool in any
      month, the Base Amount plus, in the case of all Funds other than TTBF, the
      Free Redemption Adjustment provided that the maximum Calculated Percentage
      shall be 1.10%.

      "Closing" means the completion of the transactions contemplated by this
      Agreement, the assignment of the Fees to FEP and the delivery of
      additional documentation required by this Agreement.

      "Closing Date" means such date as the parties agree is the date upon which
      Closing shall take place.

      "Closing Time" means 10:00 a.m. on the Closing Date or such other time on
      the Closing Date as the parties may agree as the time at which the Closing
      shall take place.
<PAGE>
                                       5


      "Collection Account" means a bank account of FEP maintained at
      Toronto-Dominion Bank, with respect to which the Manager shall have no
      access or control.

      "Collections" means (a) all amounts paid or payable under the Program
      Documents in respect of the Fees including, without limitation, amounts
      payable in respect of Purchase Events, and (b) all proceeds of the
      foregoing, except that "Collections" shall not include amounts paid or
      payable pursuant to sections 9.1 and 11.9.

      "Constating Documents" means collectively the Declarations and/or the
      letters patent of the Corporate Fund and the Management Agreements.

      "Conversion Feature" means, with respect to a Security, a mandatory or
      elective provision (including, without limitation, a provision which
      permits or requires such Security to be converted into a Security of a
      different class, but excluding the free redemption amount or privilege
      offered by a Fund) which may result in a reduction or termination of any
      amount owing from any Fund or any securityholder in respect of the Fees
      relating to such Security at some time in the future prior to the
      redemption thereof.

      "Corporate Fund" or "TGF" means Templeton Growth Fund, Ltd.

      "DCA Takeout Transaction" shall mean any transaction whereby the economic
      value, or any portion thereof, of all fees payable to FEP hereunder shall
      be transferred, assigned, sold or removed from the balance sheet of FEP,
      to another entity as consideration for payment thereof.

      "Declarations" means collectively the declarations of trust for each of
      the Trust Funds as supplemented, amended or restated from time to time and
      "Declaration" means any one of them.

      "Deferred Charge" means, with respect to any Fund, the deferred charge
      payable, either directly or by withholding from the proceeds of the
      redemption of the Securities of such Fund, by the securityholders of such
      Fund on any redemption of Securities of such Fund in accordance with the
      applicable Constating Documents and the Prospectus Documents relating to
      such Fund.

      "Deferred Charge Security" means each Security in respect of which Fund
      investors do not pay a sales charge at the time of purchase, but rather
      are required to pay a Deferred Charge in certain circumstances.

      "Distributed Securities" has the meaning given to that term in section
      4.1.
<PAGE>
                                       6


      "Eligible Fee" means a Fee which (a) constitutes an "account" as such term
      is defined in the personal property security legislation of all
      jurisdictions the laws of which are applicable for determining whether the
      interests created by the Program Documents are perfected; (b) (i)
      constitutes a legal, valid and binding obligation of the obligor thereof
      which is not subject to any dispute, offset, counterclaim or defence
      whatsoever (it being understood that the mere fact that a Purchase Event
      may occur in the future with respect to any such Fee shall not in itself
      cause such Fee to not constitute an Eligible Fee prior to the time such
      Purchase Event occurs), and (ii) which is not subject to any adverse
      claim; and (c) does not contravene any applicable law.

      "Factor" shall mean the number corresponding to the current Quarterly Pool
      as set out in Schedule D.

      "Fees" means all fees payable to FEP under any Program Document.

      "FEP Balance Sheet Carrying Value" means, with respect to a Quarterly Pool
      as of any date, the value of all Fees receivable by FEP in respect of such
      Quarterly Pool as reflected on the balance sheet of FEP determined in
      accordance with GAAP.

      "FEP Event of Termination" means each of the following events:

      (a)   any Fund shall fail to make or cause to be made in the manner and
            when due any payment to be made or to be caused to be made by it
            under any Program Document and the failure of such payment has an
            Adverse Effect;

      (b)   the Manager or any Fund shall fail to perform or observe any other
            material term, covenant or agreement on its part to be performed or
            observed under any Program Document;

      (c)   any representation or warranty made or deemed made by the Manager or
            a Fund or any of their respective officers or directors under or in
            connection with any Program Document shall have been false,
            incorrect or misleading in any material respect when made or deemed
            made and which gives rise to an Adverse Effect;

      (d)   any provision of any Program Document to which the Manager or any
            Fund is a party shall cease to be a legal, valid and binding
            obligation of any such Person enforceable in accordance with its
            terms or any such Person shall so assert in writing;

      (e)   there shall have occurred an Insolvency Event;
<PAGE>
                                       7


      (f)   FRI shall cease to own, directly or indirectly, at least 80% of the
            issued and outstanding equity securities of the Manager;

      (g)   there shall have occurred any change in accounting, governmental or
            other legislation, regulation or policy which will have an Adverse
            Effect; and

      (h)   the occurrence of a Purchase Event;

      (i)   the termination of the joint venture agreement respecting Lightning
            among FEP Capital II LLC and TGH Holdings Limited and Lightning
            pursuant to section 14 of that agreement.

      "Free Redemption Adjustment" means, in respect of all Quarterly Pools in
      any particular quarter, the amount calculated by:

      (a)   multiplying the total dollar value of redemptions, other than
            redemptions of TTBF, made without the payment of a Deferred Charge
            (other than a redemption where the redemption proceeds are invested
            immediately in Distributed Securities of one or more other Funds) in
            the previous quarter in respect of the first Quarterly Pool by 4 and
            then by the Factor;

      (b)   adding to the amount determined in (a) above, the additional
            separate amounts determined by applying the formula in (a) above to
            each of the successive Quarterly Pools in respect of that previous
            quarter; and

      (c)   dividing the sum determined in (b) above by the average daily net
            asset value of all Quarterly Pools for that previous quarter.

      "free redemption entitlement" has the meaning given to that term in
      section 4.4.

      "FRI" means Franklin Resources, Inc., the indirect parent company of the
      Manager.

      "Funds" means collectively the Trust Funds, the Corporate Fund and any
      Additional Fund which becomes a party to this Agreement and "Fund" means
      any one of them.

      "GAAP" means generally accepted accounting principles in Canada (in the
      case of the Funds and the Manager) or the United States of America (in the
      case of FEP), as in effect from time to time, consistently applied.

      "Insolvency Event" means any of the following occurrences:
<PAGE>
                                       8



      (a)   the Manager or a Fund shall generally not pay its obligations as
            such obligations become due or shall admit in writing its inability
            to pay its obligations generally or shall make a general assignment
            for the benefit of creditors; or

      (b)   any  proceeding  shall be instituted by or against the Manager or a
            Fund seeking to adjudicate it a bankrupt or insolvent,  or seeking
            liquidation,  winding-up, reorganization,  arrangement,  adjustment,
            protection, relief or composition of it or its  obligations  or
            proposal to its creditors  under any laws relating to bankruptcy,
            insolvency  or  reorganization  or relief of debtors or seeking the
            entry of an order for relief or the appointment of a receiver,
            trustee, custodian or other similar official for it or for any
            substantial  part of its property  and, in the case of any such
            proceedings  instituted  against it (but not instituted by it), such
            proceedings  shall remain undismissed or unstayed for a period of 60
            days; or

      (c)   a court or other governmental authority or agency having
            jurisdiction  in the premises  shall enter a decree or order (i) for
            the  appointment  of a receiver, liquidator,  assignee,  trustee or
            sequestrator (or other similar official) of the Manager or a Fund of
            any  material  part of its  property or for the winding up or
            liquidation of its affairs and such decree shall remain in force
            undischarged and unstayed for a period of 60 days; or (ii)  for  the
            sequestration or attachment of any material part of the property of
            the Manager or a Fund without its  unconditional  return to the
            possession of the Manager or a Fund or its  unconditional  release
            from such sequestration or attachment within 60 days thereafter; or

      (d)   the Manager or a Fund shall take any action to authorize  any of the
            actions set forth above.

      "Joint Venture" means the joint venture between FEP and FRI and/or their
      respective Affiliates or associates which may be created for the purposes
      of funding the payment of sales commissions in respect of deferred charge
      securities sold globally.

      "Joint Venture Assumption Date" means, the date that the Joint Venture
      assumes the obligations of FEP under this Agreement;

      "LIBOR" means, at any date, a rate per annum equal to the rate of interest
      per annum at which deposits in Canadian dollars for a period of 30 days
      are offered to leading banks in the London interbank market at 11:00 a.m.
      (London time) and determined on the basis of the provisions set forth
      below:


      (a)   On the applicable date, FEP will determine the interest rate for
            deposits in Canadian dollars for a 30 day period on the British
            Bankers' Association Official BBA LIBOR Fixings page on Bloomberg
<PAGE>
                                       9


            ("BBAM") as of 11:00 a.m. (London time) on such date or if such page
            on such service ceases to display such information, such other page
            as may replace it on that service for the purpose of display of such
            information. If such rate does not appear on the BBAM page, then the
            rate will be determined in accordance with clause (b) below.

      (b)   If the BBAM page shall be unavailable, LIBOR shall be determined on
            the basis of the rate of interest per annum at which deposits in
            Canadian dollars are offered by The Chase Manhattan Bank to leading
            banks in London.

      "Lien" means any mortgage, pledge, hypothecation, assignment, deposit
      arrangement, encumbrance, lien or security interest (statutory or other)
      or preference, priority or other security agreement or preferential
      arrangement of any kind or nature whatsoever or other charge or
      encumbrance, including the retained security title of a conditional vendor
      or lessor.

      "Management Agreements" means the management and distribution agreements
      between each of MBF and FSCF and the Manager, as supplemented or amended
      from time to time.

      "Manager Event of Termination" means each of the following events:

      (a)   any change in accounting, governmental or other legislation,
            regulation or policy which will materially and adversely affect the
            accounting or tax treatment of the distribution arrangement under
            the Program Documents to the Manager; and

      (b)   any failure by FEP to pay the Selling Commissions when due under
            this Agreement.

      "Manager Report" has the meaning given to that term in section 3.7.

      "Master Trust" means any trust or other special purpose entity or Person
      to which any interest in any of the Fees relating to any Fund or the right
      to receive any Collections with respect thereto has been transferred in
      connection with a Takeout Transaction.

      "Master Trust Transfer Agreement" means any agreement pursuant to which
      any interest in the Fees is transferred to a Master Trust.

      "Material Contracts" has the meaning given to that term in section 5.1(p).

      "Monthly Fee" has the meaning given to that term in section 4.1.

<PAGE>
                                       10


      "Multiple Material Errors" means errors in the calculation of amounts due
      to and adverse to FEP in excess of 5% of any amounts payable, which errors
      occur in excess of three times during the term of this Agreement excluding
      any and all errors (other than those caused by bad faith or fraud on the
      part of the Manager) occurring prior to the first year anniversary date of
      this Agreement.

      "Net Asset Value" means, with respect to any Fund or any Security, as of
      the date any determination thereof is made, the meaning given that term in
      the Constating Documents or Program Documents of such Fund.

      "Original Charge Securities" has the meaning given that term in the
      definition of "Quarterly Pool".

      "Person" means any individual, partnership, limited partnership, joint
      venture, syndicate, sole proprietorship, company or corporation, with or
      without share capital, unincorporated association, trust, trustee,
      executor, administrator or other legal personal representative, regulatory
      body or governmental agency, authority or entity, however designated or
      constituted.

      "Permitted Designee" means (a) any Person designated by FEP or any Master
      Trust, as the case may be, which may be The Chase Manhattan Bank or
      Constellation Financial Management Company, L.L.C. or any Affiliate of the
      foregoing, and (b) any other Person designated by FEP or any Master Trust,
      as the case may be, (i) which is not actively engaged in the sponsorship
      or management of any other mutual fund in Canada, and (ii) which has
      agreed to be bound by confidentiality undertakings in substance comparable
      to those contained in this Agreement.

      "Program Documents" means this Agreement, the Constating Documents, the
      TGF Distribution Agreement, the Advisory Agreements, the Prospectus
      Documents, the Material Contracts, any Master Trust Transfer Agreement and
      the other agreements, documents, certificates and instruments entered into
      or delivered in connection herewith and therewith, as the same may from
      time to time be amended, supplemented, waived or modified.

      "Prospectus Documents" means, with respect to a Fund, the most recent
      simplified prospectus and annual information form for such Fund as more
      particularly described in Schedule A hereto as amended or supplemented
      from time to time.

      "Purchase Event" means any of the following events:
<PAGE>
                                       11


      (a)   any Fund shall fail to make or cause to be made in the manner and
            when due any payment to FEP or deposit required to be made or to be
            caused to be made by it under any Program Document and such failure
            shall have an Adverse Effect;

      (b)   the Manager or any Fund shall fail to perform or observe in any
            respect any other covenant on its part required to be performed or
            observed under any Program Document and such failure shall have an
            Adverse Effect;

      (c)   any representation or warranty made by the Manager or a Fund under
            or in connection with any Program Document shall have been false,
            incorrect or misleading in any respect when made and such inaccuracy
            shall have an Adverse Effect;

      (d)   there shall have occurred an change in the financial condition of
            the Manager which would prevent the Manager from performing its
            obligations under this Agreement which has an Adverse Effect; or

      (e)   if, as a result of any action or inaction by the Manager or a Fund,
            any provision of this Agreement ceases to be a legal, valid and
            binding obligation of the Manager or a Fund and causes an Adverse
            Effect.

      "Quarterly Pool" means, in respect of any calendar quarter, (i) each
      Deferred Charge Security issued in that quarter for which FEP has arranged
      distribution and has paid the Selling Commission ("Original Charge
      Security"), (ii) each Deferred Charge Security of a Fund issued upon the
      immediate investment of proceeds realized on the redemption of an Original
      Charge Security or Transfer Security (as hereinafter defined) or
      Reinvested Security (as hereinafter defined) in a Deferred Charge Security
      of another Fund ("Transfer Security"), and (iii) each Deferred Charge
      Security issued upon the automatic reinvestment of income and capital
      gains distributions upon an Original Charge Security, Transfer Security or
      another Reinvested Security (as hereinafter defined) or any Security of a
      Fund issued upon the immediate reinvestment of proceeds realized on the
      redemption of a Reinvested Security in a Security of another Fund (a
      "Reinvested Security").

      "Reinvested Security" has the meaning given to that term in the definition
      of "Quarterly Pool" as modified by section 4.1.

      "Sale Cutoff Date" means, with respect to any particular Quarterly Pool,
      the last Business Day of the calendar quarter during which FEP arranged
      for the distribution of Original Charge Securities forming part of the
      Quarterly Pool and paid the Selling Commissions in respect of such
      Quarterly Pool.

<PAGE>
                                       12


      "Securities" means collectively the units of the Trust Funds and the
      shares of the Corporate Fund and "Security" means any one of them.

      "Selling Commission" has the meaning given to that term in section 3.6(b).

      "Subscription Price" means with respect to any Deferred Charge Security at
      any particular time, the gross purchase price of such Deferred Charge
      Security established by the Constating Documents or Program Documents of
      the applicable Fund.

      "Takeout Transaction" means any transaction including a DCA Takeout
      Transaction (excluding any transaction transferring the parties interest
      under this Agreement to the Joint Venture) pursuant to which FEP, or any
      Master Trust which obtains such interest directly or indirectly from FEP,
      sells or otherwise transfers, participates or causes to be sold,
      transferred or participated interests in the Fees relating to any Fund
      (including, without limitation, the right to receive any portion of any
      Collections) to any Person, including a Master Trust which publicly or
      privately sells debt instruments and/or certificates or other instruments
      representing ownership interests in such Master Trust or interest in any
      Fees relating to any Fund (including, without limitation, any right to
      receive any portion of any Collections).

      "Termination Date" means December 31, 2001, subject to suspension or
      termination as set forth in section 3.1, or such later date as shall be
      agreed to in writing by the parties hereto, except that the Termination
      Date may be deemed to have occurred on an earlier date pursuant to section
      8.

      "TGF Distribution Agreement" means the distribution agreement between TGF
      and the Manager, as supplemented, amended or restated from time to time.

      "Transfer Securities" has the meaning given to that term in the definition
      of "Quarterly Pool".

      "Trust Funds" means, collectively TEMF, TCBF, TISF, TCSF, TGSCF, TGBF,
      TTBF, TGBAF, TIBF, TCAAF, MBF, FSCF and TBF, and "Trust Fund" means any
      one of them.

      "TTBF Account" in respect of a Quarterly Pool, means an amount equal to
      the Monthly Fee paid or payable to FEP in respect of Distributed
      Securities and Reinvested Securities of TTBF that form part of such
      Quarterly Pool accrued daily at the Account Rate from the Sales Cutoff
      Date to the Anniversary of the Sales Cutoff Date.

<PAGE>
                                       13


                                    ARTICLE 2

                              CLOSING ARRANGEMENTS

2.1 THE  CLOSING.  The  transactions  contemplated  by this  Agreement  shall be
completed  at the  Closing  Time at the offices of the counsel to FEP or at such
other location as may be agreed to by the parties.

                                    ARTICLE 3

                               DISTRIBUTION RIGHTS

3.1 APPOINTMENT OF FEP. Upon and subject to the terms and conditions hereof the
Manager, with the knowledge and consent of each of the Funds as evidenced by
their signatures hereto, hereby grants FEP the right to arrange for the
distribution of Deferred Charge Securities in each of the provinces and
territories of Canada in return for the compensation described in this
Agreement, and FEP hereby accepts such grant. The right of FEP to arrange for
the distribution of Deferred Charge Securities shall commence on trade date
January 12, 1998, or such other date as is mutually agreeable to the parties,
and shall continue until December 31, 2000, subject to suspension and
termination at any time in the circumstances described in this Agreement. Until
terminated in accordance with the terms of this Agreement, FEP's distribution
right is exclusive during the distribution period described above, other than
during a suspension period, during which the Manager may arrange for the
distribution of Deferred Charge Securities through any other Person, including
the Manager. It is acknowledged and agreed by the parties hereto that FEP's
distribution right does not extend to sales of Securities which are not Deferred
Charge Securities and that FEP shall not receive any remuneration of any kind in
respect of such Securities.

3.2 DISTRIBUTION THROUGH REGISTERED DEALERS. FEP will arrange for the
distribution of Deferred Charge Securities only through registered dealers
approved by the Manager, and FEP will not itself directly or indirectly sell any
Securities of the Funds. All Deferred Charge Securities will be sold at a price
equal to the Net Asset Value per Security at the time of purchase, without a
sales charge to investors. The Manager will advise FEP upon the execution hereof
and regularly as required thereafter so long as FEP is entitled hereunder to
arrange for the distribution of Deferred Charge Securities, of the names of all
registered dealers approved by the Manager as dealers through whom the Deferred
Charge Securities may be sold.

      The Manager, as transfer agent for the Funds, agrees not to knowingly
accept purchase orders from Persons with respect to the sale of Deferred Charge
Securities in any jurisdiction in which the Deferred Charge Securities are not
registered, qualified for sale or otherwise exempt from the need to qualify for
sale under applicable securities legislation. In respect of these Deferred
<PAGE>
                                       14


Charge Securities which are unknowingly accepted by the Manager, as transfer
agent for the Funds, such Deferred Charge Securities will be subject to this
Agreement unless the trade in such Securities is subsequently reversed, in which
case such Deferred Charge Securities shall not be subject to this Agreement and
the Manager, as transfer agent for the Funds, will forthwith, following the
trade reversal and out of the proceeds of the trade reversal, refund to FEP the
amount of the Selling Commissions paid by it in respect of such Securities.

3.3 REJECTION OF PURCHASE ORDERS. The Manager may reject purchase orders for
Deferred Charge Securities received from a registered dealer during the term of
this Agreement only in accordance with the terms stated in the Constating
Documents of the Funds and/or the TGF Distribution Agreement.

3.4 REGISTRATION OF PURCHASES. After receipt and acceptance of a purchase order
together with an amount equal to the purchase price for each Deferred Charge
Security purchased, the Manager will promptly forward the purchase order to the
registrar of the appropriate Fund (if the Manager is not itself the registrar of
the Fund) for registration of the purchaser as a holder of a Security or
Securities of that Fund and shall deposit the purchase price to the credit of
that Fund.

3.5 AUTHORITY OF THE MANAGER. The Manager shall have the exclusive right to
approve or disapprove of the registered dealers through which the Deferred
Charge Securities will be distributed, to determine the Funds' distribution and
marketing policies and procedures and, pursuant to section 10.2 of this
Agreement, to suspend or terminate the offering of Securities of one or more of
the Funds at any time.

3.6 SERVICES OF FEP. The primary purpose of this Agreement is to ensure that
satisfactory arrangements exist for the distribution of the Deferred Charge
Securities and to provide a mechanism for the payment of Selling Commissions to
registered dealers who distribute Deferred Charge Securities. Subject to its
rights of termination as provided herein, FEP will provide the following
services to the Manager and the Funds during the period in which FEP has the
right to arrange for distribution of Deferred Charge Securities:

      (a)   making all necessary  arrangements  for the  distribution of the
            Deferred Charge Securities through registered dealers approved by
            the Manager;

      (b)   paying the  selling  commission  (equal to 5% of the  Subscription
            Price of the Deferred  Charge  Securities  and if any  non-Canadian
            jurisdiction  imposes  a withholding on the payment of the selling
            commission,  the amount of the payment shall  be  increased  by  the
            amount  necessary  so  that  the  payment  net of withholding  tax
            equals 5% of the Subscription Price of the Deferred Charge Security)
            (the "Selling  Commission") due to registered  dealers upon receipt
            of notice  from the  Manager  of  accepted  purchase  orders  for
            Original  Charge Securities.  The  parties  agree  that  FEP's
<PAGE>
                                       15


            obligation  to  pay  the Selling Commission in respect of a Deferred
            Charge Security shall arise on the trade date, notwithstanding  that
            FEP is only required to make actual payment of the Selling
            Commission in respect of such purchase on the settlement date;

      (c)   maintaining proper and adequate business records of its operations
            in order to properly monitor the Deferred Charge Securities for
            which it arranged distribution and the amount of the Selling
            Commissions paid;

      (d)   providing  confirmation  to the Manager and the Funds when requested
            as to the due and timely payment of Selling Commissions; and

      (e)   providing an annual review of the Funds' operations which shall
            include annual redemption analysis, portfolio risk analysis, income
            and balance sheet risk analysis together with annual meetings of FEP
            clients to exchange distribution, product development and other
            related information.

      FEP, the Manager and the Funds acknowledge that the Manager shall continue
to arrange for the distribution of Deferred Charge Securities pursuant to the
Constating Documents and the TGF Distribution Agreement, in the case of the
Corporate Fund, and that, except as expressly provided by this Agreement, FEP
shall have no obligation to perform any duties or functions or make any
payments, carried out or made by the Manager under the Constating Documents or
the TGF Distribution Agreement.

3.7 MANAGER REPORT. On or before 10 Business Days after the end of each month,
the Manager shall provide FEP or a Permitted Designee with a report (a "Manager
Report") as of the last day of such month which shall set forth, among other
things, the Manager's determination of (a) the Selling Commissions paid or
payable by FEP in respect of Deferred Charge Securities distributed during such
month, (b) the amount of Fees paid or payable in respect of such month and the
Deferred Charge Securities attributable to such Fees, (c) the computation of the
amount of such Fees in reasonable detail, and (d) the amount of the Adjustment
Accounts and the TTBF Accounts in reasonable detail. The parties agree to use
their commercially reasonable best efforts to finalize as soon as possible and
in any event not later than March 31, 1998 the form of the Manager Report which
is acceptable to both parties.

3.8 MATERIAL ERRORS. If Multiple Material Errors occur, FEP shall provide the
Manager with written notice of such occurrence, following which the Manager
shall have 15 days to cure such errors. In the event all such errors are not
cured within such period, FEP may terminate its obligations to pay Selling
Commissions at any time thereafter upon 60 days prior written notice to the
Manager.

<PAGE>
                                       16

                                    ARTICLE 4

                         PAYMENT AND ASSIGNMENT OF FEES

4.1 MONTHLY FEE. For its services in arranging for the distribution of Deferred
Charge Securities which form a Quarterly Pool, FEP shall receive a monthly fee
(the "Monthly Fee") in each calendar month in respect of each Quarterly Pool
equal to the Calculated Percentage in respect of that Quarterly Pool for that
quarter multiplied by the daily average Net Asset Value of all Distributed and
Reinvested Securities forming part of such Quarterly Pool multiplied by 30 and
divided by 360.

      The Monthly Fee will be accrued daily on each Valuation Date (as defined
in the Constating Document of each Fund) of each Fund. The Monthly Fee will be
paid to FEP net of any taxes required to be withheld, at the same time as the
Manager is paid a management fee by a Fund and, in any event, within ten days
after the end of each calendar month.

      The Monthly Fee shall continue to be payable to FEP in respect of each
Deferred Charge Security forming part of a Quarterly Pool for the lesser of: (i)
the period that such Deferred Charge Security remains outstanding, and (ii) the
Anniversary of the Sale Cutoff Date, subject to extension pursuant to section
4.8, notwithstanding that FEP's appointment as exclusive distributor has expired
or has been suspended or terminated.

      Each Fund and the Manager hereby agrees with FEP that they will not, at
any time while FEP is entitled to receive payment of any fee under this Article,
consent to or agree to a reduction in the management fee payable by any Fund to
the Manager or any alteration in the manner or as to the time of calculation of
such management fee or effect any action, amendment or change of any nature
whatsoever if such reduction, alteration, action, amendment or change could have
the effect of preventing FEP from receiving the full amount of the Monthly Fee
to which it is entitled under this section, or materially adversely affect the
timing of the receipt of such payment.

      All Original Charge Securities and Transfer Securities are collectively
referred to in this Agreement as "Distributed Securities". Distributed
Securities and Reinvested Securities shall include any Securities that are
issued upon the consolidation or subdivision of any Distributed Securities or
Reinvested Securities, respectively. For greater certainty, Transfer Securities
and Reinvested Securities shall be deemed to be issued on the same date as the
Original Charge Securities to which they relate. In the case of the TTBF,
Distributed Securities and Reinvested Securities will be deemed to include any
net income (including any net realized capital gains) which has accrued in
respect of such Securities for the purpose of calculating the Monthly Fee
payable pursuant to this section. Distributed Securities of the TTBF Fund will
be deemed to include such accrued amounts for the purpose of calculating any
Deferred Charges as described in this Article 4.
<PAGE>
                                       17


4.2   ASSIGNMENT OF MANAGEMENT FEES.

      (a)   To provide for the payment to FEP of the Monthly Fee payable
            pursuant to section 4.1, the Manager hereby:

               (i)  irrevocably and  unconditionally  and absolutely  assigns to
                    FEP its right to receive  payment from,  and all moneys paid
                    or payable by, each Fund of that  portion of the  management
                    fee  payable  by such Fund to the  Manager  under the Fund's
                    Constating  Document and the TGF Distribution  Agreement (in
                    the case of TGF) which  shall be equal to the  Monthly  Fee,
                    for the  lesser of:  (i) the  period  that such  Distributed
                    Securities and Reinvested Securities remain outstanding, and
                    (ii) the  Anniversary  of the Sale  Cutoff Date and, if such
                    period is  extended  pursuant  to section  4.8,  during such
                    period of extension; and

               (ii) irrevocably and unconditionally  authorizes and directs each
                    Fund  to pay to  FEP  that  portion  of the  management  fee
                    payable   under  that   Constating   Document  and  the  TGF
                    Distribution  Agreement  (in the case of TGF) which has been
                    assigned to FEP pursuant to  subparagraph  (i) above (net of
                    any taxes  required to be  withheld) at the same time as the
                    Manager is paid the  balance of the  management  fee by such
                    Fund pursuant to the applicable  Constating Document for the
                    Fund and the TGF Distribution Agreement (in the case of TGF)
                    and in any  event  within  ten  days  after  the end of each
                    calendar month.

      (b)   Each of the Funds hereby:

               (i)  consents  to  and  accepts  notice  of  the  assignment  and
                    direction  pursuant to paragraph  (a) above and  irrevocably
                    agrees  to  make  payments  to FEP in  accordance  with  the
                    foregoing  assignment  and direction  without  regard to any
                    equities  which  may exist or any  claims or rights  which a
                    Fund may assert against the Manager or any other Person from
                    time to time,  provided  however that any goods and services
                    tax  payable by the Funds in respect of that  portion of the
                    management  fee  which  is paid to FEP  shall be paid to the
                    Manager  or  remitted   directly  to  Revenue   Canada,   as
                    applicable; and

               (ii) waives any right of set-off,  counterclaim  or  deduction of
                    any kind which it may have against the Manager in respect of
                    that portion of the  applicable  management  fee assigned to
                    FEP  pursuant  to  paragraph  (a) above  provided  that this
                    waiver  shall not  constitute a release of any claim which a
                    Fund may have against the Manager from time to time.
<PAGE>
                                       18


      (c)   FEP agrees and acknowledges that its only recourse in the event of
            non-payment by a Fund of the Monthly Fee shall be against such Fund
            and the assets of such Fund and FEP further agrees and acknowledges
            that FEP shall have no recourse against the assets of the Manager
            for such non-payment of the Monthly Fee.

4.3   [intentionally deleted]

4.4 DEFERRED CHARGES. The Manager and each Fund represents and warrants to FEP
that a Deferred Charge applies to all Distributed Securities of the Fund which
are redeemed within six years of their date of issue, or deemed date of issue,
except (i) on redemptions where the redemption proceeds realized are immediately
invested in Distributed Securities of one or more of the other Funds (excluding
any Distributed Securities redeemed to pay to the investor's dealer a transfer
fee in respect of such transaction); and (ii) on redemptions pursuant to the
free redemption amount privilege described below. The Manager and each Fund
further represents that the Deferred Charge, expressed as a percentage of the
Subscription Price per Distributed Security of the Fund being redeemed, declines
over time from the date of issue, or deemed date of issue, of the Distributed
Security as follows:

             If Redeemed During the Following    Deferred
             Periods After the Date of           Charge
             ISSUE OR DEEMED DATE OF ISSUE       PERCENTAGE

             During the 1st year                 6.0%
             During the 2nd year                 5.5%
             During the 3rd year                 5.0%
             During the 4th year                 4.5%
             During the 5th year                 4.0%
             During the 6th year                 3.0%
             Thereafter                           Nil


      An investor in a Fund will be permitted to redeem in each calendar year
without the redemption charge described above, Deferred Charge Securities of a
Fund having a Net Asset Value of up to the aggregate of (i) 10% of the Net Asset
Value as at December 31 of the prior calendar year of Deferred Charge Securities
purchased by such investor in such Fund after February 28, 1993 and before the
current calendar year, plus (ii) 10% of the cost of Deferred Charge Securities
purchased by the investor in such Fund in the then current calendar year (the
"free redemption entitlement"). The free redemption entitlement is not
cumulative and any unexercised entitlement cannot be carried forward to future
years. An investor in a Fund may request that distributions of a Fund's net
income or capital gains be paid to the investor in cash rather than the receipt
of Reinvested Units of that Fund. The amount of any distributions paid in cash
and the value of Reinvested Units of a Fund redeemed by the investor in the
<PAGE>
                                       19


calendar year shall be deducted from the investor's free redemption amount. If
an investor transfers all or part of his investment in a Fund to another Fund,
any unexercised free redemption amount attributable to the Deferred Charge
Securities redeemed to effect the transfer will also be transferred on a
proportionate basis.

      The Funds and the Manager represent and warrant to FEP that, for the
purpose of calculating the Deferred Charge payable to FEP, Deferred Charge
Securities will be redeemed in the following order:

      (a)   Reinvested Securities will be redeemed first;

      (b)   Distributed  Securities  redeemed pursuant to the free redemption
            amount will be redeemed second;

      (c)   Deferred Charge Securities of a Fund issued first, or deemed to be
            issued first, will be redeemed third; and

      (d)   Where an investor holds both Deferred Charge Securities and
            securities of the Funds acquired on a front-load basis, the investor
            is required to elect which category of security the investor is
            redeeming upon redemption.

      Each Fund and the Manager hereby agrees with FEP that they will not, at
any time while FEP is entitled to receive payment of any amount under this
Agreement, consent to or agree to a reduction in the Deferred Charge for
Distributed Securities or any alteration in the manner or as to the time of
calculation of the Deferred Charge or effect any action, amendment or change of
any nature whatsoever if the effect of such reduction, alteration, action,
amendment or change would be to reduce the amounts payable to FEP or materially
adversely affect the timing of the receipt of such amounts payable pursuant to
this Article 4. In the event of the termination of a Fund, FEP shall be entitled
to receive any applicable Deferred Charges in respect of the outstanding
Distributed Securities of that Fund.

4.5 DEFERRED CHARGE PAYMENTS. In addition to the Monthly Fee payable to FEP
pursuant to section 4.1 and in consideration for its services hereunder, FEP
shall also be entitled to receive any Deferred Charge paid by securityholders on
the redemption of their Distributed Securities (net of any taxes required to be
withheld). The Deferred Charges will be calculated and collected by the Manager,
in its capacity as transfer agent for the Funds, on each Valuation Date and will
be payable to FEP monthly within ten days after the end of the calendar month or
in the event of termination of a Fund, immediately prior to the termination of
the Fund. Such amount shall continue to be payable to FEP on the redemption of
each Distributed Security notwithstanding that FEP's appointment as exclusive
distributor been suspended, has expired or has been terminated.
<PAGE>
                                       20

4.6   ASSIGNMENT OF DEFERRED CHARGES.

      (a)   To provide for the payment to FEP of the Deferred Charges payable
            pursuant to section 4.5, the Manager hereby:

               (i)  irrevocably and  unconditionally  and absolutely  assigns to
                    FEP its right to receive  payment from,  and all moneys paid
                    or payable by, each securityholder of Distributed Securities
                    and Reinvested  Securities of that portion of the redemption
                    proceeds payable to the Manager in respect of the redemption
                    of such Securities under the Funds' Constating Documents and
                    TGF Distribution Agreement; and

               (ii) irrevocably and unconditionally  authorizes and directs each
                    Fund to pay to FEP that portion of the  redemption  proceeds
                    payable  under the  applicable  Constating  Document  or TGF
                    Distribution  Agreement  which  has  been  assigned  to  FEP
                    pursuant  to  subparagraph  (i)  above  (net  of  any  taxes
                    required to be  withheld) at the same time as the Manager is
                    paid  the   management   fee  pursuant  to  the   applicable
                    Constating  Document or TGF  Distribution  Agreement for the
                    Fund and in any event  within  ten days  after the  calendar
                    month.

      (b)   Each of the Funds hereby:

               (i)  consents  to  and  accepts  notice  of  the  assignment  and
                    direction  pursuant to paragraph  (a) above and  irrevocably
                    agrees  to  make  payments  to FEP in  accordance  with  the
                    foregoing  assignment  and direction  without  regard to any
                    equities  which  may exist or any  claims or rights  which a
                    Fund may assert against the Manager or any other Person from
                    time to time; and

               (ii) waives any right of set-off,  counterclaim  or  deduction of
                    any kind which it may have  against the Manager or any other
                    Person in  respect  of the  applicable  redemption  proceeds
                    assigned to FEP  pursuant to  paragraph  (a) above  provided
                    that this waiver shall not constitute a release of any claim
                    which a Fund may  have  against  the  Manager  or any  other
                    Person from time to time.

      (c)   FEP agrees and acknowledges that its only recourse in the event of
            non-payment of the Deferred Charges shall be against the applicable
            Fund and the assets of such Fund and FEP further agrees and
            acknowledges that FEP shall have no recourse against the assets of
            the Manager for such non-payment of the Deferred Charges.
<PAGE>
                                       21


4.7 COLLECTION ACCOUNT. The Manager shall cause all Collections payable by each
Fund to be deposited directly by each Fund into the Collection Account without
any intermediate commingling of such amounts with the assets of the Manager or
any Affiliate. No amounts other than the Collections shall be deposited to the
Collection Account.

4.8 CONTINUATION OF MONTHLY FEES. On the Anniversary of the Sale Cutoff Date in
respect of each Quarterly Pool, if the TTBF Account in respect of such Quarterly
Pool is greater than the Adjustment Account in respect of such Quarterly Pool,
then the Monthly Fee payable in respect of such Quarterly Pool shall continue to
be payable to FEP until such date as such Monthly Fees paid to FEP during such
extension period equal the difference in such TTBF Account and such Adjustment
Account as at such Anniversary of the Sale Cutoff Date.

                                    ARTICLE 5

                         REPRESENTATIONS AND WARRANTIES

5.1 MANAGER'S AND FUNDS' REPRESENTATIONS AND WARRANTIES. The Manager and each of
the Funds represent and warrant (but only as to itself) to FEP:

      (a)   ORGANIZATION  AND GOOD  STANDING - The Manager and each of the Funds
            have been duly  incorporated  or  created,  as the case  may be, are
            organized, validly existing and  up-to-date  in all material filings
            and registrations required under the laws of Canada and each
            province and territory thereof where such filings or  registrations
            are necessary  for the conduct of its  business,  and have all
            necessary  power, authority and capacity to own  their  respective
            properties and assets and to carry on the business in which they are
            now engaged.

      (b)   DISTRIBUTION OF FUND SECURITIES - The Securities of each of the
            Funds are offered for sale to the public on a continuous basis in
            each of the provinces and territories of Canada pursuant to the
            Prospectus Documents. All material information and statements
            contained in the Prospectus Documents of each of the Funds are true
            and correct and contain no misrepresentation (as defined in the
            Securities Act (Ontario)).

      (c)   COMPLIANCE WITH LAWS - The Manager and each of the Funds are in
            compliance in all material respects with all applicable laws,
            including but not limited to, applicable securities laws.


      (d)   LICENSES AND REGISTRATIONS - The Manager and each of the Funds have
            received all approvals, licences, registrations and authorizations
            necessary for the conduct of their respective businesses as they are
            now conducted, all of which are in full force and effect; no
<PAGE>
                                       22


            violations thereof have been recorded; and no proceeding is pending
            or threatened which could result in the revocation or limitation
            thereof and neither the Funds nor the Manager is aware of any basis
            upon which the same may be revoked.

      (e)   COMPLIANCE WITH CONSTATING DOCUMENTS - The Manager and, to the best
            of the Manager's knowledge after due inquiry, each of the portfolio
            managers appointed by the Manager in respect of the portfolios of
            each of the Funds have complied with the investment objectives,
            policies and restrictions of each of the Funds as provided in their
            respective Constating Documents, the Advisory Agreements and the
            Prospectus Documents.

      (f)   CONSENTS AND APPROVALS - There are no consents,  approvals, orders
            or authorizations of  any  Person  or  registrations,  declarations,
            notices, filings or recordings with any Person required to be
            obtained or made by the Manager or any of the Funds in connection
            with the transactions contemplated by this Agreement, the execution
            and delivery of this Agreement or the performance of any of the
            terms and conditions  of this  Agreement  other than the consent of
            the board of directors of the Corporate Fund and the Manager, in its
            own capacity and in its capacity as the manager of each of the Funds
            and the trustee of each of the Trust Funds.

      (g)   RIGHT TO ASSIGN - The Manager has good and marketable title to the
            Fees assigned and transferred to FEP under this Agreement free and
            clear of any Lien (other than the rights of FEP under this
            Agreement) and has the right to assign such Fees to FEP. Each of the
            Fees is an Eligible Fee.

      (h)   FINANCIAL  STATEMENTS - (i) The financial statements of each of the
            Funds and the balance sheet of the Manager have been prepared in
            accordance with GAAP; and (ii) the  financial  statements  of the
            Funds present fairly the financial position and investment
            portfolios of each of the Funds as of the respective dates  thereof
            and the changes in each Fund's net assets for the period covered  by
            those  statements  and the  treatment  of  management  fees,  legal,
            audit, custodian,  safekeeping  fees,  interest,  operating  and
            administrative  costs payable by each of the Funds.

      (i)   ABSENCE OF UNDISCLOSED LIABILITIES - Except to the extent reflected
            or reserved against in the financial statements of the Funds or
            otherwise disclosed herein or except as incurred in the ordinary and
            normal course of the business of each of the Funds, none of the
            Funds has any outstanding indebtedness or any liabilities or
            obligations (whether direct or indirect, current or long-term,
            accrued, absolute, contingent or otherwise).
<PAGE>
                                       23


      (j)   TAX  MATTERS - None of the Funds is in  default  in filing  any tax
            returns  or reports  required  to be  filed as of the date of this
            Agreement  covering  any Canadian  federal,  provincial,  municipal
            or local taxes,  assessments or other imposts in respect of its
            respective  capital,  income,  business or  property. Each of the
            Trust Funds has  qualified and continues to qualify as a mutual fund
            trust under the Income Tax Act (Canada).  The  Corporate  Fund has
            qualified and continues  to  qualify  as a mutual  fund  corporation
            under the Income Tax Act (Canada).

      (k)   LITIGATION  - There  is no suit,  action,  litigation,  inquiry,
            investigation, arbitration or proceeding,  including  appeals and
            applications  to review,  in progress or, to the knowledge of the
            Manager,  threatened or pending  against or relating to the Funds or
            the Manager or affecting  their respective  properties or businesses
            which might materially  adversely affect  properties,  businesses,
            future  prospects  or  financial  condition of the Funds or the
            Manager or which might prevent or restrict the  distribution  to the
            public of the  Securities in each  jurisdiction  in which the
            Securities are qualified for  distribution  or which may seek to
            prevent the consummation of the  transactions  contemplated by this
            Agreement or seek any  determination  or ruling which may materially
            and adversely  affect the  performance  of the Manager or any of the
            Funds under the Agreement or could give rise to an  Adverse  Effect.
            There is not  presently outstanding against any of the Funds any
            judgement,  decree, injunction, rule or order   of   any   court,
            governmental   department,    commission,    agency, instrumentality
            or arbitrator.

      (l)   ACCURACY OF BOOKS AND RECORDS - The books and records, financial and
            otherwise, of each of the Funds and the balance sheet and books and
            records of the Manager (only in respect of the Fees) fairly and
            correctly set out and disclose in all material respects the
            financial position of each of the Funds and the Manager as of the
            date of this Agreement and all material transactions (subject to the
            qualifications as to the Manager's books and records) have been
            accurately recorded in those books and records.

      (m)   ACCURACY OF INFORMATION PROVIDED - All information provided by or on
            behalf of the Manager and the Funds on or prior to the date hereof
            to FEP or any agent thereof for purposes of or in connection with
            this Agreement or the transactions contemplated by this Agreement
            are true, correct and complete in all material  respects and no such
            information contains any material  misrepresentation or material
            omission to state therein matters necessary to make the statements
            made therein not misleading in any material respect in light of the
            circumstances  in which were made.
<PAGE>
                                       24


      (n)   DUE AUTHORIZATION, EXECUTION AND DELIVERY - This Agreement has been
            duly authorized, executed and delivered by the Manager and each of
            the Funds and is a valid and binding obligation of the Manager and
            each of the Funds enforceable in accordance with its terms, subject,
            however, to limitations with respect to enforcement imposed by law
            in connection with bankruptcy or similar proceedings and to the
            extent that equitable remedies, such as specific performance and
            injunction, are in the discretion of the court from which they are
            sought.

      (o)   ABSENCE OF CONFLICTING AGREEMENTS - Neither the Manager nor any of
            the Funds is a party to, bound or affected by or subject to any
            indenture, mortgage, lease, agreement, instrument, charter or by-law
            provision, statute, regulation order, judgement, decree or law which
            would be violated, contravened or breached by or under which any
            default would occur as a result of the execution and delivery of
            this Agreement or the performance of any of the terms of this
            Agreement or which could have an Adverse Effect.

      (p)   MATERIAL CONTRACTS - Except for the contracts and agreements (the
            "Material Contracts") listed in Schedule A, none of the Funds nor
            the Manager is a party to or bound by any presently existing oral
            or written contracts or a commitment which is material in respect
            of this Agreement and the transactions  contemplated  herein. The
            Material  Contracts are in  compliance  in all material  respects
            with applicable law, are in full force and effect, unamended, and
            no material  default exists in respect of any of them on the part
            of any of the  parties  and there  exists no set of facts  which,
            after  notice  or lapse of time or both,  would  constitute  such
            material  default.  Each of the  Funds  and the  Manager  has the
            capacity  to  perform  all their  respective  obligations  in the
            Material Contracts.  Each of the Material Contracts has been duly
            executed by the  signatories  thereto and constitutes a valid and
            binding  obligation  of  each  of  such  signatories  enforceable
            against them in accordance  with its respective  terms,  free and
            clear of any mortgage, pledge, lien, charge, security interest or
            encumbrance or rights of others.

      (q)   NO SECURITY AGREEMENT - No security agreement, equivalent security
            or lien instrument or, to the Manager's or any of the Funds'
            knowledge, any financing statement, other than the financing
            statements covering all or any part of the fees payable by the Funds
            to the Manager or the Fees payable to FEP under this Agreement, has
            been entered into or is on file or on record in any jurisdiction,
            except such as may be filed, recorded or made or contemplated by
            this Agreement or as provided in Schedule B hereto.

      (r)   PRINCIPAL PLACE OF BUSINESS, NAME - The Manager and the Funds'
            principal place of business and chief executive office and the place
            where its records are kept is at the address first written above or
<PAGE>
                                       25

            such other address of which FEP has received notice pursuant to
            section 11.7. The full legal name of the Manager and of each Fund
            (including any French form, any combined English/French form and any
            other form) is set forth on Schedule C.

      (s)   SECURITY ATTRIBUTES - The Securities of each of the Funds have the
            attributes described in the Prospectus Documents and, other than the
            ability to transfer and redeem Securities free of any Deferred
            Charge as described in the Prospectus Documents, no Security of any
            Fund has the benefit of any Conversion Feature.

      (t)   INSOLVENCY - Since December 31, 1996, there has not occurred a
            Insolvency Event with respect to the Manager or any of the Funds.

      (u)   DEFERRED CHARGES PAYABLE UPON TERMINATION - In the event of a
            termination of a Fund, a Deferred Charge as provided in this
            Agreement shall be payable in respect of each Distributed Security
            of such Fund outstanding for a period of 6 years or less from its
            date of issue or deemed date of issue.

      (v)   INFORMATION CORRECT - All information in respect of the payment of
            Selling Commissions relating to each Fund to be set forth in each
            Manager Report will be true and correct in all material respects.

5.2 FEP'S REPRESENTATIONS AND WARRANTIES.  FEP hereby represents and warrants to
the Manager and each of the Funds that:

      (a)   ORGANIZATION AND GOOD STANDING - FEP has been duly formed and
            organized as a limited partnership under the laws of the State of
            Texas and is validly existing, is up-to-date in all material filings
            and registrations required under the laws of the United States and
            has all necessary power, authority and capacity to own its property
            and assets and to carry on the business in which it is now engaged.

      (b)   RESIDENCE - FEP and all of the partners of FEP are resident in the
            United States for purposes of the Internal Revenue Code of 1986 and
            the Canada-United States Income Tax Convention, 1980 and are
            non-residents of Canada for the purposes of the Income Tax Act
            (Canada).

      (c)   G.S.T.  - FEP is not a registrant under the  Excise Tax Act (Canada)
            for the purposes of the goods and services tax.

      (d)   DUE AUTHORIZATION, EXECUTION AND DELIVERY - This Agreement has been
            duly authorized, executed and delivered by FEP and is a valid and
            binding obligation of FEP enforceable in accordance with its terms,
<PAGE>
                                       26

            subject, however, to limitations with respect to enforcement imposed
            by law in connection with bankruptcy or similar proceedings and, to
            the extent that equitable remedies such as specific performance and
            injunction are in the discretion of the court from which they are
            sought.

      (e)   ABSENCE OF CONFLICTING AGREEMENTS - FEP is not a party to, bound or
            affected by or subject to any indenture, mortgage, lease, agreement,
            instrument, charter or by-law, provision, statute, regulation,
            order, judgement, decree or law which would be violated, contravened
            or breached by, or under which any default would occur as a result
            of, the execution and delivery by it of this Agreement or the
            performance by it of any of the terms of this Agreement.

      (f)   LITIGATION  - There  is no  suit,  action,  litigation,  inquiry,
            investigation,  arbitration or proceeding,  including appeals and
            applications to review in progress, pending or threatened against
            or relating to FEP or affecting  its  property or business  which
            may materially  adversely affect its property,  business,  future
            prospects  or  financial  condition  or  which  could  materially
            adversely  affect the performance or obligations of FEP under, or
            the validity or  enforceability  of this Agreement or which could
            give  rise to any  adverse  effect  on  FEP's  ability  to pay or
            perform any of its material obligations under this Agreement.

      (g)   FINANCIAL CAPACITY - FEP has the financial capability and resources
            to perform its obligations under this Agreement, including the
            payment of all Selling Commissions due to registered dealers
            pursuant to Article 4 of this Agreement.

5.3 NON-WAIVER. No investigation made by or on behalf of any party at any time
shall have the effect of waiving, diminishing the scope of or otherwise
affecting any representation or warranty made by any other party in or pursuant
to this Agreement. No waiver by any party of any condition, in whole or in part,
shall operate as a waiver of any other condition.

5.4 NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All statements
contained in any certificate or other document delivered by or on behalf of a
party pursuant to or in connection with the transactions contemplated by this
Agreement shall be deemed to be made by that party under this Agreement.

      All representations and warranties, covenants and agreements on the part
of each of the parties contained in this Agreement or in any certificate or
other document delivered pursuant to this Agreement shall survive the Closing
and shall survive for the duration of this Agreement.

<PAGE>
                                       27


                                    ARTICLE 6

                              CONDITIONS PRECEDENT

6.1 FEP'S CONDITIONS TO CLOSING. The obligation of FEP to complete the
transactions contemplated by this Agreement shall be subject to the satisfaction
of, or compliance with, at or before the Closing Time, each of the following
conditions precedent (each of which is acknowledged to be inserted for the
exclusive benefit of FEP and may be waived by it in whole or in part by notice
in writing to the Manager):

      (a)   TRUTH AND  ACCURACY  OF  REPRESENTATIONS  AND  WARRANTIES  OF THE
            MANAGER AND THE FUNDS AT CLOSING  TIME - All the  representations
            and  warranties  of the Manager and the Funds made in or pursuant
            to this  Agreement  shall be true  and  correct  in all  material
            respects  as at the  Closing  Time and with the same effect as if
            made  at  and  as at  the  Closing  Time.  FEP  shall  receive  a
            certificate from the Manager and each of the Funds confirming the
            truth  and   correctness   in  all   material   respects  of  the
            representations and warranties of the Manager and the Funds.

      (b)   RECEIPT OF CLOSING DOCUMENTATION - All documentation  relating to
            the  assignment  of Fees  payable  to FEP  and  the  transactions
            contemplated  by this  Agreement,  including a legal opinion from
            counsel to the Manager and the Funds,  shall be  satisfactory  to
            FEP  and  its   counsel.   FEP  shall   receive   copies  of  all
            documentation  or other  evidences it may  reasonably  request in
            order  to  establish  the   consummation   of  the   transactions
            contemplated  by this  Agreement  and the taking of all corporate
            proceedings in connection  with this Agreement in compliance with
            these conditions in form (as to certification  and otherwise) and
            substance satisfactory to FEP and its counsel.

      (c)   MATERIAL ADVERSE CHANGE - No material adverse change in the
            condition or operations of the business, assets or financial
            condition of the Funds or the Manager shall have occurred including
            any change in the fundamental investment objective of a Fund, and no
            Adverse Effect shall have occurred.

      (d)   PERFORMANCE OF OBLIGATIONS - The Manager and each of the Funds shall
            have performed or complied with, in all respects, all obligations,
            covenants and agreements in this Agreement to be performed or
            complied with by the Closing Time.


      (e)   CONSENTS,   AUTHORIZATIONS  AND  REGISTRATIONS  -  All  consents,
            approvals,  orders and  authorizations of any Person in Canada or
            elsewhere  including,  without  limitation,  the  approval of the
            board of directors of the Corporate Fund and the Manager,  in its
            own capacity  and in its capacity as the manager,  of each of the
<PAGE>
                                       28


            Funds  and  trustee  of  each of the  Trust  Funds,  required  in
            connection  with  the  completion  of  any  of  the  transactions
            contemplated by this Agreement,  the execution of this Agreement,
            the Closing or the performance of any of the terms and conditions
            of this  Agreement  shall  have been  obtained  at or before  the
            Closing Time.

      (f)   MANAGER AND TRUSTEE OF THE FUNDS - The Manager shall, at the date of
            this Agreement and at the Closing Time, be the manager of each of
            the Funds and the trustee of each of the Trust Funds.

      (g)   PPSA SEARCH REPORTS - FEP shall have received certified copies of
            search  reports  under  applicable   personal  property  security
            legislation  dated  reasonably  near the Closing Date listing all
            effective financing  statements which name the Manager (under its
            respective  present  name or any  previous  names) or any Fund as
            debtor and which are filed in the  jurisdictions in which filings
            are required to be made pursuant to section 6.1(i)  together with
            copies of such  financing  statements,  none of which (other than
            those in  favour  of FEP)  will  cover any of the Fees due to FEP
            under this Agreement.

      (h)   RELEASE OF EXISTING SECURITY INTERESTS - The Manager shall have
            caused FEP to receive duly executed copies of proper discharge
            statements, if any, necessary to release all security interests and
            other rights of any Person in the Fees due to FEP under this
            Agreement.

      (i)   DULY REGISTERED FINANCING STATEMENTS - FEP shall have received
            confirmation of the registration of financing statements under the
            personal property security legislation of all jurisdictions FEP may
            deem reasonably necessary or desirable in order to perfect its
            interest in the Fees payable to it as contemplated by this
            Agreement, each of which shall be in form, scope and substance
            satisfactory to FEP.

      (j)   FINANCIAL STATEMENTS - FEP or its Permitted Designee shall have
            received copies of the Manager's audited balance sheet as at
            September 30, 1997 together with the auditors' report thereon.

      (k)   EVENT OF TERMINATION - The Manager and the Funds are in compliance
            with section 6.2(c).


6.2 FEP'S CONDITIONS TO PAYMENT OF SELLING COMMISSIONS FROM TIME TO TIME. The
obligation of FEP to arrange for the distribution of Deferred Charge Securities
and to pay Selling Commissions under this Agreement from time to time shall be
subject to the satisfaction of, or compliance with, each of the following
conditions precedent (each of which is acknowledged to be inserted for the
<PAGE>
                                       29


exclusive benefit of FEP and may be waived by it in whole or in part by notice
in writing to the Manager) at each such time:

      (a)   TRUTH AND ACCURACY OF REPRESENTATIONS AND WARRANTIES OF THE MANAGER
            AND THE FUNDS - The representations and warranties of the Manager
            and the Funds made in or pursuant to sections 5.1 (a), (b), (c),
            (d), (e), (g), (h), (i), (j), (k), (l), (m), (o), (p), (q), (t) and
            (v) shall be true and correct in all material respects as of the
            time of arranging for the distribution of Deferred Charge Securities
            and payment of such Selling Commissions and with the same effect as
            if made at the time of payment of Selling Commissions.

      (b)   MANAGER AND TRUSTEE OF THE FUNDS - The Manager or an Affiliate of
            the Manager shall, at the time of payment of such Selling
            Commissions, be the manager of each of the Funds and trustee of each
            of the Trust Funds.

      (c)   EVENT OF TERMINATION - Both  immediately  before and  immediately
            after  giving  effect to the payment of a Selling  Commission  on
            such date by FEP, no FEP Event of  Termination  (or event  which,
            with the passage of time or the giving of notice,  or both, would
            constitute an Event of  Termination) in respect of the Manager or
            any of the Funds shall have occurred and be  continuing  provided
            that, for purposes of this section,  FEP Event of Termination (g)
            shall  not be  deemed to have  occurred  until the 60 day  notice
            period provided for in section 8.1 has expired.

      (d)   DISTRIBUTION RIGHTS - The Manager shall have delivered all Manager's
            Reports required to be delivered on or prior to such date pursuant
            to this Agreement, which shall be in form and substance reasonably
            satisfactory to FEP or its Permitted Designee.

      (e)   PERFORMANCE OF OBLIGATIONS - The Manager and each of the Funds shall
            have performed or complied with, in all material respects, all
            obligations, covenants and agreements in this Agreement to be
            performed or complied with.

The delivery of the Manager Report from time to time shall constitute a
representation and warranty by the Manager that, on the date of such delivery,
the conditions set forth in section 6.2 have been fulfilled, except as
specifically agreed to in writing by FEP.

6.3 MANAGER AND FUNDS' CONDITIONS. The obligations of the Manager and each of
the Funds to complete the transactions contemplated by this Agreement shall be
subject to the satisfaction of, or compliance with, at or before the Closing
Time, each of the following conditions precedent (each of which is acknowledged
to be inserted for the exclusive benefit of the Manager and the Funds and may be
waived by them in whole or in part by notice in writing to FEP):
<PAGE>
                                       30

      (a)   TRUTH AND ACCURACY OF REPRESENTATIONS OF FEP AT CLOSING TIME - All
            the representations and warranties of FEP made in or pursuant to
            this Agreement shall be true and correct in all material respects as
            at the Closing Time with the same effect as if made at and as at the
            Closing Time.

      (b)   PERFORMANCE OF OBLIGATIONS - FEP shall have performed or complied
            with, in all material respects, all obligations, covenants and
            agreements in this Agreement to be performed or complied with by the
            Closing Date.

      (c)   MATERIAL ADVERSE EFFECT - No material adverse change in the
            condition or operation of the business, assets or financial
            condition of FEP shall have occurred which would adversely affect
            its ability to pay or to perform its obligations under this
            Agreement.

      (d)   CONSENTS, AUTHORIZATIONS AND REGISTRATIONS - All consents,
            approvals, orders and authorizations of any Person or government
            authority in Canada or elsewhere including, without limitation, the
            approval of the board of directors of FEP, required in connection
            with the contemplation of any of the transactions contemplated by
            this Agreement, the execution of this Agreement, the closing or
            performance of any of the terms and conditions of this Agreement
            shall have been obtained on or before the Closing Time.

                                   ARTICLE 7

                                   COVENANTS

7.1 COVENANTS OF THE MANAGER AND THE FUNDS. Each of the Manager and the Funds
covenant and agree (but only as to itself) with FEP to the extent applicable
that prior to the termination of this Agreement:

      (a)   COMPLIANCE WITH MATERIAL  CONTRACTS - Each of the Manager and the
            Funds, and the Manager shall use commercially  reasonable efforts
            to cause each  portfolio  manager  of each of the Funds to,  duly
            comply  with  all  applicable   laws  in  the  conduct  of  their
            respective  businesses,  to  maintain  and keep in full force and
            effect all licences,  registrations and authorizations  necessary
            to  conduct  their  respective   businesses  and  to  fulfil  all
            obligations  on its part to be performed  under or in  connection
            with this  Agreement,  the Advisory  Agreements  and the Material
            Contracts  to which it is a party  unless  the  failure  to do so
            would not have an Adverse Effect.
<PAGE>
                                       31


      (b)   TERMINATION OF THE FUNDS - The Manager and each of the Funds shall,
            subject to the discharge of their respective fiduciary duties, not
            take any action, omit to take any action or initiate any proceeding
            which may, indirectly or directly, trigger the termination or
            wind-up of a Fund pursuant to any of the Material Contracts if such
            termination or wind-up has an Adverse Effect upon FEP.

      (c)   MAINTENANCE OF BOOKS AND RECORDS - Each of the Manager and the Funds
            shall keep proper books and records in accordance with normal
            business practice in which full and appropriate entries shall be
            made of all transactions in relation to its business activity which
            relate in any manner to the transactions contemplated by this
            Agreement.

            The Manager shall cause its auditors to review the Manager's books
            and records relating to the payment of the Selling Commissions and
            the calculation of Fees and the Manager shall provide and shall
            cause its auditors to provide written affirmation as to the accuracy
            of those books and records in respect of the matters relating to the
            payment of Selling Commissions and the Fees no later than June 30,
            1998 and thereafter within 90 days following the end of the
            Manager's fiscal year. The standards relating to the review of such
            books and records must be acceptable to the Manager's and FEP's
            auditors as complying with Canadian and U.S. generally accepted
            accounting standards. The Manager shall pay all reasonable expenses
            incurred by FEP in reviewing the Manager's books and records and
            such written affirmation.

      (d)   DISCLOSURE  OF  MATERIAL  CHANGES - Each of the  Manager  and the
            Funds shall  promptly  give written  notice to FEP (i) of any FEP
            Event of Termination or event which,  with the passage of time or
            the giving of notice or both,  would  constitute  an FEP Event of
            Termination;  (ii) any material  litigation or  proceedings  with
            respect to the Manager, any portfolio manager of any of the Funds
            or the  Funds or any of their  respective  assets  or  properties
            which,  if  adversely  determined,  could give rise to an Adverse
            Effect;  (iii) the failure of any  representation  or warranty of
            the Manager or any of the Funds contained in this Agreement to be
            true and correct in all  material  respects as of the date given;
            or (iv) the failure of any of the Manager or the Funds to perform
            any obligation which is required to be performed by it under this
            Agreement  in any  material  respect on a timely  basis;  (v) any
            material change in the management or structure of the Funds.


      (e)   FURTHER  INSTRUMENTS  AND DOCUMENTS - Each of the Manager and the
            Funds shall  promptly  at its expense  execute and deliver to FEP
            such  further  instruments  and  documents  and take such further
            action as FEP may from time to time  reasonably  request in order
            to further carry out the intent and purpose of this Agreement and
<PAGE>
                                       32


            to  establish  and  protect the rights,  interests  and  remedies
            created or intended to be created  hereby and thereby  including,
            without  limitation,  the execution  and delivery,  recording and
            filing  of  financing  statements  under  the  personal  property
            securities legislation of any applicable  jurisdiction,  provided
            however, that the Manager and the Funds shall not be obligated to
            execute and deliver such  further  instruments  and  documents if
            they would thereby incur any material  obligations or liabilities
            not contemplated by this Agreement.

      (f)   RIGHTS OF  INSPECTION  - Each of the  Manager  and the Fund shall
            permit FEP or any Permitted Designee reasonably acceptable to the
            Manager and the Funds to visit and inspect the properties, files,
            books and  records  of the  Manager  relating  to the Fees,  this
            Agreement, the transactions contemplated hereby and the financial
            condition,  results of operations, cash flows of the Funds and to
            discuss the foregoing with the officers,  partners, employees and
            accountants of the Manager,  all at such reasonable  times during
            reasonable  business  hours  and as often  as FEP may  reasonably
            request.

      (g)   MAINTENANCE OF PROSPECTUS - Each of the Funds and the Manager shall
            maintain the Prospectus Documents in order to qualify the Securities
            of the Funds for sale to the public in full force and effect so that
            the Deferred Charge Securities may be offered for sale to the public
            in all of the provinces and territories of Canada during the period
            in which FEP has the right to arrange for the distribution of
            Deferred Charge Securities hereunder.

      (h)   PRESERVATION OF  RELATIONSHIPS - The Manager shall, and shall use
            commercially   reasonable   efforts  to,  and  use   commercially
            reasonable  efforts to cause the portfolio managers for the Funds
            to, in each case,  consistent with past practice,  preserve their
            relationships with each Fund, including without limitation, those
            arrangements  relating to  distribution,  management,  investment
            management and  administration of the Funds; and not to terminate
            or take  any  action  or omit to take  any  action  which  would,
            indirectly  or directly,  trigger the  termination  of a Material
            Contract. For greater certainty, the foregoing sentence shall not
            prevent the Manager from (i) terminating a Material Contract when
            the Manager,  acting  reasonably,  considers such action to be in
            the best  interests of a Fund or the Funds;  or (ii)  assigning a
            Material Contract to an Affiliate,  provided that such assignment
            does not result in an Adverse Effect.

      (i)   DELIVERY OF LENDER NOTICES - The Manager and the Funds shall deliver
            to FEP a copy of all notices or waivers of default, delivered by any
            lenders to the Funds and of all agreements and amendments entered
            into with such lenders.

<PAGE>
                                       33


      (j)   CHANGE TO INVESTMENT OBJECTIVE OF A FUND - In the event, the
            investment objective of a Fund is amended and such amendment has a
            material impact upon the Fees received by FEP, then the Manager and
            such Fund agree to amend the Monthly Fee payable to FEP under this
            Agreement in light of such material impact.

      (k)   PAYMENT OF FUNDS - If the Manager or any designee or agent thereof
            shall receive any of the Fees from a Fund, the Manager or such
            designee or agent shall hold such Fees in trust for FEP
            (acknowledging that such Fees do not constitute property of the
            Manager) and immediately following receipt of any such Fees, the
            Manager shall, or shall cause such Person to, remit the same to FEP
            in the form received and ensure that such amounts are not commingled
            with other funds.

      (l)   PROVISION  OF  INFORMATION  - All  information  provided by or on
            behalf of the  Manager or the Funds  after the date hereof to FEP
            or any Permitted  Designee for purposes of or in connection  with
            this Agreement, or the transactions  contemplated hereby, will be
            true,  correct and complete in all respects  material to the Fees
            and the  transactions  contemplated by this Agreement and no such
            information  will  contain  any  material   misrepresentation  or
            material  omission to state  therein  matters  necessary  to make
            statements  therein not misleading in any respect material to the
            Fees and the transactions contemplated by this Agreement in light
            of the  circumstances in which they are made,  provided that this
            covenant shall apply only to such misrepresentations or omissions
            as would give rise to an Adverse Effect.

      (m)   STATUS OF FEES - Except to the extent expressly permitted by this
            Agreement, neither the Manager or the Funds shall permit to exist
            any Lien on or attempt to transfer or grant a security interest in
            any interest in any Fees.

      (n)   NOTICE RESPECTING  PRINCIPAL OFFICE, NAME - The Manager shall not
            move its chief executive  office,  principal place of business or
            the place where it keeps its records concerning the Fees from the
            office  specified in section 5.1(r) or change its name (including
            any French form, any combined  English/French  form and any other
            form) or the name  under or by  which it  conducts  its  business
            unless  the  Manager  shall  have  given to FEP not less  than 15
            Business  Days' prior  written  notice of its intention to do so,
            and of any new location or new name.

            The Manager and the Funds shall not take any action or omit to take
            any action that will have an Adverse Effect upon FEP's interest in
            the Fees under personal property security legislation and each of
            such parties agrees that it will do all such things as are
            reasonably necessary to permit FEP to maintain the priority
            registration of its financing statements respecting its interest in
            the Fees under the personal property security legislation.
<PAGE>
                                       34


      (o)   PROVISION OF BALANCE SHEET - The Manager shall furnish to FEP:

               (i)  its balance  sheet as soon as available and no later than 90
                    days  after the end of its  fiscal  year.  An opinion of the
                    independent  auditors  of the  Manager  will  accompany  its
                    balance  sheet  confirming  that such balance sheet has been
                    prepared in  accordance  with GAAP and fairly  presents  the
                    financial condition;

               (ii) as soon as  available,  and in no event  later  than 90 days
                    after the end of each semi-annual period of its fiscal year,
                    the  balance  sheet  referred to in clause (i) above for the
                    semi-annual  period  which shall be  prepared in  accordance
                    with GAAP but need not be audited;

               (iii)together with each  delivery of the balance  sheet  pursuant
                    to  clause  (i)  above a  certificate  signed  by any of its
                    senior  financial  officers  certifying  in  their  official
                    capacity only and not personally as to the absence of an FEP
                    Event of Termination as of the date thereof; and

               (iv) promptly such other information as FEP may from time to time
                    reasonably request.

      (p)   FEE  PAYMENT  BY A FUND - If at any time  after  the date of this
            Agreement an Insolvency Event occurs, the Manager or an Affiliate
            of the Manager is no longer the manager of a Fund or is no longer
            the trustee of a Trust Fund, such Fund agrees that from and after
            such date such Fund  shall  continue  to be  responsible  for and
            shall  continue to pay to FEP the amounts  required to be paid to
            FEP under this Agreement and such Fund, and the Manager shall use
            its  best  efforts  to  cause  any  successor  manager,  trustee,
            receiver-manager  or such  other  Person,  as the case may be, to
            enter into any necessary  agreement to provide for the continuing
            provision of the service of FEP and the uninterrupted  payment of
            the Fees to FEP as provided for in this Agreement.

      (q)   MAINTENANCE  OF FEES - Each Fund and the  Manager  hereby  agrees
            with FEP that they will not, at any time while FEP is entitled to
            receive payment of any amount hereunder, consent to or agree to a
            reduction in the Deferred  Charge for  Distributed  Securities or
            any  alteration in the manner or as to the time of calculation of
            the Deferred Charge or effect any action,  amendment or change of
            any  nature   whatsoever   if  the  effect  of  such   reduction,
            alteration,  action,  amendment  or change would be to reduce the
            amounts payable to FEP or materially  adversely affect the timing
            of the receipt of such amounts payable pursuant to Article 4.

<PAGE>
                                       35


      (r)   MANAGER AND TRUSTEE OF THE FUNDS - The Manager shall, at the date of
            this Agreement and at the Closing Time, be the manager of each of
            the Funds and the trustee of each of the Trust Funds.

      (s)   PAYMENT OF TAXES - Each of the Manager and the Funds shall cause to
            be paid and discharged all taxes, assessments and other charges or
            levies of any authority imposed upon it or upon any of its income or
            assets, prior to the day on which penalties are attached thereto, if
            the failure to pay and discharge such tax assessment or other
            charges or levies could give rise to an Adverse Effect.

      (t)   PROTECTION OF FEP'S RIGHTS - Each of the Manager and the Funds shall
            use commercially reasonable efforts consistent with past practice to
            protect the interests of FEP under this Agreement for so long as FEP
            is entitled to any Fees under this Agreement.

      (u)   CORPORATE RESTRUCTURING - Neither the Manager or any of the Funds
            shall (i) sell or otherwise  dispose of all or substantially  all
            of its assets;  (ii)  consolidate or merge with or enter into any
            agreement  to do so with  another  Person;  (iii)  acquire all or
            substantially  all the assets of another Person; or (iv) permit a
            majority of the interest in the capital  distribution  or profits
            of it to be  acquired by any Person;  unless,  in all cases,  the
            Manager provides to FEP reasonable written notice consistent with
            the  disclosure  obligations  it  would  have if it were a public
            company and provided that (i) immediately  after giving effect to
            such   consolidation,   merger,   sale,   disposition   or  other
            transaction,  the  corporation  or  other  entity  formed  by  or
            surviving any such consolidation,  merger or other transaction or
            to which such sale or disposition  shall have been made,  whether
            the  Manager  or the  Funds,  as the case may be,  or such  other
            entity  (the  "Surviving  Entity")  shall  not be in  default  in
            performance  or  observation  of any of the terms,  covenants and
            conditions of any Program  Document to be kept or performed by it
            or any  indebtedness  or  financing  transaction  for itself that
            would have an Adverse  Effect;  (ii) the  Surviving  Entity shall
            expressly assume the due and punctual performance and observation
            of all  covenants and  conditions of the Program  Documents to be
            performed  or  observed  by the  predecessor  entity,  if any, by
            agreement  reasonably  satisfactory in form and substance to FEP;
            and (iii) FEP shall  have  satisfied  itself as to the  continued
            perfection and priority of its security interest in the Fees.

      (v)   BOARD OF DIRECTORS FOR THE FUNDS - The Manager and each of the Funds
            shall provide 60 days' prior written notice to FEP of any proposed
            introduction of a board of directors for any of the Funds.
<PAGE>
                                       36


      (w)   CLIENT AND PORTFOLIO REPORTING - The Manager shall provide client
            and portfolio  reporting to FEP. Client reporting will consist of
            the administration  package of reports on monthly  securityholder
            activity   derived  from  the  Funds'  transfer  agent's  system.
            Portfolio  reporting  will  consist  of a monthly  balance  sheet
            (statement of condition)  inclusive of price and securities (with
            CUSIP   numbers)   reported  to  FEP  in  respect  of  each  Fund
            separately.  The portfolio  reports shall be in substantially the
            same  form  as  those   currently   generated  by  the  Manager's
            accountants daily.

7.2 COVENANTS OF FEP. FEP covenants and agrees with each of the Manager and the
Funds to the extent applicable that prior to the termination of this Agreement:

      (a)   SERVICES RENDERED OUTSIDE CANADA - FEP shall not and shall not
            permit any of its employees to render in Canada the services of
            arranging for the distribution of Deferred Charge Securities or any
            other service for which it receives a fee under the Program
            Documents.

      (b)   PROVISION OF FEP BALANCE SHEET - FEP shall furnish to the Manager:

               (i)  its balance  sheet as soon as available and no later than 90
                    days  after the end of its  fiscal  year.  An opinion of the
                    independent auditors of FEP will accompany its balance sheet
                    confirming  that such  balance  sheet has been  prepared  in
                    accordance  with  GAAP and  fairly  presents  the  financial
                    condition;

               (ii) as soon as  available,  and in no event  later  than 90 days
                    after the end of each semi-annual  period of its fiscal year
                    prior to the Termination Date, the balance sheet referred to
                    in clause (i) above for the  semi-annual  period which shall
                    be prepared in accordance with GAAP but need not be audited;

               (iii)together with each  delivery of the balance  sheet  pursuant
                    to clause  (i)  above,  a  certificate  signed by any of its
                    senior  financial  officers  certifying  in  their  official
                    capacity  only and not  personally  as to the  absence  of a
                    Manager's Event of Termination as of the date thereof.
<PAGE>
                                       37


                                    ARTICLE 8

                     TERMINATION EVENTS AND PURCHASE EVENTS

8.1 FEP TERMINATION EVENTS. The obligation of FEP to arrange for the
distribution of Deferred Charge Securities and to pay the Selling Commissions
pursuant to Article 3.6 may be terminated by FEP if a FEP Event of Termination
shall occur and be continuing. Such termination shall be effected by the giving
of written notice to the Manager giving the Manager 15 Business Days (60 days in
the case of FEP Event of Termination (g)) to cure such breach during which
period FEP shall not have the right to suspend its obligation to arrange for the
distribution of Deferred Charge Securities and to pay Selling Commissions. If
such breach continues uncured, at the expiration of such notice period, FEP may
give a second written notice to the Manager declaring that the Termination Date
has occurred (in which case the Termination Date shall be deemed to have
occurred on the date such second notice is given). The parties agree that in
respect of FEP Event of Termination (g), the parties shall use their respective
commercially reasonable efforts during such 60 day notice period to restructure
the distribution arrangement contemplated by the Program Documents to attempt to
accommodate and facilitate the continued arrangement notwithstanding such
change.

8.2   PURCHASE EVENTS.

      (a)   If any Purchase Event shall occur and be continuing, FEP may,
            without prejudice to any other rights and remedies which FEP may
            have under or in connection with this Agreement or any other Program
            Document or under applicable law, waive the Purchase Event.

      (b)   FEP may by written notice to the Manager require that the Manager or
            the Funds use their respective commercially reasonable efforts to
            cure the Purchase Event within 15 Business Days after receipt of
            such notice, and, if the Manager or the Funds do not so cure such
            Purchase Event within such cure period, FEP may elect any one of the
            following courses of action:

               (i)  waive the breach;

               (ii) sue the Manager or the Funds for damages; or

               (iii)grant the Manager or a Person  acceptable to the Manager and
                    FEP, acting  reasonably,  the option to purchase FEP's right
                    to Fees for an amount equal to 110% of the FEP Balance Sheet
                    Carrying  Value as of the  expiration of the cure period set
                    forth above.


      (c)   Upon receipt of any payment under section 8.2(b) (iii), FEP shall
            execute and deliver to the replacement  party(s) such instruments
            relating to the Fees as the  replacement  party(s) or its counsel
            may  reasonably  request to convey to the  replacement  party(s),
            without  representation  or  warranty  of any kind  (other than a
<PAGE>
                                       38


            warranty  that FEP is conveying  such interest in the Fees as was
            conveyed to it by the Manager free and clear of any Liens),  such
            interest, if any, as FEP shall then have in the Fees, except that
            FEP shall not be obligated to execute and deliver any  instrument
            if it  would,  as a  result,  incur any  material  obligation  or
            liability not  contemplated  by this  Agreement.  Upon receipt of
            such payment, FEP shall not be entitled to indemnification  under
            section 9.1 other than with respect to  Liabilities  alleged by a
            Person other than the Funds and the Manager.

      (d)   If the Manager elects not to purchase the Fees and FEP pursues such
            remedies as it may have related to the circumstances that gave rise
            to such Purchase Event, the parties hereto acknowledge that, due to
            the difficulty that FEP may have proving the amount of monetary
            damage that it will have suffered or may in the future suffer as a
            result of such circumstances, an equitable remedy for such injury
            may be appropriate.

8.3   MANAGER SUSPENSION AND TERMINATION RIGHTS.

      (a)   MANAGER'S  TERMINATION  RIGHT.  Provided  that  a  FEP  Event  of
            Termination has not occurred and is continuing,  the right of FEP
            to arrange for the distribution of Deferred Charge  Securities of
            the Funds under this  Agreement  may be terminated by the Manager
            if FEP fails to pay Selling Commissions pursuant to Article 3 and
            such failure is continuing.  Such termination  shall be effective
            by the giving of written  notice to FEP by the Manager giving FEP
            15 Business  Days to cure such  breach  during  which  period the
            Manager shall not have any right to terminate FEP's  distribution
            right.  If such breach  continues  uncured,  at the expiration of
            such notice period,  the Manager may give a second written notice
            to FEP declaring that the Termination Date has occurred (in which
            case a  Termination  Date shall be deemed to have occurred on the
            date such second notice is given).

      (b)   MANAGER'S PURCHASE EVENT. If a Manager Event of Termination shall
            occur and be continuing, the Manager or its designee may, with or
            without the consent of FEP, upon 60 days' notice, purchase all of
            FEP's  right,  title  and  interest  in and to all the Fees for a
            price equal to the FEP Balance Sheet Carrying Value in respect of
            each Quarterly Pool. Upon receipt of any such payment,  FEP shall
            execute  and  deliver  to  the  Manager  or  its  designee   such
            instruments  relating  to the Fees as the  Manager or its counsel
            may  reasonably   request  to  convey  to  the  Manager   without
            representation  or  warranty  of any kind  (other than a warranty
            that it owns such  interest in the Fees as was  conveyed to it by
            the Manager free and clear of all Liens), such interest,  if any,
            as FEP shall then have in the Fees,  except that FEP shall not be
            obligated to execute and deliver any instrument if it would, as a
            result,   incur  any  material   obligation   or  liability   not
            contemplated by the Program Documents to which it is a party. The
<PAGE>
                                       39


            parties   agree  that,   in  respect  of  the  Manager  Event  of
            Termination   (a),  the  parties   shall  use  their   respective
            commercially  reasonable efforts during such 60 day notice period
            to restructure the distribution  arrangement  contemplated by the
            Program  Documents to attempt to  accommodate  and facilitate the
            continued arrangement notwithstanding such change.

      (c)   MANAGER'S SUSPENSION RIGHTS. The Manager may at any time and from
            time to time suspend FEP's right to arrange for the distribution of
            Deferred Charge Securities, for a maximum period of 12 calendar
            months per suspension, provided that, in respect of each suspension:

               (i)  it  provides  to FEP not  less  than 60 days  prior  written
                    notice of the suspension; and

               (ii) the  suspension  period  may  only  commence  on  the  first
                    business day of a calendar month following the expiry of the
                    notice period;

            and provided that in respect of the termination of an existing
            suspension period and the recommencement of FEP's distribution right
            under the Agreement:

               (i)  not less  than 60 days  written  notice is  provided  by the
                    Manager  to FEP  prior  to  the  expiry  of  the  applicable
                    suspension period; and

               (ii) following the termination of an existing  suspension period,
                    FEP's  distribution  right  shall be for a minimum  of three
                    months.

            The parties acknowledge and agree that FEP shall be entitled to
            terminate this Agreement at any time following the end of a 12
            calendar month suspension period if the Manager has not provided
            written notice to FEP of the Manager's intent to recommence FEP's
            distribution right 60 days prior to the end of the suspension
            period.

            In addition to its rights of suspension as provided above, the
            Manager, may, at any time, terminate FEP's right to arrange for the
            distribution of Deferred Charge Securities in respect of any future
            Quarterly Pool by providing 90 days prior written notice to FEP.


8.4 COSTS AND EXPENSES OF FEP. All costs and expenses incurred by FEP in
connection with the enforcement of this Agreement against the Manager or the
Funds resulting from an FEP Event of Termination or a Purchase Event shall be
paid by the Manager or the Funds forthwith on demand therefor by FEP. The
<PAGE>
                                       40


payment obligations of the Manager and the Funds under this section shall be
several.

8.5 COSTS AND EXPENSES OF MANAGER. All costs and expenses incurred by the
Manager in connection with the enforcement of this Agreement against FEP
resulting from a Manager Event of Termination shall be paid by FEP forthwith on
demand therefor by the Manager.

                                    ARTICLE 9

                                 INDEMNIFICATION

9.1 INDEMNIFICATION OF FEP. The Manager and each of the Funds severally agree to
indemnify and hold harmless FEP, each of its partners and each of their
respective Affiliates and their respective officers, directors, employees,
agents and advisers (an "Indemnified Party") from and against any and all
claims, damages, losses, liabilities, expenses, obligations, penalties, actions,
suits, judgements and disbursements or any kind or nature whatsoever (including
without limitation the reasonable fees and disbursements of counsel and expert
witnesses (collectively but without duplication the "Liabilities")) that may be
incurred by, asserted or awarded against any Indemnified Party, in each case
arising out of or relating to or by reason of any one or more of the following:

      (a)   preparation for, or defence of, any investigation, litigation or
            proceeding arising out of or relating to any of the Prospectus
            Documents, this Agreement or the transactions contemplated hereby;

      (b)   any  failure  or  alleged  failure  by the  Manager  or a Fund to
            perform  any of  its  obligations  contained  in  this  Agreement
            promptly and fully;

      (c)   any failure or alleged failure of any representation or warranty
            made or deemed made by the Manager or a Fund contained in this
            Agreement which has an Adverse Effect;

      (d)   any failure or alleged failure to provide to FEP good and marketable
            title under applicable personal property securities legislation to
            the Fees;

      (e)   the failure of this Agreement or the Program  Documents to comply
            with law; and

      (f)   any non-fulfilment of any condition precedent or covenant on the
            part of the Manager or any of the Funds under this Agreement whether
            before or after the Closing,
<PAGE>
                                       41


provided that the Manager and the Funds shall not be required to indemnify any
Indemnified Party in respect of any Liability if and to the extent that such
Liability results from one or more of the following:

      (g)   the negligence or wilful  misconduct of an  Indemnified  Party or
            any other Person for whom an Indemnified Party acts; or

      (h)   the failure of the Indemnified Party to perform any of its covenants
            set forth in this Agreement or any failure of any of the
            representations and warranties of the Indemnified Party to be true
            and correct.

The parties acknowledge and agree the Manager shall only be responsible pursuant
to this section to the extent of its obligations under the Agreement and its
sole liability under this section shall be limited to any liability resulting
from the Manager's failure to perform its obligations under this Agreement.

9.2 INDEMNIFICATION OF MANAGER AND THE FUNDS. FEP agrees to indemnify and hold
harmless the Manager and the Funds, each of its partners and each of their
respective affiliates and their respective officers, directors, employees,
agents, advisers of any Person controlling any of the foregoing (an "Indemnified
Party") from and against any and all claims, damages, losses, liabilities,
expenses, obligations, penalties, actions, judgements and disbursements of any
kind or nature whatsoever (including without limitation the reasonable fees and
disbursements of counsel and expert witnesses (collectively but without
duplication the "Liabilities")) that may be incurred by, asserted or awarded
against any Indemnified Party, in each case arising out of or relating to or by
reason of any one or more of the following:

      (a)   failure  or  alleged  failure  by  FEP  to  perform  any  of  its
            obligations contained in this Agreement promptly and fully;

      (b)   the imposition of withholding  tax under Canadian tax laws on the
            payment of Fees to FEP or under U.S.  tax laws on the  payment of
            Selling  Commissions  or any other  payment made by FEP under the
            Program Documents;

provided that FEP shall not be required to indemnify any Indemnified Party in
respect of any Liability if and to the extent that such Liability resulted from
one of the following:


      (c)   the negligence or wilful misconduct of an Indemnified Party or any
            other Person for whom an Indemnified Party acts other than any
            negligence or wilful misconduct relating to the failure to withhold
            or remit tax under Canadian tax laws; or
<PAGE>
                                       42


      (d)   the failure of the Indemnified Party to perform any of its covenants
            set forth in this Agreement or any failure of any of the
            representations and warranties of the Indemnified Party to be true
            and correct.


                                   ARTICLE 10

                                ADDITIONAL FUNDS

10.1  ADDITIONAL FUNDS.

      (a)   The Manager shall add Additional Funds to the Funds in respect of
            which FEP's distribution  right extends.  The Manager shall cause
            each Additional Fund to become a party to this Agreement as fully
            and effectually as if it had been an original  signatory  hereto.
            Each of the  remaining  parties  hereto shall execute and deliver
            such  amendments to this  Agreement as shall be necessary to give
            effect to this section. Subject to compliance with the foregoing,
            each such  Additional  Fund shall be deemed to be a "Fund" within
            the  meaning  hereof  and  the  mutual  fund  securities  of such
            Additional Funds which are sold on a deferred-charge  basis shall
            be deemed to be "Deferred Charge  Securities"  within the meaning
            hereof and the terms and  conditions of this  Agreement  shall be
            applicable to such Additional Funds.

            The Manager agrees not to permit any Distributed Security to become
            a Transfer Security of an Additional Fund, until such Additional
            Fund becomes a party to this Agreement.

      (b)   The  Manager  may add to the  Funds in  respect  of  which  FEP's
            distribution  right  extends,   any  open-end  mutual  fund,  the
            management and  distribution  rights of which are acquired from a
            third  party  from  time to  time.  The  Manager  shall  add such
            open-end fund to FEP's distribution right if the Manager provides
            for an exchange privilege to investors allowing the transfer from
            such  open-end  funds to the Funds.  If the Manager  elects or is
            required to add such open-end fund to FEP's  distribution  right,
            such Fund shall be  considered  an  Additional  Fund and shall be
            treated and subject to the  conditions  noted above in  paragraph
            (a).

      (c)   The Manager may add to the Funds in respect of which FEP's
            distribution right extends, any closed-end fund created or
            reorganized by the Manager if FEP and the Manager agree as to an
            appropriate fee structure in respect of such Fund. If an agreement
            as to an appropriate fee structure is reached, such Fund shall be
<PAGE>
                                       43


            considered an "Additional Fund" and shall be treated and subject to
            the conditions noted above in paragraph (a).

      (d)   The Manager shall provide notice to FEP of any Additional Fund on or
            about the time when the Manager files the preliminary prospectus for
            the Additional Fund.


10.2 CHANGE IN MARKET CONDITIONS. During any period or periods when, in the
reasonable opinion of the Manager, the state of the financial markets becomes
such that it would be impracticable or unprofitable to offer or to continue to
offer the Deferred Charge Securities for sale to the public, or if any event has
occurred or situation developed which renders it inexpedient or unprofitable to
offer or to continue to offer the Deferred Charge Securities for sale to the
public, the Funds and the Manager shall be under no obligation to offer or to
continue to offer the Deferred Charge Securities for sale to the public. Any
such discontinuation in the offering of Deferred Charge Securities will not have
any effect on the obligation of the Manager and the Funds to pay FEP the
remuneration to which it is entitled under Article 4 or to continue to qualify
outstanding Distributed Securities under applicable securities legislation, to
the extent necessary to give effect to the provisions of this Agreement.

                                   ARTICLE 11

                                     GENERAL

11.1 AMENDMENT OF AGREEMENT. This Agreement may be amended from time to time
only by written consent of the Funds, the Manager and FEP.

11.2 TERMINATION OF FEP AS EXCLUSIVE DISTRIBUTOR. If FEP is unable to carry out
its obligations hereunder (which may occur if FEP is unable to pay Selling
Commissions for all of the Original Charge Securities sold during the period of
its appointment as distributor under this Agreement), the Manager may terminate
FEP's exclusive right to arrange for distribution of Deferred Charge Securities
and may: (i) pay Selling Commissions directly; (ii) enter into agreements with
other parties to pay Selling Commissions; or (iii) limit, by allotment or
otherwise, sales of Deferred Charge Securities.

11.3 RESIGNATION BY FEP. FEP may resign as distributor on not less than 365
days' prior notice to the Funds and the Manager provided such notice may not be
provided prior to the date which is six months from the date of this Agreement.
In such event, FEP shall thereafter have no entitlement to arrange for the
distribution of Deferred Charge Securities but shall be entitled to continue to
receive payment of the Fees payable pursuant to Article 4.
<PAGE>
                                       44

11.4  ASSIGNMENT

      (a)   This  Agreement  shall be binding upon,  and inure to the benefit
            of, the parties hereto and their respective  permitted successors
            and  permitted  assigns;  provided,   however,  that,  except  as
            permitted  under  paragraph  11.4(c),  section  7.1(u)  or  to an
            Affiliate of the  Manager,  the Manager may not assign its rights
            or  obligations  hereunder  or  in  connection  herewith  or  any
            interest  herein  or under  any other  Program  Document  or with
            respect to any Fees or the proceeds  thereof  without FEP's prior
            written  consent,  such consent not to be unreasonably  withheld;
            and provided further that, except as provided in sections 11.4(b)
            and  11.4(c),  FEP shall not  assign  its  rights or  obligations
            hereunder  or under any other  Program  Document or in respect of
            any Fees or the  proceeds  thereof,  without  the  prior  written
            consent  of the  Manager,  such  consent  not to be  unreasonably
            withheld.


      (b)   The rights and  obligations of FEP under this Agreement  shall be
            assignable in connection with any merger,  consolidation  or sale
            or  disposition of all or  substantially  all of the assets of or
            the general and limited partnership or corporate interests in FEP
            with or to another  entity,  provided that the  surviving  entity
            shall (i) be a corporation  or other entity  organized  under the
            laws of any  country in Europe,  the United  States of America or
            any State  thereof  or of Canada or any  province  thereof,  (ii)
            expressly assume the due and punctual  performance and observance
            of all covenants and  conditions of this  Agreement and all other
            Program  Documents  to  be  performed  or  observed  by  FEP,  by
            agreement  reasonably  satisfactory  in form and substance to the
            Manager and (iii) prior to the Termination Date, have a net worth
            prior to the Termination  Date at least equal to that of FEP, and
            access to funding  sources  for  purposes  of making  payments of
            Selling Commissions hereunder equivalent in an amount to those to
            which  FEP  had  access,   immediately   prior  to  such  merger,
            consolidation or sale or disposition of assets or interests.  FEP
            shall have the right,  subject to  section  11.4(d)  and (e),  to
            assign  to any  Person,  as a part  of and in  connection  with a
            Takeout  Transaction,  its right,  title and interest in the Fees
            and the proceeds  thereof;  provided that FEP shall not assign to
            any Person any other right, title or interest of FEP hereunder or
            under any other Program Document (including,  without limitation,
            the  benefit  of  the   representations  and  warranties  of,  or
            indemnification  agreed  to,  by the  Manager  contained  in this
            Agreement or any other  Program  Document).  Notwithstanding  the
            foregoing,  FEP may  (i)  pledge  all of its  rights  under  this
            Agreement  or any other  Program  Document  to a major  financial
            institution  as  security  for  money  borrowed,   or  (ii)  make
            representations  or warranties  and grant  indemnities to another
            Person,   as  a  part  of  and  in  connection   with  a  Takeout
            Transaction, which are similar to the representations, warranties
            and indemnities agreed to by the Manager in this Agreement or any
            other Program Document.
<PAGE>
                                       45

      (c)   The parties agree and consent to the assignment of their respective
            rights and obligations under this Agreement to the Joint Venture.

      (d)   In the event that a Takeout Transaction is proposed which would
            involve the offering by prospectus of securities in Canada then:

               (i)  FEP shall give the Manager  notice of such proposed  Takeout
                    Transaction;

               (ii) the Manager shall then have 30 days from the receipt of such
                    notice to give FEP  notice of the  intent of the  Manager or
                    one of its  Affiliates  to  file  a  preliminary  prospectus
                    within  30 days of the  date of the  Manager's  notice  with
                    respect  to an  offering  relating  to  the  funding  of the
                    payment of Selling Commissions in respect of Deferred Charge
                    Securities;

               (iii)if the  Manager  does  not  give  notice  within  the 30 day
                    period  described  in (ii)  above,  or if the Manager or its
                    Affiliate does not file a preliminary  prospectus  within 30
                    days  of  giving  its  notice,  then  the  proposed  Takeout
                    Transaction may proceed;

               (iv) in any other case, the proposed Takeout Transaction will not
                    proceed  until the earlier of: (A) the first  closing of the
                    offering described in (ii) above, and (B) 12 months from the
                    date of the Manager's notice.

      (e)   FEP shall not have the right to assign any of its rights under this
            Agreement to any of the top five mutual fund management companies in
            Canada and the U.S., as measured by the net asset value of funds
            under management published as at the end of each calendar year by
            the Investment Funds Institute of Canada and the Investment
            Companies Institute, as applicable. This exclusion shall not apply
            to Affiliates or associates of such fund companies that are not
            involved in the management and distribution of retail investment
            funds.

11.5 LIABILITY. FEP shall not be liable for any error of judgment or for any
loss suffered by any Fund or the Manager in connection with the matters to which
this Agreement relates, except a loss resulting from misfeasance, bad faith or
negligence on its part in the performance of, or reckless disregard by it of,
its obligations hereunder.


11.6 CONFIDENTIALITY. Unless otherwise required by applicable law, the Manager,
the Funds and FEP agree to maintain the confidentiality of this Agreement (and
all drafts thereof), the transactions contemplated hereby and all confidential,
material, non-public information concerning the other parties to this Agreement,
which information has been provided by such party by another party and was not
also available to such party through other means (collectively, "Confidential
<PAGE>
                                       46


Information"); provided that nothing in this section shall prohibit disclosure
of Confidential Information by any such Person as follows:

      (a)   pursuant  to an  order  under  applicable  law or  pursuant  to a
            subpoena or other legal process;

      (b)   to the officers, directors, partners, employees, legal counsel or
            auditors of, or lenders to, such Person, who shall also be
            instructed to maintain it as confidential;

      (c)   in the case of any Fund, to any then current directors or trustees
            of such Fund, Fund counsel, independent accountants or officers, who
            shall also be instructed to maintain it as confidential;

      (d)   to any permitted assignee or permitted pledgee of all or any portion
            of such Person's right, title or interest in this Agreement or the
            Fees, provided that such permitted assignee or pledgee agrees in
            writing delivered to and for the benefit of all parties to this
            Agreement to be bound by the terms of this section; or

      (e)   to any proposed permitted assignee or permitted pledgee of all or
            any portion of such  Person's  right,  title and interest in this
            Agreement  or the Fees,  provided  that such Person  advises such
            proposed  permitted  assignee  or pledgee  in  writing  that such
            Confidential Information is confidential,  non-public information
            and requests  that such  proposed  permitted  assignee or pledgee
            keep it  confidential  and use it only for purposes of evaluating
            the proposed  assignment  or pledge and such  proposed  permitted
            assignee or pledgee agrees in a writing  delivered to and for the
            benefit  of all  parties  to this  Agreement  to be  bound by the
            provisions of this section and  provided,  further that FEP shall
            not disclose  such  Confidential  Information  to any assignee or
            pledgee  pursuant to clause (d) above or this clause (e) which is
            or  is  an  affiliate  of  an   investment   adviser,   principal
            underwriter,  administrator  or  subadvisor  to  any  registered,
            open-end management investment company.

      Notwithstanding anything to the contrary contained herein, FEP shall keep,
and shall use its commercially reasonable efforts to cause its officers,
directors, partners, employees, advisers, legal counsel, auditors, lenders and
affiliates to keep, confidential all Confidential Information concerning the
Funds delivered or made available by the Manager or the Funds to FEP or such
other Persons, including without limitation the Fund Documents (to the extent
not publicly available), shareholder records, shareholder transaction records
and information concerning the composition of their respective portfolios, and
information concerning the financial condition of the Manager of its parent (and
FEP shall not, and shall cause each of the foregoing other Persons not to, use
such information to sell securities to or purchase securities from any such Fund
<PAGE>
                                       47


or other investment company or recommend such trading to any other Person on the
basis of such information).

11.7 NOTICE. Any notice which is required or permitted to be given under this
Agreement may be given in writing by delivery in person or by ordinary prepaid
mail by addressing the same to the party to whom it is to be given at the
address first written above or at such other address as such party may designate
by notice in the foregoing manner. Any notice so given shall be deemed to have
been given on the day it is personally delivered or on the day which is five
days after it is mailed, as the case may be.

11.8 DISPUTE RESOLUTION. Any dispute relating to the Program Documents,
including the method or the calculation of the payments, shall be negotiated in
good faith by the parties. If any dispute cannot be resolved, any party may give
written notice to the other parties that the arbitration proceedings described
below shall apply to all or a specified part of the issues in dispute.

      Upon receipt of the notice referred to in the preceding paragraph, the
parties shall attempt to agree on an arbitrator and, if they are unable to agree
within 10 Business Days, FEP shall name an arbitrator who is a partner of
PricewaterhouseCoopers or such other accounting firm retained by the Manager, or
who is a partner of any nationally recognized accounting firm in Canada agreed
to by the Manager. The arbitrator shall be given access to all materials and
information reasonably requested by him for such purpose. The rules and
procedures to be followed in the arbitration proceedings shall be determined by
the arbitrator in his discretion. To the extent not inconsistent with this
Agreement, the arbitration shall be governed by the International Commercial
Arbitrations Act (Ontario). The arbitrator's determination of all matters in
dispute shall be final and binding on all parties and shall not be subject to
appeal by any party. The fees and expenses of the arbitrator shall be determined
by the arbitrator.

      Any amount determined to be payable by one party to another shall be
payable with interest calculated at an annual rate on interest reported by Chase
Bank Canada as its "prime rate", for the period commencing from the date such
payment was originally due to the date payment actually is made.

11.9 TAXES. The Manager or the Funds, as applicable, shall pay any present or
future sales or excise taxes, excluding FEP's income taxes, imposed under
Canadian legislation upon the supply of services by FEP under this Agreement
(hereinafter referred to as "Sales Taxes"). In addition, the Manager or the
Funds, as applicable, shall pay any present or future stamp or documentary taxes
or any other excise or property taxes, charges or similar levies which arise
under Canadian legislation from any payment made by or on behalf of the Funds,
hereunder or from the execution or delivery of, or otherwise with respect to,
this Agreement or any other Program Document to which the Manager, the Funds or
any of their respective Affiliates is a party (hereinafter referred to as "Other
Taxes"). FEP shall be entitled to indemnification under section 9.1 for the full
<PAGE>
                                       48

amount of Sales Taxes or Other Taxes (including, without limitation, any Sales
Taxes or Other Taxes imposed by any Canadian jurisdiction on amounts payable
under this section 11.9) paid by the Manager or the Funds and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto, whether or not such Sales Taxes or Other Taxes were correctly or
legally asserted.

11.10 SEPARATE LIABILITY OF FUNDS. The liability and obligations of each Fund to
the Manager and FEP hereunder  shall be separate and distinct from the liability
and obligations of each of the other Funds with the result that no Fund shall be
liable  or   responsible   for  the  action  or  inaction  of  any  other  Fund.
Notwithstanding the foregoing and notwithstanding  that the Manager may cease to
be the manager of any Fund,  each of the Funds  agrees that it shall  provide to
FEP and the Manager  such  information  as may be required  from time to time to
determine the amount of the Fees payable pursuant to Article 4.

11.11 HEADINGS. In this Agreement, the headings are for convenience of reference
only, do not form a part of this Agreement and are not to be considered in the
interpretation of this Agreement. References to Articles, sections, paragraphs,
subparagraphs and clauses are to Articles, sections, paragraphs, subparagraphs
and clauses of this Agreement.

11.12 GENDER AND NUMBER. In this Agreement, words importing the masculine gender
include the feminine and neuter genders, words importing persons include all
Persons, and words in the singular include the plural, and vice versa, wherever
the context requires.

11.13 SEVERABILITY. Every provision of this Agreement is intended to be
severable. If any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality shall not affect the validity of the remainder of
this Agreement.

11.14 FURTHER ACTS. The parties hereto agree to execute and deliver any such
further and other documents and perform and cause to be performed such further
and other acts and things as may be necessary or desirable in order to give full
effect to this Agreement and every part thereof. Without limiting the generality
of the foregoing, each of the Funds agrees that it will provide to the other
Funds, the Manager and FEP such information as to date of issue and issue price
of its Deferred Charge Securities and such other information as shall be
required to facilitate the calculating of any amounts which are payable
hereunder.

11.15 CURRENCY.  All dollar amounts referred to in this Agreement or required to
be paid hereunder, are in Canadian funds.

11.16 INTEREST RATE EQUIVALENCE. For the purposes of the Interest Act (Canada),
where in this Agreement a rate of interest is to be calculated on the basis of a
year of 360 or 365 days, the yearly rate of interest to which the said rate is
equivalent is the said rate multiplied by the number of days in the calendar
<PAGE>
                                       49

year commencing on the first day of the period for which such calculation is
made and divided by 360 or 365 (as applicable).

11.17 COUNTERPARTS, FACSIMILE EXECUTION. This Agreement may be executed in
several counterparts, each of which when so executed shall be deemed to be an
original and such counterparts together shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart. This Agreement may be executed and delivered by facsimile and will
be considered duly executed and delivered by the parties so executing delivery
on the day of its transmission by facsimile in executed form to the other
parties. A party so executing by way of facsimile shall promptly deliver to each
other party an originally signed counterpart.

11.18 ENTIRE  AGREEMENT.  This Agreement  constitutes the entire agreement among
the parties  pertaining to the subject  matter hereof and  supersedes  all prior
agreements, understandings, negotiations and the parties.

11.19 APPLICABLE LAW. This Agreement shall be governed by and interpreted in
accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein and the courts of the Province of Ontario shall have
exclusive jurisdiction with respect to this Agreement.

11.20 ENUREMENT. This Agreement is binding upon and enures to the benefit of the
parties hereto and their respective successors and permitted assigns.



The remainder of this page has been left blank intentionally.



<PAGE>

      IN WITNESS WHEREOF the parties have duly executed this Agreement.

                  TEMPLETON EMERGING MARKETS FUND, TEMPLETON CANADIAN BOND FUND,
                  TEMPLETON INTERNATIONAL STOCK FUND, TEMPLETON CANADIAN STOCK
                  FUND, TEMPLETON GLOBAL SMALLER COMPANIES FUND, TEMPLETON
                  GLOBAL BOND FUND, TEMPLETON TREASURY BILL FUND, TEMPLETON
                  GLOBAL BALANCED FUND, TEMPLETON INTERNATIONAL BALANCED FUND,
                  TEMPLETON CANADIAN ASSET ALLOCATION FUND, MUTUAL BEACON FUND,
                  FRANKLIN U.S. SMALL CAP GROWTH FUND AND TEMPLETON BALANCED
                  FUND, by its manager and trustee, Templeton Management Limited


                  Per: /s/ Michael Mezei
                       -----------------
                       Vice-President and General Counsel

                       /s/ James Cook
                       Vice President and Chief Financial Officer





                  TEMPLETON GROWTH FUND, LTD.


                  Per: /s/ Michael Mezei
                       -----------------
                       Assistant Secretary

                       /s/ James Cook
                       Treasurer





                  TEMPLETON MANAGEMENT LIMITED


                  Per: /s/ Michael Mezei
                       -----------------
                       Vice-President and General Counsel

                       /s/ James Cook
                       Vice President and Chief Financial Officer



<PAGE>

                  FEP Capital, L.P.

                        By: FEP Holdings, L.P.,
                              its General Partner

                        By: FEP Genpar, L.P.,
                              General Partner of
                              FEP Holdings, L.P.

                        By: FW Group Genpar, Inc.
                              General Partner of
                              FEP Genpar, L.P.


                              By:  /s/ David G. Brown
                                   ------------------
                                   David G. Brown
                                   President of FW Group
                                   Genpar, Inc.







</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.46
<SEQUENCE>3
<FILENAME>0003.txt
<DESCRIPTION>PURCHASE AND SALES AGREEMENT
<TEXT>


                           PURCHASE AND SALE AGREEMENT

                                  by and among

                      Franklin/Templeton Distributors, Inc.

                                    as Seller

                                       and

                            Franklin Resources, Inc.

                                as Seller Parent

                                       and

                        Lightning Finance Company Limited

                                  as Purchaser

                           Dated as of August 1, 1999


<PAGE>


                                TABLE OF CONTENTS

ARTICLE I - DEFINITIONS AND RULES OF CONTRUCTION.............................3

  SECTION 1.1. DEFINITIONS...................................................3
  SECTION 1.2  RULES OF CONSTRUCTION........................................23

ARTICLE II - PURCHASE AND SALE OF PURCHASED RECEIVABLES;
ADDITIONAL FUNDS AND COLLECTIONS............................................23

  SECTION 2.1  PURCHASE AND SALE............................................23
  SECTION 2.2  ADDITIONAL FUNDS.............................................24
  SECTION 2.3  COLLECTIONS AND SELLER COLLECTIONS...........................25
  SECTION 2.4  TRANSFER OF RECORDS TO PURCHASER.............................26
  SECTION 2.5  DISTRIBUTION PLAN TERMINATION................................26
  SECTION 2.6  INTERIM AGREEMENT............................................26

ARTICLE III - CONDITIONS PRECEDENT..........................................26

  SECTION 3.1 CONDITIONS PRECEDENT TO INITIAL PURCHASE OF PURCHASED
              RECEIVABLES...................................................26
  SECTION 3.2 CONDITIONS PRECEDENT TO INITIAL SALE OF PURCHASED RECEIVABLES.28
  SECTION 3.3 CONDITIONS PRECEDENT TO THE PURCHASER'S CONTINUING OBLIGATION
              TO PURCHASE PURCHASED RECEIVABLES.............................28

ARTICLE IV - REPRESENTATIONS AND WARRANTIES.................................29

  SECTION 4.1  REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE SELLER
               PARENT.......................................................29
  SECTION 4.1A. ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE SELLER.....33
  SECTION 4.2  REPRESENTATIONS AND WARRANTIES OF THE PURCHASER..............34

ARTICLE V - COVENANTS.......................................................36

  SECTION 5.1  AFFIRMATIVE COVENANTS OF THE SELLER AND THE SELLER PARENT....36
  SECTION 5.2  NEGATIVE COVENANTS OF THE SELLER AND THE SELLER PARENT.......42
  SECTION 5.4  AFFIRMATIVE COVENANTS OF THE PURCHASER.......................44
  SECTION 5.5. NEGATIVE COVENANTS OF THE PURCHASER..........................46

ARTICLE VI - EVENTS OF TERMNATION...........................................46

  SECTION 6.1  EVENTS OF TERMINATION........................................46
  SECTION 6.2  TERMINATION OF SELLER'S OBLIGATIONS TO SELL PURCHASED
               RECEIVABLES..................................................47

ARTICLE VII - MISCELLANEOUS.................................................47

  SECTION 7.1  NO WAIVER; MODIFICATIONS IN WRITING..........................47
  SECTION 7.2  PAYMENT......................................................47
  SECTION 7.3  NOTICES, ETC.................................................48
  SECTION 7.4  TAXES, COSTS, AND EXPENSES...................................49
  SECTION 7.6  EXECUTION IN COUNTERPARTS....................................51
  SECTION 7.7  BINDING EFFECT; ASSIGNMENT...................................51
  SECTION 7.8  GOVERNING LAW; SUBMISSION TO JURISDICTION....................52
  SECTION 7.9  SEVERABILITY OF PROVISIONS...................................53
  SECTION 7.10 CONFIDENTIALITY..............................................53
<PAGE>

  SECTION 7.11 INTENT OF AGREEMENT..........................................54
  SECTION 7.12 LIABILITIES TO ANY FUND......................................55
  SECTION 7.13 MERGER.......................................................55
  SECTION 7.14 FURTHER ACTS.................................................55
  SECTION 7.15 OTHER RIGHTS.................................................55
  SECTION 7.16 REORGANIZATION...............................................55
  SECTION 7.17 [INTENTIONALLY LEFT BLANK]...................................56
  SECTION 7.18 FREE REDEMPTIONS.............................................56
  SECTION 7.19 [INTENTIONALLY LEFT BLANK]...................................56
  SECTION 7.20 REORGANIZATION...............................................56


<PAGE>

                                    SCHEDULES

SCHEDULE I     Applicable Percentages

SCHEDULE II    Contingent Deferred Sales Charges

SCHEDULE III   List of Funds, Shares and Purchase Price Percentages

SCHEDULE IV    List of Conversion Features

SCHEDULE V     Form of Purchaser Report


                                    EXHIBITS

EXHIBIT A      Form of Additional Eligible Fund Addendum

EXHIBIT B      Form of Assignment

EXHIBIT C      Form of Distribution Plan(s)

EXHIBIT D      Form of Irrevocable Payment Instruction

EXHIBIT E      Form of Servicing Agreement

EXHIBIT F      Forms of Underwriting Agreement(s)

EXHIBIT G      Prospectus for Each Fund

EXHIBIT H      Form of Opinion of Fund Counsel

EXHIBIT I      Form of Opinion of Counsel to Seller

EXHIBIT J      Form of Opinion of Counsel to Seller Parent

EXHIBIT K      Form of Officers Certificate for Seller, Seller Parent,
               and Servicer

EXHIBIT L      Form of Opinion of Counsel to Servicer

EXHIBIT M      Form of Opinion of Counsel to Purchaser

EXHIBIT N      Forms of Investment Management Agreement(s)

EXHIBIT O      Form of Opinion of Counsel to Seller re: Takeout Transaction

EXHIBIT P      Form of Letter Agreement


<PAGE>

      THIS PURCHASE AND SALE AGREEMENT is entered into as of August 1, 1999, by
and among Lightning Finance Company Limited, an Irish private limited liability
company (the "Purchaser"), Franklin/Templeton Distributors, Inc., a New York
corporation (the "Seller") and Franklin Resources, Inc., a Delaware corporation
(the "Seller Parent").

                                   BACKGROUND

      The Seller, a registered broker/dealer under the Exchange Act and
regulations of the SEC and a member of the NASD, provides distribution,
marketing and other services to the Franklin/Templeton family of open-end
management investment companies, commonly called mutual funds. Some members of
this Franklin/Templeton family of mutual funds have decided to offer to the
investment community, effective January 4, 1999, a new class of shares, named
Class B shares, which are referred to as the "Shares" in this Agreement. The
mutual funds which have made this decision are referred to as the "Funds," and
each of the Funds is referred to as a "Fund," in this Agreement.

      The Seller is compensated in two ways for certain of its costs and
expenses associated with the distribution and sale of the Shares of a Fund.
First, pursuant to the Fund's distribution plan adopted under Rule 12b-1 under
the Investment Company Act, the Seller anticipates that it shall be paid amounts
drawn on a regular and periodic basis from the general assets of the Fund at an
annual percentage rate of the average daily net assets of the Fund. Second, the
Seller anticipates that it shall be paid a percentage of the proceeds payable to
the shareholder when certain of the shareholder's Shares are redeemed by the
Fund within a certain period after their purchase. The property rights and
assets which constitute the Seller's anticipation to be paid these monies are
referred to in this Agreement as the "Receivables." The Funds have agreed with
the Seller that, in exchange for the performance by the Seller of certain duties
that will benefit the Funds and their shareholders, the Seller will own the
Receivables and have the right to receive and keep the cash payments that are
collected from the Receivables.

      The Seller contemplates that it will expend very considerable sums on a
monthly basis in connection with the distribution, marketing and other services
that the Seller is contractually obligated to provide in connection with the
sale and redemption of the Shares. Since the timing of the cash flow from the
Receivables will not be sufficient to permit the Seller to pay these expenses on
a timely basis, the Seller has elected to sell certain of the Receivables to the
Purchaser and the Purchaser has agreed to purchase certain of the Receivables
from the Seller. The portion of the Receivables that is sold by the Seller to
the Purchaser is referred to in this Agreement as the "Purchased Receivables."

      The Purchaser desires to buy and acquire the Purchased Receivables from
the Seller and the Purchaser is willing to pay to the Seller an agreed-upon
price for the Purchased Receivables. This price is referred to in this Agreement
as the "Purchase Price." The Purchaser has arranged for a credit facility to be
established by certain banks in the Purchaser's favor to permit the Purchaser to
have the funds necessary to periodically pay amounts of the Purchase Price to
the Seller; this credit facility is referred to in this Agreement as the "Credit
Agreement." The Purchaser may elect to retain the Purchased Receivables or to
engage in subsequent transactions, involving the Purchased Receivables,
including the resale of Purchased Receivables to third parties.
<PAGE>

      The Seller Parent owns all of the issued and outstanding stock of the
Seller. The Seller and the Purchaser both desire that the Seller Parent join
this Agreement for the specific and limited purposes expressly set forth in this
Agreement. The Seller Parent is willing to join this Agreement in connection
with, and only in connection with, the specific and limited purposes expressly
set forth in this Agreement.

      The Seller considered, as an alternative to the transactions contemplated
by this Agreement, obtaining the cash necessary to continue to fund its
operations pertaining to the Shares by contracting with banks or other sources
of finance for a loan secured by a pledge by the Seller of its interest in some
or all of the Receivables. The Seller has rejected such a financing alternative
and expressly desires to sell and irrevocably transfer the Purchased Receivables
to the Purchaser. The Seller, the Seller Parent, and the Purchaser all expressly
intend that the sale, transfer, conveyance and assignment of the Purchased
Receivables by the Seller to the Purchaser pursuant to this Agreement shall
constitute an outright and irrevocable sale to the Purchaser of all of the
Seller's right, title and interest in the Purchased Receivables. This intention
of the parties as to the legal characterization of this transaction is referred
to in this Agreement as a "True Sale." The Seller, the Seller Parent and the
Purchaser also intend that all sales, transfers, conveyances and assignments of
Purchased Receivables by the Seller to the Purchaser pursuant to an Interim
Agreement dated as of January 4, 1999, as amended, previously in place by and
among the Seller, the Seller Parent and the Purchaser shall be governed by all
the terms and conditions of this Agreement.

      Sometime after the date of this Agreement, the Seller and the Seller
Parent may seek to reorganize each of the Funds not currently organized in
Delaware into Delaware business trusts to take advantage of certain aspects of
Delaware business trust law favoring investment companies. The reorganization of
each such Fund will typically be accomplished by creating a new Delaware
business trust or new series of shares of an existing Delaware business trust
(the "New Fund"). The Fund that is reorganizing (the "Prior Fund") will then
transfer all or substantially all of its assets and liabilities to the New Fund
in exchange for all the shares of beneficial interest of the New Fund. These
shares of the New Fund will then be distributed to the shareholders of the Prior
Fund in exchange for their shares of the Prior Fund, and the latter shares will
be cancelled. All of the service provider agreements and other material
contracts of the Prior Fund are typically assigned to the New Fund as part of
the reorganization. This Agreement is intended to cover the transfer of
Purchased Receivables to the Purchaser by both Prior Funds and New Funds.

      The Seller, the Seller Parent and the Purchaser intend that all of the
foregoing business understandings and various related matters be reflected in a
detailed negotiated contract. This Agreement is that detailed negotiated
contract.

                                       2
<PAGE>

                                    ARTICLE I

                      DEFINITIONS AND RULES OF CONSTRUCTION

SECTION 1.1  DEFINITIONS.  As used in this Agreement, the following terms shall
have the meanings indicated:

      "ADDITIONAL EFFECTIVE DATE" shall mean with respect to any Additional
Eligible Fund, the first date on which all of the following conditions shall
have been satisfied:

      a. the Purchaser shall have received a fully executed Additional Eligible
Fund Addendum, together with such signed opinions of counsel to such Additional
Eligible Fund, the Seller and the Seller Parent, each in the form of Exhibits H,
I and J, and each dated a date reasonably near the Additional Effective Date, as
the Purchaser shall have reasonably requested;

      b. the Purchaser shall have received such instruments, certificates and
documents regarding the addition of such Additional Eligible Fund from the
Seller, the Seller Parent and such Additional Eligible Fund as the Purchaser
shall have reasonably requested;

      c. the Purchaser and the Seller shall have agreed in writing to the
Purchase Price Percentage applicable to such Additional Eligible Fund; and

      d. the Purchaser shall have received evidence satisfactory to it that (i)
the conditions set forth in Sections 3.1 and 3.3 of this Agreement shall be
satisfied in respect of such Additional Eligible Fund immediately after the
Additional Effective Date and (ii) that on such Additional Effective Date the
Receivables relating to such Additional Eligible Fund shall constitute Eligible
Receivables.

      "ADDITIONAL ELIGIBLE FUND" shall mean any additional investment company or
series or portfolio thereof (each, in the context of this definition, a "fund")
for which the Seller is the principal underwriter and an Adviser is the
investment adviser where:

      a. such fund shall have in full force and effect a distribution plan,
investment management agreement and underwriting agreement, which either shall
be substantially identical to the Distribution Plan, Investment Management
Agreement and Underwriting Agreement in effect in respect of the Funds on the
date hereof or shall have been approved in writing by the Purchaser;

      b. the Seller shall act as the principal underwriter to such fund and an
Adviser shall act as investment adviser to such fund on such terms as are either
substantially identical to those pursuant to which the Seller acts as the
principal underwriter and an Adviser acts as investment adviser for the Funds on
the date hereof or otherwise on terms reasonably satisfactory to the Purchaser;

                                       3
<PAGE>

      c. the fundamental investment objectives and policies of such fund shall
either be substantially identical to those of any of the Funds on the date
hereof or be reasonably satisfactory to the Purchaser;

      d. the Seller shall be entitled to receive Contingent Deferred Sales
Charges from the shareholders of the Class B shares or other class of shares, as
identified in a notice to Purchaser pursuant to Section 5.1(s), of such fund on
such terms as are either substantially identical to those in respect of Shares
of any of the Funds on the date hereof or otherwise on terms reasonably
satisfactory to the Purchaser;

      e. there shall be in full force and effect an Irrevocable Payment
Instruction of such fund which has been acknowledged and agreed to by the
investment company and the fund as is contemplated thereby; and

      f. the Seller shall have certified in writing to the Purchaser that each
of the foregoing statements is true and correct and shall have furnished
therewith: (i) a true and complete copy of the prospectus for such fund; (ii) a
true and complete copy of the distribution plan in respect of such fund; (iii) a
true and complete copy of the underwriting agreement in respect of such fund;
and (iv) to the extent not reflected in clause (i) above, a statement of the
fundamental investment objectives and policies of such fund.

      "ADDITIONAL ELIGIBLE FUND ADDENDUM" shall mean the addendum substantially
in the form of Exhibit A attached hereto, executed by the Seller and the
Purchaser.

      "ADVERSE" when used alone or in conjunction with other terms (including
without limitation "Affect", "Change" and "Effect", but specifically excluding
"Claim") shall mean the occurrence or existence of any act, circumstance,
condition, event, fact or set or combination of the foregoing which, in the
reasonable judgment of the Purchaser, creates a significant possibility of (a)
any adverse effect upon (i) the timing or amount of any payment of any
Collections or (ii) the timely receipt by the Purchaser of any Collections; or
(b) any material adverse effect upon (i) the ability of the Seller, the Seller
Parent, any Adviser or any Fund to pay or perform any of its respective
obligations under any Program Document in a timely manner, (ii) the status of
the Purchased Receivables as Eligible Receivables, (iii) the remedies and the
other rights of the Purchaser under any Program Document, or (iv) the then
existing or projected financial condition of the Seller.

      "ADVERSE CLAIM" shall mean any Lien of any Person (other than any such
right or claim of the Purchaser or any Master Trust created by or pursuant to
this Agreement, any other Program Document, or any Master Trust Transfer
Agreement).

      "ADVISER" shall mean, as of any date, any Person that on such date (a) is
"controlled" by the Seller Parent (as defined in the definition of "Affiliate"),
(b) of which the Seller Parent owns, directly or indirectly, twenty-five percent
(25%) or more of (i) the outstanding equity security or (ii) the interests in
the capital, distributions and profits, (c) is registered as an investment
adviser in the United States, and (d) directly or indirectly, provides
investment advisory services or subadvisory services to any of the Funds.

                                       4
<PAGE>

      "AFFILIATE" of a referenced Person shall mean (a) another Person
controlling, controlled by or under common control with such referenced Person,
(b) any other Person of whom such referenced Person beneficially owns or
controls twenty-five percent (25%) or more (i) of the outstanding voting
securities or voting rights of the referenced Person or (ii) of the interest in
the capital, distributions or profits of the referenced Person, (c) any other
Person beneficially owning or controlling twenty-five percent (25%) or more (i)
of the outstanding voting securities or voting rights of the referenced Person
or (ii) of the interest in the capital, distributions or profits of the
referenced Person or (d) any officer (exclusive of a "ministerial officer" with
no authority to bind the referenced Person) or director of or partner in the
referenced Person; PROVIDED, HOWEVER, that the term "Affiliate" shall not be
deemed to include any Fund. For purposes of this Agreement, except where
expressly stated otherwise, the terms "control", "controlling", "controlled" and
the like shall mean the direct or indirect possession of the power to direct or
cause the direction of the management or policies of a Person or the disposition
of its assets or properties, whether through ownership, by contract, arrangement
or understanding, or otherwise.

      "AGREEMENT" shall mean this Purchase and Sale Agreement by and among the
Purchaser, the Seller, and the Seller Parent, dated as of August 1, 1999,
including the Schedules and Exhibits attached hereto and referenced herein, as
the same may from time to time be amended, supplemented, waived or modified.

      "APPLICABLE LAW" shall mean any Law of any Authority, whether domestic or
foreign, including, without limitation, all federal and state banking or
securities laws, to which the Person in question is subject or by which it or
any of its property is bound.

      "APPLICABLE PERCENTAGE" shall mean, with respect to any Fund, the
applicable percentage set forth on Schedule I attached hereto.

      "ASSIGNMENT" shall mean an assignment substantially in the form of Exhibit
B, attached hereto.

      "AUTHORITY" shall mean any governmental or quasi-governmental authority,
whether executive, legislative, judicial, administrative or other, or any
combination thereof, including, without limitation, any federal, state or local
government or governmental or quasi-governmental agency, board, body, branch,
bureau, commission, corporation, court, department, instrumentality or other
political unit or subdivision or other entity of any of the foregoing, whether
domestic or foreign, including, without limitation, the NASD or any other
self-regulatory organization.

      "BANKRUPTCY CODE" shall mean the United States Bankruptcy Code of 1978, as
amended from time to time or any similar legislation of the United States
enacted in substitution or replacement thereof.

      "BANKRUPTCY EVENT" shall mean any one of the following occurrences:

      a. the Seller, the Seller Parent or an Adviser shall generally fail to pay
its obligations as such obligations become due, or shall admit in writing its
inability to pay its obligations generally, or shall make a general assignment
of all or substantially all of its assets for the benefit of creditors; or

                                       5
<PAGE>

      b. any proceeding shall be instituted by or against the Seller, the Seller
Parent or an Adviser seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its obligations under any Law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for relief or the appointment of a receiver,
trustee, custodian or other similar official for it or for any substantial part
of its property and, in the case of any such proceeding instituted against it
(but not instituted by it), such proceeding shall remain undismissed or unstayed
for a period of sixty (60) days; or

      c. a court or other governmental authority or agency having jurisdiction
in the premises shall enter a decree or order (i) for the appointment of a
receiver, liquidator, assignee, trustee or sequestrator (or other similar
official) of the Seller, the Seller Parent or an Adviser or of any material part
of its property, or for the winding-up or liquidation of its affairs, and such
decree or order shall remain in force undischarged and unstayed for a period of
more than sixty (60) days, or (ii) for the sequestration or attachment of any
material part of the property of the Seller, the Seller Parent or an Adviser
without its unconditional return to the possession of the Seller, the Seller
Parent or an Adviser or its unconditional release from such sequestration or
attachment, within sixty (60) days thereafter; or a court having jurisdiction in
the premises shall enter an order for relief in any involuntary case commenced
against the Seller, the Seller Parent or an Adviser, under the Bankruptcy Code,
and such order shall remain in force undischarged and unstayed for a period of
more than sixty (60) days; or

      d.    the Seller, the Seller Parent or an Adviser shall take any action to
authorize any of the actions set forth above in this definition.

      "BENEFICIARY" shall mean each Person which has a beneficial interest in
any Master Trust, together with its permitted respective successors and assigns.

      "BUSINESS DAY" shall mean any day (other than a Saturday or a Sunday) on
which (a) the New York Stock Exchange is open and (b) banks are not authorized
or required to close in New York City.

      "CDSC COLLECTION ACCOUNT" shall mean the account of the Purchaser (Account
No. 323-114-814) maintained with The Chase Bank of Texas or such other account
as the Purchaser shall designate in writing to the Seller with respect to which
the Seller shall have no access or control.

      "CODE" shall mean the Internal Revenue Code of 1986, as amended from time
to time and the regulations promulgated and the rulings issued thereunder or any
similar legislation of the United States enacted in substitution or replacement
thereof.

      "COLLECTION ACCOUNT" shall mean the account of the Purchaser (Account No.
22967504) maintained with The Chase Manhattan Bank (Ireland) PLC or such other
account as the Purchaser shall designate in writing to the Seller, with respect
to which the Seller shall have no access or control.

      "COLLECTIONS" shall mean (a) all amounts paid or payable by each Fund or
each shareholder of each Fund in respect of the Purchased Receivables relating
to each such Fund and all amounts payable by the Seller or the Seller Parent

                                       6
<PAGE>

under the Program Documents in respect of the Purchased Receivables relating to
each such Fund, and (b) all Proceeds of the foregoing; it being understood that
the term Collections shall not include amounts paid or payable pursuant to
Section 7.4 or 7.5 of this Agreement. Without limiting the generality of the
foregoing definition, the term Collections shall include, without limitation,
all amounts deposited in the Collection Account or the CDSC Collection Account
pursuant to Sections 2.3(a) or 2.3(b), respectively.

      "CONDUCT RULES" shall mean the Conduct Rules of the NASD, including
without limitation, Section 2830 thereof, as amended, and the rules, regulations
and interpretations of the NASD in respect thereto.

      "CONFIDENTIAL INFORMATION" shall mean the Program Documents (and all
drafts thereof) (other than the Underwriting Agreements, the Investment
Management Agreements, the Distribution Plans and the Prospectuses), the
transactions contemplated hereby and thereby, and all confidential, non-public
information provided to a Party, concerning another Party or any of its
Affiliates, which information has been provided to such Party by another Party
and was not also available to such Party through other means.

      "CONTINGENT DEFERRED SALES CHARGES" shall mean, with respect to any Fund,
the contingent deferred sales charges as set forth in Schedule II hereto, or as
identified in a notice to Purchaser pursuant to Section 5.1(s), payable, either
directly or through withholding a portion of the proceeds of the redemption of
Shares of such Fund, by the shareholders of such Fund on any redemption of
Shares of such Fund in accordance with the Underwriting Agreement and the
Prospectus relating to such Fund and pursuant to the Conduct Rules.

      "CONVERSION FEATURE" shall mean, with respect to any Share of any Fund, a
mandatory or elective provision (including, without limitation, a provision
which permits or requires such Share to be converted into a share of a different
class, but excluding the scheduled reductions in Contingent Deferred Sales
Charges as set forth in Schedule II hereto and Free Redemptions) that may result
in a reduction or termination of any amount owing from any Fund or the
shareholder in respect of the Receivable relating to such Share (or the share
obtained by virtue of a conversion of such Share) at some point in the future
prior to the redemption of such Share.

      "CREDIT AGREEMENT" shall mean that certain Credit Agreement dated as of
December 30, 1998 by and among the Purchaser, the several banks and other
financial institutions from time to time parties thereto, The Bank of New York
as syndication agent, Deutche Bank, N.A. as documentation agent and The Chase
Manhattan Bank as administrative agent, as amended from time to time.

      "DEBT" of any Person shall mean at any date, without duplication, (a) all
obligations of such Person for borrowed money; (b) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments; (c)
all non-current liabilities of such Person to pay the deferred purchase price of
property or services; (d) all obligations of such Person as lessee under leases
or other agreements which have been or should be capitalized in accordance with
GAAP; (e) all liabilities in respect of unfunded benefits under any Plan; and
(f) all Secured or Guaranteed Debt.

                                       7
<PAGE>

      "DISTRIBUTION PLAN" shall mean, with respect to any Fund, the Distribution
Plan of the Investment Company adopted pursuant to Rule 12b-1 under the
Investment Company Act and in the form of Exhibit C attached hereto, as it
applies to such Fund pursuant to which Shares of such Fund are distributed by
the Seller, together with any successor or replacement distribution plan, as the
same may be amended, supplemented, waived or modified from time to time.

      "DOLLARS" and "$" shall mean lawful money of the United States of America.

      "ELIGIBLE RECEIVABLE" shall mean a Receivable which: (a) represents an
obligation of a United States obligor which obligor is not an Authority; (b)
constitutes an "account" or "general intangible" as such terms are defined in
the UCC of all applicable jurisdictions; (c) is denominated and payable in
Dollars; (d) constitutes a legal, valid and binding contractual obligation of
the obligor thereof which is not subject to any dispute, offset, counterclaim or
defense whatsoever; (e) is not subject to any Adverse Claim; (f) does not
contravene any Applicable Law applicable to any Investment Company, any Fund or
any other Person; and (g) constitutes an asset in accordance with GAAP.

      "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.

      "EVENT OF TERMINATION" shall mean any one of the following events:

      a. the Seller, the Seller Parent, any Investment Company or any Fund shall
fail to make or fail to cause to be made in the manner and when due any payment
or deposit to be made or to be caused to be made by it to the Purchaser, or any
Investment Company or Fund shall voluntarily fail to make or fail to cause to be
made in the manner and when due any payment or deposit to be made or caused to
be made by it to any Adviser, under this Agreement, any Distribution Plan, any
Underwriting Agreement, the Servicing Agreement or any other Program Document
and such failure shall continue unremedied for ten (10) Business Days following
notice thereof from the Purchaser or the Seller, as the case may be, to the
entity obligated to make such payment; PROVIDED, HOWEVER, if (i) such event
affects only Funds which are not Substantial Funds, (ii) the Seller is able to
segregate Receivables related to Shares of the Fund(s) affected by such event
(and any Shares of other Funds into which such Shares may be exchanged in Free
Exchanges) from Purchased Receivables related to Shares of such Fund and any
unaffected Funds (and any Shares of other Funds into which such Shares may be
exchanged in Free Exchanges), and (iii) the Seller's ability to segregate
Receivables, as described above, is certified to the Purchaser by an independent
accounting firm of national standing, reasonably acceptable to the Purchaser,
such Event of Termination will only relate to the Purchaser's obligation to
purchase Receivables related to the affected Fund(s), and such Event of
Termination will not affect the Purchaser's obligation to continue to purchase
Purchased Receivables related to Shares of unaffected Funds on subsequent
Purchase Dates;

      b. the Seller or the Seller Parent shall have failed to provide 90 days'
advance notice of any change in the fundamental investment objectives or
policies of any Fund from those set forth in the Prospectus for such Fund as of
the date of this Agreement; PROVIDED, HOWEVER, if (i) such event affects only
Funds which are not Substantial Funds, (ii) the Seller is able to segregate
Receivables related to Shares of the Fund(s) affected by such event (and any
Shares of other Funds into which such Shares may be exchanged in Free Exchanges)

                                       8
<PAGE>

from Purchased Receivables related to Shares of such Fund and any unaffected
Funds (and any Shares of other Funds into which such Shares may be exchanged in
Free Exchanges), and (iii) the Seller's ability to segregate Receivables, as
described above, is certified to the Purchaser by an independent accounting firm
of national standing, reasonably acceptable to the Purchaser, such Event of
Termination will only relate to the Purchaser's obligation to purchase
Receivables related to the affected Fund(s), and such Event of Termination will
not affect the Purchaser's obligation to continue to purchase Purchased
Receivables related to Shares of unaffected Funds on subsequent Purchase Dates;

      c. (i) any representation or warranty made or deemed made by the Seller,
the Seller Parent, the Servicer, or any Adviser (or any of their respective
officers) under or in connection with this Agreement, the Servicing Agreement or
any other Program Document to which it is a party shall have been false,
incorrect or misleading in any material respect when made or deemed made or (ii)
any Purchaser Report or any other statement, certificate or report delivered by
or on behalf of the Seller or the Seller Parent or any Adviser in connection
with this Agreement, the Servicing Agreement, or any other Program Document,
shall have been false, incorrect or misleading in any material respect when
delivered;

      d. it shall be alleged in any proceeding of the type referred to in
paragraph (h) or paragraph (r) of this definition of Event of Termination that
any purchase of Purchased Receivables in respect of any Fund by the Purchaser
pursuant to this Agreement does not for any reason constitute a True Sale
thereof, free and clear of any Adverse Claim or any other claim and there has
been an Adverse Effect or it shall have been finally determined by a court or
other tribunal that any purchase of Purchased Receivables in respect of any Fund
by the Purchaser pursuant to this Agreement does not for any reason constitute a
True Sale thereof, free and clear of any Adverse Claim or any other claim;

      e. any material adverse change shall occur in (i) the then existing or
projected financial condition of the Seller or (ii) the then existing or
projected financial condition of either the Seller Parent or any Adviser which
in the case of (ii) could reasonably be expected to have an Adverse Effect;

      f. the Seller Parent shall cease to own, directly or indirectly, all of
the issued and outstanding stock (or membership interest or partnership
interest) of each class and series of the Seller;

      g. any material provision of any Program Document to which the Seller, the
Seller Parent, the Servicer, any Adviser, any Fund or any Investment Company is
a party shall without the written consent of Purchaser cease to be a legal,
valid and binding obligation of any such Person, enforceable in accordance with
its terms; PROVIDED, HOWEVER, if (i) such event affects only Funds which are not
Substantial Funds, (ii) the Seller is able to segregate Receivables related to
Shares of the Fund(s) affected by such event (and any Shares of other Funds into
which such Shares may be exchanged in Free Exchanges) from Purchased Receivables
related to Shares of such Fund and any unaffected Funds (and any Shares of other
Funds into which such Shares may be exchanged in Free Exchanges), and (iii) the
Seller's ability to segregate Receivables, as described above, is certified to
the Purchaser by an independent accounting firm of national standing, reasonably

                                       9
<PAGE>

acceptable to the Purchaser, such Event of Termination will only relate to the
Purchaser's obligation to purchase Receivables related to the affected Fund(s),
and such Event of Termination will not affect the Purchaser's obligation to
continue to purchase Purchased Receivables related to Shares of unaffected Funds
on subsequent Purchase Dates;

      h. the Securities Investor Protection Corporation, established under SIPA,
shall apply for a protective decree against the Seller, and the Seller shall
have failed to obtain a dismissal of such application within thirty (30) days
after such application;

      i. the Seller has knowingly failed in a material manner to meet, or the
NASD or the SEC has determined that the Seller has failed to meet, the minimum
net capital requirements prescribed from time to time by Rule 15c3-1 under the
Exchange Act and such failure is not cured within fifteen (15) Business Days
after Seller obtained such knowledge or such determination is made, as
applicable;

      j. the SEC, the NASD or any other Authority with authority to interpret or
initiate proposed changes in the Investment Company Act, the Conduct Rules, the
rules and regulations under either thereof or the interpretations of any of the
foregoing, shall modify or propose to modify any of the foregoing, in a manner
that might, in the reasonable judgment of the Purchaser, give rise to an Adverse
Effect, or terminate Rule 12b-1, or the interpretation of any of the foregoing;

      k. any of the Governmental Authorizations or Private Authorizations
required in connection with the Program Documents or the transactions
contemplated thereby shall cease to be in full force and effect or shall be
revoked and such revocation shall not be waived within thirty (30) days, or
there shall occur any breach or violation of or default under any such
Governmental Authorizations or Private Authorizations which shall not have been
cured or waived within thirty (30) days of the occurrence thereof, or any action
or proceeding under any Applicable Law shall in any way be brought to challenge
(and shall continue unstayed for a period of fifteen (15) Business Days) the
validity or enforceability of any such Governmental Authorizations or Private
Authorizations;

      l. (i) the Seller shall cease to be registered as a broker/dealer under
the Exchange Act or shall cease to be a member of the NASD and no Affiliate of
the Seller has been substituted as the Seller hereunder, or (ii) any Adviser
shall cease to be either (A) exempt form registration as an investment adviser
under Section 202(a)(11) of the Investment Adviser Act or (B) registered as an
investment adviser under such act; PROVIDED, HOWEVER, in the case of (ii), if
(X) such event affects only Funds which are not Substantial Funds, (Y) the
Seller is able to segregate Receivables related to Shares of the Fund(s)
affected by such event (and any Shares of other Funds into which such Shares may
be exchanged in Free Exchanges) from Purchased Receivables related to Shares of
such Fund and any unaffected Funds (and any Shares of other Funds into which
such Shares may be exchanged in Free Exchanges), and (Z) the Seller's ability to
segregate Receivables, as described above, is certified to the Purchaser by an
independent accounting firm of national standing, reasonably acceptable to the
Purchaser, such Event of Termination will only relate to the Purchaser's
obligation to purchase Receivables related to the affected Fund(s), and such
Event of Termination will not affect the Purchaser's obligation to continue to

                                       10
<PAGE>

purchase Purchased Receivables related to Shares of unaffected Funds on
subsequent Purchase Dates;

      m. any Fund or Investment Company shall have been prevented for a period
in excess of ten (10) Business Days by any Authority or by any Applicable Law
from paying Collections or amounts owed with respect to any Purchased
Receivables to the Purchaser in accordance with this Agreement and the
applicable Irrevocable Payment Instruction or any Fund shall so assert in
writing; PROVIDED, HOWEVER, if (i) such event affects only Funds which are not
Substantial Funds, (ii) the Seller is able to segregate Receivables related to
Shares of the Fund(s) affected by such event (and any Shares of other Funds into
which such Shares may be exchanged in Free Exchanges) from Purchased Receivables
related to Shares of such Fund and any unaffected Funds (and any Shares of other
Funds into which such Shares may be exchanged in Free Exchanges), and (iii) the
Seller's ability to segregate Receivables, as described above, is certified to
the Purchaser by an independent accounting firm of national standing, reasonably
acceptable to the Purchaser, such Event of Termination will only relate to the
Purchaser's obligation to purchase Receivables related to the affected Fund(s),
and such Event of Termination will not affect the Purchaser's obligation to
continue to purchase Purchased Receivables related to Shares of unaffected Funds
on subsequent Purchase Dates;

      n. any one or more of the Funds or Investment Companies shall cease
(voluntarily or by the requirement of any Authority or any Applicable Law) to
regularly offer Shares to new investors (except to the extent waived in writing
by the Purchaser); PROVIDED, HOWEVER, that the foregoing shall not include the
failure of a Fund to regularly offer Shares to new investors after achieving
aggregate net assets above which the Prospectus for such Fund on the date hereof
(or on the Additional Effective Date in the case of an Additional Eligible Fund)
expressly states that sales to new investors may be suspended if a new Fund
which provides investors with a reasonable investment alternative to such closed
Fund is made available to investors within 120 days of such suspension; and
PROVIDED FURTHER, that such event affects only Funds which are not Substantial
Funds, (ii) the Seller is able to segregate Receivables related to Shares of the
Fund(s) affected by such event (and any Shares of other Funds into which such
Shares may be exchanged in Free Exchanges) from Purchased Receivables related to
Shares of such Fund and any unaffected Funds (and any Shares of other Funds into
which such Shares may be exchanged in Free Exchanges) and (iii) the Seller's
ability to segregate Receivables, as described above, is certified to the
Purchaser by an independent accounting firm of national standing, reasonably
acceptable to the Purchaser, such Event of Termination will only relate to the
Purchaser's obligation to purchase Receivables related to the affected Fund(s),
and such Event of Termination will not effect the Purchaser's obligation to
continue to purchase Purchased Receivables related to Shares of unaffected Funds
on subsequent Purchase Dates;

      o. any Fund or any Investment Company shall adopt a plan of dissolution or
liquidation; PROVIDED, HOWEVER, if (i) such event affects only Funds which are
not Substantial Funds, (ii) the Seller is able to segregate Receivables related
to Shares of the Fund(s) affected by such event (and any Shares of other Funds
into which such Shares may be exchanged in Free Exchanges) from Purchased
Receivables related to Shares of such Fund and any unaffected Funds (and any
Shares of other Funds into which such Shares may be exchanged in Free
Exchanges), and (iii) the Seller's ability to segregate Receivables, as
described above, is certified to the Purchaser by an independent accounting firm
of national standing, reasonably acceptable to the Purchaser, such Event of

                                       11
<PAGE>

Termination will only relate to the Purchaser's obligation to purchase
Receivables related to the affected Fund(s), and such Event of Termination will
not affect the Purchaser's obligation to continue to purchase Purchased
Receivables related to Shares of unaffected Funds on subsequent Purchase Dates;

      p. any Fund or any Investment Company shall propose to its shareholders or
effect a merger or other combination with another mutual fund which gives rise
to an Adverse Effect; PROVIDED, HOWEVER, if (i) such event affects only Funds
which are not Substantial Funds, (ii) the Seller is able to segregate
Receivables related to Shares of the Fund(s) affected by such event (and any
Shares of other Funds into which such Shares may be exchanged in Free Exchanges)
from Purchased Receivables related to Shares of such Fund and any unaffected
Funds (and any Shares of other Funds into which such Shares may be exchanged in
Free Exchanges), and (iii) the Seller's ability to segregate Receivables, as
described above, is certified to the Purchaser by an independent accounting firm
of national standing, reasonably acceptable to the Purchaser, such Event of
Termination will only relate to the Purchaser's obligation to purchase
Receivables related to the affected Fund(s), and such Event of Termination will
not affect the Purchaser's obligation to continue to purchase Purchased
Receivables related to Shares of unaffected Funds on subsequent Purchase Dates;

      q. the Seller Parent shall fail to pay any amount in respect of any of its
Debt, the outstanding principal amount of which is in excess of One Hundred
Million Dollars ($100,000,000) in the aggregate, when the same has been due and
payable for a period of five (5) Business Days;

      r. there shall occur a Bankruptcy Event with respect to the Seller, the
Seller Parent or any Adviser;

      s. the Underwriting Agreement, the Investment Management Agreement, the
Distribution Plan or the Prospectus in respect of any Fund, the terms of any
Conversion Feature of any Share issued by such Fund, Rule 12b-1 under the
Investment Company Act or the Conduct Rules, or the interpretation of any of the
foregoing, each as in effect on the date of this Agreement, shall have been
amended or modified in a manner which, in the reasonable judgment of the
Purchaser, gives rise to an Adverse Effect; PROVIDED, HOWEVER, if (i) such event
affects only Funds which are not Substantial Funds, (ii) the Seller is able to
segregate Receivables related to Shares of the Fund(s) affected by such event
(and any Shares of other Funds into which such Shares may be exchanged in Free
Exchanges) from Purchased Receivables related to Shares of such Fund and any
unaffected Funds (and any Shares of other Funds into which such Shares may be
exchanged in Free Exchanges), and (iii) the Seller's ability to segregate
Receivables, as described above, is certified to the Purchaser by an independent
accounting firm of national standing, reasonably acceptable to the Purchaser,
such Event of Termination will only relate to the Purchaser's obligation to
purchase Receivables related to the affected Fund(s), and such Event of
Termination will not affect the Purchaser's obligation to continue to purchase
Purchased Receivables related to Shares of unaffected Funds on subsequent
Purchase Dates;

      t. the Underwriting Agreement, the Distribution Plan, the Investment
Management Agreement or the Prospectus in respect of any Fund or Rule 12b-1
under the Investment Company Act, each as in effect on the date of this
Agreement (or on the Additional Effective Date in the case of an Additional

                                       12
<PAGE>

Eligible Fund), shall have been terminated or shall otherwise no longer be
effective, whether voluntarily or involuntarily, by such Fund, the Seller, the
Seller Parent, an Adviser or any other Person, including without limitation by
any Authority or as a result of any Applicable Law unless in respect of such
Fund a replacement Underwriting Agreement, Distribution Plan, Investment
Management Agreement, Prospectus or the Conduct Rules, as the case may be, has
become effective and which has terms which would not result in an Adverse
Effect; PROVIDED, HOWEVER, if (i) such event affects only Funds which are not
Substantial Funds, (ii) the Seller is able to segregate Receivables related to
Shares of the Fund(s) affected by such event (and any Shares of other Funds into
which such Shares may be exchanged in Free Exchanges) from Purchased Receivables
related to Shares of such Fund and any unaffected Funds (and any Shares of other
Funds into which such Shares may be exchanged in Free Exchanges), and (iii) the
Seller's ability to segregate Receivables, as described above, is certified to
the Purchaser by an independent accounting firm of national standing, reasonably
acceptable to the Purchaser, such Event of Termination will only relate to the
Purchaser's obligation to purchase Receivables related to the affected Fund(s),
and such Event of Termination will not affect the Purchaser's obligation to
continue to purchase Purchased Receivables related to Shares of unaffected Funds
on subsequent Purchase Dates;

      u. the Purchaser is unable to pay Purchase Price on any Purchase Date for
any Purchased Receivables due to a lack of Funds, as validated by a unanimous
resolution of the Purchaser's Board of Directors or by a majority resolution of
the Purchaser's shareholders to this effect;

      v. the Seller, the Seller Parent or any Adviser shall fail to perform or
observe any other term, covenant or agreement on its part to be performed or
observed under this Agreement, the Servicing Agreement or any other Program
Document to which it is a party and such failure could reasonably be expected to
have an Adverse Effect and shall continue unremedied for a period of fifteen
(15) Business Days after the earlier of discovery by the Seller or the Seller
Parent or after written notice thereof by the Purchaser to the Seller; and

      w. any investment adviser to any Fund shall not be an Adviser; PROVIDED,
HOWEVER, if (i) such event affects only Funds which are not Substantial Funds,
(ii) the Seller is able to segregate Receivables related to Shares of the
Fund(s) affected by such event (and any Shares of other Funds into which such
Shares may be exchanged in Free Exchanges) from Purchased Receivables related to
Shares of such Fund and any unaffected Funds (and any Shares of other Funds into
which such Shares may be exchanged in Free Exchanges), and (iii) the Seller's
ability to segregate Receivables, as described above, is certified to the
Purchaser by an independent accounting firm of national standing, reasonably
acceptable to the Purchaser, such Event of Termination will only relate to the
Purchaser's obligation to purchase Receivables related to the affected Fund(s),
and such Event of Termination will not affect the Purchaser's obligation to
continue to purchase Purchased Receivables related to Shares of unaffected Funds
on subsequent Purchase Dates.

      "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, and the
rules and regulations of the SEC thereunder, all as from time to time in effect,
or any successor law, rules or regulations, and any reference to any statutory
or regulatory provision shall be deemed to be a reference to any successor
statutory or regulatory provision.

                                       13
<PAGE>

      "EXISTING INVESTMENT COMPANY" shall mean each of the investment companies
set forth on Schedule III to this Agreement, as the same may be modified
pursuant to Section 7.20 hereof, each an open-end management investment company
which is described in a Prospectus, together with its permitted successors and
assigns.

      "FINAL TERMINATION DATE" shall mean the fifteenth day of the Purchaser's
fiscal quarter immediately following the fiscal quarter during which occurs the
eighth anniversary of the Sale Cutoff Date with respect to the last Monthly Pool
of Purchased Receivables purchased by the Purchaser.

      "FRANKLIN SERVICES" shall mean Franklin Templeton Services, Inc., a
Delaware corporation.

      "FRANKLIN SPONSORED FUND" shall mean any investment company or series or
portfolio thereof (each, in the context of this definition, a "fund") where (a)
such fund is not yet a Fund; (b) such fund has a class of shares that is subject
to a Contingent Deferred Sales Charge in excess of 1%; (c) the Seller, the
Seller Parent, or any Affiliate of the Seller or the Seller Parent is an
investment adviser for such fund; (d) none of the Seller or the Seller Parent or
any Affiliate of the Seller or Seller Parent is a principal underwriter for such
fund; and (e) such fund is directly or indirectly sponsored by Seller, Seller
Parent, or any Affiliate of either, without regard to the form of such
sponsorship (which shall include, without limitation, directly or indirectly
directing the marketing and/or promotion of the fund and licensing of
trademarks, logos or other intellectual property rights which would cause a
reasonable investor to conclude that such fund is in fact so sponsored).

      "FREE EXCHANGE" shall mean the exchange of Shares of one Fund (the
"Redeeming Fund") for Shares of another Fund (the "Issuing Fund"), where,
pursuant to the applicable constituent documents of the Issuing Fund: (a) Shares
of the Issuing Fund are deemed for all purposes (related to the computation of
the amount of, and timing of payment of, Receivables) to have been acquired at
the time when the exchanged Shares of the Redeeming Fund were acquired (or
deemed to be acquired) by the holder thereof; (b) the exchanging shareholder
becomes obligated to pay to the Issuing Fund the same Contingent Deferred Sales
Charge in respect of the Shares of the Issuing Fund and on the same terms as
such shareholder was obligated to pay to the Redeeming Fund; (c) the date upon
which such Shares of the Issuing Fund are converted pursuant to the Permitted
Conversion Feature is the date the exchanged Shares of the Redeeming Fund were
to be converted pursuant to the Permitted Conversion Feature of the exchanged
Shares; (d) both the redemption of the Shares of the Redeeming Fund so exchanged
and the issuance of the Shares of the Issuing Fund are effected at the Net Asset
Value of such Shares at the date of the exchange without any reduction for fees
or expenses attributable to such exchange; and (e) at the time of such exchange
all of the conditions set forth in Section 3.3(d) of this Agreement would be met
for a purchase of Receivables relating to Shares of the Issuing Fund.

      "FREE REDEMPTIONS" shall mean a redemption of Shares of any Fund obtained
by (a) a shareholder through reinvestment of dividends (whether ordinary,
capital gain or exempt-interest dividends) paid by such Fund or (b) a
shareholder of such Fund under any arrangement (including, without limitation,
(i) any arrangements pursuant to which a certain Person is entitled to acquire

                                       14
<PAGE>

such Shares of such Fund under circumstances in which no Contingent Deferred
Sales Charges will be payable by such Person and (ii) arrangements pursuant to
which Contingent Deferred Sales Charges are deferred in connection with the
redemption of Shares of such Fund because the redeeming shareholder is
reinvesting all or a portion of the proceeds of such redemption in Shares of
another Fund) which relieves or defers, in whole or in part, such shareholder's
obligation to pay the maximum Contingent Deferred Sales Charge that would have
been payable in the absence of such arrangement or reinvestment if such
shareholders were any other shareholder of such Fund redeeming Shares of such
Fund that had been held by such other shareholder for the same period the Shares
of such Fund in question had been held by the shareholder in question, but such
term shall not include any Free Exchange.

      "FUND" shall mean each series or portfolio of an Investment Company, or
the Investment Company itself where the Investment Company does not have series
or more than one portfolio, as specified on Schedule III hereto, as the same may
be deemed amended, modified or supplemented pursuant to Sections 2.2 or 7.20 of
this Agreement.

      "GAAP" shall mean generally accepted accounting principles in the United
States, as in effect from time to time, consistently applied; PROVIDED, HOWEVER,
that, where expressly noted, GAAP shall mean generally accepted accounting
principles in the United States, as in effect on the date hereof.

      "GOVERNMENTAL AUTHORIZATIONS" shall mean all franchises, permits,
licenses, approvals, consents and other authorizations of all Authorities.

      "GOVERNMENTAL FILINGS" shall mean all filings, including franchise and
similar tax filings, and the payment of all fees, assessments, interests and
penalties associated with such filings with all Authorities.

      "GUARANTEE" by any Person shall mean any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (a) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation (whether arising by virtue of
partnership arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (b) entered into for the purpose of assuring in any
other manner the obligee of such Debt or other obligation of the payment thereof
or to protect such obligee against loss in respect thereof (in whole or in
part); PROVIDED, HOWEVER, that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business.

      "INVESTMENT ADVISERS ACT" shall mean the Investment Advisers Act of 1940,
as amended, and the rules and regulations of the SEC thereunder, all as from
time to time in effect, or any successor law, rules or regulations, and any
reference to any statutory or regulatory provision shall be deemed to be a
reference to any successor statutory or regulatory provision.

                                       15
<PAGE>

      "INVESTMENT COMPANY" shall mean each Existing Investment Company and each
New Investment Company, each as described on Schedule III hereto, as amended
from time to time, and its permitted successors and assigns.

      "INVESTMENT COMPANY ACT" shall mean the Investment Company Act of 1940, as
amended, and the rules and regulations of the SEC thereunder, all as from time
to time in effect, or any successor law, rules or regulations, and any reference
to any statutory or regulatory provision shall be deemed to be a reference to
any successor statutory or regulatory provision.

      "INVESTMENT MANAGEMENT AGREEMENT" shall mean, with respect to any Fund,
each agreement between an Adviser and such Fund or an Investment Company on
behalf of such Fund and any replacement agreement that may be adopted in the
future, pursuant to which an Adviser (or Seller Parent or any other Affiliate of
the Seller Parent) may receive advisory or other similar fees relating to such
Fund, as the same may be amended, supplemented, waived or modified from time to
time.

      "IRREVOCABLE PAYMENT INSTRUCTION" shall mean the Seller's irrevocable
payment instruction to each Fund, in the form of Exhibit D attached hereto.

      "ISSUE PRICE" shall mean, with respect to any Fund, the gross purchase
price of the Shares of such Fund as reported by the transfer agent for such
Fund.

      "LAW" shall mean any (a) judicial, executive, legislative, administrative
or other action, code, consent decree, constitution, decree, enactment, finding,
guideline, law, injunction, interpretation, judgment, order, ordinance, policy
statement, proclamation, promulgation, regulation, requirement, rule, rule of
law, rule of public policy, settlement agreement, statute, treaty or writ, of
any Authority, whether domestic or foreign, or any particular section, part or
provision thereof, (b) common law or other legal or quasi-legal precedent, or
(c) arbitrator's, mediator's or referee's decision, finding, award or
recommendation, or, in any case, any particular section, part or provision
thereof.

      "LETTER AGREEMENT" shall mean that Letter Agreement dated as of September
22, 1999 by and between Franklin Services and the Purchaser, in the form of
Exhibit P attached hereto, as the same may from time to time be amended,
supplemented, waived or modified.

      "LIABILITIES" shall mean claims, damages, losses, liabilities, expenses,
obligations, penalties, actions, suits, judgments and disbursements of any kind
or nature whatsoever (including, without limitation, the reasonable fees and
disbursements of counsel).

      "LIEN" shall mean any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien or security interest (statutory or other), or
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever (including, without limitation, any conditional
sale or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the UCC or comparable law of any jurisdiction),
or other charge or encumbrance, including the retained security title of a
conditional vendor or lessor.

                                       16
<PAGE>

      "LIGHTNING BALANCE SHEET CARRYING VALUE" shall mean, with respect to any
Purchased Receivables as of any date, the value of such Purchased Receivables
determined in accordance with GAAP, including FAS 125, as in effect on the date
hereof.

      "MASTER TRUST" shall mean any trust or other special purpose entity to
which any interest in any of the Purchased Receivables relating to any Fund or
the right to receive any Collections with respect thereto has been transferred
in connection with a Takeout Transaction.

      "MASTER TRUST TRANSFER AGREEMENT" shall mean any agreement pursuant to
which any interest in the Purchased Receivables is transferred to a Master
Trust.

      "MAXIMUM AGGREGATE SALES CHARGE ALLOWABLE" shall mean as of any date, with
respect to the Shares of any Fund, the maximum Sales Charge that may be paid by
the Investment Company with respect to such Shares pursuant to Section 2830 of
the Conduct Rules, assuming the Investment Company pays a separate Service Fee
in respect of such Fund, unreduced by payments theretofore made in respect
thereof by the Investment Company in respect of such Fund.

      "MONTHLY POOL" shall mean with respect to the Purchased Receivables
relating to any Fund purchased during any calendar month, the Receivables
relating to (a) the Shares of such Fund whose Issue Price is included in the
calculation of the Purchase Price of Purchased Receivables relating to such Fund
purchased during such calendar month; (b) the Shares of such Fund issued in a
Free Exchange in exchange for (i) Shares of another Fund whose Issue Price was
included in the calculation of the Purchase Price of Purchased Receivables
relating to such other Fund purchased during such calendar month and (ii) Shares
of such other Fund issued in connection with the reinvestment of dividends
(whether ordinary, capital gain or exempt-interest dividends) paid in respect of
the Shares of such other Fund described in clause (b)(i) above or this clause
(b)(ii); and (c) the Shares of such Fund issued in connection with the
reinvestment of dividends (whether ordinary, capital gain or exempt-interest
dividends) paid in respect of the Shares of such Fund described in clause (a) or
(b) above or this clause (c).

      "NASD" shall mean the National Association of Securities Dealers, Inc. or
any successor entity.

      "NET ASSET VALUE" shall mean, with respect to any Fund, as of the date any
determination thereof is made, the net asset value applicable to Shares of such
Fund computed in the manner such value is required to be computed by such Fund
in its reports to its shareholders, and shall mean with respect to any Share of
such Fund as of any date, the quotient obtained by dividing the Net Asset Value
of such Fund as of such date by the number of Shares of such Fund outstanding on
such date.

      "NEW INVESTMENT COMPANY" shall mean any open-end management investment
company which is an Additional Eligible Fund, together with its permitted
successors and assigns.

      "OTHER TAXES" shall mean any present or future stamp or documentary taxes
or any other excise or property taxes, charges or similar levies (but shall not
include any charges, levies or taxes excluded from the definition of "Taxes"
herein) which arise from any payment made by or on behalf of the Seller

                                       17
<PAGE>

hereunder or from the execution, delivery or registration of, or otherwise with
respect to, this Agreement or any other Program Document to which the Seller is
a party.

      "PARTIES" shall mean, collectively, the Seller, the Seller Parent and the
Purchaser.

      "PERMITTED CONVERSION FEATURE" shall mean with respect to any Share of any
Fund, a Conversion Feature described in Schedule IV, attached hereto, in respect
of such Fund which, by its terms, may not become effective prior to the date on
which the eighth (8th) anniversary of the date of the issuance of such Share
occurs.

      "PERMITTED DESIGNEE" shall mean (a) any Person designated by the Purchaser
or any Master Trust, as the case may be, which may be The Chase Manhattan Bank,
Constellation Financial Management Company LLC, FEP Holdings, L.P. or any
Affiliate of the foregoing, and (b) any other Person designated by the Purchaser
or any Master Trust, as the case may be, (i) which is not (nor is any Affiliate
of such Person) actively engaged in the sponsorship or management of any
management investment company registered under the Investment Company Act and
(ii) which has agreed to be bound by confidentiality undertakings in substance
comparable to Section 7.10.

      "PERSON" shall mean an individual or a corporation (including a business
trust), partnership, trust, incorporated or unincorporated association, joint
stock company, government (or an agency or political subdivision thereof) or
other entity of any kind.

      "PLAN" shall mean, in respect of any Person, any plan defined in Section
402(a) of ERISA in respect of which such Person is an "employer" or a
"substantial employer" as defined in Section 3(5) and 4001(a)(2) of ERISA,
respectively.

      "POST-DEFAULT RATE" shall mean in respect of any amount payable by a Party
hereunder not paid when due, a rate per annum during the period commencing on
the due date thereof until such amount is paid in full equal to the Prime Rate
as in effect from time to time plus two percent (2%).

      "PRIME RATE" shall mean the rate of interest from time to time announced
by The Chase Manhattan Bank at its principal office as its prime commercial
lending rate. The Prime Rate is a reference rate and does not necessarily
represent the lowest or best rate actually charged to any customer.

      "PRIVATE AUTHORIZATIONS" shall mean all franchises, permits, licenses,
approvals, consents and other authorizations of all Persons (other than
Authorities) including, without limitation, those with respect to trademarks,
service marks, trade names, copyrights, computer software programs and other
intellectual property.

      "PROCEEDS" shall have, with reference to any property or asset, the
meaning ascribed to such term under the UCC and, in any event, shall include,
but not be limited to, any and all amounts from time to time paid or payable
under or in respect of such property or asset.

      "PROGRAM DOCUMENTS" shall mean this Agreement, each Assignment, the
Servicing Agreement, the Underwriting Agreements, the Prospectuses, the

                                       18
<PAGE>

Investment Management Agreements, the Distribution Plans, the Irrevocable
Payment Instruction, the Letter Agreement and the other agreements, documents,
certificates and instruments entered into or delivered in connection herewith
and therewith, including any and all Exhibits and Schedules referenced herein or
therein, and attached hereto or thereto, as the same may from time to time be
amended, supplemented, waived or modified.

      "PROSPECTUS" shall mean, with respect to any Fund, the prospectus with
respect to Shares of such Fund filed with the SEC as a part of the Investment
Company's Registration Statement on Form N-1A, as amended or supplemented from
time to time, and shall include, without limitation, the related Statement of
Additional Information included in such Registration Statement.

      "PURCHASE DATE" shall mean each Business Day after January 6, 1999 and
prior to and including the Termination Date, on which the Seller provides to the
Purchaser a Purchaser Report which shall set forth, among other things, the
Seller's determination of the Purchase Price for the Purchased Receivables to be
purchased on such Purchase Date.

      "PURCHASE PRICE" shall mean with respect to the Purchased Receivables
relating to any Share of any Fund to be purchased on any Purchase Date, an
amount equal to the product of (a) the Purchase Price Percentage relating to the
Shares of such Fund and (b) the total Issue Price of such Shares of such Fund,
the sales of which settle (other than in connection with the reinvestment of
dividends (whether ordinary, capital gain or tax-exempt dividends or return of
capital) or Free Exchanges) during the period from (but not including) the Sale
Cutoff Date relating to the immediately preceding Purchase Date to (and
including) the Sale Cutoff Date relating to such Purchase Date. Notwithstanding
the provisions of the preceding sentence, the Purchase Price otherwise payable
by the Purchaser for such Purchased Receivables shall be reduced by the sum of
all amounts paid as Sales Charges (or in respect of Shares issued prior to such
date as a result of the Free Exchange of such Shares or the reinvestment of
dividends (whether ordinary, capital gain or tax-exempt dividends or return of
capital on any of the foregoing)) to the extent that the Purchaser does not
otherwise receive and retain the economic benefits of such payments pursuant to
this Agreement.

      "PURCHASE PRICE PERCENTAGE" shall mean, with respect to any Fund, the
percentage set forth opposite the name of such Fund under the heading "Purchase
Price Percentage" on Schedule III attached hereto, as the same may be deemed
amended, modified or supplemented pursuant to Sections 2.2 or 7.20 of this
Agreement.

      "PURCHASED RECEIVABLES" shall mean with respect to the Shares of any Fund:

      a. the Receivables, other than Seller Receivables, relating to (i) Shares,
the sales of which settled during the period from and including January 7, 1999
(or, if later, the Additional Effective Date for such Fund) through the Business
Day to and including the most recent Sale Cutoff Date preceding or coinciding
with such date, and (ii) the Shares issued in connection with the reinvestment
of dividends (whether ordinary, capital gain or tax-exempt dividends, or return
of capital) paid in respect of the Shares described in clause (i) of this
paragraph (a); and

                                       19
<PAGE>

      b. the Receivables, other than Seller Receivables, due from any other Fund
relating to (i) Shares of such other Fund which were acquired by the holder of
the Shares referred to in paragraph (a) above or this paragraph (b) in a Free
Exchange and (ii) Shares of such other Fund issued after such Free Exchange in
connection with the reinvestment of dividends (whether ordinary, capital gain or
tax-exempt dividends, or return of capital) paid in respect of the Shares
described in clause (i) of this paragraph (b).

      "PURCHASER REPORT" shall mean the report in substantially the form of
Schedule V attached hereto, with such changes therein (and in such form) as the
Purchaser may from time to time reasonably request.

      "PURCHASER'S KNOWLEDGE" shall mean the actual knowledge of any shareholder
or officer of Purchaser who is not an Affiliate of Seller, Seller Parent or
their respective Affiliates.

      "PURCHASER'S REMITTANCE ACCOUNT" shall mean the account of the Purchaser
(Account No. 22967504) maintained with The Chase Manhattan Bank (Ireland) PLC or
such other account as the Purchaser shall designate in writing to the Seller.

      "RECEIVABLES" shall mean, with respect to each Fund, all of the Seller's
rights under the related Underwriting Agreement, the related Distribution Plan,
the related Prospectus and the Conduct Rules to receive amounts paid or payable
in respect of Sales Charges, including the Contingent Deferred Sales Charges, as
listed on Schedule II attached hereto, in each case in respect of the issuance
(whether prior to or on or after the date hereof and including issuance in a
Free Exchange) by such Fund of Shares, including, without limitation, any
similar amounts paid or payable under any replacement Underwriting Agreement,
Distribution Plan or Conduct Rules and any continuation payments, in respect of
such Sales Charges in respect of the issuance by such Funds of Shares, that are
paid or payable in the event of a termination of the related Distribution Plan
or the related Underwriting Agreement; it being understood that such term does
not include the Service Fee payable pursuant to the related Underwriting
Agreement, the related Distribution Plan, the Prospectus and the Conduct Rules.

      "RULE 12B-1" shall mean Rule 12b-1 adopted under the Investment Company
Act.

      "SALE CUTOFF DATE" relating to any Purchase Date shall mean the third
Business Day preceding such Purchase Date.

      "SALES CHARGE" shall have the meaning set forth in Section 2830(b)(8) of
the Conduct Rules, it being understood that such term does not include any
Service Fee.

      "SEC" shall mean the United States Securities and Exchange Commission or
any other governmental authority of the United States of America at the time
primarily responsible for administering the Securities Act, the Investment
Company Act, the Investment Advisers Act or the Exchange Act.

      "SECURED OR GUARANTEED DEBT" of any Person shall mean, at any date, (a)
all Debt of others secured by a Lien on any asset of such Person, whether or not
such Debt is assumed by such Person, and (b) all Debt of others in respect of
which such Person has issued a Guarantee.

                                       20
<PAGE>

      "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, and
the rules and regulations of the SEC thereunder, all as from time to time in
effect, or any successor law, rules or regulations, and any reference to any
statutory or regulatory provisions shall be deemed to be a reference to any
successor statutory or regulatory provision.

      "SELLER COLLECTIONS" shall mean all amounts that become payable by a Fund
or a shareholder of a Fund, including without limitation Sales Charges, and are
paid, with respect to Shares to which Purchased Receivables relate, in an amount
which could not be paid pursuant to the Conduct Rules, calculated (a) as though
the Shares of such Fund to which Purchased Receivables relate constituted all of
the outstanding Shares of a Fund and (b) assuming such Fund pays a separate
Service Fee in respect of such Shares.

      "SELLER RECEIVABLES" shall mean, as of any date of determination, the
right of the Seller to receive the Seller Collections.

      "SELLER TERMINATION EVENT" shall mean each of the following events:

      a. any proceeding shall be instituted by or against the Purchaser seeking
to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or composition of
it or its obligations under any Law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an order of relief
or the appointment of a receiver, trustee, custodian or other similar official
for it or for any substantial part of its property and, in the case of any such
proceeding instituted against it, such proceeding shall remain undismissed or
unstayed for a period of sixty (60) days;

      b. the failure of the Purchaser to pay when due and payable, after
expiration of any applicable grace period, any amount with respect to its Debt
outstanding from time to time under the Credit Agreement, as amended or restated
from time to time;

      c. the failure of the Purchaser to make in the manner and when due any
payment to be made by it under this Agreement, including, without limitation,
the Purchase Price with respect to any Purchased Receivables, and such failure
shall continue unremedied for ten (10) Business Days following written notice
thereof from the Seller to the Purchaser; or

      d. (i) any representation or warranty made or deemed made by the Purchaser
(or any of its officers) under or in connection with this Agreement, the
Servicing Agreement or any other Program Document shall have been false,
incorrect or misleading in any material respect when made or deemed made or (ii)
any other statement, certificate or report delivered by or on behalf of the
Purchaser in connection with this Agreement, the Servicing Agreement, or any
other Program Document, shall have been false, incorrect or misleading in any
material respect when delivered.

      "SELLER'S ACCOUNT" shall mean the account of the Seller (Account No.
7313201334) maintained with Bank of America, or such other account as the Seller
shall designate in writing to the Purchaser.

      "SERVICE FEE" shall have the meaning set forth in Section 2830(b)(9) of
the Conduct Rules.

                                       21
<PAGE>

      "SERVICER" shall mean Franklin/Templeton Investor Services, Inc., a
California corporation.

      "SERVICING AGREEMENT" shall mean the Servicing Agreement dated the date
hereof by and between the Purchaser and the Servicer, in the form of Exhibit E
attached hereto, as the same may from time to time be amended, supplemented,
waived or modified.

      "SETTLEMENT DATE" shall mean the eighth Business Day of each calendar
month that occurs prior to the end of the calendar month following the
Termination Date; PROVIDED, HOWEVER, that, in respect of the Settlement Date
occurring in any calendar month, the Purchaser and the Seller may agree that the
Settlement Date in such calendar month shall be on a different Business Day of
such month.

      "SHARES" shall mean, in respect of any Fund any Class B shares or other
classes of shares of the Fund that are sold or issued pursuant to a Distribution
Plan adopted under Rule 12b-1 which have a Contingent Deferred Sales Charge, and
which are specified on Schedule III hereof, as the same may be deemed amended,
modified, or supplemented pursuant to Sections 2.2 or 7.20.

      "SIPA" shall mean the Securities Investor Protection Act of 1970, as
amended from time to time and the regulations promulgated and the rulings issued
thereunder.

      "SUBSTANTIAL FUNDS" shall mean, as of any date, any Fund or group of Funds
the Shares of which together on such date have a Net Asset Value equal to thirty
percent (30%) or more of the total Net Asset Value related to Shares of all
Funds taken together, as of such date;

      "TAKEOUT TRANSACTION" shall mean any transaction pursuant to which the
Purchaser sells or otherwise transfers, or causes to be sold or transferred,
interests in the Purchased Receivables relating to any Fund (including, without
limitation, the right to receive any portion of any Collections) to any Person,
including a Master Trust which publicly or privately sells debt instruments
and/or certificates or other instruments representing ownership interests in
such Master Trust or interests in any Purchased Receivables relating to any Fund
(including, without limitation, any right to receive any portion of any
Collections).

      "TAXES" shall mean any present or future taxes, levies, imposts,
deductions, charges and all liabilities with respect thereto, EXCLUDING (i)
taxes imposed on the Purchaser's income, and franchise taxes imposed on the
Purchaser, by (a) the jurisdiction under the laws of which the Purchaser is
organized or any political subdivision thereof, (b) the jurisdiction of the
Purchaser's principal executive office or any political subdivision thereof or
(c) any other jurisdiction regardless of where located; (ii) taxes required to
be withheld or subject to advance payment through withholding or otherwise; and
(iii) transfer, sales, use or value added taxes, all as required under
Applicable Law.

      "TERMINATION DATE" shall mean January 15, 2002 or such subsequent date as
shall be agreed to in writing by the Parties, except that the Termination Date
may be deemed to have occurred on an earlier date pursuant to Sections 6.1 or
6.2.

                                       22
<PAGE>

      "TRUE SALE" shall mean, with respect to any asset or property, the sale of
an absolute and complete ownership interest in such asset or property (and not
the granting of a security interest therein), within the meaning of all
Applicable Law, including, without limitation, the UCC, the Code and the
Bankruptcy Code.

      "UCC" shall mean the Uniform Commercial Code, as from time to time in
effect in the applicable jurisdictions.

      "UNDERWRITING AGREEMENT" shall mean, with respect to each Fund, the
agreement between the Seller and the Investment Company as it applies to such
Fund in the form attached hereto as Exhibit F, and any replacement agreement as
may be adopted in the future, pursuant to which the Seller has been appointed
the principal underwriter or distributor for such Fund, subject to the terms of
the Distribution Plan relating to such Fund, as the same may be amended,
supplemented, waived or modified from time to time.

      SECTION 1.2 RULES OF CONSTRUCTION. For all purposes of this Agreement,
except as otherwise expressly provided herein or unless the context requires
otherwise (a) each use in this Agreement of a singular version of a pronoun
shall be deemed to include references to the plural, and vice versa, (b) Article
and Section headings are for convenience of reference only and shall not affect
the construction of this Agreement, and (c) the definitions of terms defined in
this Agreement shall be equally applicable to the singular and plural forms of
such terms. Except where the context requires otherwise, references to "this
section" or words of similar import shall be deemed to refer to the entire
section and not to a particular subsection, references to a Section, subsection
or Article shall be deemed to refer to the specific referenced Section,
subsection or Article of this Agreement and references to "hereunder", "herein",
"hereto" or words of similar import shall be deemed to refer to this entire
Agreement and not to any particular section or subsection. Terms defined in the
Preamble of this Agreement which are more fully defined in this Article 1 are
used herein as defined in this Article 1.

                                   ARTICLE II

                   PURCHASE AND SALE OF PURCHASED RECEIVABLES;
                        ADDITIONAL FUNDS AND COLLECTIONS

      SECTION 2.1 PURCHASE AND SALE.

      a. On each Purchase Date that occurs on or prior to the Termination Date,
the Purchaser shall, subject to and upon the terms and conditions set forth in
this Agreement, purchase, and the Seller shall, subject to and upon the terms
and conditions set forth in this Agreement, sell, transfer, convey and assign to
the Purchaser, on and as of such Purchase Date, all of the Seller's right, title
and interest in, to and under the Purchased Receivables (and the Collections in
respect thereof) relating to the sales of Shares of each Fund for the period
from (but not including) the Sale Cutoff Date relating to the immediately
preceding Purchase Date (which for the initial purchase of Purchased Receivables
shall be deemed to mean January 4, 1999 and for an initial purchase of such
Purchased Receivables relating to an Additional Eligible Fund shall mean the
related Additional Effective Date) to (and including) the Sale Cutoff Date
relating to such Purchase Date, and the Purchaser shall purchase from the Seller

                                       23
<PAGE>

such Purchased Receivables for an amount equal to the aggregate Purchase Price
payable in respect of such Purchased Receivables. The aggregate Purchase Price
to be paid by the Purchaser to the Seller or its designee on each Purchase Date
shall be paid on the respective Purchase Date by wire transfer of immediately
available funds. Notwithstanding the foregoing, the Purchaser shall have no
obligation to purchase Receivables relating to any Fund after any change in such
Fund's fundamental investment objective or fundamental investment policies
unless such Fund is reapproved by the Purchaser as an Additional Eligible Fund
pursuant to Section 2.2 below.

      b. Monthly on or before the day which is four (4) Business Days prior to
each Settlement Date, the Seller shall provide the Purchaser with a Purchaser
Report which shall set forth, among other things, the Seller's determination of
(i) the Purchase Price for the Purchased Receivables purchased during the
preceding calendar month and (ii) the computation of such Purchase Price in
reasonable detail. On each Settlement Date, the Purchaser shall pay to the
Seller or the Seller shall reimburse the Purchaser, as the case may be, for any
difference between the aggregate amount of Purchase Price previously paid to the
Seller during the preceding calendar month for Purchased Receivables sold during
such month and the actual aggregate Purchase Price of the Purchased Receivables
purchased during such month, as set forth on the Purchaser Report delivered for
such month.

      c. Each purchase and sale of Purchased Receivables pursuant to Section
2.1(a) shall be evidenced by an Assignment to be delivered by the Seller to the
Purchaser on the Purchase Date related to such purchase of Purchased
Receivables.

      d. It is the intention of the Parties that each purchase and sale of
Purchased Receivables to be made hereunder shall constitute a True Sale.

      SECTION 2.2 ADDITIONAL FUNDS. Unless an Event of Termination (or an event
which, with the passage of time or notice, or both, would constitute an Event of
Termination) shall have occurred and be continuing, the Seller and the Seller
Parent may request that an Additional Eligible Fund become a "Fund" under this
Agreement on the Additional Effective Date for such Additional Eligible Fund. On
and as of such Additional Effective Date, (a) each Additional Eligible Fund
shall become a Fund hereunder, (b) Schedule III and Exhibits C, D, F, G and N
hereof shall be deemed to be supplemented to reflect such addition, and (c) any
reference in this Agreement to any change or modification since the date of this
Agreement to the Underwriting Agreement, Distribution Plan, Investment
Management Agreement, Prospectus or Contingent Deferred Sales Charge arrangement
of such Additional Eligible Fund shall be deemed with respect to such Additional
Eligible Fund to refer to any change or modification thereof since such
Additional Effective Date. The Seller and the Seller Parent shall provide the
Purchaser with written notice thirty (30) days prior to the anticipated
Additional Effective Date of any investment company or series or portfolio
thereof that is to become an Additional Eligible Fund, it being agreed that
without such timely prior written notice the Purchaser shall not be obligated to
purchase Purchased Receivables of such Additional Eligible Fund from the Seller
as of the Additional Effective Date. Notwithstanding anything herein to the
contrary, it is also understood that the Purchaser has the right in its
reasonable discretion (x) to reject any request that any Additional Eligible
Fund be included as a Fund hereunder or (y) as a condition to agreeing to any
such request, to require such modifications to the Program Documents as the
Purchaser may reasonably request.

                                       24
<PAGE>

      SECTION 2.3 COLLECTIONS AND SELLER COLLECTIONS.

      a. The Seller shall cause all Collections and Seller Collections, other
than Collections or Seller Collections related to Contingent Deferred Sales
Charges, in respect of Purchased Receivables relating to each Fund payable by
such Fund to be deposited directly into the Collection Account by such Fund (or
its transfer agent, if applicable) without any intermediary commingling of such
amounts with the other assets of the Seller or any of its Affiliates (other than
such transfer agent).

      b. The Seller shall cause all Collections and Seller Collections related
to Contingent Deferred Sales Charges in respect of Purchased Receivables
relating to each Fund payable by the shareholders of each Fund to be deposited,
one (1) Business Days after each applicable settled trade, directly into the
CDSC Collection Account by such Fund (or its transfer agent, if applicable)
without any intermediary commingling of such amounts with the other assets of
the Seller or any of its Affiliates (other than such transfer agent).

      c. If any check or other instrument in payment of Collections shall
require the endorsement of the Seller, the Seller hereby irrevocably authorizes
and empowers the Purchaser to endorse (without recourse) the same as
attorney-in-fact.

      d. On the fifteenth calendar day after the last day of each of the
Purchaser's fiscal quarters, the Purchaser shall pay to Seller, in immediately
available funds by wire transfer, the amount, if any, equal to any Seller
Collections deposited in the Collection Account or the CDSC Collection Account
pursuant to the Program Documents on or prior to the last day of such preceding
fiscal quarter which have not been previously disbursed to Seller pursuant to
this Section 2.3.

      e. In the event of any disagreement between the Purchaser and the Seller
as to the accuracy or completeness of the information and data provided to the
Purchaser by the Seller in the reports described on Exhibit A to the Servicing
Agreement, as such information and data relate to any calculation of, or the
method of calculating, Collections, the Purchaser and the Seller shall negotiate
in good faith to resolve the disagreement. If the disagreement is not so
resolved within thirty (30) days, either the Purchaser or the Seller, by written
notice to the other, may require that the disagreement be submitted to an
accounting firm of recognized national standing for a resolution which shall be
final and binding upon the Parties. In connection with all such disagreements
submitted for resolution pursuant to the preceding sentence, the accounting firm
shall be selected jointly by the Seller and the Purchaser and the fees of the
accounting firm shall be borne equally by the Seller and the Purchaser. Upon
resolution of any dispute, any error shall be corrected by payment to the
appropriate Party in the amount of the error plus interest calculated at the
Prime Rate for the period from the date the payment was originally due to the
date payment is actually made.

      f. In the event that the sale of any Shares of any class of any Fund to
which Purchased Receivables relate shall be rescinded for any reason whatsoever,
the Seller shall promptly refund to the Purchaser an amount equal to the product
of (i) the Purchase Price Percentage relating to such Fund and (ii) the Issue
Price of such Shares of such Fund, minus the sum of all amounts theretofore paid
to the Purchaser as Sales Charges to the extent that Seller does not otherwise

                                       25
<PAGE>

receive and retain the economic benefits of such payments pursuant to this
Agreement, plus interest calculated at the Prime Rate on the amount of the
foregoing outstanding from time to time.

      SECTION 2.4 TRANSFER OF RECORDS TO PURCHASER.

      a. Each purchase of Purchased Receivables hereunder shall include the
transfer to the Purchaser of all of the Seller's right, title and interest in,
to and under the records relating to such Purchased Receivables and the
Collections, and the Seller hereby agrees that such transfer shall be effected
automatically with each such purchase, without any further documentation.

      b. The Seller shall take all such actions requested by the Purchaser, from
time to time hereafter, that may be necessary or appropriate, in the reasonable
opinion of Purchaser, to ensure that the Purchaser has (i) an enforceable
ownership interest in the records relating to the Purchased Receivables and
Collections purchased from the Seller hereunder and (ii) an enforceable right
(whether by license, sublicense or otherwise) to use all of the computer
software used to account for the Purchased Receivables and Collections and/or to
recreate such records.

      SECTION 2.5 DISTRIBUTION PLAN OR UNDERWRITING AGREEMENT TERMINATION. The
Seller and the Purchaser recognize that any Fund has the right to terminate a
Distribution Plan or Underwriting Agreement pertaining to such Fund. The
Purchaser, consistent with its status as a buyer of the Purchased Receivables in
a True Sale transaction, accepts, subject to all the other terms and conditions
of this Agreement (including the Seller's and the Seller's Parent's
responsibilities hereunder), the risks associated with any such termination by a
Fund of a Distribution Plan or an Underwriting Agreement.

      SECTION 2.6 INTERIM AGREEMENT. The Parties recognize that prior to the
execution of this Agreement, the parties were engaging in a series of
transactions pursuant to the terms of an Interim Agreement dated as of January
4, 1999, as amended as of February 28, 1999, March 31, 1999, April 30, 1999, May
28, 1999, June 7, 1999, June 30, 1999, and July 30, 1999 which transactions were
similar to the transactions contemplated by this Agreement pertaining to the
Purchased Receivables. The Parties intend that all of the transactions
consummated under and governed by the Interim Agreement shall be deemed
transactions governed by, and subject to all of the terms and conditions of,
this Agreement.

                                   ARTICLE III

                              CONDITIONS PRECEDENT

      SECTION 3.1 CONDITIONS PRECEDENT TO INITIAL PURCHASE OF PURCHASED
RECEIVABLES. The obligation of the Purchaser to make the initial purchase of
Purchased Receivables pursuant to this Agreement shall be subject to the prior
or concurrent fulfillment (or waiver by the Purchaser) of each of the following
conditions precedent:

      a. the Servicing Agreement shall have been duly executed by the parties
thereto and shall be in full force and effect, and the Purchaser shall have
received a fully executed copy thereof;

                                       26
<PAGE>

      b. the Purchaser shall have received the signed opinions of counsel to
each of the Funds, the Seller, the Seller Parent and the Servicer which shall
each be substantially in the form attached hereto as Exhibits H, I, J and L,
respectively, and be dated contemporaneously with the execution of this
Agreement;

      c. the Purchaser shall have received (i) a subsistence certificate, dated
on or after July 15, 1999 from the Secretary of State of the State of New York
with respect to the Seller; (ii) a good standing certificate, dated on or after
July 15, 1999 from the Secretary of State of the State of Delaware with respect
to the Seller Parent; (iii) a certificate of status, dated on or after July 15,
1999 from the Secretary of State of the State of California with respect to the
Servicer; (iv) copies of the certificates of incorporation, with all amendments
thereto, for the Seller, the Seller Parent and the Servicer, certified by the
Secretary of State of the State of New York, the State of Delaware, or the State
of California, as applicable; and (v) a signed certificate of the President or a
Vice President and a Secretary or Assistant Secretary of each of the Seller, the
Seller Parent and the Servicer, in the form of Exhibit K attached hereto;

      d. the Purchaser shall have received a copy of each Governmental
Authorization and each Private Authorization which may be required to be
obtained by the Seller, the Seller Parent, each Investment Company and each Fund
in connection with this Agreement and the other Program Documents and the
transactions contemplated hereby and thereby, each of which shall be in form,
scope and substance satisfactory to the Purchaser;

      e. the Seller shall have caused the Purchaser to receive duly executed
financing statements which have been filed, before the execution of this
Agreement, under the UCC of all jurisdictions that the Purchaser may deem
necessary or desirable in order to perfect the interests of the Purchaser in the
Purchased Receivables as contemplated by this Agreement, each of which shall be
in form, scope and substance satisfactory to the Purchaser;

      f. the Seller shall have caused the Purchaser to receive time stamped
receipt copies of proper UCC termination statements, if any, necessary to
release all security interests and other rights of any Person in the Purchased
Receivables;

      g. the Seller shall have caused the Purchaser to receive certified copies
of requests for information (Form UCC-11) (or a similar search report certified
by a party acceptable to the Purchaser), dated, before the execution of this
Agreement (but after April 1, 1999), listing all effective financing statements
which name the Seller (under its present name or any previous name), as debtor
and which are filed in the jurisdictions in which filings are required to be
made pursuant to Section 3.1(e), together with copies of such financing
statements (none of which shall cover any of the Purchased Receivables);

      h. the Seller shall have caused the Purchaser to receive a duplicate
original of each Irrevocable Payment Instruction, in the form attached hereto as
Exhibit D, executed and delivered by the Seller to each Investment Company on
behalf of each Fund which has been acknowledged and agreed to by each Investment
Company on behalf of each Fund as contemplated by the terms thereof;

      i. the initial Purchase Date shall have occurred prior to September 30,
1999;

                                       27
<PAGE>

      j. the Purchaser shall have received evidence that the items attached
hereto as Exhibits C and F were filed with the SEC and have been approved by the
directors or trustees of each Fund or each Investment Company by a vote in
person of a majority of its directors (including a majority of its directors or
trustees who are not parties to such Fund's Distribution Plans(s) or
Underwriting Agreement(s) or interested persons of any such party within the
meaning of the Investment Company Act), by resolution(s) acceptable to the
Purchaser;

      k. the Seller shall have caused the Purchaser to receive copies of the
relevant portions of the minutes of the meeting(s) of the Board of Directors or
Trustees of each Fund or each Investment Company at which a majority of such
directors or trustees (including a majority of such directors or trustees who
are not parties to such Fund's Distribution Plans(s) or Underwriting
Agreement(s) or interested persons of any such party within the meaning of the
Investment Company Act) approved the transactions contemplated by the Program
Documents;

      l. each of the investment advisers to each Fund shall be an Adviser; and

      m. the conditions set forth in Section 3.3 shall have been fulfilled.

      SECTION 3.2 CONDITIONS PRECEDENT TO INITIAL SALE OF PURCHASED RECEIVABLES.
The obligation of the Seller to sell any Purchased Receivables pursuant to this
Agreement shall be subject to the prior or concurrent fulfillment (or waiver by
the Seller) of each of the following conditions precedent:

      a. receipt by the Seller of the signed opinion of counsel to the Purchaser
which shall be in the form attached hereto as Exhibit M and be dated
contemporaneously with the execution of this Agreement; and

      b. the Purchaser shall have paid to the Seller and the Seller Parent the
costs and expenses required to be paid by it under Section 7.4(c).

      SECTION 3.3 CONDITIONS PRECEDENT TO THE PURCHASER'S CONTINUING OBLIGATION
TO PURCHASE PURCHASED RECEIVABLES. The continuing obligation of the Purchaser to
purchase Purchased Receivables relating to any Fund on any Purchase Date shall
be subject to the prior or concurrent fulfillment (or waiver by the Purchaser),
at or prior to the time of such Purchase Date, of each of the following
conditions precedent:

      a. both immediately before and immediately after giving effect to the
purchase of Purchased Receivables on such Purchase Date (i) no Event of
Termination (or event which, with the passage of time or notice, or both, would
constitute an Event of Termination) shall have occurred and be continuing and
(ii) the representations and warranties of each of the Seller, each Adviser and
the Seller Parent set forth in the Program Documents to which it is a party
shall be true and correct in all material respects with the same effect as if
then made (unless stated to relate solely to an earlier date, in which case such
representations and warranties shall be true and correct in all material
respects as of such earlier date);

      b. the Assignment to be delivered by the Seller on each Settlement Date
shall have been duly executed and delivered;

                                       28
<PAGE>

      c. the Seller shall have delivered all Purchaser Reports as and when
required to be delivered prior to or on such Purchase Date pursuant to this
Agreement and the Servicing Agreement, which shall be in form and substance
reasonably satisfactory to the Purchaser;

      d. the Purchased Receivables relating to Shares of each Fund shall
constitute Eligible Receivables on such Purchase Date;

      e. there shall have occurred no change in the fundamental investment
objective or fundamental investment policies of such Fund from those set forth
in the Prospectus for such Fund attached hereto as part of Exhibit G;

      f. the Purchaser shall have received from the Seller and the Seller Parent
such instruments and documents as the Purchaser may have reasonably requested in
connection with the Purchased Receivables relating to any Fund and any Purchase
Price payable on any such Purchase Date;

      g. the purchase of Purchased Receivables hereunder shall constitute a True
Sale thereof, free and clear of any Adverse Claim or any other claim;

      h. each of the investment advisers for each of the Funds continues to be
an Adviser; and

      i. the conditions specified in Section 3.1 shall, as to the applicable
Fund, be fully satisfied or waived on or prior to the initial Purchase Date.

      The acceptance by the Seller of the proceeds of a purchase of Purchased
Receivables shall constitute a representation and warranty by the Seller that,
on the date of such purchase, the conditions precedent set forth in this Section
3.3 have been fulfilled.

                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES

      SECTION 4.1 REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE SELLER
PARENT. The Seller, with respect to the Seller and any Person other than the
Seller Parent, represents and warrants to the Purchaser as set forth in Sections
4.1(a) through 4.1(w) and the Seller Parent, only with respect to the Seller
Parent, separately and not jointly with the Seller or any other Person,
represents and warrants to the Purchaser as set forth in Sections 4.1(a) through
4.1(w) (it being agreed by the Parties that the words "separately, and not
jointly" mean that only the Seller and not the Seller Parent is responsible to
the Purchaser for the representations and warranties pertaining to any Person
other than the Seller Parent, and that only the Seller Parent (and not the
Seller) is responsible to the Purchaser for the representations and warranties
pertaining to the Seller Parent):

      a. each of the Seller, the Seller Parent and each Adviser is duly
organized and is validly existing and in good standing under the laws of the
jurisdiction of its incorporation, with (i) full corporate power and authority

                                       29
<PAGE>

and all Governmental Authorizations and Private Authorizations necessary to
execute and deliver and to perform its obligations under the Program Documents
to which it is a party, with such exceptions, if any, as could not and will not
give rise to an Adverse Effect and (ii) all Governmental Authorizations and
Private Authorizations necessary to conduct the business in which it is now
engaged with such exceptions, if any, as could not and will not give rise to an
Adverse Effect;

      b. each of the Seller, the Seller Parent and each Adviser is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which the nature of its business or the performance of its
obligations under this Agreement and the other Program Documents to which it is
a party requires such qualification except where the failure to be so qualified
will not give rise to an Adverse Effect;

      c. the execution, delivery and performance by each of the Seller, the
Seller Parent and each Adviser, as applicable, of this Agreement, the other
Program Documents to which it is a party and the other instruments and
agreements contemplated hereby or thereby have been duly authorized by all
requisite corporate action and have been duly executed and delivered by it and
constitute the legal, valid and binding obligations enforceable against it in
accordance with their respective terms, except as such enforceability may be
limited by applicable bankruptcy laws and any other similar laws affecting the
rights and remedies of creditors generally and by equitable principles;

      d. the Seller has the requisite corporate power and authority and legal
right to from time to time sell Purchased Receivables relating to each Fund and
any other property to be sold or assigned hereunder to the Purchaser in
accordance with the terms of this Agreement and the Seller has duly authorized
each such sale to the Purchaser by all necessary corporate action;

      e. neither the execution nor delivery of this Agreement, the other Program
Documents to which either of the Seller, the Seller Parent or any Adviser is a
party, or any instrument or agreement referred to herein or therein or
contemplated hereby or thereby to which any of the Seller, the Seller Parent or
any Adviser is a party, nor the consummation of the transactions herein or
therein contemplated, nor compliance with the terms, conditions and provisions
hereof or thereof (i) will conflict with, or result in a breach or violation of,
or constitute a default under, such Person's certificate of incorporation or
by-laws or any Applicable Law (applicable to the Seller, the Seller Parent, any
Adviser or any Fund); (ii) will conflict with, or result in a breach or
violation of, or constitute a default under, or permit the acceleration of any
obligation or liability in, or, but for any requirement of the giving of notice
or the passage of time (or both), would constitute such a conflict with, breach,
or violation of, or default under, or permit any such acceleration in (A) any
Prospectus, any Underwriting Agreement, any Distribution Plan or any Investment
Management Agreement or (B) with such exceptions, if any, as could not and will
not give rise to an Adverse Effect, any other contractual obligation or any
agreement or document to which it is a party or by which it or any of its
properties is bound; (iii) will result in or permit the creation or imposition
of any Adverse Claim upon any Purchased Receivables relating to any Fund; or
(iv) will result in the termination of any Underwriting Agreement or any
Distribution Plan or any Investment Management Agreement in any such case with
respect to the Sales Charges applicable to the Shares of the related class
unless a replacement of such terminated document has become effective which in

                                       30
<PAGE>

any such case with respect to the Sales Charges applicable to the Shares of the
related class (A) is identical to the terminated document in all material
respects or (B) in the reasonable opinion of the Purchaser, is at least as
favorable to the Purchaser as the terminated document including, without
limitation, in respect of timing and amount payable in respect of any Purchased
Receivables and the Purchaser's rights in respect thereof;

      f. this Agreement and the actions of the Seller required to be taken
pursuant to the terms hereof are, and at all times shall be, effective to
transfer to the Purchaser all of the Seller's right, title and interest in the
Purchased Receivables free and clear of any claim other than the rights and
claims of the Purchaser hereunder;

      g. neither the Seller nor the Seller Parent is incorporated under the laws
of any state within any district in the jurisdiction of the United States Court
of Appeals for the Tenth Circuit;

      h. immediately prior to each purchase of Purchased Receivables relating to
each Fund by the Purchaser, (i) no party other than the Seller will have any
right, title or interest in such Purchased Receivables, including any payments
or proceeds in respect thereto, (ii) the Seller will own and have good and
marketable title to such Purchased Receivables free and clear of all Liens or
other restrictions on transfer and (iii) such Purchased Receivables and payments
made in respect thereto will not have been sold, transferred or assigned to any
other Person;

      i. each of the Seller, the Seller Parent and each Adviser has obtained all
necessary Governmental Authorizations and Private Authorizations, and made all
Governmental Filings required under Applicable Law for the execution, delivery
and performance by the Seller, the Seller Parent and each Adviser of the Program
Documents to which it is a party, and the agreements and instruments
contemplated thereby, and no consents which have not been obtained or waivers
under any instruments to which the Seller, the Seller Parent or any Adviser is a
party or by which it or any of its properties is bound are required by the
Seller or the Seller Parent to be obtained in connection with the execution,
delivery or performance of the Program Documents;

      j. the Purchased Receivables conveyed by the Seller to the Purchaser
pursuant to this Agreement will at all times constitute Eligible Receivables (it
being understood that this representation and warranty shall not be deemed to
have been breached with respect to any Purchased Receivables which, when sold,
were Eligible Receivables and thereafter ceased to satisfy the provisions of
clause (f) of the definition of such term because of a change in law or in the
interpretation thereof);

      k. with such exceptions, if any, as could not reasonably be expected to
and will not have an Adverse Effect, none of the Seller, the Seller Parent nor
any Adviser, is in violation of any Applicable Law;

      l. no Fund is prohibited by any Applicable Law from making the payments
contemplated by this Agreement in respect of the Purchased Receivables;

      m. the Seller's principal place of business and principal executive
office, and the place where its records concerning the Purchased Receivables
relating to each Fund are kept is at the address first set forth for the Seller

                                       31
<PAGE>

in Section 7.3 or such other address of which the Purchaser has received notice
pursuant to Section 5.2(b);

      n. since December 31, 1998 there has been (i) no material adverse change
in the financial condition or the results of operations of the Seller and (ii)
no material adverse change in the financial condition or results of operations
of the Seller Parent or any Adviser, which, in the case of clause (ii) could
reasonably be expected to cause an Adverse Effect;

      o. none of the Seller, the Seller Parent or any Adviser is in default on
any of its obligations under any Program Document to which it is a party which
could reasonably be expected to, or will, have an Adverse Effect;

      p. there are no proceedings or, to the best knowledge of the Seller and
the Seller Parent, investigations pending or, threatened before any Authority
(i) asserting the invalidity of this Agreement or any other Program Document,
(ii) seeking to prevent the consummation of any of the transactions contemplated
by this Agreement or any other Program Document, (iii) seeking any determination
or ruling which could adversely affect the performance by the Seller, the Seller
Parent or any Adviser of its obligations under, or the validity or
enforceability of, this Agreement, if any, any other Program Document to which
it is a party, or any agreement, certificate or document executed by the Seller,
the Seller Parent or any Adviser in connection herewith or therewith, or (iv)
which otherwise could reasonably be expected to give rise to an Adverse Effect;

      q. the Seller is a registered broker/dealer under the regulations of the
SEC and a member of the NASD and not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act;

      r. the Seller is not engaged principally in the business of extending, or
arranging for the extension of, credit, for the purpose of purchasing or
carrying (i) any margin stock within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System or (ii) any margin security within the
meaning of Regulation G of the Board of Governors of the Federal Reserve System
and no part of the proceeds of the Purchase Price paid to the Seller will be
used to purchase or carry any margin stock or any margin securities,
respectively, within the meaning of said regulations or to extend credit to
others for such purpose;

      s. all information provided by or on behalf of the Seller, the Seller
Parent, Franklin Services, the Servicer or any Adviser, to the Purchaser or any
other Person for purposes of or in connection with this Agreement, the other
Program Documents, or the transactions contemplated hereby or thereby is, and
all such information hereafter provided by or on behalf of the Seller, the
Seller Parent, Franklin Services, the Servicer or any Adviser to the Purchaser
or any other Person pursuant to or in connection with any Program Document or
the transactions contemplated thereby will be, true, correct and complete in all
material respects on the date such information is stated or certified and no
such information contains, or will contain, any material misrepresentation or
any omission to state therein matters necessary to make the statements made
therein not misleading in any material respect, in light of the circumstances
under which they were made;

                                       32
<PAGE>

      t. the Seller and the Seller Parent have furnished to the Purchaser their
balance sheets as of December 31, 1998 and the related consolidated statements
of income and cash flows for the year then ended; such statements and any
financial statements delivered pursuant to Section 5.1(r) present fairly, in
conformity with GAAP, the financial position of the Seller and the Seller Parent
at the dates indicated and the results of their operations and cash flows for
the period then ended;

      u. there has been no action by the Board of Directors of the Seller, the
Board of Directors of the Seller Parent, the Board of Directors of any Adviser,
or the Board of Directors or Trustees of any Investment Company or of any Fund,
to make any modification or amendment to, or any waiver of any provisions of, or
any termination of, any Distribution Plan, any Investment Management Agreement,
any Contingent Deferred Sales Charge arrangement, any Underwriting Agreement,
any Prospectus or the interpretation of any thereof, each as in effect on the
date of this Agreement, or any modification in the amounts payable or actually
being paid thereunder, except, in each case, as has been previously disclosed in
writing by the Seller to the Purchaser;

      v. each Fund has complied with the fundamental investment objectives and
policies of such Fund as set forth in the Prospectus for such Fund and the
Seller or the Seller Parent have provided 90 days' advance notice of any change
in the fundamental investment objectives or policies of any Fund from those set
forth in the Prospectus for such Fund as of the date of this Agreement; and

      w. the Seller Parent owns, directly or indirectly, all of the issued and
outstanding stock of each class or series of the Seller and each investment
adviser to each Fund is an Adviser.

      SECTION 4.1A. ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE SELLER. The
Seller, in addition to the representations and warranties of the Seller provided
in Section 4.1, represents and warrants to the Purchaser as follows:

      a. attached hereto as Exhibits G, C, F and N are true, correct and
complete copies of the Prospectus and forms of the Distribution Plan, the
Underwriting Agreement and the Investment Management Agreement, respectively,
relating to each Fund which are each in full force and effect, and such
Prospectuses, Distribution Plans, Underwriting Agreements, and Investment
Management Agreements have not been amended in any manner from the forms
attached hereto in the referenced exhibits, except as consented to in writing by
the Purchaser or for any such amendments of which the Seller has provided to the
Purchaser copies prior to execution of this Agreement;

      b. the Distribution Plans, Underwriting Agreements, Prospectuses and
Investment Management Agreements are in compliance, in all material respects,
with Applicable Law, including, without limitation, Rule 12b-1 and the Conduct
Rules;

      c. no Share to which a Purchased Receivable relates has the benefit of any
Conversion Feature other than a Permitted Conversion Feature;

      d. the Sales Charge, including the Contingent Deferred Sales Charge,
arrangement relating to each Fund and the payments provided for in, and actually
being made pursuant to, the Underwriting Agreement or Distribution Plan and the

                                       33
<PAGE>

Prospectus for each such Fund are fairly and accurately described in the
Underwriting Agreement or Distribution Plan and the Prospectus relating to such
Fund;

      e. on each date on which Purchased Receivables are purchased under this
Agreement, (i) the Maximum Aggregate Sales Charge Allowable in respect of the
sales of Shares of such Fund, subject to the effect of any future Permitted
Conversion Feature and any Free Redemption, will be not less than the sum of (A)
6.25% of the total Issue Price of the Shares of such Fund, plus (B) interest on
the amount in clause (A) above at the prime rate in effect plus one percent (1%)
per annum, and (ii) the amount of the asset-based Sales Charge in clause (i)
will accrue daily and be payable monthly in an amount (on the average) not less
than (on the average) the daily equivalent of 0.75% per annum of the average
daily Net Asset Value of such Fund (provided, however, that the foregoing
provisions of this Section 4.1(A)(e) shall be subject to the maximum sales
charges permitted from time to time by the Conduct Rules);

      f. (i) the aggregate Sales Charges paid and payable by each Investment
Company with respect to the Shares, subject in each case to the effect of any
Permitted Conversion Feature and any Free Redemption, will equal the lesser of
(A) the maximum Sales Charges payable in respect of the sales of such Shares
under the terms of the related Underwriting Agreement, Distribution Plan and
Prospectus on the date such Sales Charges were purchased by the Purchaser, and
(B) the Maximum Aggregate Sales Charge Allowable in respect of such sales,
calculated as though the Shares of such Fund to which Purchased Receivables
relate constituted all of the outstanding Shares of such Fund and (ii) the
amount of the asset-based Sales Charge in clause (i) above will accrue daily and
be payable monthly in an amount, subject to clause (i) above, not less than (on
the average) the daily equivalent of the Applicable Percentage of the average
daily Net Asset Value for each Fund; and

      g. all information in respect of the Purchased Receivables set forth in
each Purchaser Report will be true and correct.

      SECTION 4.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.

      The Purchaser represents and warrants to the Seller and the Seller Parent
as follows:

      a. the Purchaser is duly organized and is validly existing and in good
standing as a private limited liability company under the laws of Ireland, with
full company power and authority and all Governmental Authorizations and Private
Authorizations necessary to own and operate its property, to conduct the
business in which it is now engaged and to execute and deliver and to perform
its obligations under this Agreement and the other Program Documents to which
the Purchaser is a party;

      b. the Purchaser is duly qualified to do business as a foreign entity and
is in good standing in each jurisdiction in which the nature of its business or
the performance of its obligations under this Agreement and the other Program
Documents to which the Purchaser is a party requires such qualification except
where the failure to be so qualified will not give rise to an adverse effect on
the Purchaser's ability to pay or to perform any of its material obligations
under this Agreement or any such other Program Document in a timely manner;

                                       34
<PAGE>

      c. the execution, delivery and performance by the Purchaser of this
Agreement, the other Program Documents to which the Purchaser is a party, and
the other instruments and agreements contemplated hereby or thereby, have been
duly authorized by all requisite company action by the Purchaser and have been
duly executed and delivered by the Purchaser and constitute the legal, valid and
binding obligations of the Purchaser, enforceable against the Purchaser in
accordance with their respective terms, except as such enforceability may be
limited by applicable bankruptcy laws and any other similar laws affecting the
rights and remedies of creditors generally and by equitable principles;

      d. the Purchaser has the requisite company power and authority and legal
right to (i) execute and deliver this Agreement and the other Program Documents
to which the Purchaser is a party and to perform its obligations hereunder and
thereunder and (ii) from time to time, purchase Purchased Receivables relating
to each Fund and any other property to be sold or assigned hereunder to the
Purchaser in accordance with the terms of this Agreement and the Purchaser has
duly authorized each such purchase from the Seller by all necessary action;

      e. neither the execution nor delivery of this Agreement, the other Program
Documents to which the Purchaser is a party, or any instrument or agreement
referred to herein or therein, or contemplated hereby or thereby, to which the
Purchaser is a party, nor the consummation by the Purchaser of the transactions
herein or therein contemplated nor compliance with the terms, conditions and
provisions hereof or thereof, (i) will conflict with, or result in a breach or
violation of, or constitute a default under, the Memorandum and Articles of
Association or other charter documents or by-laws of the Purchaser or any
Applicable Law applicable to the Purchaser, (ii) will conflict with, or result
in a breach or violation of, or constitute a default under, the Credit Agreement
or (iii) will conflict with, or result in a breach or violation of, or
constitute a default under, or permit the acceleration of any obligation or
liability in, or but for any requirement of the giving of notice or the passage
of time (or both) would constitute such a conflict with, breach or violation of,
or default under, or permit any such acceleration in, any contractual obligation
or any agreement or document to which it is a party or by which it or any of its
properties is bound;

      f. there are no proceedings to which the Purchaser is a party and, to the
Purchaser's Knowledge there are no investigations pending or threatened before
any Authority (i) asserting the invalidity of this Agreement or any other
Program Document, (ii) seeking to prevent the consummation of any of the
transactions contemplated by this Agreement or any other Program Document or
(iii) seeking any determination or ruling which could materially adversely
affect the performance or obligations of the Purchaser under, or the validity or
enforceability of, this Agreement or any other Program Document to which the
Purchaser is a party, in each case, which would give rise to any material
adverse effect upon the Purchaser's ability to pay or to perform any of its
material obligations under this Agreement or any such other Program Document in
a timely manner;

      g. the Purchaser has obtained all necessary Governmental Authorizations
and Private Authorizations, and made all Governmental Filings required under
Applicable Law applicable to the Purchaser for the execution, delivery and
performance by the Purchaser of the Program Documents to which it is a party,
and the agreements and instruments contemplated thereby, and no consents which
have not been obtained or waivers under any instruments to which the Purchaser

                                       35
<PAGE>

is a party or by which it or any of its properties is bound are required by the
Purchaser to be obtained in connection with the execution, delivery or
performance of the Program Documents;

      h. all information provided by or on behalf of the Purchaser to the
Seller, the Seller Parent or any other Person for purposes of or in connection
with this Agreement, the other Program Documents, or the transactions
contemplated hereby or thereby is, and all such information hereafter provided
by or on behalf of the Purchaser to the Seller, the Seller Parent or any other
Person pursuant to or in connection with any Program Document or the
transactions contemplated thereby will be, true, correct and complete in all
material respects on the date such information is stated or certified and no
such information contains, or will contain, any material misrepresentation or
any omission to state therein matters necessary to make the statements made
therein not misleading in any material respect, in light of the circumstances
under which they are made, except no warranty is made with respect to
information that the Purchaser has obtained from an Affiliate of the Seller or
the Seller Parent; and

      i.    the Purchaser is not in material violation of any Applicable Law.

                                    ARTICLE V

                                    COVENANTS

      SECTION 5.1 AFFIRMATIVE COVENANTS OF THE SELLER AND THE SELLER PARENT.

      The Seller and the Seller Parent each separately, and not jointly,
covenant and agree as follows (it being agreed by the Parties that the words
"separately, and not jointly" mean that only the Seller (and not the Seller
Parent) is responsible to the Purchaser for the covenants and agreements
pertaining to any Person other than the Seller Parent, and that only the Seller
Parent (and not the Seller) is responsible to the Purchaser for the covenants
and agreements pertaining to the Seller Parent):

      a. the Seller and the Seller Parent shall each (i) obtain, maintain and
keep in full force and effect all Governmental Authorizations and Private
Authorizations which are necessary or appropriate to properly carry out the
transactions contemplated to be performed by it under this Agreement and the
other Program Documents and (ii) with such exceptions, if any, as could not and
will not have an Adverse Effect, (A) obtain, maintain and keep in full force and
effect all other Governmental Authorizations and Private Authorizations, (B)
duly observe and conform to all requirements of Applicable Law relative to the
conduct of its business or to its properties or assets and (C) preserve and keep
in full force and effect its existence, rights, privileges and franchises;

      b. each of the Seller and the Seller Parent shall duly fulfill all
obligations on its part to be performed under or in connection with, this
Agreement, the Underwriting Agreements, the Distribution Plans, the Investment
Management Agreements and the other Program Documents to which it is a party and
the agreements and instruments entered into in connection herewith or therewith;

                                       36
<PAGE>

      c. the Seller shall keep proper books of record and account in accordance
with normal business practice in which full and appropriate entries shall be
made of all dealings or transactions in relation to the Purchased Receivables
relating to each Fund and to its business and activities in connection with this
Agreement and the other Program Documents, and the transactions contemplated
hereby and thereby, and shall mark any data processing or other records it
maintains so as to clearly indicate that the Purchased Receivables relating to
each Fund have been sold to the Purchaser;

      d. the Seller and the Seller Parent shall promptly deliver to the
Purchaser copies of any amendments or modifications to their respective
certificates of incorporation or by-laws certified, with respect to the
certificate of incorporation, by the Secretary of State of its state of
incorporation, and, with respect to the by-laws, by an authorized officer;

      e. the Seller and the Seller Parent shall (i) promptly give written notice
to the Purchaser of (A) any known Event of Termination or event which, with the
passage of time or notice or both, would constitute an Event of Termination, (B)
any litigation or proceedings with respect to the Seller or the Seller Parent or
any of their assets or properties, which, if adversely determined, could give
rise to an Adverse Effect, (C) the failure of any representation or warranty of
the Seller or the Seller Parent contained in any Program Document to at all
times be true and correct in all material respects, or (D) the failure to
satisfy any of its condition precedents set forth in Article III and (ii) upon
obtaining actual knowledge thereof, promptly give written notice of any
litigation or proceedings not required to be disclosed pursuant to the preceding
clause (i)(B) which, if adversely determined, could give rise to an Adverse
Effect;

      f. upon written request by the Purchaser, the Seller and the Seller Parent
shall furnish or cause to be furnished to the Purchaser a copy of any Private
Authorizations or Governmental Authorizations obtained or required to be
obtained by it or any of its subsidiaries in connection with the transactions
contemplated by this Agreement or any other Program Document;

      g. the Seller and the Seller Parent shall cause to be paid and discharged
all taxes, assessments and other charges or levies of any Authority imposed upon
it, or upon any of its income or assets, prior to the day on which penalties are
attached thereto, if the failure to pay and discharge such tax, assessment or
other charges or levies could reasonably be expected to give rise to an Adverse
Effect, except where the amount or validity thereof is currently being contested
in good faith by appropriate proceedings and reserves in conformity with GAAP
with respect thereto have been provided for on the books of the Seller or the
Seller Parent;

      h. the Seller and the Seller Parent shall promptly deliver to the
Purchaser a copy of all (i) notices of or waivers of material payment or
covenant defaults delivered to or received from any lenders of the Seller or the
Seller Parent and (ii) material agreements or amendments entered into with such
lenders which could have an Adverse Effect (A) on the ability of the Seller or
the Seller Parent to perform any of its obligations under any Program Document
or (B) on the Purchaser or the Purchaser's collection of Eligible Receivables;

      i. if at any time the Servicer is no longer the servicer under the
Servicing Agreement, the Seller shall cooperate with the successor servicer
thereunder in order for such successor servicer to fully perform its duties and

                                       37
<PAGE>

obligations under the Servicing Agreement and shall permit the inspections
provided by clause (a) of Section 8.4 of the Servicing Agreement, shall cause
the audits provided by clause (b) of Section 8.4 of the Servicing Agreement, and
shall perform the covenants and duties set forth in Section 7.2 and clause (vi)
of Section 2.1 of the Servicing Agreement, all as if the Servicer were still
servicer thereunder; it being understood that the Seller shall not be obligated
to compel a replacement servicer to perform the obligations of the Servicer
under the Servicing Agreement or be liable for any breach by a replacement
servicer of any such obligations;

      j. the Seller and the Seller Parent shall permit the Purchaser or any
Permitted Designee to visit its properties and inspect its properties, files,
books and records relating to the Receivables, the Program Documents and the
transactions contemplated thereby, and its financial condition, results of
operations and cash flows and to discuss the foregoing with the officers,
partners, employees and accountants of each of the Seller and the Seller Parent
all at such reasonable times during normal business hours upon giving the Seller
or the Seller Parent, as applicable, two (2) Business Days' prior written
notice;

      k. each of the Seller and the Seller Parent shall promptly, at its
expense, execute and deliver to the Purchaser such further instruments and
documents, and take such further action, as the Purchaser may from time to time
reasonably request, in order to further carry out the intent and purpose of this
Agreement and the other Program Documents to which it is a party and to
establish and protect the rights, interests and remedies created, or intended to
be created, hereby and thereby, including, without limitation, the execution,
delivery, recordation and filing of financing statements and continuation
statements under the UCC of any applicable jurisdiction;

      l. the Seller and the Seller Parent shall promptly deliver to the
Purchaser copies of all notices, requests, agreements, amendments, supplements,
waivers and other documents received or delivered by it under or with respect to
any of the Program Documents;

      m. in the event that, notwithstanding the Irrevocable Payment Instruction,
the Seller shall receive any Collections from a Fund, immediately upon its
receipt of any such Collections, the Seller shall remit the same to the
Purchaser in the form received and ensure that such amounts are not commingled
with any other funds of the Seller;

      n. the Seller and the Seller Parent (to the extent applicable) shall
provide to the directors or trustees of each Fund in connection with (i) the
annual reapproval of or any amendment to such Fund's Distribution Plan or
Underwriting Agreement, or (ii) a meeting of the directors or trustees of such
Fund at which there exists a scheduled agenda item relating to the conversion
period of the Shares of such Fund or the Contingent Deferred Sales Charge
arrangement of such Fund, the following to permit the directors or trustees of
such Fund to determine that the continuation of such Fund's Distribution Plan or
Underwriting Agreement is likely to benefit such Fund and its shareholders: (a)
a description of sales and redemption figures on an aggregate and net basis for
the Class B shares of such Fund for the previous fiscal year of such Fund; (b) a
description of all payments made under such Fund's Distribution Plan including
the amount and purpose for such payments and the recipients of such payments;
(c) comparative Rule 12b-1 fee and other expense materials for such Fund
prepared by an independent third party; (d) a written recommendation that such
Fund continue its Distribution Plan, Underwriting Agreement, Contingent Deferred

                                       38
<PAGE>

Sales Charge arrangement and conversion period of the Shares of such Fund as
presently constituted, to the extent applicable; and (e) such other information
as is reasonably requested by the directors or trustees of such Fund from time
to time. If the Seller and/or the Seller Parent has actual knowledge that the
directors or trustees of a Fund propose to vote in favor of an amendment or
termination of any of the items described in clause (d) above, the Seller and/or
the Seller Parent, as applicable, shall recommend to the directors or trustees
of such Fund that the Purchaser be permitted to make a presentation to the
directors or trustees of such Fund prior to the taking of such vote;

      o. each of the Seller and the Seller Parent shall provide prompt written
notice to the Purchaser of any modification or amendment to, or any waiver of
any provisions of, or any termination of any Distribution Plan, any Investment
Management Agreement, any Contingent Deferred Sales Charge arrangement, any
Underwriting Agreement or any Prospectus, each as in effect on the date of this
Agreement, or any modification in the amounts payable or actually being paid
thereunder, provided that such modification, amendment, waiver, or termination
results or may result in an Adverse Effect, or, if a new distribution plan,
management agreement, contingent deferred sales charge arrangement, prospectus
or underwriting agreement is approved and entered into, the Seller shall provide
the Purchaser with copies of any such modification or such newly adopted plan or
agreement, as adopted, promptly after such modification or adoption has been
made;

      p. each of the Seller and the Seller Parent shall promptly notify the
Purchaser of any change in any Fund's sales commission structure or
arrangements, distribution fees or Contingent Deferred Sales Charges, and any
change with respect to the business, properties, conditions (financial or
otherwise), results of operations or prospects of the Seller or the Seller
Parent since December 31, 1998 which could reasonably be expected to have an
Adverse Effect;

      q. the Seller shall keep each Irrevocable Payment Instruction in full
force and effect;

      r. the Seller Parent shall furnish to the Purchaser:

         i. annually within 90 days after the end of each fiscal year,
      audited consolidated financial statements of the Seller Parent and its
      consolidated subsidiaries (including the Seller) prepared in accordance
      with GAAP for such fiscal year;

         ii. quarterly within 45 days after the end of each fiscal quarter,
      unaudited consolidated financial statements of the Seller Parent and its
      consolidated subsidiaries (including the Seller) prepared in accordance
      with GAAP for such quarter, subject to ordinary year-end adjustments;

         iii. promptly, (A) information from the results of examinations of
      the Seller Parent or the Seller by the SEC or the NASD that are material
      for purposes of this Agreement or the NASD, including such material
      information in any written deficiency letters and management's written
      responses thereto, if applicable; (B) information on a daily basis with
      respect to the number of outstanding Shares, the number and kind of other
      outstanding shares, sales, redemptions and exchanges; and (C) (not less

                                       39
<PAGE>

      frequently than monthly) calculations of commissions and compliance with
      NASD sales charge rules, including the NASD maximum sales charge limits,
      with respect to the Funds; and

         iv. promptly, such other information as the Purchaser may from time
      to time reasonably request; it being understood that the reasonableness of
      any Purchaser request shall be determined in view of the extent of the
      relationships established by the Program Documents;

      s. if the Seller is the principal underwriter and an Adviser is the
investment adviser for a mutual fund or an Additional Eligible Fund that has a
class of shares that is subject to a contingent deferred sales charge in excess
of 1%, the Seller shall promptly notify the Purchaser; if, within 30 days after
receipt of this notice from the Seller, the Purchaser consents to make such
class of shares of such mutual fund into Shares or to make the additional
Additional Eligible Fund a Fund, the Seller and the Seller Parent shall promptly
treat such shares of such class of such mutual fund as Shares or treat the
Additional Eligible Fund as a Fund, as the case may be; if, at the time the
Purchaser gives its consent, another means of financing the distribution
expenses of such class of such mutual fund or the Additional Eligible Fund that
is more economically advantageous to the class (a "Competing Bid") is available
and the Puchaser does not, within thirty (30) days of notice of such Competing
Bid offer a financing package which is at least as economically advantageous to
the Shares as the Competing Bid, the Seller and the Seller Parent do not have to
treat such shares of such class of such mutual fund as Shares or treat the
Additional Eligible Fund as a Fund;

      t. if any Adviser or any Affiliate of the Seller Parent shall be the
principal investment adviser for any mutual fund for which the Seller is not the
principal underwriter and which is a Franklin Sponsored Fund, the Seller Parent
shall use its best efforts to cause the principal underwriter for such mutual
fund to make sales of receivables relating to such mutual fund available to the
Purchaser, if the Purchaser agrees to purchase such receivables, on terms and
conditions substantially similar to those of this Agreement and the other
Program Documents or on such other terms and conditions as may be agreed upon by
such principal underwriter and the Purchaser;

      u. in addition to complying with the provisions of paragraphs (s) and (t)
above, the Seller Parent shall not, and shall cause its Affiliates not to,
register with the SEC any Franklin Sponsored Fund which is not then a Fund
unless such Franklin Sponsored Fund does not engage in Free Exchanges with any
Fund; PROVIDED, HOWEVER, such Franklin Sponsored Fund which is not then a Fund
may engage in Free Exchanges with any Fund if (i) the Seller is able to
segregate Receivables related to Shares of the Franklin Sponsored Funds (and any
Shares of other Funds into which such Shares may be exchanged in Free Exchanges)
from Purchased Receivables related to Shares of Funds (and any Shares of other
Funds or Franklin Sponsored Funds into which such Shares may be exchanged in
Free Exchanges), (ii) the Seller's ability to segregate Receivables, as
described above, is certified to the Purchaser by an independent accounting firm
of national standing, reasonably acceptable to the Purchaser, and (iii) the
Seller preserves the Purchaser's continuing right to the Purchased Receivables
as if such Free Exchanges had not occurred;

                                       40
<PAGE>

      v. the Seller shall, within a reasonable period of time (not in excess of
30 days) after being requested to do so, cause to be delivered to the Purchaser
in connection with a Takeout Transaction an opinion of counsel to the Seller,
such counsel to be reasonably satisfactory to the Purchaser, substantially in
the form of Exhibit O attached hereto, provided however, if there has been a
change in Applicable Law such that the Seller's counsel is unable to deliver an
opinion in such form, the Seller shall cause such counsel to deliver an opinion
in form, scope and substance reasonably satisfactory to the Purchaser, taking
into account any such change in Applicable Law;

      w. all information provided by or on behalf of the Seller, the Seller
Parent, the Servicer or Franklin Services after the date hereof to the Purchaser
or any of its agents for purposes of or in connection with this Agreement, the
other Program Documents or the transactions contemplated hereby or thereby will
be true, correct and complete in all respects material to the Purchased
Receivables and the transactions contemplated by this Agreement and the other
Program Documents (taken as a whole) and no such information will contain any
material misrepresentation or material omission to state therein matters
necessary to make statements made therein not misleading in any respect material
to the Purchased Receivables and the transactions contemplated by this Agreement
and the other Program Documents, in light of the circumstances under which they
are made; PROVIDED, HOWEVER, that this covenant shall apply only to such
misrepresentations or omissions as would give rise to an Adverse Effect;

      x. the Seller and the Seller Parent shall provide ninety (90) days' prior
written notice (or in any event no later than the time of filing of such change
with the SEC) to the Purchaser if any Fund intends to initiate a change in the
fundamental investment objective and policies of such Fund;

      y. the Seller and the Seller Parent shall provide prompt written notice to
the Purchaser of any proposed action which if taken by the board of directors of
any Investment Company will, or could reasonably be expected to, have an Adverse
Effect or, upon such Person obtaining actual knowledge, of any action of the
board of directors of any Investment Company to make any modification or
amendment to, or any waiver of any provisions of, or any termination of, any
Distribution Plan, any Investment Management Agreement (other than in respect of
any waiver of any management fee payable to it under any Investment Management
Agreement), any Contingent Deferred Sales Charge arrangement, any Underwriting
Agreement, any Prospectus or any interpretation of any thereof, each as in
effect on the date hereof, or any modification in the amounts payable or
actually being paid thereunder, which action may result in an Adverse Effect,
or, if a new distribution plan, investment management agreement, contingent
deferred sales charge arrangement, prospectus or underwriting agreement is
proposed to be approved and entered into with respect to any Fund, the Seller
and the Seller Parent shall provide the Purchaser with copies of any such
proposed modification, as adopted, and a newly adopted distribution plan,
contingent deferred sales charges arrangement, investment management agreement,
prospectus or underwriting agreement promptly after such proposal, modification
or adoption has been made;

      z. the Seller Parent shall from time to time, as necessary, transfer and
convey to the Seller funds in such amounts as to enable the Seller to at all
times have and maintain net capital in an amount equal to or greater than the
amount of net capital required by Rule 15c3-1 under the Exchange Act, whether or
not the Seller is subject to Rule 15c3-1;

                                       41
<PAGE>

      aa. in the event of a change in "control" (as such term is defined in
Section 2(a)(9) of the Investment Company Act) in the operations of the Seller
or the Seller Parent which results in the termination of the Underwriting
Agreement, Investment Management Agreement or Distribution Plan with respect to
any Fund, or any "assignment" (as such term is defined in Section 2(a)(4) of the
Investment Company Act or Section 202(a) of the Investment Advisers Act) of the
Underwriting Agreement or the Investment Management Agreement with respect to
any Fund which would result in a termination of such Underwriting Agreement or
Investment Management Agreement with respect to such Fund, the Seller and the
Seller Parent shall use their best efforts to cause a replacement underwriting
agreement, investment management agreement, and/or distribution plan, as
applicable, to become effective which provides for the continued payment to
Purchaser of Collections in respect of the Purchased Receivables related to such
Fund as though such termination had not occurred and without an Adverse Effect;
and

      bb. for any Fund which has terminated or amended its Distribution Plan or
Underwriting Agreement in a manner which adversely affects the amount or rate of
payment of any Purchased Receivables related to the Shares of such Fund, the
Seller shall pay to the Purchaser an amount equal to any such Service Fee which
is paid by such Fund (but such payments shall not exceed the difference between
the Collections actually paid with respect to such Purchased Receivables, if
any, and the amount that would have been payable with respect to such Purchased
Receivables had such termination or amendment not occurred).

      SECTION 5.2 NEGATIVE COVENANTS OF THE SELLER AND THE SELLER PARENT.

      The Seller and the Seller Parent each separately, and not jointly,
covenant and agree as follows (it being agreed by the Parties that the words
"separately and not jointly" mean that only the Seller (and not the Seller
Parent) is responsible to the Purchaser for the covenants and agreements
pertaining to any Person other than the Seller Parent, and that only the Seller
Parent (and not the Seller) is responsible to the Purchaser for the covenants
and agreements pertaining to the Seller Parent):

      a. the Seller shall not permit to exist (as a result of any act or
omission of the Seller) any Adverse Claim on, or (except pursuant to this
Agreement) attempt to transfer any interest in, any Purchased Receivables or the
Proceeds to be derived therefrom;

      b. the Seller shall not move its chief executive office, principal place
of business, or the principal place where it keeps its records concerning the
Receivables from the addresses specified in Section 4.1(m) or change its name or
the name under or by which it conducts its business, unless (i) it shall have
given to the Purchaser not less than fifteen (15) Business Days' prior written
notice of its intention to do so and of any new location, (ii) it shall have
taken such action, satisfactory to the Purchaser, as may be necessary or
desirable to maintain the title or ownership of the Purchaser in the Purchased
Receivables relating to each Fund at all times fully perfected and in full force
and effect, and (iii) any new location is in the contiguous continental United
States and is not in the States of Louisiana or Tennessee;

      c.    the Seller shall not amend, waive, terminate or otherwise modify the
terms of any Irrevocable Payment Instruction or take any action inconsistent
with any Irrevocable Payment Instruction;

                                       42
<PAGE>

      d. to the extent that the Seller or the Seller Parent is a party to a
Program Document, the Seller and the Seller Parent shall not cancel, terminate,
amend, modify or waive any term or condition of any Program Document (to the
extent the same gives rise to an Adverse Effect), each as in effect as of the
date hereof;

      e.    [INTENTIONALLY LEFT BLANK]

      f. to the extent that the Seller or the Seller Parent is a party to a
Program Document, the Seller and the Seller Parent shall not (i) cancel,
terminate, amend, modify or waive any term or condition of the Contingent
Deferred Sales Charge obligations of any shareholders of any Fund, each as in
effect on the date hereof, or (ii) propose that, or take any action that causes,
any reduction or termination of the Contingent Deferred Sales Charges;

      g. neither the Seller nor the Seller Parent shall change its state of
incorporation to a jurisdiction which would result in the representation in
Section 4.1(g) no longer being correct;

      h. the Seller Parent shall not permit any of its Affiliates other than the
Seller to become the principal distributor for any Fund unless such Affiliate
shall, to the reasonable satisfaction of the Purchaser, specifically assume the
responsibilities of the Seller under this Agreement;

      i. neither the Seller nor the Seller Parent shall serve as an investment
adviser, or perform, directly or indirectly, the functions of an investment
adviser, for any class of Shares of any mutual fund or investment company that
engages a distributor for such fund or investment company which is not an
Affiliate of the Seller or the Seller Parent unless such relationship (i) does
not involve a mutual fund offering shares with a contingent deferred sales
charge greater than one (1%) percent, (ii) does not involve a Franklin Sponsored
Fund or (iii) is consented to by the Purchaser, which consent shall not be
unreasonably withheld;

      j. the Seller and the Seller Parent shall not (except as required by
applicable accounting standards and Applicable Laws pertaining to Taxes) on its
books, records, tax returns or financial statements reflect the Purchased
Receivables as being owned by the Seller, any Affiliate of the Seller, or other
Person other than the Purchaser;

      k. the Seller shall not file a voluntary petition, or consent to the
filing of an involuntary petition, in any proceeding with respect to itself
under the Bankruptcy Code in a Bankruptcy Court sitting in the jurisdiction of
the United States Court of Appeals for the Tenth Circuit;

      l. unless required by a change, if any, in Applicable Law after the date
hereof under the Investment Company Act or other Applicable Law, the Seller and
the Seller Parent shall not take any action designed to encourage any Fund to
cancel, terminate, amend, modify or waive any term or condition of any Program
Document to which the Seller or the Seller Parent is a party in regard to any
matter related to the transactions contemplated herein (other than to permit
Free Redemptions or Free Exchanges as contemplated by the Prospectus of such
Fund), in each case to the extent such cancellation, termination, amendment,
modification, or waiver would, or could reasonably be expected to, give rise to
an Adverse Effect;

                                       43
<PAGE>

      m. unless required by a change, if any, in Applicable Law after the date
hereof, under the Investment Company Act or other Applicable Law, and without
limiting the generality of paragraph (l) above, neither the Seller nor the
Seller Parent shall take any action that could result in either (i) the
aggregate Sales Charge paid or payable by any Fund in respect of the sales of
Shares of such Fund pursuant to the related Underwriting Agreement, Distribution
Plan and Prospectus and pursuant to the Conduct Rules being less than the lesser
of (A) the maximum Sales Charges payable in respect of the sales of such Shares
under the related Underwriting Agreement, Distribution Plan and Prospectus on
the date such Sales Charges were purchased by the Purchaser and (B) the Maximum
Aggregate Sales Charge Allowable in respect of such Shares, plus interest
thereon at the prime rate in effect, plus one percent (1%) per annum) or (ii)
the amount in clause (i) above being payable in installments less frequently
than monthly or in amounts that are less on the average than the daily
equivalent of the Applicable Percentage of the average daily Net Asset Value for
each Fund; PROVIDED THAT each of the Seller and Seller Parent shall not be
required, pursuant to this Section 5.2(m), to take any action inconsistent with
Sections 5.1(n) and 5.1(s); and

      n. With respect to any Fund for which the Purchaser has terminated its
purchase obligation pursuant to either Section 6.1 or Section 2.1(a) (a
"Non-Purchased Fund"), the Seller and the Seller Parent shall not take any
actions designed to permit any Fund to continue to permit its shareholders to
engage in Free Exchanges with such Non-Purchased Fund; PROVIDED THAT if the
board of directors or trustees of the Fund determines that the shareholders of
the Fund shall continue to be permitted to engage in Free Exchanges with such
Non-Purchased Fund, then the shareholders of the Fund shall be permitted to
engage in Free Exchanges with such Non-Purchased Fund and either (x) the
following three conditions are met: (i) the Seller is able to segregate
Purchased Receivables related to Shares of the Fund(s) (and any Shares of other
Funds into which such Shares may be exchanged in Free Exchanges) from
Receivables related to Shares of such Non-Purchased Funds (and any Shares of
other Funds into which such Shares may be exchanged in Free Exchanges), (ii) the
Seller's ability to segregate Purchased Receivables, as described above, is
certified to the Purchaser by an independent accounting firm of national
standing, reasonably acceptable to the Purchaser, and (iii) the Seller preserves
the Purchaser's continuing right to the Purchased Receivables as if such Free
Exchanges had not occurred; or (y) the Seller shall have the same obligations
under this Agreement with respect to Shares that are exchanged from a Fund to a
Non-Purchased Fund in a Free Exchange as Shares that are sold in a Free
Redemption under Section 7.18.

      SECTION 5.3  [INTENTIONALLY LEFT BLANK]

      SECTION 5.4 AFFIRMATIVE COVENANTS OF THE PURCHASER.

The Purchaser hereby covenants and agrees as follows:

      a. prior to the Final Termination Date, the Purchaser shall furnish to the
Seller (i) quarterly within sixty (60) days after the end of each fiscal quarter
unaudited financial statements of the Purchaser prepared in accordance with GAAP
for such quarter and (ii) annually within ninety (90) days after the end of each
fiscal year, audited financial statements of the Purchaser prepared in
accordance with GAAP for such fiscal quarter or year;

                                       44
<PAGE>

      b. the Purchaser shall provide notice to the Seller of any material
adverse change in its financial condition or of any other event which would, in
either instance, materially and adversely affect the Purchaser's ability to
purchase Purchased Receivables;

      c. the Purchaser shall (i) obtain, maintain and keep in full force and
effect all Governmental Authorizations and Private Authorizations required by
Applicable Law which are necessary or appropriate for it to properly carry out
the transactions contemplated to be performed by it under this Agreement and the
other Program Documents; (ii) duly observe and conform to all requirements of
Applicable Law relative to the conduct of its business or to its properties or
assets, where the failure to so conform could reasonably be expected to have a
material adverse effect on the Purchaser's ability to perform hereunder; and
(iii) preserve and keep in full force and effect its existence, rights,
privileges and franchises;

      d. the Purchaser shall duly fulfill all obligations on its part to be
performed under or in connection with this Agreement and the other Program
Documents to which it is a party, and any agreements and instruments entered
into in connection herewith or therewith;

      e. the Purchaser shall keep proper books of record and account in
accordance with normal business practice in which full and appropriate entries
shall be made of all dealings or transactions in relation to the Purchased
Receivables relating to each Fund, and to its business and activities in
connection with this Agreement and the other Program Documents, and the
transactions contemplated hereby and thereby, and shall mark any data processing
or other records it maintains so as to clearly indicate that the Purchased
Receivables relating to each Fund have been sold to the Purchaser and are, prior
to any relevant Takeout Transaction, owned by the Purchaser;

      f. the Purchaser shall (i) promptly give written notice to the Seller of
(A) any Seller Termination Event or event which, with the passage of time or
notice or both, would constitute a Seller Termination Event, (B) any litigation
or proceedings with respect to the Purchaser or any of its assets or properties,
which, if adversely determined, could reasonably be expected to give rise to any
material adverse effect upon the Purchaser's ability to purchase the Purchased
Receivables hereunder or perform any of its obligations under any Program
Document or (C) the failure of any representation or warranty of the Purchaser
contained in any Program Document to be true and correct in all material
respects; and (ii) upon obtaining Purchaser's Knowledge thereof, promptly give
written notice of any litigation or proceedings not required to be disclosed
pursuant to the preceding clause (i)(B) which, if adversely determined, could
give rise to any material adverse effect upon the Purchaser's ability to
purchase the Purchased Receivables hereunder or perform any of its obligations
under any Program Document;

      g. upon written request by the Seller, the Purchaser (excluding
information provided by or on behalf of any Affiliate of the Seller or the
Seller Parent) shall furnish or cause to be furnished to the Seller a copy of
any Private Authorizations or Governmental Authorizations obtained or required
to be obtained by it under Applicable Law applicable to the Purchaser in
connection with the transactions contemplated by this Agreement or any other
Program Document;

                                       45
<PAGE>

      h. all information provided by or on behalf of the Purchaser (excluding
information provided by or on behalf of any Affiliate of the Seller or the
Seller Parent or their respective Affiliates) after the date hereof to the
Seller or the Seller Parent or any of their agents for purposes of or in
connection with this Agreement, the other Program Documents, or the transactions
contemplated hereby or thereby will be true, correct and complete in all
respects material to the transactions contemplated by this Agreement and the
other Program Documents (taken as a whole) and no such information will contain
any material misrepresentation or material omission to state therein matters
necessary to make statements made therein not misleading in any respect material
to the transactions contemplated by this Agreement and the other Program
Documents, in light of the circumstances under which they are made; PROVIDED,
HOWEVER, that this covenant shall apply only to such misrepresentations or
omissions as would give rise to a material adverse effect upon the Purchaser's
ability to purchase the Purchased Receivables or perform any of its obligations
under any Program Document;

      i. the Purchaser shall promptly deliver to the Seller a copy of all (i)
notices of or waivers of material payment or covenant defaults delivered to or
received from any lenders of the Purchaser, including without limitation any
lenders under the Credit Agreement and (ii) material agreements or amendments
entered into with such lenders which would have a material adverse effect upon
the Purchaser's ability to purchase the Purchased Receivables hereunder or
perform any of its obligations under any Program Document; and

      j. upon the consummation of any Free Exchange, the Purchaser shall cause
(i) the Lightning Balance Sheet Carrying Value in respect of the applicable
Monthly Pool of Purchased Receivables of the issuing Fund to be increased on the
effective date of the exchange by the portion of the Lightning Balance Sheet
Carrying Value on such date in respect of the applicable Monthly Pool of
Purchased Receivables of the redeeming Fund attributable to the Shares of the
redeeming Fund so exchanged and (ii) the Lightning Balance Sheet Carrying Value
in respect of the applicable Monthly Pool of Purchased Receivables of the
redeeming Fund to be reduced on the effective date of the exchange by the
Lightning Balance Sheet Carrying Value on such date in respect of the applicable
Monthly Pool of Purchased Receivables attributable to the Shares of the
redeeming Fund so exchanged.

      SECTION 5.5.  NEGATIVE COVENANTS OF THE PURCHASER.

      The Purchaser shall not on its books and records, tax returns or financial
statements reflect the Purchased Receivables relating to any Fund as being owned
by the Seller, any Affiliate of the Seller, or, prior to a related Takeout
Transaction, by any other Person other than the Purchaser.

                                   ARTICLE VI

                              EVENTS OF TERMINATION

      SECTION 6.1 EVENTS OF TERMINATION. If any Event of Termination shall occur
and be continuing then the Purchaser may, by notice to the Seller and the Seller
Parent, declare the Termination Date to have occurred (in which case the
Termination Date shall be deemed to have occurred as of the date such notice is
effective pursuant to the provisions of Section 7.3); PROVIDED, HOWEVER, that

                                       46
<PAGE>

upon the occurrence of any event (without any requirement for the passage of
time or the giving of notice, or both) described in subsection (r) of the
definition of Event of Termination, the Termination Date shall be deemed to have
automatically occurred; and PROVIDED FURTHER, that upon the occurrence of any
event described in subsections (a), (b), (g), (l)(ii), (m), (n), (o), (p), (s),
(t) and (w) of Event of Termination, the Termination Date shall be deemed to
have occurred as of the date which is six (6) months from the date such notice
is effective pursuant to the provisions of Section 7.3; and PROVIDED, FURTHER,
that, with respect to an Event of Termination which affects only certain Funds,
the Purchaser may, by notice to the Seller and the Seller Parent, terminate only
its obligation to purchase Receivables related to such Funds.

      SECTION 6.2 TERMINATION OF SELLER'S OBLIGATIONS TO SELL PURCHASED
RECEIVABLES. If any Seller Termination Event shall occur and be continuing then
the Seller may, by notice to the Purchaser, declare the Termination Date to have
occurred (in which case the Termination Date shall be deemed to have occurred as
of the date such notice is effective pursuant to the provisions of Section 7.3);
PROVIDED, HOWEVER, that upon the occurrence of any event (without any
requirement for the passage of time or the giving of notice or both) described
in subsection (a) of the definition of Seller Termination Event, the Termination
Date shall be deemed to have automatically occurred.

                                   ARTICLE VII

                                  MISCELLANEOUS

      SECTION 7.1 NO WAIVER; MODIFICATIONS IN WRITING. No failure or delay on
the part of a Party in exercising any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power or remedy preclude any other or future exercise thereof or the
exercise of any other right, power or remedy. No amendment, modification,
supplement, termination or waiver of this Agreement shall be effective unless
the same shall be in writing and signed by all of the Parties. Any waiver of any
provision of this Agreement, and any consent to any departure by any Party from
the terms of any provision of this Agreement, shall be effective only in the
specific instance and for the specific purpose for which given.

      SECTION 7.2 PAYMENT. Unless otherwise provided herein, whenever any
payment to be made hereunder shall be due on a non-Business Day, such payment
shall be made on the next succeeding Business Day. All amounts owing and payable
to a Party under this Agreement shall be paid in immediately available funds
without counterclaim, setoff, deduction, defense, abatement, suspension or
deferment. All amounts payable by the Seller, the Seller Parent or the Purchaser
pursuant to Section 7.4 or Section 7.5, as applicable, shall be paid to the
Purchaser's Remittance Account or the Seller's Account, respectively. The
Seller, the Seller Parent and the Purchaser hereby agree to pay interest at the
Post-Default Rate on any amounts payable by the Seller, the Seller Parent or the
Purchaser, respectively, under this Agreement, which shall not be paid in full
when due, for the period commencing on the due date thereof until, but not
including, the date the same is paid in full; PROVIDED, HOWEVER, that for such
period not in excess of thirty (30) days during which the Parties are attempting
to resolve a disagreement as to the amount owed, interest shall be payable at
the Prime Rate. For purposes of calculating interest, any amount received by or

                                       47
<PAGE>

on behalf of the Seller, the Seller Parent, or the Purchaser, as applicable,
after 3:00 p.m. (New York City time) shall be deemed to have been received on
the next succeeding Business Day.

      SECTION 7.3 NOTICES, ETC. Except where telephonic instructions are
authorized herein to be given, all notices, demands, instructions and other
communications required or permitted to be given to or made upon any Party
hereto shall be in writing and shall be personally delivered or sent by
registered, certified or express mail, postage prepaid, or by prepaid telegram
(with messenger delivery specified in the case of a telegram), or by telecopier,
or by prepaid courier service, and shall be deemed to be given for purposes of
this Agreement on the day that such writing is received by the intended
recipient thereof in accordance with the provisions of this Section 7.3. Unless
otherwise specified in a notice sent or delivered in accordance with the
foregoing provisions of this Section 7.3, notices, demands, instructions and
other communications in writing shall be given to or made upon the Parties at
their respective addresses (or to their respective telecopier numbers) indicated
below, and, in the case of telephonic instructions or notices, by calling the
telephone number or numbers indicated for such Party below:

If to the Purchaser:    Lightning Finance Company Limited
                        Chase Manhattan House
                        International Financial Services Center
                        Dublin, Ireland
                        Attention:  Global Trust Services / Thomas Caffrey
                        Telephone No.:  353-1-612-3117
                        Facsimile No.:  00-353-1-612-5777

With a copy to:         Christopher Quinn, Esquire
                        Matheson Ormsby Prentice
                        30 Herbert Street
                        Dublin 3, Ireland
                        Telephone No.:
                        Facsimile No.:

                        Constellation Financial Management Company LLC
                        52 Vanderbilt - 13th Floor
                        New York, New York  10017
                        Attention:  David Steinmetz
                        Telephone No.:  212-557-5504
                        Facsimile No.:  212-557-5510

                        Alfred O. Rose, Esquire
                        Ropes & Gray
                        One International Place
                        Boston, Massachusetts  02110
                        Telephone No.:  617-951-7372
                        Facsimile No.:  617-951-7050

                                       48
<PAGE>

If to the Seller:       Franklin/Templeton Distributors, Inc.
                        777 Mariners Island Boulevard
                        San Mateo, CA  94404
                        Attention: Deborah Gatzek
                        Telephone No.: 650-312-3051
                        Facsimile No.:  650-525-7259

With a copy to:         Mark H. Plafker, Esquire
                        Stradley, Ronon, Stevens & Young, LLP
                        2600 One Commerce Square
                        Philadelphia, PA  19103
                        Telephone No.:  (215) 564-8024
                        Facsimile No.:  (215) 564-8120

If to the Seller Parent:Franklin Resources, Inc.
                        777 Mariners Island Boulevard
                        San Mateo, CA  94404
                        Attention:  Deborah Gatzek
                        Telephone No.: (650) 312-3051
                        Facsimile No.:  (650) 525-7259

With a copy to:         Mark H. Plafker, Esquire
                        Stradley, Ronon, Stevens & Young LLP
                        2600 One Commerce Square
                        Philadelphia, PA  19103
                        Telephone No.:  (215) 564-8024
                        Facsimile No.:  (215) 564-8120

      SECTION 7.4 TAXES, COSTS, AND EXPENSES.

      a. Any and all payments by the Seller under this Agreement or any other
Program Document shall be made free and clear of and without deduction for any
and all Taxes. If the Seller shall be required by Law to deduct any Taxes from
or in respect of any sum payable hereunder or under any other Program Document,
(i) the sum payable hereunder or thereunder shall be increased as may be
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 7.4(a)) the Purchaser
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Seller shall make such deductions and (iii) the
Seller shall pay the full amount deducted to the relevant taxation authority or
other authority in accordance with Applicable Law. In addition, the Seller
agrees to pay any Other Taxes. Notwithstanding any other provisions of this
Agreement, in the event that the Seller is required to withhold any taxes from
any payments or transfers of receivables to be paid to, or transferred to, the
Purchaser pursuant to this Agreement, the Seller shall do so without any
recourse by, or claim against, the Seller by the Purchaser. In the event that
the Seller is assessed a deficiency by any taxing authority under Applicable Law
for the failure of the Seller to withhold any taxes or other amounts with
respect to any payments to be made by, or transfers to be accomplished to the
Purchaser by the Seller under this Agreement, the Seller shall be permitted to
withhold any such deficiency from any current or future payments or transfers to

                                       49
<PAGE>

be made by the Seller to the Purchaser under this Agreement until such
deficiency, (but not including any interest and penalties thereon), is paid by
the Purchaser; the Purchaser shall have no recourse or claim against the Seller
with respect to any such payments or withholdings.

      b. The Seller agrees to pay all UCC filing fees in connection with the
transactions contemplated by this Agreement, the Servicing Agreement and the
other Program Documents.

      c. Subject to subsection (b) above, regardless of whether any of the
transactions contemplated hereby are actually consummated, the Purchaser agrees
to promptly pay to the Seller and the Seller Parent, as applicable, on written
demand (i) all reasonable costs and expenses incurred by the Seller or the
Seller Parent in connection with the preparation, review, negotiation,
reproduction, execution or delivery of this Agreement and (ii) all reasonable
fees and disbursements of counsel to the Seller and the Seller Parent in
connection with any of the foregoing. Any costs or expenses reasonably incurred
by a Party in good faith for the purpose of enforcing such Party's rights under
this Agreement, and all reasonable fees and disbursements of counsel to such
Party in connection with the enforcement of such rights, shall be promptly paid
to such party, upon written demand, by the Party or Parties against whom
enforcement is granted, unless otherwise ordered in a judgment in a court of
competent jurisdiction or as mutually agreed upon by the Parties.

      d. The Purchaser shall pay any additional Taxes which may be imposed due
to the non-existence of any present or former connection between such Purchaser
(or through any of its Affiliates) and the country in which the Purchaser is (i)
organized, (ii) being or having been a citizen or resident of the country or
treated as a resident thereof, (iii) being or having been engaged in a trade or
business or present therein, (iv) being or having had a permanent establishment
therein or (v) making or having made an election the effect of which is subject
such Purchaser such tax, assessment or other governmental charge.

      SECTION 7.5  INDEMNIFICATION.

      a. Each of the Seller and the Seller Parent, separately and not jointly,
agrees to indemnify and hold harmless the Purchaser and each of its Affiliates
and their respective officers, directors, employees, agents, advisors of, and
any Person controlling any of, the foregoing (each an "Indemnified Party") from
and against (collectively, but without duplication) any and all Liabilities that
may be incurred by or asserted or awarded against an Indemnified Party, in each
case arising out of, relating to or by reason of, any claim brought by any
Person not a party to this Agreement in connection with the transactions
contemplated hereby; PROVIDED, HOWEVER, the Seller and the Seller Parent shall
not be required to indemnify any Indemnified Party in respect of any Liability
if and to the extent such Liability resulted primarily from (i) such Indemnified
Party's gross negligence or willful misconduct, or (ii) in the case of an
Indemnified Party which is the Purchaser, any failure of the Purchaser to
perform its covenants, if any, set forth herein or in the other Program
Documents to which it is a party, or any failure of any of the Purchaser's
representations and warranties, if any, set forth herein or in the other Program
Documents to which it is a party, to be true and correct as of the time such
representation or warranty spoke. Furthermore, the Seller and the Seller Parent
shall not be required to indemnify any Indemnified Party in respect of (A) any

                                       50
<PAGE>

liability under applicable securities laws arising out of a Takeout Transaction,
except to the extent such liability is attributable to or would not have
occurred but for (i) the violation at the time of, or prior to, such Takeout
Transaction of any covenant, representation or warranty made by the Seller, the
Seller Parent, the Servicer or any Adviser contained in this Agreement or any
other Program Document, or (ii) any information furnished by or on behalf of the
Seller, the Seller Parent or the Servicer being false or misleading in any
material respect, or (B) any Liabilities arising as a result of a claim by an
Indemnified Party against the Seller or the Seller Parent or as a result of a
claim by the Seller or the Seller Parent against an Indemnified Party where it
is determined that the position of the Seller or the Seller Parent in respect of
such claim is correct in all material respects.

      b. The Seller's obligation, if any, to indemnify and hold harmless an
Indemnified Party under this Section 7.5 shall not extend to Liabilities arising
out of or relating to the actions of the Seller Parent in connection with any of
the events described in the first sentence of subsection (a) above, and the
Seller Parent's obligation, if any, to indemnify and hold harmless an
Indemnified Party under this Section 7.5 shall extend only to Liabilities
arising out of or relating to the actions of the Seller Parent (and not the
actions of the Seller or any other Person) in connection with any of the events
described in the first sentence of subsection (a) above. In the event a
Liability arises out of or relates to actions of both the Seller Parent and
another Person in connection with any of the events described in the first
sentence of subsection (a) above, each of the Seller and the Seller Parent shall
indemnify and hold harmless the Indemnified Party to the extent such Person's
actions are attributable to the occurrence of such event.

      c. The Purchaser agrees to indemnify and hold harmless the Seller, the
Seller Parent, each of their Affiliates and their respective officers,
directors, employees, agents, advisors of, and any Person controlling any of,
the foregoing (collectively, the "Seller Indemnities") from and against
(collectively, but without duplication) any and all Liabilities that may be
incurred by or asserted or awarded against a Seller Indemnitee, in each case
arising out of, relating to or by reason of, any claim brought by any Person not
a party to this Agreement in connection with the transactions contemplated
hereby; provided, HOWEVER, the Purchaser shall not be required to indemnify a
Seller Indemnitee in respect of any Liability to the extent such Liability
resulted from (i) such Seller Indemnitee's gross negligence or willful
misconduct, or (ii) in the case of a Seller Indemnitee that is a party to any
Program Document, any failure of such Seller Indemnitee to perform its covenants
set forth in the Program Documents to which it is a party or any failure of any
of its representations and warranties set forth in the Program Documents to
which it is a party to be true and correct in all material respects at the time
such representation or warranty spoke.

      SECTION 7.6 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
any number of counterparts, each of which, when so executed and delivered, shall
be deemed to be an original and all of which taken together, shall constitute
one and the same document.

      SECTION 7.7  BINDING EFFECT; ASSIGNMENT.

      a. This Agreement shall be binding upon, and inure to the benefit of, the
parties hereto and their respective permitted successors and permitted assigns.

                                       51
<PAGE>


      b. The Seller may not assign its rights or obligations hereunder or in
connection herewith or any interest herein or under any other Program Document
or with respect to any Purchased Receivables or the Proceeds thereof without the
Purchaser's prior written consent.

      c. The Purchaser may not (except as is appropriate in connection with a
Takeout Transaction) assign its rights or obligations hereunder or in connection
herewith or any interest herein or under any other Program Documents without the
Seller's prior written consent.

      d. The Purchaser, as the owner of the Purchased Receivables, shall have
the right to sell, transfer, convey and assign to any Person, as a part of and
in connection with a Takeout Transaction, all or a portion of the Purchaser's
right, title and interest in the Purchased Receivables and the Proceeds thereof;
PROVIDED, HOWEVER, that the Purchaser shall not assign to any Person the benefit
of the representations and warranties of the Seller, the Seller Parent or any
Adviser contained in this Agreement or any other Program Document. The Purchaser
shall give the Seller thirty (30) days' advance notice of any sale, transfer,
conveyance or assignment of the Purchased Receivables or the Proceeds thereof.
Notwithstanding the foregoing, the Purchaser may (i) pledge all of its rights
under this Agreement or any other Program Document and all of its rights with
respect to the Purchased Receivables to a major financial institution as
security for money borrowed by the Purchaser or (ii) make representations and
warranties to another Person, as a part of and in connection with a Takeout
Transaction, which are similar to the representations and warranties agreed to
by the Seller in this Agreement or any other Program Document.

      e. In the event of any sale, transfer, conveyance or assignment of the
Purchased Receivables or the Proceeds thereof pursuant to Section 7.7(d) above,
the Seller shall execute and deliver such instruments and documents and shall
take all such actions as the Purchaser or any Master Trust shall reasonably deem
necessary in order to confer upon any such Person ownership of the Purchased
Receivables, including, without limitation, using its commercially reasonable
efforts to cause the reapproval of each Underwriting Agreement (in the manner
required by the Investment Company Act) by the Board of Directors of the related
Fund at its next regularly scheduled meeting if such transferee shall deem such
action necessary to avoid the termination of such agreements.

      SECTION 7.8  GOVERNING LAW; SUBMISSION TO JURISDICTION.

      a. THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF
THE STATE OF CALIFORNIA AND FOR ALL PURPOSES SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF SAID JURISDICTION WITHOUT REGARD TO ITS CONFLICTS
OF LAWS PROVISIONS.

      b. THE SELLER, THE SELLER PARENT AND THE PURCHASER EACH HEREBY IRREVOCABLY
SUBMITS ITSELF TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF
CALIFORNIA AND TO THE NON-EXCLUSIVE JURISDICTION OF ANY FEDERAL COURT OF THE
UNITED STATES LOCATED IN SUCH JURISDICTION, FOR THE PURPOSES OF ANY SUIT, ACTION
OR OTHER PROCEEDING ARISING OUT OF THIS AGREEMENT OR THE OTHER PROGRAM DOCUMENTS

                                       52
<PAGE>

OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

      c. THE SELLER, THE SELLER PARENT AND THE PURCHASER EACH HEREBY AGREE TO
FILE SUCH NOTICES NECESSARY TO APPOINT CT CORPORATION SYSTEM, 818 WEST SEVENTH
STREET, LOS ANGELES, CA 90017, AND THE SUCCESSORS IN SUCH OFFICE, ITS REGISTERED
AGENT IN THE STATE OF CALIFORNIA UPON WHOM MAY BE SERVED ANY NOTICE, PROCESS OR
PLEADING IN ANY SUIT, ACTION OR PROCEEDING AGAINST EACH OF THE SELLER, THE
SELLER PARENT OR THE PURCHASER, RESPECTIVELY, ARISING OUT OF THIS AGREEMENT OR
THE OTHER PROGRAM DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY, AND EACH OF THE SELLER, THE SELLER PARENT AND THE PURCHASER DOES HEREBY
CONSENT THAT SUCH SUIT, ACTION OR PROCEEDING AGAINST IT MAY BE COMMENCED IN ANY
COURT OF COMPETENT JURISDICTION AND PROPER VENUE WITHIN SUCH STATE BY SERVICE OF
PROCESS UPON SAID OFFICER WITH THE SAME EFFECT AS IF SUCH PARTY WAS ORGANIZED OR
CREATED UNDER THE LAWS OF SAID STATE AND HAD BEEN LAWFULLY SERVED WITH PROCESS
IN SAID STATE.

      SECTION 7.9 SEVERABILITY OF PROVISIONS. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.

      SECTION 7.10 CONFIDENTIALITY. Unless otherwise required by Applicable Law,
the Seller and the Purchaser agree to maintain the confidentiality of the
Confidential Information; provided that nothing in this Section 7.10 shall
prohibit disclosure of such Confidential Information by the Seller or the
Purchaser, as the case may be,

      a. pursuant to an order under Applicable Law or pursuant to a subpoena or
other legal process;

      b. (i) to the officers, directors, partners, employees, legal counsel, or
auditors of, or lenders to, such Person or (ii) to an insurance company or its
agents, solely with respect to errors and omissions insurance coverage;

      c. in the case of the Purchaser, to a Master Trust, any then directors,
trustees or officers of such Master Trust, counsel for the Master Trust, or
independent accountants for the Master Trust;

      d. in the case of the Seller, to any Fund, any then current directors,
trustees or officers of such Fund, Fund counsel, counsel for the Seller or
independent accountants for the Fund or the Seller;

      e. to any permitted assignee or permitted pledgee of all or any portion of
such Person's right, title or interest in this Agreement and the Servicing
Agreement, the Purchased Receivables or the Collections, provided that such
permitted assignee or pledgee agrees in a writing delivered to and for the

                                       53
<PAGE>

benefit of all Parties and the parties to the Servicing Agreement to be bound by
the terms of this Section 7.10; or

      f. to any proposed permitted assignee or permitted pledgee of all or any
portion of such Person's right, title and interest in this Agreement and the
Servicing Agreement, the Purchased Receivables or the Collections, provided that
such Person advises such proposed permitted assignee or pledgee in writing that
such Confidential Information is confidential, non-public information and
requests that such proposed permitted assignee or pledgee keep it confidential
and use it only for purposes of evaluating the proposed assignment or pledge and
such proposed permitted assignee or pledgee agrees in a writing delivered to and
for the benefit of all Parties and the parties to the Servicing Agreement to be
bound by the provisions of this Section 7.10, and provided, further that the
Purchaser shall not disclose such Confidential Information pursuant to
subsection (e) above or this subsection (f) to any assignee or pledgee which is
an affiliate of an investment adviser, principal underwriter, administrator or
subadvisor to any registered, open-end management investment company (as defined
under the Investment Company Act).

      Notwithstanding anything to the contrary contained herein, the Purchaser
shall keep, and shall use its best efforts to cause its officers, directors,
partners, employees, advisers, legal counsel, auditors, lenders and Affiliates
to keep, confidential all Confidential Information concerning the Seller, the
Seller Parent, the Funds and the Investment Companies, delivered or made
available by the Seller or any of its Affiliates to the Purchaser or such other
Persons, including without limitation the Program Documents (to the extent not
publicly available), shareholder records, shareholder transaction records,
information concerning the composition of the Funds' and the Investment
Companies' respective portfolios, information concerning the identity of any
Person acting as a broker or dealer for the sale of any Fund shares, and
information concerning the financial condition of the Seller (and the Purchaser
shall not, and shall cause each of the foregoing other Persons not to, use such
information to sell securities to or purchase securities from any such Fund or
other Investment Company or to trade for its own account or recommend such
trading to any other Person on the basis of such information).

      SECTION 7.11 INTENT OF AGREEMENT. It is the intention of this Agreement
that each purchase of Purchased Receivables hereunder shall absolutely and
irrevocably convey to the Purchaser an ownership interest in such Purchased
Receivables on the Purchase Date therefor and that such transactions shall
constitute a True Sale and not a secured loan. If, notwithstanding such
intention, any conveyance of Purchased Receivables from the Seller to the
Purchaser shall ever be recharacterized as a secured loan and not a sale, it is
the intention of this Agreement that this Agreement shall constitute a security
agreement under Applicable Law, and that the Seller shall be deemed as of the
date of this Agreement to have granted, and does hereby grant, to the Purchaser
a duly perfected first priority security interest in all of the Seller's right,
title and interest in, to and under such Purchased Receivables including without
limitation all payments on or with respect to such Purchased Receivables, all
other rights relating to and payments made in respect of such Purchased
Receivables and all Proceeds thereof free and clear of any Adverse Claim, as
security for its obligations to the Purchaser under or in connection with this
Agreement and the other Program Documents.

                                       54
<PAGE>

      SECTION 7.12 LIABILITIES TO ANY FUND. No obligation or liability to any
Fund, any shareholder of any Fund or any Person contracting with or related to
any Fund is intended to be assumed by the Purchaser under or as a result of this
Agreement or the other Program Documents and the transactions contemplated
hereby and thereby and, to the maximum extent permitted under provisions of Law,
the Purchaser expressly disclaims any such assumption.

      SECTION 7.13 MERGER. The Program Documents taken as a whole incorporate
the entire agreement among the parties thereto concerning the subject matter
thereof. The Program Documents supersede any prior agreements among the parties
relating to the subject matter thereof.

      SECTION 7.14 FURTHER ACTS. Each Party agrees that at any time, and from
time to time, it will do all such things and execute and deliver all such
instruments, assignments, releases, other documents and assurances, as any other
Party or its counsel reasonably deems necessary or desirable in order to carry
out the intent, purpose and conditions of this Agreement and the other Program
Documents, and the transactions contemplated hereby and thereby, to facilitate
the enjoyment of any of the rights created or contemplated hereby or thereby or
to facilitate compliance with any changes in Applicable Law. Without limiting
the generality of the foregoing, to the extent permitted by Applicable Law, upon
the Purchaser's written request from time to time, the Seller shall make,
execute, acknowledge and deliver and file and record in the proper filing and
recording places all such instruments, and take all such actions, as the
Purchaser may reasonably deem necessary or advisable for assuring or confirming
to the Purchaser its rights and interest in and to, and remedies in respect of,
the Purchased Receivables relating to each Fund. In addition, the Seller agrees
to consent to any Amendment or supplements to this Agreement and any other
Program Document which is, in the opinion of the Purchaser, necessary or
appropriate in order to effect any Takeout Transaction; PROVIDED, HOWEVER, that
the Seller shall not be obligated to give any such consent if it would thereby
incur any material obligations or liabilities not contemplated by the Program
Documents to which the Seller, the Seller Parent or the Servicer is a party; and
provided further, that the Seller shall not be required by this Section 7.14 to
consent to any change in any Underwriting Agreement, any Distribution Plan or
any Prospectus.

      SECTION 7.15 OTHER RIGHTS. The rights and remedies of the Parties
hereunder are cumulative and are not in lieu of, but are in addition to, any
other rights and remedies which the Parties may have under or by virtue of any
Applicable Law, or in equity, or any other agreement or obligations to which the
Parties are a party. The rights and remedies of the Parties and the parties to
the other Program Documents may be exercised from time to time and as often as
such exercise is deemed expedient. The Parties agree that it is expected that
the Purchaser will (a) enter into hedging transactions in order to hedge the
risks associated with the Purchased Receivables, and (b) rely on the
representations, warranties and covenants provided herein in making
representations and warranties in Takeout Transactions, and that losses related
to the foregoing are, with the exception of losses in hedging transactions which
are not attributable to a breach of the representations, warranties and
covenants herein, a reasonably foreseeable result of any breach by the Seller,
the Seller Parent, or the Servicer of this Agreement or other Program Document
to which it is a party.

      SECTION 7.16 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. Each

                                       55
<PAGE>

of the representations, warranties, covenants and other agreements of the
Parties contained or reaffirmed in this Agreement (a) shall survive the
execution and delivery of this Agreement and the purchase of and payment for the
Purchased Receivables relating to each Fund and (b) shall remain and continue in
full force and effect without regard to any waiver, modification, extension,
renewal, consolidation, amendment or restatement of any term or provision,
except as specifically provided in such waiver, modification, extension,
renewal, consolidation, amendment or restatement.

      SECTION 7.17    [INTENTIONALLY LEFT BLANK]

      SECTION 7.18 FREE REDEMPTIONS. In addition to all other amounts payable to
the Purchaser pursuant to this Agreement and the other Program Documents,
promptly following each Free Redemption which is not provided for in the
applicable Fund's Prospectus on the date hereof, or on the Additional Effective
Date in the case of an Additional Eligible Fund, the Seller shall pay to the
Purchaser an amount equal to the maximum Contingent Deferred Sales Charge that
would have been payable in connection with such redemption if such redemption
had not been a Free Redemption.

      SECTION 7.19   [INTENTIONALLY LEFT BLANK]

      SECTION 7.20 REORGANIZATION. Notwithstanding anything to the contrary
contained herein, the shareholders of any Fund shall have the right, upon thirty
(30) days' notice to the Purchaser, to cause any Existing Investment Company to
transfer all or substantially all of its assets, including without limitation
all of its rights and obligations in or pursuant to any Underwriting Agreement,
Investment Management Agreement or Distribution Plan to which it is a party, to
a New Investment Company, or merge with or otherwise combine with a new
Investment Company, for the main purpose of changing such Existing Investment
Company's state of incorporation or organization. Upon such transfer, merger or
combination (a) each such Existing Investment Company shall cease to be an
Investment Company hereunder; (b) each such New Investment Company shall be
deemed to be an Investment Company hereunder; and (c) Schedule III and Exhibits
C, D, E, and F shall be deemed to be amended to reflect the changes described in
subsections (a) and (b) of this Section 7.20; PROVIDED, HOWEVER, that such
merger or combination shall not have an Adverse Effect.



                                       56
<PAGE>





      IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
by their respective officers, or other authorized signatories, thereunto duly
authorized, on the date indicted below effective as of the date first above
written.

                                    Lightning Finance Company Limited
                                    as Purchaser

Date:  August 1, 1999               By:    /s/ David Brown
                                    Name:  DAVID BROWN
                                    Title: Director

                                    Franklin/Templeton Distributors, Inc.
                                    as Seller

Date:  August 1, 1999               By:    /s/ Deborah Gatzek
                                    Name:  DEBORAH GATZEK
                                    Title: Senior Vice President


                                    Franklin Resources, Inc.
                                    as Seller Parent

Date:  August 1, 1999               By:    /s/ Martin L. Flanagan
                                    Name:  MARTIN L. FLANAGAN
                                    Title: Senior Vice President




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.47
<SEQUENCE>4
<FILENAME>0004.txt
<DESCRIPTION>ADVISORY AGREEMENT
<TEXT>

                               ADVISORY AGREEMENT

                              Templeton Funds, Inc.
                       (on behalf of Templeton World Fund)

        THIS ADVISORY AGREEMENT made as of December 21, 1999 by and between
TEMPLETON GLOBAL ADVISERS LIMITED ("TGAL"), a corporation existing under the
laws of Bahamas, and TEMPLETON ASSET MANAGEMENT LIMITED ("TAML"), a corporation
existing under the laws of Singapore.

                                   WITNESSETH

        WHEREAS, TGAL and TAML are each registered as an investment adviser
under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and
engaged in the business of supplying investment management services, as an
independent contractor;

        WHEREAS, TGAL, pursuant to an investment management agreement, has been
retained to render investment advisory services to Templeton World Fund (the
"Fund"), a series of Templeton Funds, Inc. (the "Company"), an investment
management company registered with the U.S. Securities and Exchange Commission
(the "SEC") pursuant to the Investment Company Act of 1940, as amended (the
"1940 Act"); and

      WHEREAS,  Jeffrey A. Everett,  Executive  Vice  President of TGAL and lead
portfolio manager for the Fund, will temporarily be residing in Hong Kong during
which time he will be employed by TAML and TGAL wishes to enter into this
agreement with TAML to enable Mr. Everett to continue to perform his
responsibilities as lead portfolio manager of the Fund during his employment
with TAML.

NOW, THEREFORE, in consideration of the covenants and the mutual promises
hereinafter set forth, the parties hereto, intending to be legally bound hereby,
mutually agree as follows:

     1. TGAL hereby  retains TAML and TAML hereby  accepts such  engagement,  to
furnish certain  investment  advisory services with respect to the assets of the
Fund, as more fully set forth herein.

          (a) Subject to the overall policies, control, direction and review of
the Company's Board of Directors (the "Board") and to the instructions and
supervision of TGAL, TAML agrees to provide certain investment advisory
services with respect to securities and investments and cash equivalents in
the Fund. TGAL will continue to have full responsibility for all investment
advisory services provided to the Fund. TGAL acknowledges that the only
services that TAML will provide under this agreement are the portfolio
management services of Jeffrey Everett while he remains employed by TAML.
Nothing in this agreement grants to TGAL any right to receive any research
undertaken by TAML's Emerging Markets Group.

          (b) Both TAML and TGAL may place all purchase and sale orders on
behalf of the Fund. The placement of these orders will take place exclusively in
Nassau, Bahamas, Singapore or Hong Kong.

          (c) Unless otherwise instructed by TGAL or the Board, and subject to
the provisions of this Agreement and to any guidelines or limitations specified
from time to time by TGAL or by the Board, TAML shall report daily all
transactions effected by TAML on behalf of the Fund to TGAL and to other
entities as reasonably directed by TGAL or the Board.
<PAGE>

          (d) For the term of this  Agreement,  TGAL shall  provide the Board at
least quarterly, in advance of the regular meetings of the Board, a report of
its activities hereunder on behalf of the Fund and its proposed strategy for the
next quarter, all in such form and detail as requested by the Board. Jeffrey
Everett shall also be available to attend such meetings of the Board as the
Board may reasonably request.

          (e) In performing its services under this Agreement, TAML shall adhere
to the Fund's investment objective, policies and restrictions as contained in
the Fund's Prospectus and Statement of Additional Information, and in the
Company's Articles of Incorporation, and to the investment guidelines most
recently established by TGAL and shall comply with the provisions of the 1940
Act and the rules and regulations of the SEC thereunder in all material respects
and with the provisions of the United States Internal Revenue Code of 1986, as
amended, which are applicable to regulated investment companies.

          (f) In carrying out its duties hereunder, TAML shall comply with all
reasonable instructions of the Fund or TGAL in connection therewith. Such
instructions may be given by letter, telex, telefax or telephone confirmed by
telex, by the Board or by any other person authorized by a resolution of the
Board, provided a certified copy of such resolutions has been supplied to TAML.

     2. In  performing  the services  described  above,  TAML shall use its best
efforts to obtain for the Fund the most favorable price and execution available.
Subject to prior  authorization  of  appropriate  policies and procedures by the
Board,  TAML may, to the extent  authorized  by law and in  accordance  with the
terms of the Fund's  Prospectus and Statement of Additional  Information,  cause
the Fund to pay a broker who provides  brokerage and research services an amount
of commission for effecting a portfolio investment  transaction in excess of the
amount of  commission  another  broker  would have  charged for  effecting  that
transaction,  in recognition of the brokerage and research  services provided by
the broker. To the extent authorized by applicable law, TAML shall not be deemed
to have acted  unlawfully or to have breached any duty created by this Agreement
or otherwise solely by reason of such action.

     3.   (a) TGAL shall pay to TAML a fee equal to 60% of the  advisory  fee
paid to TGAL by the Fund, which fee shall be payable in the U.S. dollar
equivalent of such Hong Kong currency dollar amount on the first business day of
each month as compensation for the services to be rendered and obligations
assumed by TAML during the preceding month. The advisory fee under this
Agreement shall be payable on the first business day of the first month
following the effective day of this Agreement and shall be reduced by the amount
of any  advance  payments made by TGAL relating to the previous month.

          (b) If this  Agreement  is  terminated  prior to the end of any month,
the  monthly  fee shall be  prorated  for the portion of any month in which this
Agreement is in effect which is not a complete month according to the proportion
which the  number of  calendar  days in the month  during  which the Agreement
is in effect bears to the total number of calendar  days in the month, and shall
be payable within 10 days after the date of termination.

     4. It is understood that the services provided by TAML are not to be deemed
exclusive.  TGAL  acknowledges  that TAML may have investment  responsibilities,
render  investment  advice to, or perform other investment  advisory services to
other  Investment  companies  and clients,  which may invest in the same type of
securities as the Fund (collectively, "Clients"). TGAL agrees that TAML may give
advice or exercise  investment  responsibility  and take such other  action with
respect to such  Clients  which may differ  from  advice  given or the timing or
nature of action taken with respect to the Fund. In providing services, TAML may
use  information  furnished by others to TGAL and TAML in providing  services to
other such Clients.

                                       2
<PAGE>

     5. TGAL agrees to use its best  efforts in  performing  the  services to be
provided by it pursuant to this Agreement.

     6. During the term of this Agreement,  TAML will pay all expenses  incurred
by it in connection  with the services to be provided by it under this Agreement
other than the cost of  securities  (including  brokerage  commissions,  if any)
purchased for the Fund. The Fund and TGAL will be  responsible  for all of their
respective expenses and liabilities.

     7. TAML shall, unless otherwise expressly provided and authorized,  have no
authority to act for or represent  TGAL or the Fund in any way, or in any way be
deemed an agent for TGAL or the Fund.

     8. TAML will treat  confidentially  and as  proprietary  information of the
Fund all records and other information  relative to the Fund and prior,  present
or potential shareholders, and will not use such records and information for any
purpose other than  performance of its  responsibilities  and duties  hereunder,
except after prior  notification  to and approval in writing by the Fund,  which
approval shall not be  unreasonably  withheld and may not be withheld where TAML
may be exposed to civil or criminal  contempt  proceedings for failure to comply
when requested to divulge such information by duly constituted  authorities,  or
when so requested by the Fund.

     9. This Agreement  shall become  effective on the date that Jeffrey Everett
becomes  employed by TAML and shall  continue in effect  until  Jeffrey  Everett
ceases to be employed by TAML for  whatever  reason.  The term of Mr.  Everett's
temporary employment with TAML and the term of this agreement is not expected to
exceed six months  beginning  January  25,  2000 (but may be extended by TAML if
necessary).

     10.  (a) Notwithstanding the foregoing, this Agreement may be terminated at
any time,  without the payment of any  penalty,  by the Board upon not less than
sixty (60) days' written  notice to TGAL and TAML,  and by TGAL or TAML upon not
less than sixty (60) days' written notice to the other party

          (b) This Agreement shall terminate automatically in the event of any
transfer or assignment thereof, as defined in the 1940 Act, and in the event of
any act or event that terminates the Investment Advisory Agreement between TGAL
and the Fund.

     11.  (a) In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of its obligations or duties hereunder on the
part of TAML, neither TAML nor any of its directors, officers, employees or
affiliates shall be subject to liability to TGAL or the Fund or to any
shareholder of the Fund for any error of judgement or mistake of law or any
other 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 Fund.

          (b) Notwithstanding paragraph 11(a), to the extent that TGAL is found
by a court of competent jurisdiction, or the SEC or any other regulatory agency
to be liable to the Fund or any shareholder (a "liability"), for any acts
undertaken by TAML pursuant to authority delegated as described in Paragraph
1(a), TAML shall indemnify TGAL and each of its affiliates, officers, directors
and employees (each a "Franklin Indemnified Party") harmless from, against, for
and in respect of all losses, damages, costs and expenses incurred by a Franklin
Indemnified Party with respect to such liability, together with all legal and
other expenses reasonably incurred by any such Franklin Indemnified Party, in
connection with such liability.

                                       3
<PAGE>

          (c) No provision of this Agreement shall be construed to protect any
director or officer of TGAL or TAML from liability in violation of Sections l
7(h) or (i), respectively, of the 1940 Act.

     12. In compliance  with the  requirements of Rule 31a-3 under the 1940 Act,
TAML  hereby  agrees that all records  which it  maintains  for the Fund are the
property of the Fund and further agrees to surrender promptly to the Fund, or to
any third party at the Fund's  direction,  any of such  records  upon the Fund's
request.  TAML further agrees to preserve for periods  prescribed by Rule 31 a-2
under the 1940 Act the records required to be maintained by Rule 31a-1 under the
1940 Act.

     13. Upon  termination of TAML's  engagement  under this Agreement or at the
Fund's  direction,  TAML shall  forthwith  deliver to the Fund,  or to any third
party at the Fund's  direction,  all  records,  documents  and books of accounts
which  are in the  possession  or  control  of  TAML  and  relate  directly  and
exclusively to the performance by TAML of its obligations  under this Agreement;
provided,  however,  that TAML shall be permitted to keep such records or copies
thereof for such  periods of time as are  necessary  10 comply  with  applicable
laws, in which case TAML shall provide the Fund or a designated third party with
copies of such retained  documents unless providing such copies would contravene
such rules, regulations and laws.

         Termination of this Agreement or TAML's engagement  hereunder shall be
without  prejudice to the rights and liabilities  created  hereunder prior to
such termination.

     14. If any provision of this  Agreement  shall be held or made invalid by a
court  decision,  statute,  rule or  otherwise,  in whole or in part,  the other
provisions  hereof  shall  remain in full force and effect.  Invalid  provisions
shall, in accordance with the intent and purpose of this Agreement,  be replaced
by such  valid  provisions  which in their  economic  effect  come as closely as
legally possible to such invalid provisions.

     15. TGAL will furnish to TAML properly certified or authenticated copies of
the  resolutions of the board  authorizing the appointment of TAML and approving
this Agreement as soon as such copies are available.

     16. Any notice or other communication required to be given pursuant to this
Agreement  shall be in writing  and given by personal  delivery or by  facsimile
transmission  and shall be effective  upon receipt.  Notices and  communications
shall be given:

         (iii)   to TAML:

                 7 Temasek Boulevard #38-03
                 Suntec Tower One
                 Singapore 038987

                 Facsimile:  011-65-338-7677

         (iv)    to TGAL:

                 Box N-7759
                 Lyford Cay
                 Nassau, Bahamas

                 Facsimile:  242-362-4308

                                       4
<PAGE>

     17. This Agreement  shall be interpreted in accordance with the laws of the
State of Florida.

     18.  TAML  acknowledges  that is has  received  notice of and  accepts  the
limitations  of  the  Company's  liability  as set  forth  in  its  Articles  of
Incorporation.  TAML agrees that the Company's  obligations  hereunder  shall be
limited to the assets of the Fund, and that TAML shall not seek satisfaction of
any such  obligation  from any  shareholders  of the Fund nor from any  trustee,
officer, employee or agent of the Company.

IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be duly
executed by their duly authorized officers and their respective  corporate seals
to be hereunto duly affixed and attested.

                                      TEMPLETON ASSET MANAGEMENT LIMITED

                                      By:/s/ Gregory E. McGowen
                                         --------------------------------
                                         Gregory E. McGowan, Director



                                      TEMPLETON GLOBAL ADVISERS LIMITED

                                      By: /s/ Mark G. Holowesko
                                         --------------------------------
                                         Mark G. Holowesko, President



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.48
<SEQUENCE>5
<FILENAME>0005.txt
<DESCRIPTION>AMENDED AND RESTATED COMMISSION PAYING AGMT
<TEXT>


                              DATED 31 JANUARY 2000

                      (1) TEMPLETON GLOBAL STRATEGY FUNDS

                     (2) TEMPLETON GLOBAL ADVISORS LIMITED

                   (3) TEMPLETON GLOBAL STRATEGIC SERVICES SA

                     (4) LIGHTNING FINANCE COMPANY LIMITED

         --------------------------------------------------------------

                AMENDED AND RESTATED COMMISSION PAYING AGREEMENT

         ---------------------------------------------------------------



                            MATHESON ORMSBY PRENTICE
                                30 HERBERT STREET
                                    DUBLIN 2
                                    IRELAND

                           J:\WP\PMY\LUXAMENDAGR3.DOC


<PAGE>



                              INDEX

ARTICLE 1..................................................2
  Definitions..............................................2
ARTICLE 2.................................................10
  Closing Arrangements....................................10
ARTICLE 3.................................................10
  Commission Payment......................................10
ARTICLE 4.................................................12
  Payment of Fees.........................................12
ARTICLE 5.................................................14
  Representations and Warranties..........................14
ARTICLE 6.................................................18
  Conditions Precedent....................................18
ARTICLE 7.................................................21
  Covenants...............................................21
ARTICLE 8.................................................24
  Termination Events......................................24
ARTICLE 9.................................................26
  Indemnification.........................................26
ARTICLE 10................................................27
  Additional Sub-Funds....................................27
ARTICLE 11................................................27
  General.................................................27
SCHEDULE A................................................35
SCHEDULE B................................................36
SCHEDULE C................................................37
SCHEDULE D................................................38
SCHEDULE E................................................45




<PAGE>





THIS AGREEMENT made  on    31 January 2000

BETWEEN:

TEMPLETON GLOBAL STRATEGY FUNDS a societe  d'investissement  a capital variable,
incorporated  under  the  laws of the  Grand-Duchy  of  Luxembourg,  having  its
registered office at 26 boulevard Royale, L-2449, Luxembourg, (the "Fund");

TEMPLETON  GLOBAL ADVISORS  LIMITED  (formerly  known as Templeton,  Galbraith &
Hansberger  Limited),  a company incorporated under the laws of the Commonwealth
of the Bahamas and having its registered office at Nassau,  Bahamas,  ("TGAL" or
the "Principal Distributor");

TEMPLETON GLOBAL STRATEGIC  SERVICES SA, a Societe Anonyme,  incorporated  under
the laws of the Grand-Duchy of Luxembourg and having its registered office at 26
boulevard Royale, L-2449, Luxembourg ("TGSS" );

AND

LIGHTNING FINANCE COMPANY LIMITED,  a limited liability company  incorporated in
Ireland and having its registered office at Chase Manhattan House,  IFSC, Dublin
1, Ireland ("LFL").

WHEREAS:

A     The Fund has been  incorporated  as an investment  fund for the investment
      and  reinvestment  of its assets in certain types of  securities,  as more
      fully described in its Articles of Incorporation.

B     The Fund, pursuant to a distribution agreement dated as of 6 November 1990
      made  between the Fund and  Templeton,  Galbraith  and  Hansberger  Ltd, a
      company  incorporated under the laws of the Cayman Islands ("TGH Cayman"),
      appointed  TGH Cayman as principal  distributor  of the shares issued from
      time to time in the capital of the Fund (the  "Shares")  for all countries
      outside of the United States of America (the "Distribution Agreement").

C     TGH Cayman,  pursuant to an assignment  dated 30 October 1992 made between
      the Fund, TGH Cayman and the Principal Distributor, assigned its title and
      interest in the  Distribution  Agreement to the Principal  Distributor and
      the Principal  Distributor  thereby  assumed the obligations of TGH Cayman
      under the  Distribution  Agreement as if the  Principal  Distributor  were
      named in the  Distribution  Agreement  as a party  thereto  in lieu of TGH
      Cayman.

D     Pursuant to the Addendum to the Distribution  Agreement (the "Distribution
      Agreement  Addendum") dated 1 July 1999 between the Fund and the Principal
      Distributor  (which  has taken  effect as and from the 1 July  1999),  the
      Principal   Distributor   has  been  granted  the  right  to  receive  all
      conditional deferred sales charges and servicing charges in respect of the
      Shares.

E     Pursuant to a  distribution  controller  agreement made as of 1 October
      1995  between the  Principal  Distributor  and TGSS (the  "Distribution
      Controller  Agreement"),  the Principal  Distributor  appointed TGSS as
      distribution   controller   of  the  Fund  (in   such   capacity,   the
      "Distribution   Controller").   It  was  agreed  in  the   Distribution
      Controller  Agreement  that TGSS would  receive  certain fees in return
<PAGE>

      for  co-ordinating the distribution of the Shares and providing certain
      other associated services.

F     Pursuant  to  a  letter  (the  "Fees   Side-Letter")  from  the  Principal
      Distributor  to TGSS  (which is stated to take  effect as of 29 July 1994)
      the  Principal  Distributor  granted to TGSS the right to receive  certain
      conditional  deferred  sales charges and other charges in connection  with
      the class of Shares which, up until 1 July 1999, were known as the Class B
      Shares  and which are now  known as the  Class Bx  Shares  (the  "Class Bx
      Shares").

G     With effect  from 1 July 1999 and as more  particularly  described  in the
      addendum  dated June 1999 to the  prospectus  of the Fund dated  September
      1997 (as  amended,  varied or  supplemented  from time to time by  various
      instruments  including the addendum)  (the  "Prospectus"),  a new class of
      Shares named Class B Shares (the "New B Shares")  will be  introduced  for
      certain Sub-Funds.

H     On the terms and  subject  to the  conditions  set out in a  Commission
      Paying  Agreement and letter agreement in relation thereto each dated 1
      July 1999 and each among the parties hereto  (together the  "Commission
      Paying  Agreement"),  pursuant to which the Fund with the knowledge and
      consent of TGAL and TGSS  requested  LFL to perform,  in respect of the
      New B Shares,  certain  services in connection with the distribution of
      the New B Shares  (including  the  payment of Selling  Commissions  (as
      defined in Article 1.1)).  In return,  the Fund,  pursuant to the terms
      of the  Commission  Paying  Agreement,  agreed to pay certain  fees (as
      more particularly  described in the Commission Paying Agreement) to LFL
      (and TGAL and TGSS  agreed to waive  any  entitlement  they may have to
      such  fees) for each New B Share in  respect  of which  LFL has  become
      obligated  to pay a Selling  Commission  and any related  Transfer  and
      Reinvested  Shares.  The Fund's  obligation to pay the appropriate fees
      in respect of a New B Share and any  related  Transfer  and  Reinvested
      Shares  commenced on the Trade Date for which LFL is obligated to pay a
      Selling Commission in respect of that New B Share.

I     The  parties  hereto  wish to amend  and  restate  the  Commission  Paying
      Agreement  upon the terms and  subject to the  conditions  set out in this
      Agreement  and,  with effect from the date  hereof,  this  Agreement  will
      supersede the Commission  Paying Agreement which shall  automatically  and
      without  further  act or  document  terminate  upon the  execution  by the
      parties hereto of this Agreement.

NOW THEREFORE  THIS  AGREEMENT  WITNESSES  that in  consideration  of the mutual
covenants  contained  herein  and other  good and  valuable  consideration,  the
receipt and sufficiency of which are hereby  acknowledged,  the parties agree as
follows:
<PAGE>

                                    ARTICLE 1

                                   DEFINITIONS

1.1. DEFINITIONS.  Whenever  used in this  Agreement and the  schedules,  unless
     there is something inconsistent in the subject matter or context, words and
     terms shall have the meanings  given to them in this Article 1.1 and in the
     recitals hereto:

     "Additional Sub-Fund" means any new or existing Sub-Fund which commences to
     issue New B Shares.

     "Adverse  Effect" when used alone or in conjunction  with other terms means
     the  occurrence or existence of any act,  circumstance,  condition,  event,
     fact, or combination of the foregoing which, in the reasonable judgement of
     LFL,  creates a  significant  probability  of any (a)  adverse  effect  (or
     material  adverse effect,  where such occurrence is caused by a computer or
     operations  error) upon (i) the timing or amount of any payment of any Fee;
     or (ii) the timely  receipt by LFL of any Fees;  or (b) a material  adverse
     effect upon (i) the Funds's, TGAL's or TGSS's ability to pay or perform its
     obligations  under this  Agreement in a timely  manner or (ii) the remedies
     and other rights of LFL under this Agreement.

     "Advisory Agreements" means the investment management agreements in respect
     of each of the  Sub-Funds  between the Fund and the  applicable  investment
     advisor as described in Schedule A as  supplemented or amended from time to
     time.

     "Affiliate" has the meaning  provided to that term under the Securities and
     Exchange Act of 1933 of the United States of America.

     "Agreement"  means  this  Agreement,  as the same may from  time to time be
     amended, supplemented, waived or modified.

     "Anniversary  of the Sale Cutoff Date" means,  in respect of any particular
     Monthly Pool,  the date which is 6 years  following the Sale Cutoff Date in
     respect of that Monthly Pool.

     "Approved  Dealers"  means  dealers in respect of the Shares as approved by
     TGAL or its duly appointed agents.

     "Articles  of  Incorporation"  means the articles of  incorporation  of the
     Fund.

     "Business  Day" means a day on which the Fund is valued in accordance  with
     the Prospectus Documents.

     "Closing"  means the completion of the  transactions  contemplated  by this
     Agreement  and the delivery of  additional  documentation  required by this
     Agreement.

     "Closing  Date" means such date as the parties agree is the date upon which
     Closing shall take place.

     "Closing  Time" means 12:00 p.m. on the Closing  Date or such other time on
     the Closing  Date as the parties may agree as the time at which the Closing
     shall take place.

     "Collection  Account"  means a bank account of LFL  maintained at The Chase
     Manhattan  Bank at account number  323-13-43-35,  with respect to which the
     Fund, TGSS and TGAL shall have no access or control.
<PAGE>

     "Collections"  means (a) all  amounts  paid or  payable  under the  Program
     Documents  in respect of the Fees and (b) all  proceeds  of the  foregoing,
     except  that  "Collections"  shall  not  include  amounts  paid or  payable
     pursuant to Article 9.1.

     "Commission  Payer"  means LFL acting in its capacity as  commission  payer
     hereunder.

     "Deferred Sales Charge" means,  with respect to any Sub-Fund,  the deferred
     sales charge payable,  either directly or by withholding  from the proceeds
     of the redemption of Shares of such Sub-Fund,  by the  shareholders of such
     Sub-Fund on any  redemption of Shares of such  Sub-Fund in accordance  with
     the Prospectus Documents relating to such Sub-Fund.

     "Deferred  Sales Charge  Share" means each New B Share issued after July 1,
     1999 by a New B Share  Sub-Fund in respect of which a Deferred Sales Charge
     is payable.

     "Distributed  Shares"  means  collectively,  the Original  Charge Shares
     and the Transfer Shares.

     "Distribution   Agreements"  means  the  distribution  services  agreements
     between  each of the Fund,  TGAL,  TGSS and TGH Cayman  (including  without
     limitation,   the  Distribution   Agreement,   the  Distribution  Agreement
     Addendum,  the Distribution  Controller Agreement and the Fees Side-Letter)
     as supplemented or amended from time to time.

     "Distributor  Report"  means a monthly  report to be prepared by TGSS which
     shall set forth,  among other things TGSS's  determination,  as of the last
     Business Day of such month, of (a) the Selling  Commissions paid or payable
     by LFL in respect of Deferred Sales Charges Shares  distributed during such
     month,  (b) the amount of Fees paid or payable in respect of such month and
     the Deferred  Sales  Charge  Shares  attributable  to such Fees and (c) the
     computation of the amount of such Fees in reasonable detail.

     "Distributors" means TGAL and TGSS and "Distributor" means any one of them.

     "Eligible  Fee" means a Fee which (a) (i)  constitutes  a legal,  valid and
     binding  obligation  of the  obligor  thereof  which is not  subject to any
     dispute,  offset,  counterclaim or defence whatsoever and (ii) which is not
     subject to any adverse  claim;  and (b) does not  contravene any applicable
     law.

     "External  Reinvested  Share" is a  Reinvested  Share which is a share of a
     Sub-Fund which is not a New B Share Sub-Fund.

     "External  Share" means a Share issued by a Sub-Fund,  which is not a New B
     Share Sub-Fund,  upon the immediate  investment of proceeds realised on the
     redemption of a Distributed  Share or another External Share (and any other
     Share issued upon the consolidation or subdivision of an External Share).

     "Fees" means all amounts  payable to LFL under this Agreement and any other
     Program Document.

     "Free  Exchange"  shall mean the  exchange of Shares of one  Sub-Fund for a
     Transfer Share or an External Share of another Sub-Fund.

     "Free  Redemption"  means a redemption  of  Distributed  Shares or External
     Shares where the obligation of the shareholder of such  Distributed  Shares
     or External Shares to pay the applicable  Deferred Sales Charge is relieved
     or deferred in whole or in part.
<PAGE>

     "FRI" means Franklin  Resources,  Inc.,  the indirect  parent company of
     each of the Distributors.

     "Fund Event of Termination" means:

     (a)  any change (or proposed  change as agreed between the parties  hereto)
          in accounting, governmental or other legislation, regulation or policy
          (i) which will  materially and adversely  affect the accounting or tax
          treatment of the  arrangements  under the Program  Documents to any of
          the Fund,  TGSS or TGAL or (ii) as a result of which TGAL, TGSS or the
          Fund will become  liable,  under  Article  11.8,  to pay any amount or
          amounts which,  but for such change,  it would not have been liable to
          pay;

     (b)  the occurrence of an LFL Insolvency Event; or

     (c)  a suit,  litigation  or  regulatory  proceeding  which has a  material
          adverse  effect on the  ability of LFL to  perform or comply  with its
          obligations hereunder.

     "GAAP" means generally accepted accounting principles in Luxembourg (in the
     case of the Fund), or the United States of America (in the case of LFL), as
     in  effect  from  time to  time  and  consistently  applied  (except  where
     specified otherwise).

     "Insolvency Event" means any of the following occurrences:

     (a)  TGSS, TGAL or the Fund shall generally not pay its obligations as such
          obligations  become due or shall admit in writing its inability to pay
          its obligations  generally or shall make a general  assignment for the
          benefit of creditors; or

     (b)  any  proceeding  shall be instituted  by or against TGSS,  TGAL or the
          Fund  seeking  to  adjudicate  it in  whole  or in  part  bankrupt  or
          insolvent,   or  seeking  liquidation,   winding-up,   reorganisation,
          arrangement,  adjustment,  protection,  relief or composition of it or
          its  obligations or proposal to its creditors  under any laws relating
          to bankruptcy,  insolvency or  reorganisation  or relief of debtors or
          seeking  the entry of an order  for  relief  or the  appointment  of a
          receiver,  trustee,  custodian or other similar official for it or for
          any  substantial  part of its  property  and,  in the case of any such
          proceedings  instituted  against it (but not  instituted  by it), such
          proceedings  shall remain  undismissed  or unstayed for a period of 60
          days; or

     (c)  a court or other governmental  authority or agency having jurisdiction
          in the premises shall enter a decree or order (i) for the  appointment
          of a receiver, liquidator, assignee, trustee or sequestrator (or other
          similar  official) of TGAL,  TGSS or the Fund of any material  part of
          its property or for the winding up or  liquidation  of its affairs and
          such decree  shall  remain in force  undischarged  and  unstayed for a
          period of 60 days; or (ii) for the  sequestration or attachment of any
          material  part of the  property of TGSS,  TGAL or the Fund without its
          unconditional  return to the  possession of TGSS,  TGAL or the Fund or
          its unconditional release from such sequestration or attachment within
          60 days thereafter; or

     (d)  TGAL,  TGSS or the Fund shall take any action to authorise  any of the
          actions set forth above.
<PAGE>

     "Liabilities"  means  claims,  damages,  losses,   liabilities,   expenses,
     obligations,  penalties, actions, suits, judgments and disbursements of any
     kind or nature whatsoever  (including,  without limitation,  the reasonable
     fees and disbursements of counsel).

     "LFL Event of Termination" means each of the following events:

     (a)  the Fund,  TGAL or TGSS  shall fail to make or cause to be made in the
          manner and when due any  payment to be made or to be caused to be made
          by it under any Program Document and the failure of such payment shall
          continue unremedied for 10 Business Days following notice thereof from
          LFL to the entity  obligated  to make such  payment and the failure of
          such payment has an Adverse Effect;

     (b)  TGSS,  TGAL or the Fund shall  fail to  perform  or observe  any other
          material  term,  covenant or  agreement on its part to be performed or
          observed under any Program Document following TGSS, TGAL or the Fund's
          (as the case may be)  actual  knowledge  thereof  or receipt of notice
          from LFL, whichever is the earlier;

     (c)  any  representation  or warranty made or deemed made by TGSS,  TGAL or
          the Fund or any of their respective  officers or directors under or in
          connection with any Program Document shall have been false,  incorrect
          or  misleading  in any  material  respect when made or deemed made and
          which gives rise to an Adverse Effect;

     (d)  any material  provision of any Program Document to which TGSS, TGAL or
          the  Fund is a party  shall  cease to be a legal,  valid  and  binding
          obligation of any such Person enforceable in accordance with its terms
          or any such Person shall so assert in writing;

     (e)  there shall have occurred an Insolvency Event;

     (f)  FRI shall cease to own,  directly or  indirectly,  at least 80% of the
          issued and outstanding equity securities of each of TGSS and TGAL;

     (g)  there shall have occurred any change (or proposed  change as agreed by
          the parties hereto) in accounting,  governmental or other legislation,
          regulation or policy which would have an Adverse Effect;

     (h)  the  termination of the Joint Venture  Agreement  dated  September 11,
          1998 as  amended  respecting  LFL  among  FEP  Capital  II LLC and TGH
          Holdings Limited and LFL pursuant to Article 14 of that agreement; and

     (i)  a suit,  litigation  or  regulatory  proceeding  which has a  material
          adverse  effect on the  ability  of any of the  Fund,  TGAL or TGSS to
          perform or comply with its obligations hereunder.

     "LFL Insolvency Event" means any of the following occurrences:

     (a)  LFL shall generally not pay its obligations as such obligations become
          due or shall admit in writing  its  inability  to pay its  obligations
          generally  or shall  make a  general  assignment  for the  benefit  of
          creditors; or
<PAGE>

     (b)  any  proceeding  shall be  instituted  by or  against  LFL  seeking to
          adjudicate it in whole or in part  bankrupt or  insolvent,  or seeking
          liquidation,    winding-up,    court    protection,    reorganisation,
          arrangement,  adjustment,  protection,  relief or composition of it or
          its  obligations or proposal to its creditors  under any laws relating
          to bankruptcy,  insolvency or  reorganisation  or relief of debtors or
          seeking  the entry of an order  for  relief  or the  appointment  of a
          receiver,  trustee, examiner,  custodian or other similar official for
          it or for any substantial part of its property and, in the case of any
          such  proceedings  instituted  against it (but not  instituted by it),
          such proceedings shall remain  undismissed or unstayed for a period of
          60 days; or

     (c)  a court or other governmental  authority or agency having jurisdiction
          in the premises shall enter a decree or order (i) for the  appointment
          of a receiver, liquidator, examiner, assignee, trustee or sequestrator
          (or  other  similar  official)  of  LFL of any  material  part  of its
          property or for the winding up or  liquidation of its affairs and such
          decree shall remain in force undischarged and unstayed for a period of
          60 days; or (ii) for the  sequestration  or attachment of any material
          part of the  property of LFL without its  unconditional  return to the
          possession of LFL or its unconditional release from such sequestration
          or attachment within 60 days thereafter; or

     (d)  LFL shall take any action to  authorise  any of the  actions set forth
          above.

     "Lien"  means any  mortgage,  pledge,  hypothecation,  assignment,  deposit
     arrangement, encumbrance, lien or security interest (statutory or other) or
     preference,   priority  or  other   security   agreement  or   preferential
     arrangement   of  any  kind  or  nature   whatsoever  or  other  charge  or
     encumbrance,  including the retained security title of a conditional vendor
     or lessor.

     "Master Trust" means any trust or other special purpose entity or Person to
     which  any  interest  in any of  the  Fees  or the  right  to  receive  any
     Collections  with respect thereto has been transferred in connection with a
     Takeout Transaction.

     "Master Trust Transfer Agreement" means any agreement pursuant to which any
     interest in the Fees is transferred to a Master Trust.

     "Monthly  Fee" means,  in respect of each Monthly Pool, a monthly fee equal
     to 0.975% (on an annual  basis) of the  average  daily Net Asset  Value for
     that month of all  Distributed  and Reinvested  Shares and External  Shares
     forming part of such Monthly Pool divided by twelve.

     "Monthly Pool" means, with respect to any Sub-Fund and any calendar month:

     (i)  each  Original  Charge  Share  issued  by such  Sub-Fund  during  such
          calendar month;

     (ii) Transfer   Shares  of  such   Sub-Fund   issued  upon  the   immediate
          reinvestment of proceeds realised on the redemption of (a) an Original
          Charge Share of another  Sub-Fund  issued by such Sub-Fund  during the
          calendar month described in clause (i) above;  (b) a Reinvested  Share
          (that is not an External  Reinvested Share) of another Sub-Fund issued
          in respect of Deferred Sales Charge Shares described in clause (ii)(a)
          above or this  clause  (ii)(b);  or (c) a  Transfer  Share of  another
          Sub-Fund which relates to a Deferred  Sales Charge Share  described in
          clause (ii)(a) or (ii)(b) above or this clause (ii)(c);
<PAGE>

     (iii)Deferred  Sales  Charge  Shares  of  such  Sub-Fund  issued  upon  the
          automatic  reinvestment of income and capital gains distributions with
          respect to Deferred Sales Charge Shares of such Sub-Fund  described in
          clauses (i) or (ii) above, or this clause (iii); and

     (iv) External Shares or External  Reinvested  Shares of such Sub-Fund which
          are derived  (directly  or  indirectly)  from a Deferred  Sales Charge
          Share formerly  included in the Monthly Pool of a New B Share Sub-Fund
          whose Sale Cutoff Date occurred in such calendar month,

      provided  always that each  Deferred  Sales Charge Share of such  Sub-Fund
      will be  allocated  to a Monthly Pool in  accordance  with the  allocation
      procedures in Schedule D.

     "Multiple  Material  Errors" means errors in the calculation of amounts due
     to and adverse to LFL in excess of 10% of any amounts payable, which errors
     occur in excess of three times during the term of this Agreement  excluding
     any and all errors  (other  than those  caused by bad faith or fraud on the
     part of TGSS or TGAL) occurring prior to the first year anniversary date of
     this Agreement.

     "Net Asset Value" means,  with respect to any Sub-Fund or any Share,  as of
     the date any determination  thereof is made, the meaning given to that term
     in the Prospectus Documents.

     "New B Share  Sub-Funds"  means,  at any  time,  the  Sub-Funds  listed  in
     Schedule  C  together  with any  Sub-Funds  that  have  become  New B Share
     Sub-Funds in accordance with Article 10.

     "Original Charge Share" means, in respect of any calendar month, a Deferred
     Sales  Charge  Share issued in that month for which LFL is obligated to pay
     the Selling  Commission (and the term "Original  Charge Share" includes any
     Shares issued upon the  consolidation  or subdivision of an Original Charge
     Share).

     "Person" means any  individual,  partnership,  limited  partnership,  joint
     venture,  syndicate, sole proprietorship,  company or corporation,  with or
     without  share  capital,   unincorporated   association,   trust,  trustee,
     executor, administrator or other legal personal representative,  regulatory
     body or governmental  agency,  authority or entity,  however  designated or
     constituted.

     "Permitted  Designee" means (a) any Person  designated by LFL or any Master
     Trust, as the case may be, which may be The Chase Manhattan Bank,  Deutsche
     Bank,  Bank of New  York or  Constellation  Financial  Management  Company,
     L.L.C.  or  any  Affiliate  of  the  foregoing,  or (b)  any  other  Person
     designated by LFL or any Master Trust, as the case may be, (i) which is not
     actively  engaged in the sponsorship or management of any other mutual fund
     in the United States,  Canada or Europe in the reasonable  judgment of TGSS
     (such judgment not to be unreasonably withheld or delayed),  and (ii) which
     has  agreed  to be  bound  by  confidentiality  undertakings  in  substance
     comparable to those contained in this Agreement.

     "Program  Documents" means this Agreement,  the Articles of  Incorporation,
     the  Advisory  Agreements,   the  Prospectus  Documents,  the  Distribution
     Agreements, the Material Contracts, any Master Trust Transfer Agreement and
     the other agreements,  documents, certificates and instruments entered into
     or delivered in  connection  herewith and  therewith,  as the same may from
     time to time be amended, supplemented, waived or modified.
<PAGE>

     "Prospectus  Documents"  means, with respect to the Fund and each Sub-Fund,
     the most recent  prospectus  and addenda  thereto filed in connection  with
     registration  in  Luxembourg as more  particularly  described in Schedule A
     hereto as amended or supplemented from time to time.

     "Reinvested  Share" means a Deferred Sales Charge Share or any Share issued
     upon  the   automatic   reinvestment   of  income   and/or   capital  gains
     distributions  upon an Original Charge Share, a Transfer Share or any Share
     which has derived  directly or indirectly  (through  reinvestment of income
     and/or  capital  gains) from an Original  Charge Share or a Transfer  Share
     (and the term  "Reinvested  Share" also includes any Shares issued upon the
     consolidation  or  subdivision  of a Reinvested  Share) or any Share issued
     upon the immediate  investment of proceeds  realised on the redemption of a
     Reinvested Share of a New B Share Fund.

     "Sale Cutoff Date" means, with respect to any particular  Monthly Pool, the
     last  Business Day of the calendar  month during which LFL arranged for the
     payment of  commissions  of  Original  Charge  Shares  forming  part of the
     Monthly Pool and became obligated to pay the Selling Commissions in respect
     of such Monthly Pool.

     "Selling Commission" means, in respect of a Deferred Sales Charge Share, 4%
     of the Subscription Price of such Deferred Sales Charge Share.

     "Sub-Funds" means the sub-funds of the Fund (including, without limitation,
     those sub-funds in Schedule C).

     "Subscription  Price" means with respect to any Deferred Sales Charge Share
     at any  particular  time,  the gross  purchase price of such Deferred Sales
     Charge  Share  in the  applicable  currency  of the  relevant  New B  Share
     Sub-Fund established by the Prospectus Documents.

     "Substantial  Funds" means,  at any time, any New B Share Sub-Fund or group
     of New B Share  Sub-Funds  which, at such time, have an aggregate Net Asset
     Value  equal to thirty per cent (30%) or more of the total Net Asset  Value
     of all the New B Share Sub-Funds taken together at such time.

     "Takeout  Transaction" means any transaction  pursuant to which LFL, or any
     Master Trust which obtains such interest  directly or indirectly  from LFL,
     sells  or  otherwise   transfers,   participates  or  causes  to  be  sold,
     transferred  or  participated  interests in the Fees  relating to any New B
     Share Sub-Fund  (including,  without  limitation,  the right to receive any
     portion of any  Collections)  to any Person,  including a Master Trust or a
     subsidiary  or  Affiliate  of LFL which  publicly or  privately  sells debt
     instruments and/or certificates or other instruments representing ownership
     interests in such Master Trust or interest in any Fees (including,  without
     limitation, any right to receive any portion of any Collections).

     "Termination Date" means 30 June 2002, subject to termination or suspension
     as set forth in  Article  3.1,  or such later date as shall be agreed to in
     writing by the  parties  hereto,  except that the  Termination  Date may be
     deemed to have occurred on an earlier date pursuant to Article 8.

     "Trade  Date" means,  in respect of the  purchase of Deferred  Sales Charge
     Shares, the relevant Valuation Day of such Shares.
<PAGE>

     "Transfer  Share"  means a Deferred  Sales  Charge  Share  issued  upon the
     immediate  investment of proceeds realised on the redemption of an Original
     Charge Share, or another Transfer Share in a Deferred Sales Charge Share of
     another  New B Share  Sub-Fund  provided  that  the term  "Transfer  Share"
     includes any Deferred Sales Charge Share issued upon the  consolidation  or
     subdivision of a Transfer Share.

     "Valuation  Day" means a day on which the Fund is  accepting  subscriptions
     for Deferred Sales Charge Shares.

                                    ARTICLE 2

                              CLOSING ARRANGEMENTS

2.1  THE CLOSING.  The  transactions  contemplated  by this  Agreement  shall be
     completed  at the  Closing  Time at the offices of the counsel to LFL or at
     such other location as may be agreed to by the parties.

                                    ARTICLE 3

                               COMMISSION PAYMENT

3.1  APPOINTMENT  OF LFL. Upon and subject to the terms and  conditions  hereof,
     the Fund,  with the  knowledge and consent of TGAL and TGSS as evidenced by
     their signatures hereto, hereby appoints LFL as Commission Payer in respect
     of the  Deferred  Sales Charge  Shares in any country  where it is legal to
     distribute  the Fund and LFL will pay or  procure  the  payment  of Selling
     Commissions to Approved Dealers as and from 1 July 1999 up to and including
     30 June 2002,  subject to  suspension  and  termination  at any time in the
     circumstances  described in this Agreement.  Until terminated in accordance
     with the  terms of this  Agreement,  LFL will be the  exclusive  Commission
     Payer with respect to such  Deferred  Sales Charge Shares during the period
     described  above. It is acknowledged  and agreed by the parties hereto that
     LFL's  obligations  do not extend to sales of Shares which are not Deferred
     Sales Charge Shares and that LFL shall not receive any  remuneration of any
     kind in respect of such Shares.

3.2  DISTRIBUTION THROUGH APPROVED DEALERS. LFL will pay the Selling Commissions
     based on sales of  Deferred  Sales  Charge  Shares  only  through  Approved
     Dealers, and LFL will not itself directly or indirectly promote,  market or
     sell any Shares or accept  orders for the purchase of Shares.  All Deferred
     Sales  Charge  Shares  will be sold at a price equal to the Net Asset Value
     per  Share at the time of  purchase,  without  a sales  charge  payable  by
     investors.  TGSS will advise LFL upon the execution hereof and regularly as
     required  thereafter  so  long  as  LFL  is  entitled  hereunder  to act as
     Commission  Payer and receive  fees  hereunder of the names of all Approved
     Dealers through whom the Deferred Sales Charge Shares may be sold.
<PAGE>

     The  Distributors  agree not to  knowingly  accept  purchase  orders  from
     Persons  with respect to the sale of Deferred  Sales Charge  Shares in any
     jurisdiction in which the Deferred Sales Charge Shares are not registered,
     qualified  for sale or otherwise  exempt from the need to qualify for sale
     under applicable securities  legislation.  In respect of any such purchase
     orders which are unknowingly  accepted by the  Distributors,  the Deferred
     Sales Charge  Shares sold  pursuant to such orders will be subject to this
     Agreement  unless the trade in such Shares is  subsequently  reversed,  in
     which case such Deferred  Sales Charge Shares shall not be subject to this
     Agreement  and the  Distributors,  will  forthwith,  following  the  trade
     reversal and out of the proceeds of the trade reversal,  refund to LFL the
     amount of the Selling  Commissions  paid by it, if any, in respect of such
     Shares.

3.3  REJECTION OF PURCHASE ORDERS. Each of the Fund and TGAL may reject purchase
     orders for Deferred  Sales Charge Shares  received from an Approved  Dealer
     during the term of this Agreement only in accordance  with the terms stated
     in the Prospectus Documents.

3.4  REGISTRATION OF PURCHASES. After receipt and acceptance of a purchase order
     together with an amount equal to the purchase price for each Deferred Sales
     Charge Share  purchased,  TGSS will  promptly  register the  purchaser as a
     holder of the  purchased  Share or Shares and shall  deposit  the  purchase
     price to the credit of the Fund.

3.5  SERVICES OF LFL.  The primary  purpose of this  Agreement is to ensure that
     satisfactory  arrangements exist for the distribution of the Deferred Sales
     Charge  Shares  and to  provide a  mechanism  for the  payment  of  Selling
     Commissions  to  Approved  Dealers who  distribute  Deferred  Sales  Charge
     Shares.  Subject to its rights of termination as provided herein,  LFL will
     provide the following  services to the Distributors and the Fund during the
     period in which LFL acts as  Commission  Payer in  accordance  with Article
     3.1:

     (a)  paying the Selling Commissions in respect of the Deferred Sales Charge
          Shares;  the parties  agree that LFL's  obligation  to pay the Selling
          Commission in respect of a Deferred  Sales Charge Share shall arise on
          the Trade Date for such Deferred  Sales Charge Share,  notwithstanding
          that  LFL is only  required  to make  actual  payment  of the  Selling
          Commission in respect of such purchase on the settlement date for such
          Deferred Sales Charge Share;

     (b)  maintaining  proper and adequate business records of its operations in
          order to properly  monitor the Deferred  Sales Charge Shares for which
          it pays Selling  Commissions and the amount of the Selling Commissions
          paid; and

     (c)  providing confirmation to the Distributors and the Fund when requested
          as to the due and timely payment of Selling Commissions.

     LFL, the Distributors and the Fund acknowledge that the Distributors shall
     continue to arrange for the  distribution  of Deferred Sales Charge Shares
     pursuant to the Program Documents and that,  except as expressly  provided
     by this  Agreement,  LFL shall have no obligation to perform any duties or
     functions or make any payments carried out or made by the Distributors.

3.6  DISTRIBUTOR  REPORT.  On or before 10  Business  Days after the end of each
     month,  TGSS shall  provide LFL or a Permitted  Designee with a Distributor
     Report.  The parties agree to finalise as soon as possible and in any event
     not later than August 31, 1999 the form of the Distributor  Report which is
     acceptable to both parties.
<PAGE>

                                    ARTICLE 4

                                 PAYMENT OF FEES

4.1  MONTHLY  FEE. For its services in paying  Selling  Commissions  on sales of
     Original  Charge Shares  included in a Monthly Pool,  the Fund shall pay to
     LFL the  Monthly  Fee in  respect  of each  Monthly  Pool and TGAL and TGSS
     hereby  waive any  entitlement  they may have,  whether  under the  Program
     Documents or otherwise, to each such Monthly Fee payable hereunder.

     The Monthly  Fee will be accrued  daily on each  Valuation  Day and will be
     paid to LFL  within  ten days  after the end of each  calendar  month.  The
     Monthly Fee shall continue to be payable to LFL in respect of each Deferred
     Sales Charge Share,  External  Share or External  Reinvested  Share forming
     part of a Monthly Pool for the lesser of (i) the period that such  Deferred
     Sales Charge Share,  External Share or External Reinvested Share remains in
     issue;  and (ii) the  Anniversary of the Sale Cutoff Date,  notwithstanding
     that LFL's  appointment  as exclusive  Commission  Payer has expired or has
     been suspended or terminated.

4.2  DEFERRED  SALES  CHARGES.  Each of TGAL,  TGSS and the Fund  represents and
     warrants to LFL that a Deferred  Sales  Charge  applies to all  Distributed
     Shares of a New B Share Sub-Fund and all External Shares which are redeemed
     within five years of their date of issue,  or deemed date of issue,  except
     on  redemptions  where the  redemption  proceeds  realised are  immediately
     invested  in  Distributed  Shares  of one or more of the  other New B Share
     Sub-Funds or in External  Shares).  Each of TGAL, TGSS and the Fund further
     represents and warrants to LFL that the Deferred Sales Charge, expressed as
     a percentage of the lower of the current Net Asset Value or the issue price
     when  purchased per  Distributed  Share or External  Share being  redeemed,
     declines over time from the date of issue,  or deemed date of issue, of the
     Distributed Share or External Share as follows:

           If Redeemed During the Following    Deferred Sales
           Periods After the Date of           Charge
           ISSUE OR DEEMED DATE OF ISSUE       PERCENTAGE

           During the 1st year                  4.0%
           During the 2nd year                  3.0%
           During the 3rd year                  2.0%
           During the 4th year                  1.0%
           During the 5th year                  1.0%
           Thereafter                           Nil

     Each of TGAL,  TGSS and the Fund  represents and warrants to LFL that, for
     the purpose of  calculating  the  Deferred  Sales  Charge  payable to LFL,
     Deferred Sales Charge Shares will be redeemed in the following order:

     (a)  Reinvested Shares will be redeemed first; and

     (b)  Distributed  Shares  (or  External  Shares  derived  therefrom)  of  a
          Sub-Fund issued first, or deemed to be issued first,  will be redeemed
          second.

     In the event of the termination of any Sub-Fund,  LFL shall be entitled to
     receive  any   applicable   Deferred  Sales  Charges  in  respect  of  the
<PAGE>

     outstanding  Distributed Shares or External Shares of that Sub-Fund unless
     such Shares become Transfer Shares or External Shares of another Sub-Fund.

     Notwithstanding the foregoing provisions,  LFL agrees and accepts that, if
     at any time, the Luxembourg  supervisory authority compels the Fund not to
     levy any  Deferred  Sales  Charge as a result  of,  inter  alia,  material
     changes to or liquidation  or merger of Sub-Funds or for whatsoever  other
     reason,  the Fund will not be liable for the payment of any Deferred Sales
     Charge which would otherwise normally be payable.

4.3  DEFERRED SALES CHARGE  PAYMENTS.  In addition to the Monthly Fee payable to
     LFL  pursuant  to  Article  4.1  and  in  consideration  for  its  services
     hereunder,  LFL shall also be entitled to receive any Deferred Sales Charge
     paid by  shareholders  on the  redemption  of their  Distributed  Shares or
     External  Shares.  The  Deferred  Sales  Charges  will  be  calculated  and
     collected  by  TGSS,   its   successors  or  assigns  in  its  capacity  as
     Distribution  Controller  for the  Fund on each  Valuation  Day and will be
     payable  by the Fund to LFL  monthly  within  ten days after the end of the
     calendar month or in the event of  termination  of a Sub-Fund,  immediately
     prior to the termination of the Sub-Fund.  Such amount shall continue to be
     payable  to LFL on the  redemption  of  each  Distributed  Share  and  each
     External  Share  notwithstanding  that (a) LFL's  appointment  hereunder as
     exclusive  Commission  Payer has been  suspended,  has  expired or has been
     terminated or b) TGAL or TGSS has been  terminated as the Fund's  Principal
     Distributor or Distribution Controller, respectively.

4.4   FREE REDEMPTIONS

     In  addition  to all  other  amounts  payable  to  LFL  pursuant  to  this
     Agreement,  promptly  following  each  Free  Redemption  the  Fund  or the
     Distributors  or both of them  shall  pay to LFL an  amount  equal  to the
     maximum  Deferred  Sales Charge that would have been payable in connection
     with such redemption if such redemption had not been a Free Redemption.

4.5  RIGHT OF ACTION

     (a)  The  Fund  hereby  irrevocably  and  unconditionally   authorises  and
          instructs  TGAL  and  TGSS to take  all  necessary  steps  to  recover
          (whether by legal  proceedings  or  otherwise)  any amounts  which may
          become  due and  owing  by a  shareholder  to the Fund in  respect  of
          Deferred  Sales Charges  (including by  withholding  or deducting such
          amounts from any amounts  payable by the Fund to such a  shareholder).
          TGAL and TGSS hereby undertake to keep the Fund advised of any actions
          they may take pursuant to this provision.

     (b)  Each of TGSS and TGAL hereby covenants, in favour of LFL and the Fund,
          that it will diligently take all steps reasonably necessary to recover
          and pay to LFL any such  amounts as referred to in (a) above which are
          payable to LFL.

     (c)  LFL agrees and acknowledges that its only right of action in the event
          of non-payment of the Fees shall be against the Fund and the assets of
          the Fund  attributable  to the relevant  Sub-Fund in relation to which
          the relevant Fees are due and LFL further agrees and acknowledges that
          LFL shall have no recourse  against the assets of the  Distributors or
          other Sub-Funds for such non-payment of the Fees.

4.6  COLLECTION ACCOUNT. All Collections payable by the Fund are to be deposited
     directly by or on behalf of the Fund into the  Collection  Account  without
     any  intermediate  commingling  of such  amounts  with  the  assets  of the
<PAGE>

     Distributors  or any Affiliate of either of them. No amounts other than the
     Collections shall be deposited to the Collection Account.

4.7  ACCRUAL OF LFL'S ENTITLEMENT TO FEES

     Notwithstanding any other provision of this Agreement,  the parties hereto
     acknowledge  and agree that LFL's  entitlement to receive  Monthly Fees in
     respect of a Deferred  Sales Charge Share shall accrue at the same time as
     the  obligation  of LFL to pay, the Selling  Commission in respect of that
     Deferred  Sales Charge Share.  LFL's  entitlement  to receive the Deferred
     Sales Charge  payable by a shareholder  on the redemption of a Distributed
     Share shall  accrue at the same time as the  obligation  of LFL to pay, in
     respect of that  Deferred  Sales Charge Share,  the Selling  Commission in
     respect of (i) (where such Distributed  Share is an Original Charge Share)
     that Distributed Share or (ii) (where such Distributed Share is a Transfer
     Share) the Original Charge Share to which such Distributed Share relates.

4.8  MATERIAL ERRORS

     If Multiple  Material  Errors  occur,  LFL shall provide TGSS with written
     notice of such occurrence, following which TGSS shall have 60 days to cure
     such errors  during  which  period LFL shall have the right to suspend its
     obligation to pay Selling  Commissions.  If such breach continues uncured,
     at the  expiration of such notice  period,  LFL may give a second  written
     notice to the Fund  declaring that the  Termination  Date has occurred (in
     which case the  Termination  Date shall be deemed to have  occurred on the
     date such second notice is given), provided that if such Multiple Material
     Errors  occur  only in respect  of a New B Share  Sub-Fund  or New B Share
     Sub-Funds which are not Substantial  Funds (in either case),  LFL may only
     terminate its obligations in respect of such Sub-Fund or Sub-Funds (as the
     case may be). Where LFL  terminates its  obligations in respect of a New B
     Share Sub-Fund or New B Share Sub-Funds  which are not  Substantial  Funds
     (in either case) then the Fund,  TGAL,  or TGSS shall either (i) take such
     actions as LFL may  reasonably  request  so as to  preserve  the  economic
     return to LFL in respect of such terminated Sub-Fund or Sub-Funds (so that
     LFL receives a return equal to the return it would have  received had such
     Multiple Material Errors not occurred); or (ii) demonstrate to LFL that it
     can  accurately  track  the  relevant  New B  Shares  of  such  terminated
     Sub-Fund.  In the event  that such  errors  are  cured  within  the 60 day
     period,  then LFL shall promptly pay all Selling Commissions in respect of
     the sales of Deferred  Sales  Charge  Shares  which  occurred  during such
     period.

                                    ARTICLE 5

                         REPRESENTATIONS AND WARRANTIES

5.1  DISTRIBUTORS  AND  FUND'S  REPRESENTATIONS  AND  WARRANTIES.  Except  where
     otherwise  indicated,  each of  TGSS,  TGAL  and the  Fund  represents  and
     warrants to LFL:

     (a)  ORGANISATION - It has been duly  incorporated or created,  as the case
          may be, and is  organised,  validly  existing  and  up-to-date  in all
          material  filings  and  registrations   required  under  the  laws  of
          Luxembourg,  the Commonwealth of the Bahamas (in the case of TGAL) and
          each country where such filings or registrations are necessary for the
          conduct of its business, and it has all necessary power, authority and
          capacity to own its properties and assets and to carry on the business
          in which it is now engaged.
<PAGE>

     (b)  DISTRIBUTION  OF NEW B SHARES - The New B Shares are  offered for sale
          to the  public  on a  continuous  basis  pursuant  to  the  Prospectus
          Documents.  All material  information and statements  contained in the
          Prospectus  Documents  with  respect  to the New B Shares are true and
          correct  in  all   material   respects   and   contain   no   material
          misrepresentation.

     (c)  COMPLIANCE  WITH LAWS - It is in compliance  in all material  respects
          with all  applicable  laws,  including but not limited to,  applicable
          securities laws.

     (d)  LICENSES AND REGISTRATIONS - It has received all approvals,  licences,
          registrations  and  authorisations  necessary  for the  conduct of its
          businesses as they are now  conducted,  all of which are in full force
          and  effect;  no  violations  thereof  have  been  recorded;   and  no
          proceeding  is  pending  or  threatened  which  could  result  in  the
          revocation or limitation thereof.

     (e)  INVESTMENT  ADVISER  COMPLIANCE  - To the  best  of the  Distributors'
          knowledge,   after  due  inquiry,  each  of  the  investment  advisers
          appointed in respect of the New B Share  Sub-Funds  has complied  with
          the investment  objectives,  policies and  restrictions  of such New B
          Share  Sub-Funds  as provided in the  Articles of  Incorporation,  the
          Advisory Agreements and the Prospectus Documents.

     (f)  CONSENTS AND APPROVALS - There are no consents,  approvals,  orders or
          authorisations of any Person or registrations,  declarations, notices,
          filings or recordings  with any Person required to be obtained or made
          by it (and which have not been so obtained or made) in connection with
          the  transactions  contemplated by this  Agreement,  the execution and
          delivery of this  Agreement or the  performance  by the Fund,  TGSS or
          TGAL of any of the terms and conditions of this Agreement.

     (g)  FINANCIAL  STATEMENTS - The financial statements of the Fund have been
          prepared  in  accordance  with GAAP and present  fairly the  financial
          position  of the  Fund  as of the  respective  dates  thereof  and the
          changes in the  Fund's  net  assets  for the  period  covered by those
          statements  and  the  treatment  of  management  fees,  legal,  audit,
          custodian,  safekeeping fees,  interest,  operating and administrative
          costs payable by the Fund.

     (h)  ABSENCE OF UNDISCLOSED LIABILITIES - Except to the extent reflected or
          reserved against in the financial  statements of the Fund or otherwise
          disclosed  herein or except as incurred in the ordinary  course of the
          business of the Fund, the Fund has no outstanding  indebtedness or any
          liabilities or  obligations  (whether  direct or indirect,  current or
          long-term, accrued, absolute, contingent or otherwise).

     (i)  TAX  MATTERS - The Fund is not in default in filing any tax returns or
          reports required to be filed as of the date of this Agreement covering
          any  relevant   national,   provincial,   municipal  or  local  taxes,
          assessments  or other  imposts  in  respect  of its  capital,  income,
          business  or  property  (where  such  default  could  have an  Adverse
          Effect).

     (j)  LITIGATION  -  There  is  no  suit,   action,   litigation,   inquiry,
          investigation,   arbitration  or  proceeding,  including  appeals  and
          applications to review,  in progress or, to its knowledge,  threatened
          or pending  against or relating to it or affecting  its  properties or
          businesses which could have an Adverse Effect.  There is not presently
          outstanding  against it any  judgement,  decree,  injunction,  rule or
<PAGE>

          order  of any  court,  governmental  department,  commission,  agency,
          instrumentality or arbitrator which could have an Adverse Effect.

     (k)  ACCURACY OF BOOKS AND RECORDS - The books and records,  financial  and
          otherwise,  of the Fund fairly and  correctly  set out and disclose in
          all  material  respects the  financial  position of the Fund as of the
          date of  this  Agreement  and  all  material  transactions  have  been
          accurately recorded in those books and records.

     (l)  ACCURACY OF INFORMATION  PROVIDED - To the best of its knowledge,  all
          information  provided by or on behalf of the  Distributors,  the Fund,
          FRI or its  Affiliates  to LFL or any agent thereof for purposes of or
          in connection with this Agreement or the transactions  contemplated by
          this Agreement is true, correct and complete in all material respects.

     (m)  DUE  AUTHORISATION,  EXECUTION AND DELIVERY - This  Agreement has been
          duly  authorised,  executed and  delivered  by it and the  obligations
          expressed  to be assumed by it in this  Agreement  are legal and valid
          obligations  binding on it and  enforceable  against it in  accordance
          with the terms hereof,  subject,  however, to limitations with respect
          to enforcement imposed by law in connection with bankruptcy or similar
          proceedings  and  to the  extent  that  equitable  remedies,  such  as
          specific  performance  and  injunction,  are in the  discretion of the
          court from which they are sought.

     (n)  ABSENCE OF  CONFLICTING  AGREEMENTS  - It is not a party to,  bound or
          affected by or subject to any indenture,  mortgage,  lease, agreement,
          instrument,  charter or by-law provision,  statute,  regulation order,
          judgement,  decree  or law which  would be  violated,  contravened  or
          breached by or under which any default  would occur as a result of the
          execution and delivery of this Agreement or the  performance of any of
          the terms of this Agreement or which could have an Adverse Effect.

     (o)  MATERIAL  CONTRACTS - Except for the  Material  Contracts  it is not a
          party to or bound by any presently  existing oral or written contracts
          or a commitment which is material in respect of this Agreement and the
          transactions  contemplated  herein.  The  Material  Contracts  are  in
          compliance in all material  respects with  applicable law, are in full
          force and effect, unamended, and no material default exists in respect
          of any of them on the part of any of the parties  and there  exists no
          set of facts  which,  after  notice  or  lapse of time or both,  would
          constitute such material  default.  It has the capacity to perform all
          its  respective  obligations  in the Material  Contracts.  Each of the
          Material  Contracts  has been duly  executed by it and  constitutes  a
          valid  and  binding  obligation  of  it  enforceable   against  it  in
          accordance  with the terms  thereof,  free and clear of any  mortgage,
          pledge,  lien,  charge,  security interest or encumbrance or rights of
          others.

     (p)  NO  SECURITY  AGREEMENT  -  To  the  best  of  the  knowledge  of  the
          Distributors,  no  security  agreement,  equivalent  security  or lien
          instrument or any financing statement,  has been entered into or is on
          file or on record in respect of the  Deferred  Sales  Charges  (or any
          part thereof) in any jurisdiction.

     (q)  PRINCIPAL  PLACE OF BUSINESS,  NAME - Its principal  place of business
          and the  place  where its  records  are kept is at the  address  first
          written above or such other  address of which LFL has received  notice
          pursuant to Article 11.6.
<PAGE>

     (r)  INSOLVENCY - Since 1 July,  1999, there has not occurred an Insolvency
          Event with respect to the Fund, TGSS or TGAL.

     (s)  INFORMATION  CORRECT - All  information  in respect of the  payment of
          Selling Commissions to be set forth in each Distributor Report will be
          true and correct in all  material  respects  (this  warranty  shall be
          given by TGSS and its successors or assigns only).

     (t)  REGISTRATION  OF FUND - The Fund  continues to be  registered  as (and
          qualify   as)  a  societe   d'investissement   a   capital   variable,
          incorporated under the laws of the Grand-Duchy of Luxembourg.

     (u)  ROLE OF TGAL AND TGSS - TGAL  shall be the  Principal  Distributor  in
          accordance  with the  Distribution  Agreement  and  TGSS  shall be the
          Distribution Controller in accordance with the Distribution Controller
          Agreement.

     Each of the  representations  and warranties  contained in this Article 5.1
     are made severally by TGSS, TGAL and the Fund (each a "Representing Party")
     and accordingly,  a Representing  Party shall not be responsible to LFL for
     any misrepresentation on the part of another Representing Party.

5.2  LFL'S REPRESENTATIONS AND WARRANTIES. LFL hereby represents and warrants to
     TGSS, TGAL and the Fund that:

      (a)  ORGANISATION  AND  GOOD  STANDING  - LFL has  been  duly  formed  and
           organised as a limited liability company  incorporated in Ireland and
           has all necessary  power,  authority and capacity to own its property
           and assets and to carry on the business in which it is now engaged.

      (b)  AUTHORISATION,  EXECUTION AND DELIVERY - This Agreement has been duly
           authorised,  executed and delivered by LFL and is a valid and binding
           obligation of LFL enforceable in accordance with its terms,  subject,
           however, to limitations with respect to enforcement imposed by law in
           connection with bankruptcy or similar  proceedings and, to the extent
           that equitable  remedies such as specific  performance and injunction
           are in the discretion of the court from which they are sought.

      (c)  ABSENCE OF  CONFLICTING  AGREEMENTS - LFL is not a party to, bound or
           affected by or subject to any indenture,  mortgage, lease, agreement,
           instrument, charter or by-law, provision, statute, regulation, order,
           judgement,  decree or law which  would be  violated,  contravened  or
           breached  by, or under which any default  would occur as a result of,
           the execution and delivery by it of this Agreement or the performance
           by it of any of the terms of this Agreement.

     (d)  LITIGATION  -  There  is  no  suit,   action,   litigation,   inquiry,
          investigation,   arbitration  or  proceeding,  including  appeals  and
          applications to review in progress,  pending or threatened  against or
          relating  to LFL or  affecting  its  property  or  business  which may
          materially adversely affect its property,  business,  future prospects
          or financial condition or which could materially  adversely affect the
          performance  or   obligations  of  LFL  under,   or  the  validity  or
          enforceability  of this  Agreement  or which  could  give  rise to any
          adverse  effect on LFL's ability to pay or perform any of its material
          obligations under this Agreement.
<PAGE>

     (e)  COMPLIANCE  WITH LAWS - It is in compliance  in all material  respects
          with all laws that are applicable to it.

     (f)  LICENSES AND REGISTRATIONS - It has received all approvals,  licences,
          registrations  and  authorisations  necessary  for the  conduct of its
          businesses as they are now  conducted,  all of which are in full force
          and  effect;  no  violations  thereof  have  been  recorded;   and  no
          proceeding  is  pending  or  threatened  which  could  result  in  the
          revocation or limitation thereof.

     (g)  CONSENTS AND APPROVALS - There are no consents,  approvals,  orders or
          authorisations  of any Person  required under laws applicable to it or
          registrations,  declarations,  notices, filings or recordings with any
          Person  required  to be  obtained  or  made  by it  pursuant  to  laws
          applicable  to it (and  which  have not been so  obtained  or made) in
          connection with the transactions  contemplated by this Agreement,  the
          execution and delivery of this Agreement or the  performance of any of
          the terms and conditions of this Agreement.

     (h)  INSOLVENCY  - Since  July 1,  1999,  there  has  not  occurred  an LFL
          Insolvency Event.

5.3  NON-WAIVER.  No investigation made by or on behalf of any party at any time
     shall have the effect of  waiving,  diminishing  the scope of or  otherwise
     affecting  any  representation  or  warranty  made by any other party in or
     pursuant to this  Agreement.  No waiver by any party of any  condition,  in
     whole or in part, shall operate as a waiver of any other condition.

5.4  NATURE AND  SURVIVAL OF  REPRESENTATIONS  AND  WARRANTIES.  All  statements
     contained in any certificate or other document delivered by or on behalf of
     a party pursuant to or in connection with the transactions  contemplated by
     this  Agreement  shall  be  deemed  to be  made by that  party  under  this
     Agreement.

     All representations  and warranties,  covenants and agreements on the part
     of each of the parties  contained in this Agreement or in any  certificate
     or other document  delivered  pursuant to this Agreement shall survive the
     Closing and shall survive for the duration of this Agreement.

                                    ARTICLE 6

                              CONDITIONS PRECEDENT

6.1  LFL'S  CONDITIONS  TO  CLOSING.  The  obligation  of  LFL to  complete  the
     transactions  contemplated  by  this  Agreement  shall  be  subject  to the
     satisfaction of, or compliance with, at or before the Closing Time, each of
     the following  conditions  precedent  (each of which is  acknowledged to be
     inserted for the exclusive  benefit of LFL and may be waived by it in whole
     or in part by notice in writing to TGSS, TGAL and the Fund):

     (a)  TRUTH  AND  ACCURACY  OF   REPRESENTATIONS   AND   WARRANTIES  OF  THE
          DISTRIBUTORS  AND THE FUND AT CLOSING  TIME - All the  representations
          and warranties of the Distributors and the Fund made in or pursuant to
          this Agreement  shall be true and correct in all material  respects as
          at the  Closing  Time and with the same effect as if made at and as at
<PAGE>

          the Closing Time. LFL shall receive a certificate  from TGSS, TGAL and
          the Fund confirming the truth and correctness in all material respects
          of the representations and warranties of the each of them.

     (b)  RECEIPT OF CLOSING  DOCUMENTATION - All documentation  relating to the
          transactions contemplated by this Agreement,  including legal opinions
          from counsel to the  Distributors  and the Fund, shall be satisfactory
          to LFL and its  counsel,  both acting  reasonably.  LFL shall  receive
          copies  of all  documentation  or  other  evidence  it may  reasonably
          request in order to establish  the  consummation  of the  transactions
          contemplated  by  this  Agreement  and  the  taking  of all  corporate
          proceedings and action in connection with this Agreement in compliance
          with these conditions in form (as to certification  and otherwise) and
          substance satisfactory to LFL and its counsel.

     (c)  MATERIAL  ADVERSE  CHANGE - Since  September  30,  1998,  no  material
          adverse change in the condition or operations of the business,  assets
          or financial  condition of the Fund shall have occurred  including any
          change in the fundamental  investment objective of a Sub-Fund,  and no
          Adverse Effect shall have occurred.

     (d)  PERFORMANCE OF OBLIGATIONS - The  Distributors and the Fund shall have
          performed  or  complied  with,  in  all  respects,   all  obligations,
          covenants and agreements in this Agreement to be performed or complied
          with by the Closing Time.

     (e)  CONSENTS,  AUTHORISATIONS AND REGISTRATIONS - All consents, approvals,
          orders and  authorisations  of any Person  required in connection with
          the  completion  of any  of  the  transactions  contemplated  by  this
          Agreement,  the  execution  of  this  Agreement,  the  Closing  or the
          performance of any of the terms and conditions of this Agreement shall
          have been obtained at or before the Closing Time.

     (f)  ROLE OF TGAL  AND  TGSS - At the  date  of this  Agreement  and at the
          Closing Time,  TGAL shall be the Principal  Distributor  in accordance
          with the terms of the  Distribution  Agreement  and TGSS  shall be the
          Distribution   Controller  in   accordance   with  the  terms  of  the
          Distribution Controller Agreement.

     (g)  EVENT OF  TERMINATION - The condition set out in Article  6.2(c) shall
          be satisfied.

6.2  LFL'S  CONDITIONS TO PAYMENT OF SELLING  COMMISSIONS FROM TIME TO TIME. The
     obligation of LFL to pay Selling Commissions under this Agreement from time
     to time shall be subject to the  satisfaction  of, or compliance with, each
     of the following  conditions precedent (each of which is acknowledged to be
     inserted for the exclusive  benefit of LFL and may be waived by it in whole
     or in part by notice in  writing  to TGAL,  TGSS and the Fund) at each such
     time:

     (a)  TRUTH  AND  ACCURACY  OF   REPRESENTATIONS   AND   WARRANTIES  OF  THE
          DISTRIBUTORS AND THE FUND - The  representations and warranties of the
          Distributors  and the Fund made in or pursuant to this Agreement shall
          be true and correct in all material respects as of the time of payment
          of such Selling Commissions and with the same effect as if made at the
          time of payment of such Selling Commissions.
<PAGE>

     (b)  ROLE OF TGAL AND TGSS - TGAL  shall be the  Principal  Distributor  in
          accordance with the terms of the Distribution Agreement and TGSS shall
          be the  Distribution  Controller in  accordance  with the terms of the
          Distribution Controller Agreement.

     (c)  EVENT OF TERMINATION - Both immediately  before and immediately  after
          giving  effect to the payment of a Selling  Commission on such date by
          LFL, no LFL Event of Termination (or event which,  with the passage of
          time or the giving of notice,  or both,  would constitute an LFL Event
          of  Termination)  in  respect  of TGAL,  TGSS or the Fund  shall  have
          occurred and be continuing.

     (d)  DISTRIBUTOR  REPORTS  - TGSS  shall  have  delivered  all  Distributor
          Reports  required to be delivered on or prior to such date pursuant to
          this  Agreement,  which  shall  be in form  and  substance  reasonably
          satisfactory to LFL or its Permitted Designee.

     (e)  PERFORMANCE OF OBLIGATIONS - The  Distributors and the Fund shall have
          performed or complied with, in all material respects, all obligations,
          covenants and agreements in this Agreement to be performed or complied
          with by each of them.

     The delivery of a Distributor  Report from time to time shall constitute a
     representation  and warranty by TGSS that,  on the date of such  delivery,
     the  conditions  set forth in Article 6.2 have been  fulfilled,  except as
     specifically agreed to in writing by LFL.

6.3  DISTRIBUTOR AND FUND  CONDITIONS.  The obligations of the  Distributors and
     the Fund to complete the transactions  contemplated by this Agreement shall
     be subject to the  satisfaction  of, or  compliance  with, at or before the
     Closing Time, each of the following  conditions precedent (each of which is
     acknowledged to be inserted for the exclusive  benefit of the  Distributors
     and the Fund and may be waived by all of them in whole or in part by notice
     in writing to LFL):

     (a)  TRUTH AND ACCURACY OF REPRESENTATIONS OF LFL AT CLOSING TIME - All the
          representations  and  warranties  of LFL made in or  pursuant  to this
          Agreement shall be true and correct in all material respects as at the
          Closing  Time with the same effect as if made at and as at the Closing
          Time.

     (b)  PERFORMANCE  OF  OBLIGATIONS  - LFL shall have  performed  or complied
          with,  in  all  material  respects,  all  obligations,  covenants  and
          agreements  in this  Agreement to be performed or complied with by the
          Closing Date.

     (c)  MATERIAL  ADVERSE EFFECT - As of December 31, 1998 no material adverse
          change  in the  condition  or  operation  of the  business,  assets or
          financial  condition of LFL shall have occurred which would  adversely
          affect its  ability to pay or to perform  its  obligations  under this
          Agreement.

     (d)  CONSENTS,  AUTHORISATIONS AND REGISTRATIONS - All consents, approvals,
          orders  and  authorisations  of any  Person  or  government  authority
          required  in  connection  with  the   contemplation   of  any  of  the
          transactions  contemplated  by this  Agreement,  the execution of this
          Agreement,  the  closing  or  performance  of  any of  the  terms  and
          conditions of this Agreement shall have been obtained on or before the
          Closing Time.
<PAGE>

     (e)  FINANCIAL  CAPABILITY - LFL shall have the  financial  capability  and
          resources to perform its obligations  under this Agreement,  including
          the  payment  of  all  Selling  Commissions  due to  Approved  Dealers
          pursuant  to Article 4 hereof  provided  always that in the event that
          this  condition (e) is not satisfied  because LFL is in the process of
          being wound-up or has otherwise  ceased to carry on its businesses (or
          where the LFL Event of  Termination  set out in paragraph  (g) of that
          definition   occurs)  then  in  any  such  case,  the  Fund  and  each
          Distributor  acknowledges  and agrees that it shall not be entitled to
          take any action  (whether by way of court  proceedings  or  otherwise)
          against LFL arising out of the failure to satisfy this condition (e).

6.4  DOCUMENTS  TO BE DELIVERED TO LFL.  TGSS shall  procure that the  documents
     listed in Schedule E (which shall be in form and substance  satisfactory to
     TGSS and LFL) are delivered to LFL within 30 days of the date hereof.

                                    ARTICLE 7

                                    COVENANTS

7.1   COVENANTS OF THE  DISTRIBUTORS  AND THE FUND. Each of the Distributors and
      the Fund  covenants  and agrees  (but only as to  itself)  with LFL to the
      extent applicable that prior to the termination of this Agreement:

     (a)  COMPLIANCE WITH ADVISORY  AGREEMENTS - Each of the Distributors  shall
          conduct annual reviews with each investment advisor under the Advisory
          Agreements in order to ensure that such investment advisor has kept in
          full force and effect  and  intends to keep in full force and  effect,
          all licences,  registrations and  authorisations  necessary to conduct
          its respective  business  under the  applicable  terms in the relevant
          Advisory Agreement.

     (b)  TERMINATION OF A NEW B SHARE SUB-FUND - Each of the  Distributors  and
          the Fund shall not,  unless  compelled  to do so (i) by any  competent
          regulatory  authority;  or (ii) pursuant to any applicable law, at any
          time while LFL is entitled to receive payment of any amount hereunder,
          take any action,  omit to take any action or initiate  any  proceeding
          which  may,   indirectly   or  directly,   trigger  the   termination,
          reorganisation  or  winding-up  of a  New B  Share  Sub-Fund  if  such
          termination,  reorganisation  or  winding-up  has  an  Adverse  Effect
          without the prior consent of LFL, such consent not to be  unreasonably
          withheld.

     (c)  MAINTENANCE  OF BOOKS AND RECORDS - Each of the  Distributors  and the
          Fund shall keep  proper  books and records in  accordance  with normal
          business practice in which full and appropriate  entries shall be made
          of all transactions in relation to its business  activity which relate
          in any manner to the transactions contemplated by this Agreement.

     (d)  DISCLOSURE OF MATERIAL CHANGES - Each of the Distributors and the Fund
          (upon  becoming  aware  thereof) shall promptly give written notice to
          LFL of (i) any LFL  Event  of  Termination  or event  which,  with the
          passage of time or the giving of notice or both,  would  constitute an
          LFL Event of Termination;  (ii) any material litigation or proceedings
          with  respect  to TGSS,  TGAL,  any  investment  adviser of any of the
          Sub-Funds or the Fund or any of their respective  assets or properties
          which, if adversely determined,  could give rise to an Adverse Effect;
          (iii) the  failure of any  representation  or  warranty  of any of the
<PAGE>

          Distributors  or the Fund  contained in this  Agreement to be true and
          correct in all  material  respects as of the date  given;  or (iv) the
          failure  of  any of  the  Distributors  or the  Fund  to  perform  any
          obligation  which  is  required  to  be  performed  by it  under  this
          Agreement  in any  material  respect  on a timely  basis;  and (v) any
          material change in the management or structure of the Fund.

     (e)  FURTHER  INSTRUMENTS  AND  DOCUMENTS - Each of the TGSS,  TGAL and the
          Fund shall  promptly  at its  expense  execute and deliver to LFL such
          further  instruments and documents and take such further action as LFL
          may from time to time reasonably request in order to further carry out
          the intent and purpose of this  Agreement and to establish and protect
          the rights,  interests and remedies  created or intended to be created
          hereby and thereby,  provided  however,  that TGSS,  TGAL and the Fund
          shall not be obligated to execute and deliver such further instruments
          and documents if they would thereby incur any material  obligations or
          liabilities not contemplated by this Agreement.

     (f)  RIGHTS OF  INSPECTION  - Each of TGSS,  TGAL and the Fund shall permit
          LFL or any Permitted Designee reasonably acceptable to it to visit and
          inspect the  properties,  files,  books and records of the Fund (other
          than those subject to  confidentiality  rules under Luxembourg  laws),
          TGAL and TGSS relating to the Fees, this Agreement,  the  transactions
          contemplated hereby and the financial condition, results of operations
          and  cash  flows of the Fund and to  discuss  the  foregoing  with the
          officers,  partners,  employees, legal advisers and accountants of the
          Fund,  TGAL and TGSS, all at such reasonable  times during  reasonable
          business hours and as often as LFL may reasonably request.

     (g)  MAINTENANCE  OF  PROSPECTUS  -  Insofar  as  reasonably  within  their
          respective  control and except with the consent of LFL,  such  consent
          not to be unreasonably  withheld or delayed,  each of the Fund and the
          Distributors shall maintain the Prospectus Documents in full force and
          effect so that the  Deferred  Sales  Charge  Shares may be offered for
          sale to the public in the relevant jurisdictions where such Shares are
          being sold  during the period in which LFL has the  obligation  to pay
          Selling  Commissions in respect of the  distribution of Deferred Sales
          Charge Shares hereunder.

     (h)  DELIVERY  OF LENDER  NOTICES  - The  Distributors  and the Fund  shall
          deliver to LFL a copy of all notices or waivers of default,  delivered
          by any  lenders  to the  Fund  and of all  agreements  and  amendments
          entered into with such lenders.

     (i)  CHANGE TO  INVESTMENT  OBJECTIVE  OF A NEW B SHARE  SUB-FUND  - In the
          event  that the  investment  objective  of a New B Share  Sub-Fund  is
          amended (or will be amended) and such  amendment  will have a material
          adverse  effect  upon (a) the  timing or amount of any  payment of any
          Fee, (b) the timely receipt by LFL of any Fees, (c) the ability of the
          Fund,  TGAL or TGSS to pay or perform its  obligations  hereunder in a
          timely  manner or (d) the  remedies and other rights of LFL under this
          Agreement,  then each of TGSS,  TGAL and the Fund  agree  (subject  to
          approval by the Luxembourg  supervisory  authority) to consult in good
          faith  with LFL for a  period  of 60 days  from  the time  that LFL is
          notified  of such  amendment  or  potential  amendment  with a view to
          reaching  agreement on a method of amending the Monthly Fee payable to
          LFL under this  Agreement (or otherwise  amending or varying the terms
          of the  agreements  between  them and LFL) in  order to  preserve  the
          economic  return to LFL as if such amendment had not occurred (or were
          not to occur, in the case of a potential amendment).
<PAGE>

     (j)  PAYMENT  OF FUNDS - If either  TGAL or TGSS or any  designee  or agent
          thereof shall receive any of the Fees from the Fund, it shall hold (or
          procure that such  designee or agent holds) such Fees in trust for LFL
          (acknowledging  that such Fees do not  constitute  its  property)  and
          immediately  following  receipt of any such Fees,  it shall,  or shall
          cause  such  designee  or agent to,  remit the same to LFL in the form
          received  and ensure that such amounts are not  commingled  with other
          funds.

     (k)  PROVISION OF INFORMATION - All information provided by or on behalf of
          TGSS, TGAL or the Fund including information provided by FRI or one of
          its Affiliates after the date hereof to LFL or any Permitted  Designee
          for  purposes  of  or  in  connection  with  this  Agreement,  or  the
          transactions  contemplated  hereby, will be true, correct and complete
          in all respects material to the Fees and the transactions contemplated
          by this  Agreement,  provided that this  covenant  shall apply only to
          such  misrepresentations or omissions as would give rise to an Adverse
          Effect.

     (l)  STATUS  OF FEES - Except to the  extent  expressly  permitted  by this
          Agreement,  none of TGSS,  TGAL or the Fund shall  permit to exist any
          Lien on or attempt to  transfer  or grant a security  interest  in any
          interest in any Fees.

     (m)  FEE  PAYMENT  BY THE  FUND - If at any  time  after  the  date of this
          Agreement an Insolvency Event occurs or TGAL (or its Affiliate) ceases
          to be the Principal  Distributor or TGSS (or its Affiliate)  ceases to
          be the Distribution Controller,  the Fund agrees that as and from such
          date the Fund shall continue to be responsible  for and shall continue
          to pay to LFL the amounts required to be paid by the Fund to LFL under
          this  Agreement  and the Fund shall cause the  successor  Distribution
          Controller or Principal Distributor, as appropriate, to become a party
          to this  Agreement  and (if  requested  by LFL)  to  agree  to  become
          responsible for the payment of amounts payable to LFL hereunder.

     (n)  MAINTENANCE  OF FEES - Other than to permit Free  Redemptions  or Free
          Exchanges as contemplated by the Prospectus  Documents of the relevant
          Sub-Fund on the date  hereof,  each of the Fund,  TGSS and TGAL hereby
          agrees with LFL that it will not, without the prior written consent of
          LFL,  unless  compelled  to do so  (i)  by  any  competent  regulatory
          authority or (ii)  pursuant to any  applicable  law, at any time while
          LFL is entitled to receive payment of any amount hereunder, consent to
          or agree to a reduction in the Deferred  Sales Charge for  Distributed
          Shares  or  any  alteration  in  the  manner  or as  to  the  time  of
          calculation  of the  Deferred  Sales  Charge  or  effect  any  action,
          amendment  or change of any  nature  whatsoever  if the effect of such
          reduction,  alteration, action, amendment or change would be to reduce
          the  amounts  payable  to LFL or  adversely  affect  the timing of the
          receipt  of such  amounts  payable  pursuant  to  Article  4.  For the
          avoidance of doubt, the provisions of this Article 7.1(n) restrict the
          ability of Fund, TGSS and TGAL to make retroactive  changes (including
          changes in respect of New B Shares which have already been issued) but
          will not  prevent  any of them  from  making  prospective  changes  in
          respect of the offering of New B Shares which are not Transfer Shares,
          Reinvested  Shares and with respect to which LFL has no  obligation to
          pay Selling Commissions.

     (o)  PAYMENT OF TAXES - Each of the  Distributors  and the Fund shall cause
          to be paid and discharged all taxes,  assessments and other charges or
          levies of any  authority  imposed upon it or upon any of its income or
          assets,  prior to the day on which penalties are attached thereto,  if
          the failure to pay and discharge  such tax assessment or other charges
          or levies could give rise to an Adverse Effect.
<PAGE>

     (p)  CLIENT  AND  NEW B  SHARE  SUB-FUND  REPORTING  - TGSS  shall  provide
          shareholder and portfolio reporting to LFL. Shareholder reporting will
          consist   of  the   administration   package  of  reports  on  monthly
          shareholder  activity derived from the Fund's transfer agent's system.
          Portfolio reporting will consist of a monthly balance sheet (statement
          of  condition)  inclusive of price and shares (with CUSIP and/or SIDOL
          numbers)  reported  to LFL in  respect  of each  New B Share  Sub-Fund
          separately.  The portfolio  reports shall be in substantially the same
          form  as  those  currently  generated  by  TGSS's  accountants  daily,
          provided  always  that  TGSS  shall not be  required  to  provide  any
          information to LFL under this Article where such provision  would,  in
          the reasonable opinion of TGSS, be in breach of any applicable laws of
          Luxembourg relating to data protection.

7.2  COVENANT OF LFL. LFL covenants  and agrees with each of TGSS,  TGAL and the
     Fund  to the  extent  applicable  that  prior  to the  termination  of this
     Agreement it will provide such  information  as each of them may reasonably
     request from time to time.

7.3  COMPLIANCE  WITH  LUXEMBOURG  LAW.  Nothing  contained in Article 7.1 shall
     prevent  the Fund from  acting (a) in  accordance  with the terms of future
     instructions  from the  Luxembourg  supervisory  authorities  or (b)  where
     compelled  to do so  pursuant  to  the  Articles  of  Incorporation  or any
     applicable law or (c) in accordance with the terms of any resolution of the
     shareholders  of the Fund (where  such  resolution  has been  proposed by a
     shareholder or  shareholders  in either case not affiliated with any of the
     parties hereto).

                                    ARTICLE 8

                               TERMINATION EVENTS

8.1  LFL  TERMINATION   EVENTS.  The  obligation  of  LFL  to  pay  the  Selling
     Commissions  pursuant to Article 3 may be terminated by LFL if an LFL Event
     of Termination  shall occur and be continuing.  Such  termination  shall be
     effected  by the  giving  of  written  notice  to the  Fund and each of the
     Distributors,  declaring an LFL Event of  Termination  to have occurred (in
     which case the Termination  Date shall be deemed to have occurred as of the
     date such  notice is given  pursuant  to the  provisions  of Article  11.6)
     provided that upon the occurrence of any event (without the requirement for
     the passage of time or the giving of notice, or both) described in Articles
     (e) and (h) of the definition of LFL Event of Termination,  the Termination
     Date shall be deemed to have automatically occurred;

     and  provided  further  that,  in the case of the  occurrence  of an event
     described in Articles (a), (b), (c), (d) and (i) if (1) such event affects
     only New B Share Sub-Funds which are not Substantial Funds, and (2) EITHER
     the Fund and/or the  Distributors  or either of them is able to  segregate
     the  Deferred  Sales  Charges  related  to Shares  affected  by such event
     (including  any Shares of other  Sub-Funds into which such Shares may have
     been  exchanged  in Free  Exchanges)  in respect of which LFL has not paid
     Selling  Commissions  from the Deferred Sales Charges related to Shares of
     the  affected  New B  Share  Sub-Funds  and  any  unaffected  New B  Share
     Sub-Funds  in respect of which LFL has paid Selling  Commissions  (and any
     Shares  of any  other  Sub-Funds  into  which  such  New B  Shares  may be
     exchanged  in Free  Exchanges)  and the Fund's  ability to  segregate  the
     Deferred  Sales  Charges as  described  in above is certified to LFL by an
     independent   accounting  firm  of  international   standing,   reasonably
     acceptable to LFL, OR the Fund, the  Distributors  and LFL reach agreement
     upon an allocation  procedure  which will preserve the economic  return to
<PAGE>

     LFL (as if such event had not  occurred),  THEN such Event of  Termination
     will only relate to LFL's  obligations  hereunder  related to the affected
     New B Shares Fund(s),  and such Event of Termination will not affect LFL's
     obligations   hereunder  with  respect  to  the  unaffected  New  B  Share
     Sub-Funds;

     and provided  further that upon the  occurrence of any event  described in
     Articles (d) and (i) of the  definition of LFL Event of  Termination,  the
     Termination  Date shall be deemed to have occurred as of the date which is
     six (6) months  from the date such  notice is  effective  pursuant  to the
     provisions of Article 11.6; and The parties agree that upon the occurrence
     of any event  described in Articles  (d), and (i) of the  definition of an
     LFL  Event  of  Termination,   the  parties  shall  use  their  respective
     commercially  reasonable  efforts  during  such six (6)  month  period  to
     restructure  the  distribution  arrangements  contemplated  by the Program
     Documents  in  order  to  attempt  to   accommodate   and  facilitate  the
     continuance of such arrangements notwithstanding such change.

8.2  FUND TERMINATION RIGHTS.

     (a)  Provided  that a LFL  Event of  Termination  has not  occurred  and is
          continuing,  LFL's role as exclusive  Commission Payer with respect to
          the  Deferred   Sales  Charge  Shares  under  this  Agreement  may  be
          terminated  by the  Fund  if LFL  fails  to  pay  Selling  Commissions
          pursuant to Article 3 and such failure is continuing. Such termination
          shall be effective by the giving of written  notice to LFL by the Fund
          giving LFL 15 Business  Days to cure such breach  during  which period
          the Fund shall not have any right to terminate LFL's role as exclusive
          Commission Payer. If such breach continues uncured,  at the expiration
          of such notice  period,  the Fund may give a second  written notice to
          LFL declaring that the Termination  Date has occurred (in which case a
          Termination  Date  shall be deemed to have  occurred  on the date such
          second notice is given).

     (b)  If a Fund Event of  Termination  shall occur and be  continuing,  TGSS
          shall  promptly  notify LFL in writing (and the other parties  hereto)
          thereof and the parties hereto shall, during the period of 60 Business
          Days after such  notification  (the "Discussion  Period"),  consult in
          order to mitigate the effect of such circumstances.  If, at the end of
          that  period,  the parties  have not reached  agreement on a method of
          mitigation,  the Fund may terminate LFL's role as exclusive Commission
          Payer and the  Termination  Date  shall be deemed to occur on the date
          such notice is given.  On the date of receipt of such  notification by
          LFL, LFL shall be entitled to suspend its  obligations  to pay Selling
          Commissions  hereunder  as and from such  date.  In the event that the
          parties hereto subsequently agree on a method of mitigation during the
          applicable  Discussion Period, then LFL shall promptly pay all Selling
          Commissions  in respect of the sales of Deferred  Sales Charge  Shares
          which occurred during such period.

8.3  COSTS  AND  EXPENSES  OF LFL.  All costs and  expenses  incurred  by LFL in
     connection with the enforcement of this Agreement  against the Distributors
     or the Fund  shall be paid by the  Distributors  or the Fund  forthwith  on
     demand  therefor by LFL. The obligations of the  Distributors  and the Fund
     under this Article 8.3 shall be several.

8.4  COSTS AND EXPENSES OF TGSS AND THE FUND. All costs and expenses incurred by
     TGSS in connection  with the  enforcement of this Agreement  against LFL as
     set out in Article 8.2(a) shall be paid by LFL forthwith on demand therefor
     by TGSS.
<PAGE>

8.5  TRANSACTION  EXPENSES.  LFL shall reimburse each of TGSS, TGAL and the Fund
     for all reasonable costs and expenses  (including legal fees) together with
     any  VAT  thereon   incurred  by  each  of  them  in  connection  with  the
     negotiation,  preparation  and  execution  of  this  Agreement,  any  other
     document   referred  to  in  this  Agreement  and  the  completion  of  the
     transactions herein contemplated.

                                    ARTICLE 9

                                 INDEMNIFICATION

9.1  Each of the  Distributors  on their own  behalf  and on behalf of the Fund,
     separately  and not jointly,  agrees to indemnify and hold harmless LFL and
     each of its Affiliates and their respective officers, directors, employees,
     agents,  advisors of, and any Person controlling any of the foregoing (each
     an  "Indemnified  Party")  from  and  against  (collectively,  but  without
     duplication) any and all Liabilities that may be incurred by or asserted or
     awarded against an Indemnified Party, in each case arising out of, relating
     to or by reason  of,  any claim  brought  by any Person not a party to this
     Agreement  in  connection  with  the   transactions   contemplated   hereby
     (including,  without  limitation,  any act or omission of or breach of this
     Agreement by the Fund);  PROVIDED,  HOWEVER,  the Distributors shall not be
     required to indemnify any Indemnified  Party in respect of any Liability if
     and  to  the  extent  such  Liability  resulted  primarily  from  (i)  such
     Indemnified Party's gross negligence or willful misconduct,  or (ii) in the
     case of an  Indemnified  Party which is LFL,  any failure of LFL to perform
     its covenants if any, set forth herein or in the other Program Documents to
     which it is a party,  or any  failure of any of LFL's  representations  and
     warranties,  if any, set forth herein or in the other Program  Documents to
     which  it  is a  party,  to  be  true  and  correct  as of  the  time  such
     representation or warranty spoke.  Furthermore,  the Distributors shall not
     be  required  to  indemnify  any  Indemnified  Party in  respect of (a) any
     liability  under  applicable  securities  laws  arising  out  of a  Takeout
     Transaction,  except to the extent such  liability  is  attributable  to or
     would not have  occurred but for (i) the violation at the time of, or prior
     to, such Takeout  Transaction of any covenant,  representation  or warranty
     made by the  Distributors  or the Funds  contained in this Agreement or any
     other Program Document,  or (ii) any information  furnished by or on behalf
     of the  Distributors  or the Fund being false or misleading in any material
     respect,  or (b) any  Liabilities  arising  as a  result  of a claim  by an
     Indemnified Party against the Distributors or as a result of a claim by the
     Distributors  against an Indemnified  Party where it is determined that the
     position  of the  Distributors  in  respect of such claim is correct in all
     material respects.

9.2  LFL agrees to indemnify and hold harmless  TGAL,TGSS and the Fund,  each of
     their  Affiliates  and their  respective  officers,  directors,  employees,
     agents,  advisors  of, and any  Person  controlling  any of, the  foregoing
     (collectively, the "Templeton Indemnitees") from and against (collectively,
     but without duplication) any and all Liabilities that may be incurred by or
     asserted or awarded  against a Templeton  Indemnitee,  in each case arising
     out of,  relating to or by reason of, any claim brought by any person not a
     party to this Agreement in connection  with the  transactions  contemplated
     hereby;  PROVIDED,  however,  LFL  shall not be  required  to  indemnify  a
     Templeton  Indemnitee  in  respect  of any  Liability  to the  extent  such
     Liability resulted from (i) such Templeton Indemnitee's gross negligence or
     willful misconduct, or (ii) in the case of a Templeton Indemnitee that is a
     party to any Program Document,  any failure of such Templeton Indemnitee to
     perform its covenants  set forth in the Program  Documents to which it is a
     party or any failure of any of its representations and warranties set forth
     in the Program  Documents  to which it is a party to be true and correct in
     all material respects at the time such representation or warranty spoke.
<PAGE>

9.3  ACTUAL   LOSSES.   For  the  purposes  of  this  Article  9,  each  party's
     indemnification  obligations  hereunder  shall be in  respect  of only such
     Liabilities that are reasonably  forseeable as likely to arise by reason of
     the occurrence of the relevant event in respect of which indemnification is
     sought and, for the avoidance of doubt, such indemnification obligations do
     not extend to cover  indirect  or  consequential  losses of any party.  The
     parties  agree that it is  expected  that LFL will (a) enter  into  hedging
     transactions in order to hedge the risks associated with the Deferred Sales
     Charges, the Selling Commissions and the other transactions contemplated by
     this  Agreement,  and  (b)  rely  on the  representations,  warranties  and
     covenants  provided  herein in making  representations  and  warranties  in
     Takeout  Transactions,  and that losses  related to the foregoing are, with
     the exception of losses in hedging  transactions which are not attributable
     to a breach of the representations,  warranties and covenants given herein,
     a  reasonably  foreseeable  result  of  any  breach  by  the  Fund  or  the
     Distributors  of this  Agreement  or other  Program  Document to which is a
     party.

                                   ARTICLE 10

                              ADDITIONAL SUB-FUNDS

10.1 ADDITIONAL SUB-FUNDS.
     (a)  In the event that the Fund adds an  Additional  Sub-Fund  LFL shall be
          given the  opportunity to serve as the exclusive  Commission  Payer to
          such  Additional  Sub-Fund.  If LFL  agrees  to  act as the  exclusive
          Commission Payer to such Additional Sub-Fund,  then the parties hereto
          agree  that such  Additional  Sub-Fund  shall be deemed to be a "New B
          Share Sub-Fund" within the meaning hereof and the New B Shares of such
          Additional  Sub-Fund  which are sold on a deferred  sales charge basis
          shall be  deemed  to be  "Deferred  Sales  Charge  Shares"  and "New B
          Shares" within the meaning hereof and the terms and conditions of this
          Agreement shall be applicable to such Additional Sub-Fund. Each of the
          parties  hereto  shall  execute and deliver  such  amendments  to this
          Agreement as shall be  necessary to give effect to this Article  10.1.
          If an  Additional  Sub-Fund is added but does not become a New B Share
          Sub-Fund,  then  the  allocation  procedures  at  Schedule  D shall be
          amended so as to  allocate  External  Shares and  External  Reinvested
          Shares and the charges relating thereto to Monthly Pools.

     (b)  The Fund  shall  provide  notice  to LFL on or about the time when the
          Fund  files  a  prospectus   supplement  or  prospectus  addendum  (as
          appropriate) for a New B Share Sub-Fund.


                                   ARTICLE 11

                                     GENERAL

11.1 AMENDMENT OF  AGREEMENT.  This  Agreement  may be amended from time to time
     only by written consent of the Fund, TGSS, TGAL and LFL.

11.2 TERMINATION OF LFL AS EXCLUSIVE COMMISSION PAYER. If LFL is unable to carry
     out its  obligations  hereunder  (which  may  occur if LFL is unable to pay
     Selling  Commissions  for all of the Original Charge Shares sold during the
     period of its appointment as Commission Payer under this  Agreement),  TGSS
     may terminate LFL's exclusive right to pay Selling Commissions and may: (i)
     pay Selling  Commissions  directly;  (ii) enter into  agreements with other
<PAGE>

     parties  to pay  Selling  Commissions;  or (iii)  limit,  by  allotment  or
     otherwise, sales of Deferred Sales Charge Shares.

11.3 ASSIGNMENT

     (a)  This Agreement shall be binding upon, and inure to the benefit of, the
          parties hereto and their respective  permitted successors and assigns;
          provided  however that except in the case of TGSS or TGAL,  where such
          assignment is to an Affiliate of TGSS or TGAL (as the case may be) and
          where such Affiliate  assignee is of equal  financial  standing to the
          assignor, each of the Fund, TGAL and TGSS may not assign its rights or
          obligations hereunder or in connection herewith or any interest herein
          or under any other Program Document or with respect to any Fees or the
          proceeds thereof without LFL's prior written consent, such consent not
          to be  unreasonably  withheld;  and provided  further that,  except as
          provided in Articles  11.3(b)  and  11.3(c),  LFL shall be entitled to
          assign its rights or obligations  hereunder or under any other Program
          Document or in respect of any Fees or the proceeds  thereof,  provided
          it gives TGSS, TGAL and the Fund 30 days notice (the "Notice  Period")
          If LFL does not,  within the Notice  Period,  receive a notice stating
          that consent is withheld,  it shall be deemed to have the authority to
          effect such an assignment.  It shall be reasonable for the Fund,  TGAL
          and TGSS to refuse to give its  consent  under  this  Article  11.3(a)
          where, in its reasonable opinion,  its obligations or liabilities will
          be increased or otherwise adversely affected.

     (b)  The  rights  and  obligations  of LFL under  this  Agreement  shall be
          assignable in  connection  with any merger,  consolidation  or sale or
          disposition  of all or  substantially  all  of  the  assets  of or the
          general and limited  partnership or corporate interests in LFL with or
          to another entity,  provided that the surviving  entity shall (i) be a
          corporation or other entity organised under the laws of any country in
          Europe, the United States of America or any State thereof or of Canada
          or any province  thereof;  (ii) expressly  assume the due and punctual
          performance  and  observance of all  covenants and  conditions of this
          Agreement and all other Program  Documents to be performed or observed
          by LFL, by agreement reasonably  satisfactory in form and substance to
          TGSS and the Fund; and (iii) prior to the Termination Date, have a net
          worth prior to the Termination Date at least equal to that of LFL, and
          access to funding  sources for purposes of making  payments of Selling
          Commissions  hereunder  equivalent  in an amount to those to which LFL
          had access, immediately prior to such merger, consolidation or sale or
          disposition of assets or interests.

          Notwithstanding  any other  provision of this  agreement  (apart from
          Article  11.3(c)  below),  LFL may, at any time (provided that it has
          given 30 Business  Days' notice to the Fund,  TGAL and TGSS),  assign
          (whether  absolutely  or by way of security) all or any of its rights
          and benefits  under this  Agreement or any other Program  Document to
          any  Person  (and  the  Fund,  TGAL and TGSS  will,  as  appropriate,
          acknowledge receipt of any such notice and comply with the directions
          as to payment set out in such notice) and,  without  prejudice to the
          generality of the  foregoing,  LFL may (i) pledge or otherwise  grant
          security over all of its rights or benefits  under this  Agreement or
          any  other  Program  Document  to a major  financial  institution  as
          security for money borrowed;  (ii) make representations or warranties
          and  grant  indemnities  to  another  Person,  as a  part  of  and in
          connection  with a  Takeout  Transaction,  which are  similar  to the
<PAGE>

          representations,  warranties and  indemnities  agreed to by the Fund,
          TGSS and TGAL in this  Agreement or any other  Program  Document;  or
          (iii) assign the right to receive the proceeds of any indemnification
          provided hereunder.

     (c)  LFL shall not have the right to assign  any of its  rights  under this
          Agreement to any of the top five mutual fund  management  companies in
          each  of  Europe,   Canada  and  the  U.S.  (and  TGSS  shall,  acting
          reasonably,  determine the  identities of such  companies from time to
          time).  This exclusion  shall not apply to Affiliates or associates of
          such  fund  companies  that are not  involved  in the  management  and
          distribution of retail investment funds.

11.4 LIABILITY.  LFL shall not be liable  for any error of  judgment  or for any
     loss  suffered  by the  Fund or the  Distributors  in  connection  with the
     matters to which  this  Agreement  relates,  except a loss  resulting  from
     misfeasance,  bad faith or negligence on its part in the performance of, or
     reckless disregard by it of, its obligations hereunder.

11.5 CONFIDENTIALITY.  Unless otherwise  required by applicable law, TGSS, TGAL,
     the Fund and LFL agree to maintain the  confidentiality  of this  Agreement
     (and all drafts  thereof),  the  transactions  contemplated  hereby and all
     confidential, material, non-public information concerning the other parties
     to this  Agreement,  which  information  has been provided by such party by
     another party and was not also  available to such party through other means
     (collectively,  "Confidential Information");  provided that nothing in this
     Article 11.5 shall prohibit  disclosure of Confidential  Information by any
     such Person as follows:

     (a)  pursuant to an order under applicable law or pursuant to a subpoena or
          other legal process;

     (b)  to the  officers,  directors,  partners,  employees,  legal counsel or
          auditors of, or lenders to, such Person,  who shall also be instructed
          to maintain it as confidential;

     (c)  in the case of the Fund,  to any then  current  directors of the Fund,
          Fund counsel,  independent  accountants or officers, who shall also be
          instructed to maintain it as confidential;

     (d)  to any permitted  assignee or permitted  pledgee of all or any portion
          of such  Person's  right,  title or interest in this  Agreement or the
          Fees,  provided  that such  permitted  assignee  or pledgee  agrees in
          writing  delivered  to and  for the  benefit  of all  parties  to this
          Agreement to be bound by the terms of this Article 11.5; or

     (e)  to any proposed  permitted assignee or permitted pledgee of all or any
          portion of such Person's  right,  title and interest in this Agreement
          or the Fees, provided that such Person advises such proposed permitted
          assignee or pledgee in writing that such  Confidential  Information is
          confidential,  non-public  information and requests that such proposed
          permitted assignee or pledgee keep it confidential and use it only for
          purposes of  evaluating  the  proposed  assignment  or pledge and such
          proposed  permitted  assignee or pledgee agrees in a writing delivered
          to and for the benefit of all parties to this Agreement to be bound by
          the provisions of this Article 11.5.

     Notwithstanding anything to the contrary contained herein, LFL shall keep,
     and shall use its commercially  reasonable  efforts to cause its officers,
<PAGE>

     directors, partners, employees, advisers, legal counsel, auditors, lenders
     and  affiliates  to  keep,   confidential  all  Confidential   Information
     concerning the Fund  delivered or made available by the TGSS,  TGAL or the
     Fund  to LFL or such  other  Persons,  including  without  limitation  the
     Program  Documents  (to the extent not  publicly  available),  shareholder
     records,  shareholder  transaction records and information  concerning the
     composition of their respective portfolios, and information concerning the
     financial condition of the TGSS, TGAL or their parents (and LFL shall not,
     and shall  cause  each of the  foregoing  other  Persons  not to, use such
     information  to sell shares to or  purchase  shares from the Fund or other
     investment  company or  recommend  such trading to any other Person on the
     basis of such information).

11.6 NOTICE.  Any notice  which is required or  permitted to be given under this
     Agreement  may be given in writing  by  delivery  in person or by  ordinary
     prepaid mail by addressing  the same to the party to whom it is to be given
     at the  address  set out below or at such  other  address as such party may
     designate by notice in the foregoing manner:

     (a)  in the case of LFL:
          c/o Chase Manhattan  (Ireland) plc,  Georges Dock, 1 IFSC,  Dublin
          1, Ireland
          Fax No: 00 353 1 6125777

     (b)  in the case of the Fund:
          26, boulevard Royal, L-2449, Luxembourg
          Attn:  General Manager
          Fax No: 00 352 4666 6711

     (c)  in the case of TGAL:
          PO Box N-7759, Nassau, Bahamas
          Attn:  Corporate Secretary
          Fax No: 001 242 3624 308

     (d)  in the case of TGSS:
          26, boulevard Royal, L-2449, Luxembourg
          Attn:  General Manager
          Fax No: 00 352 4666 6711

     Any  notice so given  shall be deemed to have been given on the day it is
     personally  delivered or on the day which is five days after it is mailed,
     as the case may be. All such notices shall be copied to:

          Franklin Resources Inc
          777 Mariners Island Boulevard
          San Mateo
          CA 94404
          USA
          Attn:  General Counsel
          Fax No:  001 650 5257279

          and to

          Constellation Financial Management Company, LLC
          52 Vanderbilt Avenue, 13th Floor
          New York, NY  10017
          USA
          Attn: David Steinmetz
<PAGE>

          and to

          Templeton Global Investors Limited
          Saltire Court
          20 Castle Terrace
          Edinburgh EH1 2EH
          Attn: Company Secretary

11.7 OVERDUE  AMOUNTS.  Any  amount  determined  to be  payable  by one party to
     another  shall be payable  with  interEst  calculated  at an annual rate on
     interest  reported by Chase  Manhattan  Bank as its "prime  rate",  for the
     period commencing from the date such payment was originally due to the date
     payment actually is made.

11.8 TAXES.

     (a)  The Distributors or the Fund, as applicable,  shall pay any present or
          future  sales,  value added or excise  taxes,  excluding  LFL's income
          taxes, imposed upon the supply of services by LFL under this Agreement
          (hereinafter   referred  to  as  "Sales  Taxes").  In  addition,   the
          Distributors  or the Fund,  as  applicable,  shall pay any  present or
          future  stamp or  documentary  taxes or any other  excise or  property
          taxes,   charges  or  similar  levies  which  arise  under  Luxembourg
          legislation  from  any  payment  made  by or on  behalf  of  the  Fund
          hereunder or from the  execution  or delivery  of, or  otherwise  with
          respect to this  Agreement or any other Program  Document to which the
          Distributors,  the Fund or any of  their  respective  Affiliates  is a
          party  (hereinafter  referred  to as  "Other  Taxes").  LFL  shall  be
          entitled  to  indemnification  for the full  amount of Sales  Taxes or
          Other Taxes (including  without  limitation,  any Sales Taxes or Other
          Taxes imposed on amounts  payable under this section  11.8(a)) paid by
          the Fund or either  Distributor (as the case may be) and any liability
          (including penalties, interest and expenses) arising therefrom or with
          respect  thereto,  whether or not such Sales Taxes or Other Taxes were
          correctly or legally asserted.

     (b)  LFL  shall  pay (and  indemnifies  TGSS,  TGAL  and the Fund  (each an
          "Indemnitee") in respect of) any present or future sales,  value-added
          or excise taxes,  excluding each  Indemnitee's  income taxes,  imposed
          upon the payments to be made by LFL under Article 3.1. In addition LFL
          shall pay any  present  or future  stamp or  documentary  taxes or any
          other excise or property taxes,  charges or similar levies which arise
          from any payments to be made by it hereunder.

     (c)  LFL shall pay (and indemnifies  TGSS, TGAL and the Fund in respect of)
          any  withholding  taxes that may become payable in connection with the
          payments to be made by LFL of Selling  Commissions to Approved Dealers
          pursuant to Article 3.1 hereof and LFL shall gross up any such payment
          so as to ensure  that,  after  making  all  required  deductions,  the
          Approved  Dealers  receive the full amount of the Selling  Commissions
          due to such Approved Dealers. Furthermore, the Fund shall pay the full
          amounts deducted to the relevant taxation authority or other authority

     (d)  The Fund shall pay any  withholding  taxes that may become  payable in
          connection with any and all payments to be made by the Fund under this
          Agreement and the Fund shall gross up any such payment so as to ensure
          that,  after  making all required  deductions,  LFL receives an amount
          equal to the amounts it would have  received  had no  deductions  been
          made and the Fund shall pay the full amounts  deducted to the relevant
          taxation  authority  or other  authority.  Notwithstanding  any  other
          provisions of this  Agreement,  in the event that the Fund is required
          to withhold any such taxes, it shall do so without any recourse by, or
<PAGE>

          claim against, the Fund by LFL. In the event that the Fund is assessed
          a  deficiency  by any taxing  authority  in respect of its  failure to
          withhold any such taxes,  then the Fund shall be permitted to withhold
          any such  deficiency  from any current or future payments or transfers
          to be made by it to LFL under this  Agreement  until  such  deficiency
          (but not including any interest and penalties  thereon) is paid by LFL
          and LFL shall have no recourse or claim  against  Fund with respect to
          any such payments or withholdings.

11.9 SEPARATE   LIABILITY  OF  FUND.  Save  where  otherwise  provided  in  this
     Agreement,  the liability and obligations of the Fund to TGAL, TGSS and LFL
     hereunder shall be separate and distinct from the liability and obligations
     of TGAL and TGSS,  and the Fund shall be not be liable or  responsible  for
     the action or  inaction  of TGAL and TGSS.  Notwithstanding  the  foregoing
     regardless of whether TGSS ceases to be the Distribution Controller or not,
     the  Fund  agrees  that  it  shall  provide  to LFL,  TGSS  and  TGAL  such
     information as may be required from time to time to determine the amount of
     the Fees payable pursuant to Article 4.

11.10 HEADINGS. In this Agreement, the headings are for convenience of reference
      only, do not form a part of this Agreement and are not to be considered in
      the  interpretation  of this Agreement. References to Articles,  sections,
      paragraphs,   subparagraphs   and clauses  are  to   Articles,   sections,
      paragraphs, subparagraphs and clauses of this Agreement.

11.11 GENDER AND NUMBER. In this Agreement, words importing the masculine gender
      include the feminine and neuter genders,  words importing  persons include
      all Persons, and words in the singular include the plural, and vice versa,
      wherever the context requires.

11.12 SEVERABILITY.  Every  provision  of  this  Agreement  is  intended  to  be
      severable.  If any term or provision  hereof is illegal or invalid for any
      reason  whatsoever,  such illegality  shall not affect the validity of the
      remainder of this Agreement.

11.13 FURTHER  ACTS.  The parties  hereto  agree to execute and deliver any such
      further and other  documents  and perform and cause to be  performed  such
      further  and other acts and things as may be  necessary  or  desirable  in
      order to give  full  effect to this  Agreement  and  every  part  thereof.
      Without limiting the generality of the foregoing,  the Fund agrees that it
      will provide to TGSS,  TGAL and LFL such  information  as to date of issue
      and  issue  price of its  Deferred  Sales  Charge  Shares  and such  other
      information  as shall be required to  facilitate  the  calculating  of any
      amounts which are payable hereunder.

11.14 CURRENCY. All amounts referred to in this Agreement or required to be paid
      hereunder shall be paid in the base currency of the applicable Sub-Fund.

11.15 COUNTERPARTS,  FACSIMILE  EXECUTION.  This  Agreement  may be  executed in
      several counterparts, each of which when so executed shall be deemed to be
      an original and such  counterparts  together shall  constitute one and the
      same  instrument,  which  shall  be  sufficiently  evidenced  by any  such
      original  counterpart.  This  Agreement  may be executed and  delivered by
      facsimile  and will be  considered  duly  executed  and  delivered  by the
      parties so executing  delivery on the day of its transmission by facsimile
      in executed  form to the other  parties.  A party so  executing  by way of
      facsimile shall promptly deliver to each other party an originally  signed
      counterpart.

11.16 ENTIRE  AGREEMENT.  This Agreement  constitutes the entire agreement among
      the parties  pertaining to the subject matter hereof and supersedes,  with
<PAGE>

      effect   from  the  date  of  this   Agreement,   all  prior   agreements,
      understandings  and negotiations  between the parties  including,  without
      limitation,  the Commission  Paying Agreement and those provisions only of
      the Fees  Side-Letter,  the  Distribution  Agreement and the  Distribution
      Agreement  Addendum which  expressly  conflict with the provisions of this
      Agreement. For the avoidance of doubt, the remaining provisions of each of
      the Fees  Side-Letter,  the  Distribution  Agreement and the  Distribution
      Agreement  Addendum which do not expressly conflict with the provisions of
      this Agreement shall remain in full force and uuvaried effect.

11.17 ENUREMENT. This Agreement is binding upon and enures to the benefit of the
      parties hereto and their respective successors and permitted assigns.

11.18 INSTRUCTIONS.  Any  instructions  to be given by LFL in the performance of
      its duties  hereunder  in respect of any of the matters  referred to in or
      contemplated by this Agreement ("Proper  Instructions")  shall be written,
      cabled,  telecopied or telexed  instructions and signed or purported to be
      signed by such  person  or  persons  as LFL  shall  from time to time have
      authorised  in writing to give the  particular  class of  instructions  in
      question.  Different  persons may be authorised to give  instructions  for
      different   purposes  and  such  persons  may  also  include  officers  of
      corporations other than LFL so authorised by LFL. For the purposes of this
      Agreement,  LFL shall furnish the other parties  hereto with a schedule of
      the names of the persons  authorised  from time to time  (either  alone or
      with others as specified) to give instructions  together with specimens of
      their  signatures.  LFL shall also furnish the other parties hereto with a
      certified  copy of a  resolution  of the  Directors  of LFL as  conclusive
      evidence of the  authority of any such person to act and the other parties
      hereto shall be entitled to rely on such resolution and authority as being
      in full force and effect until receipt of written notice to the contrary.

11.19 LAW AND JURISDICTION.

     (a)  This Agreement  shall be governed by and construed in accordance  with
          the laws of Ireland.

     (b)  Each of the  parties  hereto  irrevocably  agree  that the  courts  of
          Ireland shall have  non-exclusive  jurisdiction  to hear and determine
          any suit,  action or proceeding  and to settle any disputes  which may
          arise  out of or in  connection  with  this  Agreement  and  for  such
          purposes hereby irrevocably submit to the jurisdiction of such courts.

     (c)  Each party  irrevocably  waives any objection which it may have now or
          in the future to the courts of Ireland being nominated for the purpose
          of Article 11.19(b) and agrees not to claim that any such court is not
          a convenient or appropriate forum.

     (d)  Each of the Fund,  TGAL and TGSS  hereby  irrevocably  authorises  and
          appoints  Matsack Trust Limited as its process agent to accept service
          of all legal process  arising out of or connected  with this Agreement
          and service on Matsack Trust Limited (or any substitute  process agent
          appointed  in  accordance  with  this  Article)  shall be deemed to be
          service  on the  Fund,  TGAL or TGSS (as the case may be).  If for any
          reason  Matsack  Trust  Limited  (or  any  substitute   process  agent
          appointed in accordance with this Article 11.19 (d)) ceases to be able
          to act as process  agent or no longer has an address in Ireland,  each
          of the  Fund,  TGAL  or  TGSS  irrevocably  undertakes  to  appoint  a
          substitute  process agent  resident in Ireland and advise LFL thereof.
          Failing  such  appointment  each of the  Fund,  TGAL  or  TGSS  hereby
<PAGE>

          authorises  the Agent to  appoint an Agent on its  behalf.  Nothing in
          this Article  11.19 (d) shall affect the right to serve legal  process
          in any other manner permitted by law.

ACKNOWLEDGEMENT BY THE FUND AND TGSS

Without prejudice to the execution of the Agreement by the parties hereto,  each
of the Fund and TGSS expressly and specifically confirm their agreement with the
provisions of clause  11.19(b) of this Agreement for the purpose of article 1 of
the Protocol  annexed to the Convention on  jurisdiction  and the enforcement of
judgements in civil and  commercial  matters signed at Brussels on 27 September,
1968 as amended by the Convention of Lugano and San-Sebastian.

- --------------------------------          ------------------------------

TEMPLETON GLOBAL STRATEGY                 TEMPLETON GLOBAL STRATEGIC
SERVICES SA FUNDS                         SERVICES SA FUNDS



AS WITNESS  WHEREOF the duly  authorised  representatives  of the parties hereto
have caused this  Agreement  to be duly  executed  the day and year first herein
written.


<PAGE>



                                   SCHEDULE A

                               ADVISORY AGREEMENTS

1.    Investment Management Agreement dated February 2, 1995 between the
      Fund and Templeton Investment Management Limited.

2.    Investment Management Agreement dated July 7, 1997 between the Fund
      and Franklin Mutual Advisers Inc.

3.    Investment  Management  Agreement dated February 15, 1996 between the Fund
      and  Franklin  Advisers  Inc (as  amended by an  amendment  between  those
      parties dated March 1, 1996).

4.    Investment Management Agreement dated February 2, 1995 between the
      Fund and Templeton Investment Management (Singapore) Pte. Ltd.

5.    Investment Management Agreement between the Fund and Templeton
      Galbraith & Hansberger Ltd (now TGSS).




                              PROSPECTUS DOCUMENTS

1.    The prospectus in relation to the Fund dated September 1997.

2.    The addenda thereto dated January 1, 1999 and January 8 1999
respectively.


<PAGE>



                                   SCHEDULE B

                            Intentionally left blank


<PAGE>



                                   SCHEDULE C

Templeton Global Growth Fund
Franklin Mutual Beacon Fund
Franklin U.S. Equity Fund
Templeton Emerging Markets Fund
Franklin Templeton High Yield Fund
Franklin Templeton U.S. Government Fund
Templeton Emerging Markets Fixed Income Fund
Templeton U.S. Dollar Liquid Reserve Fund


<PAGE>


                                   SCHEDULE D

                              ALLOCATION PROCEDURES

Deferred  Sales  Charge  Shares  shall  be  allocated  among  Monthly  Pools  in
accordance with the procedures set forth in these Allocation Procedures.

The parties agree that if (i) the  Sub-Funds or the  Sub-Funds'  transfer  agent
becomes able to supply records which  accurately  track Free Shares and Transfer
Shares to the Commission  Shares from which they were derived and the Fund, TGSS
or TGAL develops an alternative  allocation methodology which uses such tracking
information  (the "Alternate  Methodology")  and (ii) LFL reasonably  determines
that such  methodology  is at least as reliable and accurate as the  methodology
described below, then the parties agree that such Alternate  Methodology will be
substituted  for the  foregoing and this Schedule D will be amended to reflect a
mutually agreeable description of such Alternate Methodology.

Defined terms used in this Schedule D and not otherwise defined in this Schedule
D shall have the meanings  assigned to such terms.  As used herein the following
terms shall have the meanings indicated:

"COMMISSION SHARE" shall mean, in respect of any New B Share Sub-Fund,  each New
B Share of such  Sub-Fund  which  is  issued  under  circumstances  which  would
normally  give  rise to an  obligation  of the  holder  of such  Share  to pay a
Deferred  Sales  Charge  upon  redemption  of  such  Share,  including,  without
limitation,  any  Share  of  such  Sub-Fund  issued  in  connection  with a Free
Exchange,  and any such Share shall not cease to be a Commission  Share prior to
the  redemption  (including a redemption in connection  with a Free Exchange) or
conversion of such Share even though the  obligation  to pay the Deferred  Sales
Charge shall have expired or conditions for waivers thereof shall exist.

"DEFERRED SALES CHARGE" or "DSC" shall mean any deferred sales charge payable by
the holder of a Share of any  Sub-Fund  upon  redemption  of such Share,  either
directly or by withholding from the proceeds of such redemption.

"FREE  EXCHANGE"  shall mean the issuance of a Transfer Share upon the immediate
investment  of proceeds  realized on the  redemption  of a  Commission  Share of
another New B Share Sub-Fund.

"FREE SHARE" shall mean, in respect of any New B Share Sub-Fund, each Reinvested
Share of such Sub-Fund.

"MONTHLY POOL" shall mean, with respect to any Sub-Fund and any calendar month:

           (i)  each Original Charge Share issued by such Sub-Fund during
                such calendar month;

           (ii) Transfer  Shares  of such  Sub-Fund  issued  upon the  immediate
                reinvestment  of proceeds  realized on the  redemption of (a) an
                Original  Charge  Share  of  another  Sub-Fund  issued  by  such
                Sub-Fund  during  the  calendar  month  described  in clause (i)
                above;  (b) a  Reinvested  Share of another  Sub-Fund  issued in
                respect of Deferred Sales Charge Shares described in clause (ii)
                (a) above or this  clause  (ii)(b);  or (c) a Transfer  Share of
                another  Sub-Fund which relates to a Deferred Sales Charge Share
<PAGE>

                described  in clause  (ii)(a)  or (ii)(b)  above or this  clause
                (ii)(c); and

          (iii) Free  Shares  of  such  Sub-Fund   issued  upon  the   automatic
                reinvestment  of income  and capital  gains  distributions  with
                respect  to  Deferred  Sales  Charge  Shares  of  such  Sub-Fund
                described in clauses (i) or (ii) above, or this clause (iii).

"NET ASSET  VALUE"  shall mean,  with respect to any Share of a Sub-Fund and any
date of  determination,  the net asset value of such Share on such date computed
in the manner such value is  required  to be  computed  by such  Sub-Fund in its
reports to its shareholders.

"NON-OMNIBUS  COMMISSION  SHARE"  shall  mean  a  Commission  Share  that  is  a
Non-Omnibus Share.

"NON-OMNIBUS FREE SHARE" shall mean a Free Share that is a Non-Omnibus Share.

"NON-OMNIBUS SHARE" shall mean a Share that is not an Omnibus Share.

"OMNIBUS  COMMISSION  SHARE"  shall mean a  Commission  Share that is an Omnibus
Share.

"OMNIBUS FREE SHARE" shall mean a Free Share that is an Omnibus Share.

"OMNIBUS  SHARE"  shall  mean,  with  respect to any  Sub-Fund,  a Share of such
Sub-Fund  held in the name of a broker  dealer  street  account  on the  records
maintained by the Sub-Fund's Transfer Agent.

"SHARE" shall mean any Deferred Charge Share of any New B Share Sub-Fund.

ATTRIBUTION  OF SHARES:  Shares of each Sub-Fund  outstanding  from time to time
shall  be  attributed  to  Monthly  Pools  in  accordance   with  the  following
procedures:

1     NON-OMNIBUS SHARES

     (a)  COMMISSION SHARES

           Each  Sub-Fund's  Transfer Agent  maintains  records with which it is
           able to determine  the  original  issuance  date of each  outstanding
           Non-Omnibus  Commission Share, or in the case of a Transfer Share, of
           the Original  Charge Share from which such Transfer  Share is derived
           through  one or more  Free  Exchanges.  Using  such  data,  LFL  will
           attribute the following  Commission  Shares  outstanding from time to
           time to the  Monthly  Pool having its Sale Cutoff Date in a specified
           month:  (i)  Original  Charge  Shares sold  (whether or not  settled)
           during  such  month,  and (ii)  Transfer  Shares  which were  derived
           through one or more Free Exchanges  from Original  Charge Shares sold
           (whether or not settled)  during such month,  in each case determined
           in accordance with the records maintained by the Transfer Agent.
<PAGE>

     (b)  FREE SHARES

           Non-Omnibus  Free Shares of a Sub-Fund to be attributed among Monthly
           Pools  pursuant to this Section 1(b) will be  attributed by LFL using
           records  maintained  by  LFL  in  accordance  with  this  Section  1.
           information  supplied  by  such  Sub-Fund's  Transfer  Agent  and the
           following methodology:

           (1)  NON-OMNIBUS FREE SHARE ISSUANCES.  Non-Omnibus Free Shares
                --------------------------------
                issued on any day during any calendar month by such Sub-Fund
                shall be attributed:

                (i)  To Monthly Pools  originated prior to the month in question
                     using the following formula:

                          FS *          CSFS
                                --------------------------
                                  TCSFS + [NMCS * DD/DM]

                (ii) To the Monthly Pool originated during the month in question
                     using the following formula:

                          FS *          NMCS                    DD
                                --------------------------   *  ----
                                   TCSFS + [NMCS  * DD/DM]      DM

                (iii) For this purpose:

                          FS   =    The  number  of  Non-Omnibus  Free  Shares
                                    issued on such day during  such month  based
                                    on   information   provided  by  the  Fund's
                                    Transfer Agent.

                          CSFS =    The  number  of  Non-Omnibus   Commission
                                    Shares   and    Non-Omnibus    Free   Shares
                                    attributed  to such Monthly Pool in question
                                    and  outstanding as of the close of business
                                    on  the  last  business  day  of  the  month
                                    preceding the month in question.

                          TCSFS =   The total number of Non-Omnibus Commission
                                    Shares   and    Non-Omnibus    Free   Shares
                                    outstanding  as of the close of  business on
                                    the  last  day of the  month  preceding  the
                                    month in question.

                          NMCS =    The  number  of  Non-Omnibus   Commission
                                    Shares   attributed   to  the  Monthly  Pool
                                    originated  during the month in question and
                                    outstanding  as of the close of  business on
                                    the last business day of such month.
<PAGE>

                          DD   =    The  number  of  days  in  the  month  in
                                    question   prior   to  and   including   the
                                    ex-dividend  date  for  the  payment  of the
                                    dividend or other  distribution  giving rise
                                    to the issuance of Free Shares in question.

                          DM   =    The  number  of  days  in  the  month  in
                                    question.

           (2)  NON-OMNIBUS  FREE SHARE  CONVERSIONS.  The number of Non-Omnibus
                Free Shares of a Sub-Fund deemed  converted  during any calendar
                month will equal the sum of (i) the number of  Non-Omnibus  Free
                Shares of such  Sub-Fund  attributed as of the close of business
                on the last  business day preceding the month in question to the
                Monthly  Pool the  Anniversary  of the Sale Cutoff Date of which
                occurs  during such month,  plus (ii) the number of  Non-Omnibus
                Free Shares of such  Sub-Fund  attributed  to such  Monthly Pool
                with respect to the month in question pursuant to clause 1(b)(1)
                above.

           (3)  NON-OMNIBUS  FREE SHARE  REDEMPTIONS AND EXCHANGES.  Net changes
                during  any  calendar  month in the number of  Non-Omnibus  Free
                Shares of a Sub-Fund  that have not been  allocated  pursuant to
                clause  1(b)(1) or 1(b)(2) above (which  changes will  primarily
                result from  redemptions  or exchanges of such Shares)  shall be
                attributed  to Monthly  Pools as of the end of such month  using
                the following methodology:

                (i)  The aggregate amount of such changes during such month will
                     be computed as follows:

                             FSRE = FSO - FSI + FSC

                             where:

                          FSRE  =   The change during such  calendar  month in
                                    the number of outstanding  Non-Omnibus  Free
                                    Shares of the Sub-Fund in question  that has
                                    not  been   allocated   pursuant  to  clause
                                    1(b)(1) or 1(b)(2) above.

                          FSO   =   The  number  of  Non-Omnibus  Free  Shares
                                    outstanding  on the last business day of the
                                    calendar  month in question minus the number
                                    of  Non-Omnibus  Free Shares  outstanding on
                                    the  last  business  day  of  the  preceding
                                    calendar month.

                          FSI   =   The  number  of  Non-Omnibus  Free  Shares
                                    issued  during  the  month in  question  and
                                    attributed  to  Monthly  Pools  pursuant  to
                                    clause 1(b)(1) above.
<PAGE>

                          FSC   =   The  number  of  Non-Omnibus  Free  Shares
                                    deemed   converted   during   the  month  in
                                    question  and  attributed  to Monthly  Pools
                                    pursuant to clause 1(b)(2) above.

                     (ii) The aggregate amount of FSRE during such month will be
                          attributed to Monthly Pools as follows:

                          FSRE X      FS
                                    ----
                                     TFS

                          where:

                          FSRE  =   The amount of FSRE determined as
                                    provided in clause (i) above.

                          FS    =   The  number  of  Non-Omnibus  Free  Shares
                                    attributed  to such  Monthly  Pool as of the
                                    last  business  day  of the  calendar  month
                                    preceding the month in question.

                          TFS   =   The  total  number  of  Non-Omnibus  Free
                                    Shares  as of the last  business  day of the
                                    calendar   month   preceding  the  month  in
                                    question.

2     Omnibus Shares.

(a)   Alternative Methodologies.

      If the  conditions to broker  dealer  attribution  of Omnibus  Shares of a
      Sub-Fund  have been  satisfied,  then the Omnibus  Shares of such Sub-Fund
      will be attributed pursuant to Section 2(b).

      If the  conditions to broker  dealer  attribution  of Omnibus  Shares of a
      Sub-Fund have not been satisfied, then the Omnibus Shares of such Sub-Fund
      will be attributed pursuant to Section 2(c).

      The  conditions  to  broker  dealer  attribution  of  Omnibus  Shares of a
      Sub-Fund  will  have been  satisfied  if  certain  broker  dealer(s)  (the
      "Specified Broker Dealer(s)") can provide reliable data with which LFL can
      attribute  Omnibus  Shares  held  by the  Specified  Broker  Dealer(s)  to
      specific  Monthly  Pools using the  methodology  described in Section 1 as
      though all  references  in Section 1 to the  Transfer  Agent,  Non-Omnibus
      Shares,  Non-Omnibus  Commission  Shares and Non-Omnibus  Free Shares were
      references to the Specified  Broker  Dealer(s),  Omnibus  Shares,  Omnibus
      Commission Shares and Omnibus Free Shares, respectively.
<PAGE>

(b)   IF BROKER DEALER DATA IS AVAILABLE.

           If the conditions to broker dealer attribution of Omnibus Shares of a
           Sub-Fund have been  satisfied,  then the aggregate  number of Omnibus
           Shares attributed to each Monthly Pool as of the last business day of
           a calendar month shall equal:

           OSSBD X   TOS
                   -------
                    TOSSBD

           where:

           OSSBD     =    The number of Omnibus Shares of such
                          Sub-Fund held by the Specified Broker Dealer(s)
                          as of the last business day of the calendar month
                          in question and attributed to such Monthly Pool
                          using the methodology described in Section 1 with
                          respect to such Sub-Fund and the data supplied by
                          such Specified Broker Dealer(s) but without using
                          data supplied by the Sub-Fund's Transfer Agent.

           TOS       =    The total  number of  Omnibus  Shares as of the last
                          business  day  of  the  calendar   month  in  question
                          according to the Sub-Fund's Transfer Agent's records.

           TOSSBD    =    The total  number of  Omnibus  Shares as of the last
                          business day of the calendar month in question held by
                          the  Specified  Broker  Dealer(s)   according  to  the
                          Specified Broker Dealer(s)'s records.

           (c)  IF BROKER DEALER DATA IS NOT AVAILABLE.

           If the conditions to broker dealer attribution of Omnibus Shares of a
           Sub-Fund  have  not been  satisfied,  then the  aggregate  number  of
           Omnibus  Shares  attributed  to  each  Monthly  Pool  as of the  last
           business day of a calendar month shall equal:

           TOS X    NOS
                   ------
                    TNOS

           where:

           TOS      =     The total  number of  Omnibus  Shares as of the last
                          business  day  of  the  calendar   month  in  question
                          according to the Sub-Fund's Transfer Agent's records.

           NOS      =     The  number  of  Non-Omnibus  Shares  as of the last
                          business  day  of  the  calendar   month  in  question
                          attributed to the Monthly Pool in question.

           TNOS     =     The  total  number of  Non-Omnibus  Shares as of the
                          last business day of the calendar month in question.


<PAGE>


                                   SCHEDULE E

1.    An opinion of Luxembourg counsel.

2.    Certified  copies  of the  Articles  of  Incorporation  of the  Fund and a
      resolution of the board of directors of the Fund wherein, inter alia, they
      authorise the execution of this Agreement by the Fund and the  performance
      of its obligations hereunder.

3.    Certified copies of the Prospectus Documents, the Advisory Agreements,
      the Distribution Agreement, the Distribution Agreement Addendum, the
      Distribution Controller Agreement and the Fees Side-Letter.



<PAGE>



SIGNED for and on behalf of
LIGHTNING  FINANCE  COMPANY  LIMITED
by
Signature:   ____________________________

Print Name:  ____________________________


Title:       ____________________________
             DULY AUTHORISED OFFICER

in the presence of:

Signature:   _____________________________


Witness Name:_____________________________

Address:     _____________________________

SIGNED for and on behalf of
TEMPLETON GLOBAL STRATEGY FUNDS
by
Signature:   ____________________________


Print Name:  ____________________________


Title:       ____________________________
             DULY AUTHORISED OFFICER

in the presence of:

Signature:   _____________________________


Witness Name:_____________________________

Address:     _____________________________



<PAGE>



SIGNED for and on behalf of
TEMPLETON  GLOBAL  ADVISORS  LIMITED
by
Signature:   ____________________________

Print Name:  ____________________________

Title:       ____________________________
             DULY AUTHORISED OFFICER

in the presence of:

Signature:   _____________________________

Witness Name:_____________________________

Address:     _____________________________

SIGNED for and on behalf of
TEMPLETON GLOBAL STRATEGIC SERVICES S.A.

by

Signature:   ____________________________


Print Name:  ____________________________


Title:       ____________________________
             DULY AUTHORISED OFFICER

in the presence of:

Signature:   _____________________________


Witness Name:_____________________________

Address:     _____________________________





</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.49
<SEQUENCE>6
<FILENAME>0006.txt
<DESCRIPTION>PARTICIPATION AGREEMENT
<TEXT>


                             PARTICIPATION AGREEMENT
                                as of May 1, 2000
              Franklin Templeton Variable Insurance Products Trust
                      Franklin Templeton Distributors, Inc.
                       CUNA Mutual Life Insurance Company

                                    CONTENTS

 SECTION    SUBJECT MATTER

      1.    Parties and Purpose
      2.    Representations and Warranties
      3.    Purchase and Redemption of Trust Portfolio Shares
      4.    Fees, Expenses, Prospectuses, Proxy Materials and Reports
      5.    Voting
      6.    Sales Material, Information and Trademarks
      7.    Indemnification
      8.    Notices
      9.    Termination
      10.   Miscellaneous

                           SCHEDULES TO THIS AGREEMENT

      A.    The Company
      B.    Accounts of the Company
      C.    Available Portfolios and Classes of Shares of the Trust;
            Investment Advisers
      D.    Contracts of the Company
      E.    Other Portfolios Available under the Contracts
      F.    Rule 12b-1 Plans of the Trust
      G.    Addresses for Notices
      H.    Shared Funding Order


1.    PARTIES AND PURPOSE

      This agreement (the "Agreement") is between certain portfolios, specified
below and in Schedule C, of Franklin Templeton Variable Insurance Products
Trust, an open-end management investment company organized as a business trust
under Massachusetts law (the "Trust"), Franklin Templeton Distributors, Inc., a
California corporation which is the principal underwriter for the Trust (the
"Underwriter," and together with the Trust, "we" or "us") and the insurance
company identified on Schedule A ("you"), on your own behalf and on behalf of
<PAGE>

each segregated asset account maintained by you that is listed on Schedule B, as
that schedule may be amended from time to time ("Account" or "Accounts").

      The purpose of this Agreement is to entitle you, on behalf of the
Accounts, to purchase the shares, and classes of shares, of portfolios of the
Trust ("Portfolios") that are identified on Schedule C, solely for the purpose
of funding benefits of your variable life insurance policies or variable annuity
contracts ("Contracts") that are identified on Schedule D. This Agreement does
not authorize any other purchases or redemptions of shares of the Trust.

2.    REPRESENTATIONS AND WARRANTIES

      2.1   REPRESENTATIONS AND WARRANTIES BY YOU

      You represent and warrant that:

            2.1.1 You are an insurance company duly organized and in good
standing under the laws of your state of incorporation.

            2.1.2 All of your directors, officers, employees, and other
individuals or entities dealing with the money and/or securities of the Trust
are and shall be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Trust, in an amount not less than $5 million.
Such bond shall include coverage for larceny and embezzlement and shall be
issued by a reputable bonding company. You agree to make all reasonable efforts
to see that this bond or another bond containing such provisions is always in
effect, and you agree to notify us in the event that such coverage no longer
applies.

            2.1.3 Each Account is a duly organized, validly existing segregated
asset account under applicable insurance law and interests in each Account are
offered exclusively through the purchase of or transfer into a "variable
contract" within the meaning of such terms under Section 817 of the Internal
Revenue Code of 1986, as amended ("Code") and the regulations thereunder. You
will use your best efforts to continue to meet such definitional requirements,
and will notify us immediately upon having a reasonable basis for believing that
such requirements have ceased to be met or that they might not be met in the
future.

            2.1.4 Each Account either: (i) has been registered or, prior to any
issuance or sale of the Contracts, will be registered as a unit investment trust
under the Investment Company Act of 1940 ("1940 Act"); or (ii) has not been so
registered in proper reliance upon an exemption from registration under Section
3(c) of the 1940 Act; if the Account is exempt from registration as an
investment company under Section 3(c) of the 1940 Act, you will use your best
efforts to maintain such exemption and will notify us immediately upon having a
reasonable basis for believing that such exemption no longer applies or might
not apply in the future.

            2.1.5 The Contracts or interests in the Accounts: (i) are or, prior
to any issuance or sale will be, registered as securities under the Securities
Act of 1933, as amended (the "1933 Act"); or (ii) are not registered because
they are properly exempt from registration under Section 3(a)(2) of the 1933 Act
or will be offered exclusively in transactions that are properly exempt from

                                       2
<PAGE>

registration under Section 4(2) or Regulation D of the 1933 Act, in which case
you will make every effort to maintain such exemption and will notify us
immediately upon having a reasonable basis for believing that such exemption no
longer applies or might not apply in the future.

            2.1.6 The Contracts: (i) will be sold by broker-dealers, or their
registered representatives, who are registered with the Securities and Exchange
Commission ("SEC") under the Securities and Exchange Act of 1934, as amended
(the "1934 Act") and who are members in good standing of the National
Association of Securities Dealers, Inc. (the "NASD"); (ii) will be issued and
sold in compliance in all material respects with all applicable federal and
state laws; and (iii) will be sold in compliance in all material respects with
state insurance suitability requirements and NASD suitability guidelines.

            2.1.7 The Contracts currently are and will be treated as annuity
contracts or life insurance contracts under applicable provisions of the Code
and you will use your best efforts to maintain such treatment; you will notify
us immediately upon having a reasonable basis for believing that any of the
Contracts have ceased to be so treated or that they might not be so treated in
the future.

            2.1.8 The fees and charges deducted under each Contract, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by you.

            2.1.9 You will use shares of the Trust only for the purpose of
funding benefits of the Contracts through the Accounts.

            2.1.10 Contracts will not be sold outside of the United States.

            2.1.11 With respect to any Accounts which are exempt from
registration under the 1940 Act in reliance on 3(c)(1) or Section 3(c)(7)
thereof:

                  2.1.11.1    the principal underwriter for each such Account
                              and any subaccounts thereof is a registered
                              broker-dealer with the SEC under the 1934 Act;

                  2.1.11.2    the shares of the Portfolios of the Trust are and
                              will continue to be the only investment securities
                              held by the corresponding subaccounts; and

                  2.1.11.3    with regard to each Portfolio, you, on behalf of
                              the corresponding subaccount, will:

                              (a)   vote such shares held by it in the same
                                    proportion as the vote of all other holders
                                    of such shares; and

                              (b)   refrain from substituting shares of another
                                    security for such shares unless the SEC has

                                       3
<PAGE>

                                    approved such substitution in the manner
                                    provided in Section 26 of the 1940 Act.

      2.2   REPRESENTATIONS AND WARRANTIES BY THE TRUST

      The Trust represents and warrants that:

            2.2.1 It is duly organized and in good standing under the laws of
the State of Massachusetts.

            2.2.2 All of its directors, officers, employees and others dealing
with the money and/or securities of a Portfolio are and shall be at all times
covered by a blanket fidelity bond or similar coverage for the benefit of the
Trust in an amount not less that the minimum coverage required by Rule 17g-1 or
other regulations under the 1940 Act. Such bond shall include coverage for
larceny and embezzlement and be issued by a reputable bonding company.

            2.2.3 It is registered as an open-end management investment company
under the 1940 Act.

            2.2.4 Each class of shares of the Portfolios of the Trust is
registered under the 1933 Act.

            2.2.5 It will amend its registration statement under the 1933 Act
and the 1940 Act from time to time as required in order to effect the continuous
offering of its shares.

            2.2.6 It will comply, in all material respects, with the 1933 and
1940 Acts and the rules and regulations thereunder.

            2.2.7 It is currently qualified as a "regulated investment company"
under Subchapter M of the Code, it will make every effort to maintain such
qualification, and will notify you immediately upon having a reasonable basis
for believing that it has ceased to so qualify or that it might not so qualify
in the future.

            2.2.8 The Trust will use its best efforts to comply with the
diversification requirements for variable annuity, endowment or life insurance
contracts set forth in Section 817(h) of the Code, and the rules and regulations
thereunder, including without limitation Treasury Regulation 1.817-5. Upon
having a reasonable basis for believing any Portfolio has ceased to comply and
will not be able to comply within the grace period afforded by Regulation
1.817-5, the Trust will notify you immediately and will take all reasonable
steps to adequately diversify the Portfolio to achieve compliance.

                                       4
<PAGE>

            2.2.9 It currently intends for one or more classes of shares (each,
a "Class") to make payments to finance its distribution expenses, including
service fees, pursuant to a plan ("Plan") adopted under rule 12b-1 under the
1940 Act ("Rule 12b-1"), although it may determine to discontinue such practice
in the future. To the extent that any Class of the Trust finances its
distribution expenses pursuant to a Plan adopted under rule 12b-1, the Trust
undertakes to comply with any then current SEC interpretations concerning rule
12b-1 or any successor provisions.

      2.3   REPRESENTATIONS AND WARRANTIES BY THE UNDERWRITER

      The Underwriter represents and warrants that:

            2.3.1 It is registered as a broker dealer with the SEC under the
1934 Act, and is a member in good standing of the NASD.

            2.3.2 Each investment adviser listed on Schedule C (each, an
"Adviser") is duly registered as an investment adviser under the Investment
Advisers Act of 1940, as amended, and any applicable state securities law.

            2.4   WARRANTY AND AGREEMENT BY BOTH YOU AND US

      We received an order from the SEC dated November 16, 1993 (file no.
812-8546), which was amended by a notice and an order we received on September
17, 1999 and October 13, 1999, respectively (file no. 812-11698) (collectively,
the "Shared Funding Order," attached to this Agreement as Schedule H). The
Shared Funding Order grants exemptions from certain provisions of the 1940 Act
and the regulations thereunder to the extent necessary to permit shares of the
Trust to be sold to and held by variable annuity and variable life insurance
separate accounts of both affiliated and unaffiliated life insurance companies
and qualified pension and retirement plans outside the separate account context.
You and we both warrant and agree that both you and we will comply with the
"Applicants' Conditions" prescribed in the Shared Funding Order as though such
conditions were set forth verbatim in this Agreement, including, without
limitation, the provisions regarding potential conflicts of interest between the
separate accounts which invest in the Trust and regarding contract owner voting
privileges. In order for the Trust's Board of Trustees to perform its duty to
monitor for conflicts of interest, you agree to inform us of the occurrence of
any of the events specified in condition 2 of the Shared Funding Order to the
extent that such event may or does result in a material conflict of interest as
defined in that order.

3.    PURCHASE AND REDEMPTION OF TRUST PORTFOLIO SHARES

      3.1 We will make shares of the Portfolios available to the Accounts for
the benefit of the Contracts. The shares will be available for purchase at the
net asset value per share next computed after we (or our agent) receive a
purchase order, as established in accordance with the provisions of the then
current prospectus of the Trust. Notwithstanding the foregoing, the Trust's
Board of Trustees ("Trustees") may refuse to sell shares of any Portfolio to any
person, or may suspend or terminate the offering of shares of any Portfolio if
such action is required by law or by regulatory authorities having jurisdiction
or if, in the sole discretion of the Trustees, they deem such action to be in
the best interests of the shareholders of such Portfolio. Without limiting the

                                       5
<PAGE>

foregoing, the Trustees have determined that there is a significant risk that
the Trust and its shareholders may be adversely affected by investors whose
purchase and redemption activity follows a market timing pattern, and have
authorized the Trust, the Underwriter and the Trust's transfer agent to adopt
procedures and take other action (including, without limitation, rejecting
specific purchase orders) as they deem necessary to reduce, discourage or
eliminate market timing activity. You agree to cooperate with us to assist us in
implementing the Trust's restrictions on purchase and redemption activity that
follows a market timing pattern.

      3.2 We agree that shares of the Trust will be sold only to life insurance
companies which have entered into fund participation agreements with the Trust
("Participating Insurance Companies") and their separate accounts or to
qualified pension and retirement plans in accordance with the terms of the
Shared Funding Order. No shares of any Portfolio will be sold to the general
public.

      3.3 You agree that all net amounts available under the Contracts shall be
invested in the Trust or in your general account. Net amounts available under
the Contracts may also be invested in an investment company other than the Trust
if: (i) such other investment company, or series thereof, has investment
objectives or policies that are substantially different from the investment
objectives and policies of the Portfolios; or (ii) you give us forty-five (45)
days written notice of your intention to make such other investment company
available as a funding vehicle for the Contracts; or (iii) such other investment
company is available as a funding vehicle for the Contracts at the date of this
Agreement and you so inform us prior to our signing this Agreement (a list of
such investment companies appears on Schedule E to this Agreement); or (iv) we
consent in writing to the use of such other investment company.

      3.4 You shall be the designee for us for receipt of purchase orders and
requests for redemption resulting from investment in and payments under the
Contracts ("Instructions"). The Business Day on which such Instructions are
received in proper form by you and time stamped by the close of trading will be
the date as of which Portfolio shares shall be deemed purchased, exchanged, or
redeemed as a result of such Instructions. Instructions received in proper form
by you and time stamped after the close of trading on any given Business Day
shall be treated as if received on the next following Business Day. You warrant
that all orders, Instructions and confirmations received by you which will be
transmitted to us for processing on a Business Day will have been received and
time stamped prior to the Close of Trading on that Business Day. Instructions we
receive after 9 a.m. Eastern Time shall be processed on the next Business Day.
"Business Day" shall mean any day on which the New York Stock Exchange is open
for trading and on which the Trust calculates its net asset value pursuant to
the rules of the SEC and its current prospectus.

      3.5 We shall calculate the net asset value per share of each Portfolio on
each Business Day, and shall communicate these net asset values to you or your
designated agent on a daily basis as soon as reasonably practical after the
calculation is completed (normally by 6:30 p.m. Eastern time).

                                       6
<PAGE>

      3.6 You shall submit payment for the purchase of shares of a Portfolio on
behalf of an Account no later than the close of business on the next Business
Day after we receive the purchase order. Payment shall be made in federal funds
transmitted by wire to the Trust or to its designated custodian.

      3.7 We will redeem any full or fractional shares of any Portfolio, when
requested by you on behalf of an Account, at the net asset value next computed
after receipt by us (or our agent) of the request for redemption, as established
in accordance with the provisions of the then current prospectus of the Trust.
We shall make payment for such shares in the manner we establish from time to
time, but in no event shall payment be delayed for a greater period than is
permitted by the 1940 Act. Payments for the purchase or redemption of shares by
you may be netted against one another on any Business Day for the purpose of
determining the amount of any wire transfer on that Business Day.

      3.8 Issuance and transfer of the Portfolio shares will be by book entry
only. Stock certificates will not be issued to you or the Accounts. Portfolio
shares purchased from the Trust will be recorded in the appropriate title for
each Account or the appropriate subaccount of each Account.

      3.9 We shall furnish, on or before the ex-dividend date, notice to you of
any income dividends or capital gain distributions payable on the shares of any
Portfolio. You hereby elect to receive all such income dividends and capital
gain distributions as are payable on shares of a Portfolio in additional shares
of that Portfolio, and you reserve the right to change this election in the
future. We will notify you of the number of shares so issued as payment of such
dividends and distributions.

4.    FEES, EXPENSES, PROSPECTUSES, PROXY MATERIALS AND REPORTS

      4.1 We shall pay no fee or other compensation to you under this Agreement
except as provided on Schedule F, if attached.

      4.2 We shall prepare and be responsible for filing with the SEC, and any
state regulators requiring such filing, all shareholder reports, notices, proxy
materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of the Trust.
We shall bear the costs of preparation and filing of the documents listed in the
preceding sentence, registration and qualification of the Trust's shares of the
Portfolios.

      4.3 We shall use reasonable efforts to provide you, on a timely basis,
with such information about the Trust, the Portfolios and each Adviser, in such
form as you may reasonably require, as you shall reasonably request in
connection with the preparation of disclosure documents and annual and
semi-annual reports pertaining to the Contracts.

      4.4 At your request, we shall provide you with camera ready copy, in a
form suitable for printing, of a copy of portions of the Trust's current
prospectus, annual report, semi-annual report and other shareholder
communications, including any amendments or supplements to any of the foregoing,
pertaining specifically to the Portfolios. We shall delete information relating
to series of the Trust other than the Portfolios to the extent practicable. We
shall provide you with a copy of the Trust's current statement of additional

                                       7
<PAGE>

information, including any amendments or supplements, in a form suitable for you
to duplicate. You shall bear the costs of furnishing these documents (including
printing and mailing) to Contract owners or others.

       4.5 We shall provide you, at our expense, with copies of any
Trust-sponsored proxy materials in such quantity as you shall reasonably require
for distribution to Contract owners who are invested in a designated subaccount.
You shall bear the costs of distributing proxy materials (or similar materials
such as voting solicitation instructions) to Contract owners.

      4.6 You assume sole responsibility for ensuring that the Trust's
prospectuses, shareholder reports and communications, and proxy materials are
delivered to Contract owners in accordance with applicable federal and state
securities laws.

5.    VOTING

      5.1 All Participating Insurance Companies shall have the obligations and
responsibilities regarding pass-through voting and conflicts of interest
corresponding to those contained in the Shared Funding Order.

      5.2 If and to the extent required by law, you shall: (i) solicit voting
instructions from Contract owners; (ii) vote the Trust shares in accordance with
the instructions received from Contract owners; and (iii) vote Trust shares for
which no instructions have been received in the same proportion as Trust shares
of such Portfolio for which instructions have been received; so long as and to
the extent that the SEC continues to interpret the 1940 Act to require
pass-through voting privileges for variable contract owners. You reserve the
right to vote Trust shares held in any Account in your own right, to the extent
permitted by law.

      5.3 So long as, and to the extent that, the SEC interprets the 1940 Act to
require pass-through voting privileges for Contract owners, you shall provide
pass-through voting privileges to Contract owners whose Contract values are
invested, through the Accounts, in shares of one or more Portfolios of the
Trust. We shall require all Participating Insurance Companies to calculate
voting privileges in the same manner and you shall be responsible for assuring
that the Accounts calculate voting privileges in the manner established by us.
With respect to each Account, you will vote shares of each Portfolio of the
Trust held by an Account and for which no timely voting instructions from
Contract owners are received in the same proportion as those shares held by that
Account for which voting instructions are received. You and your agents will in
no way recommend or oppose or interfere with the solicitation of proxies for
Portfolio shares held to fund the Contracts without our prior written consent,
which consent may be withheld in our sole discretion.

6.    SALES MATERIAL, INFORMATION AND TRADEMARKS

      6.1 For purposes of this Section 6, "Sales literature or other Promotional
material" includes, but is not limited to, portions of the following that use
any logo or other trademark related to the Trust, or Underwriter or its
affiliates, or refer to the Trust: advertisements (such as material published or
designed for use in a newspaper, magazine or other periodical, radio,
television, telephone or tape recording, videotape display, signs or billboards,
motion pictures, electronic communication or other public media), sales

                                       8
<PAGE>

literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts or
any other advertisement, sales literature or published article or electronic
communication), educational or training materials or other communications
distributed or made generally available to some or all agents or employees in
any media, and disclosure documents, shareholder reports and proxy materials.

       6.2 You shall furnish, or cause to be furnished to us or our designee, at
least one complete copy of each registration statement, prospectus, statement of
additional information, private placement memorandum, retirement plan disclosure
information or other disclosure documents or similar information, as applicable
(collectively "Disclosure Documents"), as well as any report, solicitation for
voting instructions, Sales literature or other Promotional materials, and all
amendments to any of the above that relate to the Contracts or the Accounts
prior to its first use. You shall furnish, or shall cause to be furnished, to us
or our designee each piece of Sales literature or other Promotional material in
which the Trust or an Adviser is named, at least fifteen (15) Business Days
prior to its proposed use. No such material shall be used unless we or our
designee approve such material and its proposed use.

       6.3 You and your agents shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust,
the Underwriter or an Adviser, other than information or representations
contained in and accurately derived from the registration statement or
prospectus for the Trust shares (as such registration statement and prospectus
may be amended or supplemented from time to time), annual and semi-annual
reports of the Trust, Trust-sponsored proxy statements, or in Sales literature
or other Promotional material approved by the Trust or its designee, except as
required by legal process or regulatory authorities or with the written
permission of the Trust or its designee.

       6.4 We shall not give any information or make any representations or
statements on behalf of you or concerning you, the Accounts or the Contracts
other than information or representations contained in and accurately derived
from Disclosure Documents for the Contracts (as such Disclosure Documents may be
amended or supplemented from time to time), or in materials approved by you for
distribution, including Sales literature or other Promotional materials, except
as required by legal process or regulatory authorities or with your written
permission.

      6.5 Except as provided in Section 6.2, you shall not use any designation
comprised in whole or part of the names or marks "Franklin" or "Templeton" or
any logo or other trademark relating to the Trust or the Underwriter without
prior written consent, and upon termination of this Agreement for any reason,
you shall cease all use of any such name or mark as soon as reasonably
practicable.

7.    INDEMNIFICATION

      7.1   INDEMNIFICATION BY YOU

                                       9
<PAGE>

            7.1.1 You agree to indemnify and hold harmless the Underwriter, the
Trust and each of its Trustees, officers, employees and agents and each person,
if any, who controls the Trust within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" and individually the "Indemnified
Party" for purposes of this Section 7) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with your written
consent, which consent shall not be unreasonably withheld) or expenses
(including the reasonable costs of investigating or defending any alleged loss,
claim, damage, liability or expense and reasonable legal counsel fees incurred
in connection therewith) (collectively, "Losses"), to which the Indemnified
Parties may become subject under any statute or regulation, or at common law or
otherwise, insofar as such Losses are related to the sale or acquisition of
shares of the Trust or the Contracts and

                  7.1.1.1 arise out of or are based upon any untrue statements
      or alleged untrue statements of any material fact contained in a
      Disclosure Document for the Contracts or in the Contracts themselves or in
      sales literature generated or approved by you on behalf of the Contracts
      or Accounts (or any amendment or supplement to any of the foregoing)
      (collectively, "Company Documents" for the purposes of this Section 7), or
      arise out of or are based upon the omission or the alleged omission to
      state therein a material fact required to be stated therein or necessary
      to make the statements therein not misleading, provided that this
      indemnity shall not apply as to any Indemnified Party if such statement or
      omission or such alleged statement or omission was made in reliance upon
      and was accurately derived from written information furnished to you by or
      on behalf of the Trust for use in Company Documents or otherwise for use
      in connection with the sale of the Contracts or Trust shares; or

                  7.1.1.2 arise out of or result from statements or
      representations (other than statements or representations contained in and
      accurately derived from Trust Documents as defined below in Section 7.2)
      or wrongful conduct of you or persons under your control, with respect to
      the sale or acquisition of the Contracts or Trust shares; or

                  7.1.1.3 arise out of or result from any untrue statement or
      alleged untrue statement of a material fact contained in Trust Documents
      as defined below in Section 7.2 or the omission or alleged omission to
      state therein a material fact required to be stated therein or necessary
      to make the statements therein not misleading if such statement or
      omission was made in reliance upon and accurately derived from written
      information furnished to the Trust by or on behalf of you; or

                  7.1.1.4 arise out of or result from any failure by you to
      provide the services or furnish the materials required under the terms of
      this Agreement;

                  7.1.1.5 arise out of or result from any material breach of any
      representation and/or warranty made by you in this Agreement or arise out
      of or result from any other material breach of this Agreement by you; or

                  7.1.1.6 arise out of or result from a Contract failing to be
      considered a life insurance policy or an annuity Contract, whichever is

                                       10
<PAGE>

      appropriate, under applicable provisions of the Code thereby depriving the
      Trust of its compliance with Section 817(h) of the Code.

            7.1.2 You shall not be liable under this indemnification provision
with respect to any Losses to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Trust or Underwriter, whichever is applicable.
You shall also not be liable under this indemnification provision with respect
to any claim made against an Indemnified Party unless such Indemnified Party
shall have notified you in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the claim shall
have been served upon such Indemnified Party (or after such Indemnified Party
shall have received notice of such service on any designated agent), but failure
to notify you of any such claim shall not relieve you from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, you shall be entitled to
participate, at your own expense, in the defense of such action. Unless the
Indemnified Party releases you from any further obligations under this Section
7.1, you also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from you to such
party of the your election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
you will not be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.

            7.1.3 The Indemnified Parties will promptly notify you of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Trust shares or the Contracts or the operation of
the Trust.

      7.2   INDEMNIFICATION BY THE UNDERWRITER

            7.2.1 The Underwriter agrees to indemnify and hold harmless you, and
each of your directors and officers and each person, if any, who controls you
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" and individually an "Indemnified Party" for purposes of this Section
7.2) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Underwriter, which consent
shall not be unreasonably withheld) or expenses (including the reasonable costs
of investigating or defending any alleged loss, claim, damage, liability or
expense and reasonable legal counsel fees incurred in connection therewith)
(collectively, "Losses") to which the Indemnified Parties may become subject
under any statute, at common law or otherwise, insofar as such Losses are
related to the sale or acquisition of the shares of the Trust or the Contracts
and:

                  7.2.1.1 arise out of or are based upon any untrue statements
      or alleged untrue statements of any material fact contained in the
      Registration Statement, prospectus or sales literature of the Trust (or
      any amendment or supplement to any of the foregoing) (collectively, the
      "Trust Documents") or arise out of or are based upon the omission or the

                                       11
<PAGE>

      alleged omission to state therein a material fact required to be stated
      therein or necessary to make the statements therein not misleading,
      provided that this agreement to indemnify shall not apply as to any
      Indemnified Party if such statement or omission of such alleged statement
      or omission was made in reliance upon and in conformity with information
      furnished to us by or on behalf of you for use in the Registration
      Statement or prospectus for the Trust or in sales literature (or any
      amendment or supplement) or otherwise for use in connection with the sale
      of the Contracts or Trust shares; or

                  7.2.1.2 arise out of or as a result of statements or
      representations (other than statements or representations contained in the
      Disclosure Documents or sales literature for the Contracts not supplied by
      the Underwriter or persons under its control) or wrongful conduct of the
      Trust, Adviser or Underwriter or persons under their control, with respect
      to the sale or distribution of the Contracts or Trust shares; or

                  7.2.1.3 arise out of any untrue statement or alleged untrue
      statement of a material fact contained in a Disclosure Document or sales
      literature covering the Contracts, or any amendment thereof or supplement
      thereto, or the omission or alleged omission to state therein a material
      fact required to be stated therein or necessary to make the statement or
      statements therein not misleading, if such statement or omission was made
      in reliance upon information furnished to you by or on behalf of the
      Trust; or

                  7.2.1.4 arise as a result of any failure by us to provide the
      services and furnish the materials under the terms of this Agreement
      (including a failure, whether unintentional or in good faith or otherwise,
      to comply with the qualification representation specified above in Section
      2.2.7 and the diversification requirements specified above in Section
      2.2.8; or

                  7.2.1.5 arise out of or result from any material breach of any
      representation and/or warranty made by the Underwriter in this Agreement
      or arise out of or result from any other material breach of this Agreement
      by the Underwriter; as limited by and in accordance with the provisions of
      Sections 7.2.2 and 7.2.3 hereof.

            7.2.2 The Underwriter shall not be liable under this indemnification
provision with respect to any Losses to which an Indemnified Party would
otherwise be subject by reason of such Indemnified Party's willful misfeasance,
bad faith, or gross negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless disregard of
obligations and duties under this Agreement or to you or the Accounts, whichever
is applicable.

            7.2.3 The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. Unless the Indemnified

                                       12
<PAGE>

Party releases the Underwriter from any further obligations under this Section
7.2, the Underwriter also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
Underwriter to such party of the Underwriter's election to assume the defense
thereof, the Indemnified Party shall bear the expenses of any additional counsel
retained by it, and the Underwriter will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.

            7.2.4 You agree promptly to notify the Underwriter of the
commencement of any litigation or proceedings against you or the Indemnified
Parties in connection with the issuance or sale of the Contracts or the
operation of each Account.

      7.3   INDEMNIFICATION BY THE TRUST

            7.3.1 The Trust agrees to indemnify and hold harmless you, and each
of your directors and officers and each person, if any, who controls you within
the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 7.3) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Trust, which consent shall not be unreasonably withheld) or
litigation (including legal and other expenses) to which the Indemnified Parties
may become subject under any statute, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements result from the gross negligence, bad faith or willful
misconduct of the Board or any member thereof, are related to the operations of
the Trust, and arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this Agreement or arise out
of or result from any other material breach of this Agreement by the Trust; as
limited by and in accordance with the provisions of Sections 7.3.2 and 7.3.3
hereof. It is understood and expressly stipulated that neither the holders of
shares of the Trust nor any Trustee, officer, agent or employee of the Trust
shall be personally liable hereunder, nor shall any resort be had to other
private property for the satisfaction of any claim or obligation hereunder, but
the Trust only shall be liable.

            7.3.2 The Trust shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against any Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
you, the Trust, the Underwriter or each Account, whichever is applicable.

            7.3.3 The Trust shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Trust in writing within a
reasonable time after the summons or other first legal process giving

                                       13
<PAGE>

information of the nature of the claims shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Trust of any
such claim shall not relieve the Trust from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Trust will be entitled to participate, at
its own expense, in the defense thereof. Unless the Indemnified Party releases
the Trust from any further obligations under this Section 7.3, the Trust also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Trust to such party of the
Trust's election to assume the defense thereof, the Indemnified Party shall bear
the fees and expenses of any additional counsel retained by it, and the Trust
will not be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.

            7.3.4 You agree promptly to notify the Trust of the commencement of
any litigation or proceedings against you or the Indemnified Parties in
connection with this Agreement, the issuance or sale of the Contracts, with
respect to the operation of the Account, or the sale or acquisition of shares of
the Trust.

8.    NOTICES

Any notice shall be sufficiently given when sent by registered or certified mail
to the other party at the address of such party set forth in Schedule G below or
at such other address as such party may from time to time specify in writing to
the other party.

9.    TERMINATION

      9.1 This Agreement may be terminated by any party in its entirety or with
respect to one, some or all Portfolios for any reason by sixty (60) days advance
written notice delivered to the other parties. This Agreement shall terminate
immediately in the event of its assignment by any party without the prior
written approval of the other parties, or as otherwise required by law.

      9.2 This Agreement may be terminated immediately by us upon written notice
to you if:

            9.2.1 you notify the Trust or the Underwriter that the exemption
      from registration under Section 3(c) of the 1940 Act no longer applies, or
      might not apply in the future, to the unregistered Accounts, or that the
      exemption from registration under Section 4(2) or Regulation D promulgated
      under the 1933 Act no longer applies or might not apply in the future, to
      interests under the unregistered Contracts; or

            9.2.2 either one or both of the Trust or the Underwriter
      respectively, shall determine, in their sole judgment exercised in good
      faith, that you have suffered a material adverse change in your business,
      operations, financial condition or prospects since the date of this
      Agreement or are the subject of material adverse publicity; or

                                       14
<PAGE>

            9.2.3 you give us the written notice specified above in Section 3.3
      and at the same time you give us such notice there was no notice of
      termination outstanding under any other provision of this Agreement;
      provided, however, that any termination under this Section 9.2.3 shall be
      effective forty-five (45) days after the notice specified in Section 3.3
      was given.

      9.3 If this Agreement is terminated for any reason, except as required by
the Shared Funding Order or pursuant to Section 9.2.1, above, we shall, at your
option, continue to make available additional shares of any Portfolio and redeem
shares of any Portfolio pursuant to all of the terms and conditions of this
Agreement for all Contracts in effect on the effective date of termination of
this Agreement. If this Agreement is terminated as required by the Shared
Funding Order, its provisions shall govern.

      9.4 The provisions of Sections 2 (Representations and Warranties) and 7
(Indemnification) shall survive the termination of this Agreement. All other
applicable provisions of this Agreement shall survive the termination of this
Agreement, as long as shares of the Trust are held on behalf of Contract owners
in accordance with Section 9.3, except that we shall have no further obligation
to sell Trust shares with respect to Contracts issued after termination.

      9.5 You shall not redeem Trust shares attributable to the Contracts (as
opposed to Trust shares attributable to your assets held in the Account) except:
(i) as necessary to implement Contract owner initiated or approved transactions;
(ii) as required by state and/or federal laws or regulations or judicial or
other legal precedent of general application (hereinafter referred to as a
"Legally Required Redemption"); or (iii) as permitted by an order of the SEC
pursuant to Section 26(b) of the 1940 Act. Upon request, you shall promptly
furnish to us the opinion of your counsel (which counsel shall be reasonably
satisfactory to us) to the effect that any redemption pursuant to clause (ii)
above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contracts, you shall not prevent Contract
owners from allocating payments to a Portfolio that was otherwise available
under the Contracts without first giving us ninety (90) days notice of your
intention to do so.

10.   MISCELLANEOUS

      10.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions of this
Agreement or otherwise affect their construction or effect.

      10.2 This Agreement may be executed simultaneously in two or more
counterparts, all of which taken together shall constitute one and the same
instrument.

      10.3 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.

      10.4 This Agreement shall be construed and its provisions interpreted
under and in accordance with the laws of the State of California. It shall also
be subject to the provisions of the federal securities laws and the rules and

                                       15
<PAGE>

regulations thereunder, to any orders of the SEC on behalf of the Trust granting
it exemptive relief, and to the conditions of such orders. We shall promptly
forward copies of any such orders to you.

      10.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Trust and that no Trustee, officer, agent or holder of shares of
beneficial interest of the Trust shall be personally liable for any such
liabilities.

      10.6 The parties to this Agreement agree that the assets and liabilities
of each Portfolio of the Trust are separate and distinct from the assets and
liabilities of each other Portfolio. No Portfolio shall be liable or shall be
charged for any debt, obligation or liability of any other Portfolio.

      10.7 Each party to this Agreement shall cooperate with each other party
and all appropriate governmental authorities (including without limitation the
SEC, the NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.

      10.8 Each party to this Agreement shall treat as confidential all
information reasonably identified as confidential in writing by any other party
to this Agreement, and, except as permitted by this Agreement or as required by
legal process or regulatory authorities, shall not disclose, disseminate, or use
such names and addresses and other confidential information until such time as
they may come into the public domain, without the express written consent of the
affected party to this Agreement. Without limiting the foregoing, no party to
this Agreement shall disclose any information that such party has been advised
is proprietary, except such information that such party is required to disclose
by any appropriate governmental authority (including, without limitation, the
SEC, the NASD, and state securities and insurance regulators).

      10.9 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties to this Agreement are entitled to under
state and federal laws.

      10.10 The parties to this Agreement acknowledge and agree that this
Agreement shall not be exclusive in any respect, except as provided above in
Section 3.3.

      10.11 Neither this Agreement nor any rights or obligations created by it
may be assigned by any party without the prior written approval of the other
parties.

      10.12 No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.



                                       16
<PAGE>

      IN WITNESS WHEREOF, each of the parties have caused their duly authorized
officers to execute this Agreement.

      The Company:          CUNA MUTUAL LIFE INSURANCE COMPANY

                            By: /s/ Michael S. Daubs
                                ---------------------
                            Name:  Michael S. Daubs
                            Title: Senior Vice President, Chief Investment
                                   Officer



      The Trust:            FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST

      Only on behalf of
      each Portfolio listed
      on Schedule C hereof

                            By: /s/ Karen L. Skidmore
                                ---------------------
                            Name:  Karen L. Skidmore
                            Title: Assistant Vice President



      The Underwriter:      FRANKLIN TEMPLETON DISTRIBUTORS, INC.

                            By: /s/ Philip J. Kearns
                                ---------------------
                            Name:  Philip J. Kearns
                            Title: Vice President



                                       17
<PAGE>

                                   SCHEDULE A

                                   THE COMPANY

CUNA Mutual Life Insurance Company
5910 Mineral Point Road
Madison, WI 53701-0391

A life insurance company organized under Iowa law.



                                       18
<PAGE>

                                   SCHEDULE B

                             ACCOUNTS OF THE COMPANY

1.    Name:                         CUNA Mutual Life Variable Annuity Account
      Date Established:             12-14-1993
      SEC Registration Number:      811- 08260

2.    Name:                         CUNA Mutual Life Group Variable Annuity
                                    Account
      Date Established:             08-16-1983
      SEC Registration Number:      N/A

3.    Name:                         CUNA Mutual Life Variable Account
      Date Established:             08-16-1983
      SEC Registration Number:      811- 03915


                                       19
<PAGE>

                                   SCHEDULE C

  AVAILABLE PORTFOLIOS AND CLASSES OF SHARES OF THE TRUST; INVESTMENT ADVISERS



FRANKLIN TEMPLETON VARIABLE
INSURANCE PRODUCTS TRUST                  INVESTMENT ADVISER
- ------------------------------            ------------------
Templeton Developing Markets              Templeton Asset Management Ltd.
  Securities Fund



                                       20
<PAGE>

<TABLE>
<CAPTION>

                                   SCHEDULE D

                            CONTRACTS OF THE COMPANY

- -------------------------------------------------------------------------------------
                      CONTRACT 1            CONTRACT 2            CONTRACT 3
- -------------------------------------------------------------------------------------
<S>                <C>                   <C>                    <C>

CONTRACT/PRODUCT   Members Variable      CU Pension Saver       MEMBERS Variable
NAME               Annuity               Group Annuity          Universal Life

                                         UltraSaver Group
                                         Annuity

                                         CU UltraSaver Group
                                         Annuity
- -------------------------------------------------------------------------------------
REGISTERED (Y/N)   Yes                   No                     Yes



- -------------------------------------------------------------------------------------
SEC REGISTRATION   033-73738             N/A                    033-19718
NUMBER

- -------------------------------------------------------------------------------------
REPRESENTATIVE     1676                  01-GA-2-0390           190D
FORM NUMBERS

- -------------------------------------------------------------------------------------
SEPARATE ACCOUNT   CUNA Mutual Life      CUNA Mutual Life       CUNA Mutual Life
NAME/DATE          Variable Annuity      Group Variable         Variable Account
ESTABLISHED        Account (December     Annuity Account        (August 16, 1983)
                   14, 1993)             (August 16, 1983)
- -------------------------------------------------------------------------------------
SEC REGISTRATION   811-08260             N/A                    811-03915
NUMBER

- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
PORTFOLIOS AND     Templeton Developing  Templeton Developing   Templeton Developing
CLASSES            Markets Securities    Markets Securities     Markets Securities
                   Fund Class 2          Fund Class 2           Fund Class 2
- -------------------------------------------------------------------------------------

</TABLE>

                                       21
<PAGE>
<TABLE>
<CAPTION>
                                SCHEDULE D CONT.

                            CONTRACTS OF THE COMPANY

- -------------------------------------------------------------------------------------
                      CONTRACT 4            CONTRACT 5            CONTRACT 6
- -------------------------------------------------------------------------------------
<S>                <C>
CONTRACT/PRODUCT   MEMBERS Variable
NAME               Universal Life

- -------------------------------------------------------------------------------------
REGISTERED (Y/N)   Yes

- -------------------------------------------------------------------------------------
SEC REGISTRATION   033-81499
NUMBER

- -------------------------------------------------------------------------------------
REPRESENTATIVE     99-VUL
FORM NUMBERS

- -------------------------------------------------------------------------------------
SEPARATE ACCOUNT   CUNA Mutual Life
NAME/DATE          Variable Account
ESTABLISHED        (August 16, 1983)

- -------------------------------------------------------------------------------------
SEC REGISTRATION   811-03915
NUMBER

- -------------------------------------------------------------------------------------
PORTFOLIOS AND     Templeton Developing
CLASSES            Markets Securities
                   Fund Class 2
- -------------------------------------------------------------------------------------

</TABLE>

                                       22
<PAGE>



                                   SCHEDULE E

                 OTHER PORTFOLIOS AVAILABLE UNDER THE CONTRACTS

1.    Investment Company:     CIMCO Ultra Series Fund

      Portfolios:             Money Market Fund
                              Bond Fund
                              Balanced Fund
                              Growth & Income Stock Fund
                              Capital Appreciation Stock Fund

2.    Investment Company:     MFS Variable Insurance Trust

      Portfolios:             World Governments Fund
                              Emerging Growth Fund

3.    Investment Company:     T. Rowe Price International Series, Inc.

      Portfolio:              International Stock Fund

4.    Investment Company:     Oppenheimer Variable Account Funds

      Portfolio:              High Income Fund



                                       23
<PAGE>



                                   SCHEDULE F



                                       24
<PAGE>

                                   SCHEDULE G

                              ADDRESSES FOR NOTICES

      To the Company:       CUNA Mutual Life Insurance Company
                            5910 Mineral Point Road
                            Madison, WI 53701-0391

                            Attention: Associate General Counsel

      To the Trust:         Franklin Templeton Variable Insurance Products Trust
                            777 Mariners Island Boulevard
                            San Mateo, California 94404

                            Attention:  Karen L. Skidmore, Assistant Vice
                                        President

      To the Underwriter:   Franklin Templeton Distributors, Inc.
                            777 Mariners Island Boulevard
                            San Mateo, California 94404

                            Attention:  Philip J. Kearns, Vice President


                                       25
<PAGE>

                                   SCHEDULE H

                              SHARED FUNDING ORDER

                 Templeton Variable Products Series Fund, et al.

                               File No. 812-11698

                       SECURITIES AND EXCHANGE COMMISSION

                              Release No. IC-24018

                               1999 SEC LEXIS 1887

                               September 17, 1999

ACTION: Notice of application for an amended order of exemption pursuant to
Section 6(c) of the Investment Company Act of 1940 (the "1940 Act") from the
provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act and Rules
6e-2(b)(15) and 6e-3(T)(b)(15) thereunder.

TEXT: Summary of Application: Templeton Variable Products Series Fund (the
"Templeton Trust"), Franklin Templeton Variable Insurance Products Trust
(formerly Franklin Valuemark Funds) (the "VIP Trust," and together with the
Templeton Trust, the "Funds"), Templeton Funds Annuity Company ("TFAC") or any
successor to TFAC, and any future open-end investment company for which TFAC or
any affiliate is the administrator, sub-administrator, investment manager,
adviser, principal underwriter, or sponsor ("Future Funds") seek an amended
order of the Commission to (1) add as parties to that order the VIP Trust and
any Future Funds and (2) permit shares of the Funds and Future Funds to be
issued to and held by qualified pension and retirement plans outside the
separate account context.

   Applicants: Templeton Variable Products Series Fund, Franklin Templeton
Variable Insurance Products Trust, Templeton Funds Annuity Company or any
successor to TFAC, and any future open-end investment company for which TFAC or
any affiliate is the administrator, sub-administrator, investment manager,
adviser, principal underwriter, or sponsor (collectively, the "Applicants").

   Filing Date: The application was filed on July 14, 1999, and amended and
restated on September 17, 1999.

   Hearing or Notification of Hearing: An order granting the application will be
issued unless the Commission orders a hearing. Interested persons may request a
hearing by writing to the Secretary of the Commission and serving Applicants
with a copy of the request, personally or by mail. Hearing requests should be
received by the Commission by 5:30 p.m., on October 12, 1999, and should be
accompanied by proof of service on the Applicants in the form of an affidavit

                                       26
<PAGE>

or, for lawyers, a certificate of service. Hearing requests should state the
nature of the writer's interest, the reason for the request, and the issues
contested. Persons who wish to be notified of a hearing may request notification
by writing to the Secretary of the Commission.

   Addresses: Secretary, Securities and Exchange Commission, 450 Fifth Street,
NW, Washington, D.C. 20549-0609.

   Applicants: Templeton Variable Products Series Fund and Franklin Templeton
Variable Insurance Products Trust, 777 Mariners Island Boulevard, San Mateo,
California 94404, Attn: Karen L. Skidmore, Esq.

   For Further Information Contact: Kevin P. McEnery, Senior Counsel, or Susan
M. Olson, Branch Chief, Office of Insurance Products, Division of Investment
Management, at (202) 942-0670.

   Supplementary Information: The following is a summary of the application. The
complete application is available for a fee from the SEC's Public Reference
Branch, 450 Fifth Street, N.W., Washington, D.C. 20549-0102 (tel.(202)942-8090).

   Applicants' Representations:

   1. Each of the Funds is registered under the 1940 Act as an open-end
management investment company and was organized as a Massachusetts business
trust. The Templeton Trust currently consists of eight separate series, and the
VIP Trust consists of twenty-five separate series. Each Fund's Declaration of
Trust permits the Trustees to create additional series of shares at any time.
The Funds currently serve as the underlying investment medium for variable
annuity contracts and variable life insurance policies issued by various
insurance companies. The Funds have entered into investment management
agreements with certain investment managers ("Investment Managers") directly or
indirectly owned by Franklin Resources, Inc. ("Resources"), a publicly owned
company engaged in the financial services industry through its subsidiaries.

   2. TFAC is an indirect, wholly owned subsidiary of Resources. TFAC is the
sole insurance company in the Franklin Templeton organization, and specializes
in the writing of variable annuity contracts. The Templeton Trust has entered
into a Fund Administration Agreement with Franklin Templeton Services, Inc. ("FT
Services"), which replaced TFAC in 1998 as administrator, and FT Services
subcontracts certain services to TFAC. FT Services also serves as administrator
to all series of the VIP Trust. TFAC and FT Services provide certain
administrative facilities and services for the VIP and Templeton Trusts.

   3. On November 16, 1993, the Commission issued an order granting exemptive
relief to permit shares of the Templeton Trust to be sold to and held by
variable annuity and variable life insurance separate accounts of both
affiliated and unaffiliated life insurance companies (Investment Company Act
Release No. 19879, File No. 812-8546) (the "Original Order"). Applicants
incorporate by reference into the application the Application for the Original
Order and each amendment thereto, the Notice of Application for the Original
Order, and the Original Order, to the extent necessary, to supplement the
representations made in the application in support of the requested relief.

                                       27
<PAGE>

Applicants represent that all of the facts asserted in the Application for the
Original Order and any amendments thereto remain true and accurate in all
material respects to the extent that such facts are relevant to any relief on
which Applicants continue to rely. The Original Order allows the Templeton Trust
to offer its shares to insurance companies as the investment vehicle for their
separate accounts supporting variable annuity contracts and variable life
insurance contracts (collectively, the "Variable Contracts"). Applicants state
that the Original Order does not (i) include the VIP Trust or Future Funds as
parties, nor (ii) expressly address the sale of shares of the Funds or any
Future Funds to qualified pension and retirement plans outside the separate
account context including, without limitation, those trusts, plans, accounts,
contracts or annuities described in Sections 401(a), 403(a), 403(b), 408(b),
408(k), 414(d), 457(b), 501(c)(18) of the Internal Revenue Code of 1986, as
amended (the "Code"), and any other trust, plan, contract, account or annuity
that is determined to be within the scope of Treasury Regulation
1.817.5(f)(3)(iii) ("Qualified Plans").

   4. Separate accounts owning shares of the Funds and their insurance company
depositors are referred to in the application as "Participating Separate
Accounts" and "Participating Insurance Companies," respectively. The use of a
common management investment company as the underlying investment medium for
both variable annuity and variable life insurance separate accounts of a single
insurance company (or of two or more affiliated insurance companies) is referred
to as "mixed funding." The use of a common management investment company as the
underlying investment medium for variable annuity and/or variable life insurance
separate accounts of unaffiliated insurance companies is referred to as "shared
funding."

   Applicants' Legal Analysis:

   1. Applicants request that the Commission issue an amended order pursuant to
Section 6(c) of the 1940 Act, adding the VIP Trust and Future Funds to the
Original Order and exempting scheduled premium variable life insurance separate
accounts and flexible premium variable life insurance separate accounts of
Participating Insurance Companies (and, to the extent necessary, any principal
underwriter and depositor of such an account) and the Applicants from Sections
9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) (and any comparable rule) thereunder, respectively, to the extent
necessary to permit shares of the Funds and any Future Funds to be sold to and
held by Qualified Plans. Applicants submit that the exemptions requested are
appropriate in the public interest, consistent with the protection of investors,
and consistent with the purposes fairly intended by the policy and provisions of
the 1940 Act.

   2. The Original Order does not include the VIP Trust or Future Funds as
parties nor expressly address the sale of shares of the Funds or any Future
Funds to Qualified Plans. Applicants propose that the VIP Trust and Future Funds
be added as parties to the Original Order and the Funds and any Future Funds be
permitted to offer and sell their shares to Qualified Plans.

   3. Section 6(c) of the 1940 Act provides, in part, that the Commission, by
order upon application, may conditionally or unconditionally exempt any person,
security or transaction, or any class or classes of persons, securities or
transactions from any provisions of the 1940 Act or the rules or regulations
thereunder, if and to the extent that such exemption is necessary or appropriate

                                       28
<PAGE>

in the public interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the 1940 Act.

   4. In connection with the funding of scheduled premium variable life
insurance contracts issued through a separate account registered under the 1940
Act as a unit investment trust ("UIT"), Rule 6e-2(b)(15) provides partial
exemptions from various provisions of the 1940 Act, including the following: (1)
Section 9(a), which makes it unlawful for certain individuals to act in the
capacity of employee, officer, or director for a UIT, by limiting the
application of the eligibility restrictions in Section 9(a) to affiliated
persons directly participating in the management of a registered management
investment company; and (2) Sections 13(a), 15(a) and 15(b) of the 1940 Act to
the extent that those sections might be deemed to require "pass-through" voting
with respect to an underlying fund's shares, by allowing an insurance company to
disregard the voting instructions of contractowners in certain circumstances.

   5. These exemptions are available, however, only where the management
investment company underlying the separate account (the "underlying fund")
offers its shares "exclusively to variable life insurance separate accounts of
the life insurer, or of any affiliated life insurance company." Therefore, Rule
6e-2 does not permit either mixed funding or shared funding because the relief
granted by Rule 6e-2(b)(15) is not available with respect to a scheduled premium
variable life insurance separate account that owns shares of an underlying fund
that also offers its shares to a variable annuity or a flexible premium variable
life insurance separate account of the same company or of any affiliated life
insurance company. Rule 6e-2(b)(15) also does not permit the sale of shares of
the underlying fund to Qualified Plans.

   6. In connection with flexible premium variable life insurance contracts
issued through a separate account registered under the 1940 Act as a UIT, Rule
6e-3(T)(b)(15) also provides partial exemptions from Sections 9(a), 13(a), 15(a)
and 15(b) of the 1940 Act. These exemptions, however, are available only where
the separate account's underlying fund offers its shares "exclusively to
separate accounts of the life insurer, or of any affiliated life insurance
company, offering either scheduled contracts or flexible contracts, or both; or
which also offer their shares to variable annuity separate accounts of the life
insurer or of an affiliated life insurance company." Therefore, Rule 6e-3(T)
permits mixed funding but does not permit shared funding and also does not
permit the sale of shares of the underlying fund to Qualified Plans. As noted
above, the Original Order granted the Templeton Trust exemptive relief to permit
mixed and shared funding, but did not expressly address the sale of its shares
to Qualified Plans.

   7. Applicants note that if the Funds were to sell their shares only to
Qualified Plans, exemptive relief under Rule 6e-2 and Rule 6e-3(T) would not be
necessary. Applicants state that the relief provided for under Rule 6e-2(b)(15)
and Rule 6e-3(T)(b)(15) does not relate to qualified pension and retirement
plans or to a registered investment company's ability to sell its shares to such
plans.

   8. Applicants state that changes in the federal tax law have created the
opportunity for each of the Funds to increase its asset base through the sale of
its shares to Qualified Plans. Applicants state that Section 817(h) of the
Internal Revenue Code of 1986, as amended (the "Code"), imposes certain
diversification standards on the assets underlying Variable Contracts. Treasury

                                       29
<PAGE>

Regulations generally require that, to meet the diversification requirements,
all of the beneficial interests in the underlying investment company must be
held by the segregated asset accounts of one or more life insurance companies.
Notwithstanding this, Applicants note that the Treasury Regulations also contain
an exception to this requirement that permits trustees of a Qualified Plan to
hold shares of an investment company, the shares of which are also held by
insurance company segregated asset accounts, without adversely affecting the
status of the investment company as an adequately diversified underlying
investment of Variable Contracts issued through such segregated asset accounts
(Treas. Reg. 1.817-5(f)(3)(iii)).

   9. Applicants state that the promulgation of Rules 6e-2(b)(15) and
6e-3(T)(b)(15) under the 1940 Act preceded the issuance of these Treasury
Regulations. Thus, Applicants assert that the sale of shares of the same
investment company to both separate accounts and Qualified Plans was not
contemplated at the time of the adoption of Rules 6e-2(b)(15) and
6e-3(T)(b)(15).

   10. Section 9(a) provides that it is unlawful for any company to serve as
investment adviser or principal underwriter of any registered open-end
investment company if an affiliated person of that company is subject to a
disqualification enumerated in Section 9(a)(1) or (2). Rules 6e-2(b)(15) and
6e-3(T)(b)(15) provide exemptions from Section 9(a) under certain circumstances,
subject to the limitations on mixed and shared funding. These exemptions limit
the application of the eligibility restrictions to affiliated individuals or
companies that directly participate in the management of the underlying
portfolio investment company.

   11. Applicants state that the relief granted in Rule 6e-2(b)(15) and
6e-3(T)(b)(15) from the requirements of Section 9 limits, in effect, the amount
of monitoring of an insurer's personnel that would otherwise be necessary to
ensure compliance with Section 9 to that which is appropriate in light of the
policy and purposes of Section 9. Applicants submit that those Rules recognize
that it is not necessary for the protection of investors or the purposes fairly
intended by the policy and provisions of the 1940 Act to apply the provisions of
Section 9(a) to the many individuals involved in an insurance company complex,
most of whom typically will have no involvement in matters pertaining to
investment companies funding the separate accounts.

   12. Applicants to the Original Order previously requested and received relief
from Section 9(a) and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) to the extent
necessary to permit mixed and shared funding. Applicants maintain that the
relief previously granted from Section 9(a) will in no way be affected by the
proposed sale of shares of the Funds to Qualified Plans. Those individuals who
participate in the management or administration of the Funds will remain the
same regardless of which Qualified Plans use such Funds. Applicants maintain
that more broadly applying the requirements of Section 9(a) because of
investment by Qualified Plans would not serve any regulatory purpose. Moreover,
Qualified Plans, unlike separate accounts, are not themselves investment
companies and therefore are not subject to Section 9 of the 1940 Act.

   13. Applicants state that Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii)
provide exemptions from the pass-through voting requirement with respect to
several significant matters, assuming the limitations on mixed and shared
funding are observed. Rules 6e-2(b)(15)(iii)(A) and 6e-3(T)(b)(15)(iii)(A)
provide that the insurance company may disregard the voting instructions of its

                                       30
<PAGE>

contractowners with respect to the investments of an underlying fund or any
contract between a fund and its investment adviser, when required to do so by an
insurance regulatory authority (subject to the provisions of paragraphs
(b)(5)(i) and (b)(7)(ii)(A) of the Rules). Rules 6e-2(b)(15)(iii)(B) and
6e-3(T)(b)(15)(iii)(A)(2) provide that the insurance company may disregard
contractowners' voting instructions if the contractowners initiate any change in
such company's investment policies, principal underwriter, or any investment
adviser (provided that disregarding such voting instructions is reasonable and
subject to the other provisions of paragraphs (b)(5)(ii) and (b)(7)(ii)(B) and
(C) of the Rules).

   14. Applicants assert that Qualified Plans, which are not registered as
investment companies under the 1940 Act, have no requirement to pass-through the
voting rights to plan participants. Applicants state that applicable law
expressly reserves voting rights to certain specified persons. Under Section
403(a) of the Employment Retirement Income Security Act ("ERISA"), shares of a
fund sold to a Qualified Plan must be held by the trustees of the Qualified
Plan. Section 403(a) also provides that the trustee(s) must have exclusive
authority and discretion to manage and control the Qualified Plan with two
exceptions: (1) when the Qualified Plan expressly provides that the trustee(s)
are subject to the direction of a named fiduciary who is not a trustee, in which
case the trustees are subject to proper directions made in accordance with the
terms of the Qualified Plan and not contrary to ERISA; and (2) when the
authority to manage, acquire or dispose of assets of the Qualified Plan is
delegated to one or more investment managers pursuant to Section 402(c)(3) of
ERISA. Unless one of the two above exceptions stated in Section 403(a) applies,
Qualified Plan trustees have the exclusive authority and responsibility for
voting proxies. Where a named fiduciary to a Qualified Plan appoints an
investment manager, the investment manager has the responsibility to vote the
shares held unless the right to vote such shares is reserved to the trustees or
the named fiduciary. Where a Qualified Plan does not provide participants with
the right to give voting instructions, Applicants do not see any potential for
material irreconcilable conflicts of interest between or among variable contract
holders and Qualified Plan investors with respect to voting of the respective
Fund's shares. Accordingly, Applicants state that, unlike the case with
insurance company separate accounts, the issue of the resolution of material
irreconcilable conflicts with respect to voting is not present with respect to
such Qualified Plans since the Qualified Plans are not entitled to pass-through
voting privileges.

   15. Even if a Qualified Plan were to hold a controlling interest in one of
the Funds, Applicants believe that such control would not disadvantage other
investors in such Fund to any greater extent than is the case when any
institutional shareholder holds a majority of the voting securities of any
open-end management investment company. In this regard, Applicants submit that
investment in a Fund by a Qualified Plan will not create any of the voting
complications occasioned by mixed funding or shared funding. Unlike mixed or
shared funding, Qualified Plan investor voting rights cannot be frustrated by
veto rights of insurers or state regulators.

   16. Applicants state that some of the Qualified Plans, however, may provide
for the trustee(s), an investment adviser (or advisers), or another named
fiduciary to exercise voting rights in accordance with instructions from
participants. Where a Qualified Plan provides participants with the right to
give voting instructions, Applicants see no reason to believe that participants
in Qualified Plans generally or those in a particular Qualified Plan, either as
a single group or in combination with participants in other Qualified Plans,

                                       31
<PAGE>

would vote in a manner that would disadvantage Variable Contract holders. In
sum, Applicants maintain that the purchase of shares of the Funds by Qualified
Plans that provide voting rights does not present any complications not
otherwise occasioned by mixed or shared funding.

   17. Applicants do not believe that the sale of the shares of the Funds to
Qualified Plans will increase the potential for material irreconcilable
conflicts of interest between or among different types of investors. In
particular, Applicants see very little potential for such conflicts beyond that
which would otherwise exist between variable annuity and variable life insurance
contractowners.

   18. As noted above, Section 817(h) of the Code imposes certain
diversification standards on the underlying assets of variable contracts held in
an underlying mutual fund. The Code provides that a variable contract shall not
be treated as an annuity contract or life insurance, as applicable, for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the Treasury Department, adequately
diversified.

   19. Treasury Department Regulations issued under Section 817(h) provide that,
in order to meet the statutory diversification requirements, all of the
beneficial interests in the investment company must be held by the segregated
asset accounts of one or more insurance companies. However, the Regulations
contain certain exceptions to this requirement, one of which allows shares in an
underlying mutual fund to be held by the trustees of a qualified pension or
retirement plan without adversely affecting the ability of shares in the
underlying fund also to be held by separate accounts of insurance companies in
connection with their variable contracts (Treas. Reg. 1.817-5(f)(3)(iii)). Thus,
Applicants believe that the Treasury Regulations specifically permit "qualified
pension or retirement plans" and separate accounts to invest in the same
underlying fund. For this reason, Applicants have concluded that neither the
Code nor the Treasury Regulations or revenue rulings thereunder presents any
inherent conflict of interest.

   20. Applicants note that while there are differences in the manner in which
distributions from Variable Contracts and Qualified Plans are taxed, these
differences will have no impact on the Funds. When distributions are to be made,
and a Separate Account or Qualified Plan is unable to net purchase payments to
make the distributions, the Separate Account and Qualified Plan will redeem
shares of the Funds at their respective net asset value in conformity with Rule
22c-1 under the 1940 Act (without the imposition of any sales charge) to provide
proceeds to meet distribution needs. A Qualified Plan will make distributions in
accordance with the terms of the Qualified Plan.

   21. Applicants maintain that it is possible to provide an equitable means of
giving voting rights to Participating Separate Account contractowners and to
Qualified Plans. In connection with any meeting of shareholders, the Funds will
inform each shareholder, including each Participating Insurance Company and
Qualified Plan, of information necessary for the meeting, including their
respective share of ownership in the relevant Fund. Each Participating Insurance
Company will then solicit voting instructions in accordance with Rules 6e-2 and
6e-3(T), as applicable, and its participation agreement with the relevant Fund.
Shares held by Qualified Plans will be voted in accordance with applicable law.
The voting rights provided to Qualified Plans with respect to shares of the

                                       32
<PAGE>

Funds would be no different from the voting rights that are provided to
Qualified Plans with respect to shares of funds sold to the general public.

   22. Applicants have concluded that even if there should arise issues with
respect to a state insurance commissioner's veto powers over investment
objectives where the interests of contractowners and the interests of Qualified
Plans are in conflict, the issues can be almost immediately resolved since the
trustees of (or participants in) the Qualified Plans can, on their own, redeem
the shares out of the Funds. Applicants note that state insurance commissioners
have been given the veto power in recognition of the fact that insurance
companies usually cannot simply redeem their separate accounts out of one fund
and invest in another. Generally, time-consuming, complex transactions must be
undertaken to accomplish such redemptions and transfers. Conversely, the
trustees of Qualified Plans or the participants in participant-directed
Qualified Plans can make the decision quickly and redeem their interest in the
Funds and reinvest in another funding vehicle without the same regulatory
impediments faced by separate accounts or, as is the case with most Qualified
Plans, even hold cash pending suitable investment.

   23. Applicants also state that they do not see any greater potential for
material irreconcilable conflicts arising between the interests of participants
under Qualified Plans and contractowners of Participating Separate Accounts from
possible future changes in the federal tax laws than that which already exist
between variable annuity contractowners and variable life insurance
contractowners.

   24. Applicants state that the sale of shares of the Funds to Qualified Plans
in addition to separate accounts of Participating Insurance Companies will
result in an increased amount of assets available for investment by the Funds.
This may benefit variable contractowners by promoting economies of scale, by
permitting increased safety of investments through greater diversification, and
by making the addition of new portfolios more feasible.

   25. Applicants assert that, regardless of the type of shareholders in each
Fund, each Fund's Investment Manager is or would be contractually and otherwise
obligated to manage the Fund solely and exclusively in accordance with that
Fund's investment objectives, policies and restrictions as well as any
guidelines established by the Board of Trustees of such Fund (the "Board"). The
Investment Manager works with a pool of money and (except in a few instances
where this may be required in order to comply with state insurance laws) does
not take into account the identity of the shareholders. Thus, each Fund will be
managed in the same manner as any other mutual fund. Applicants therefore see no
significant legal impediment to permitting the sale of shares of the Funds to
Qualified Plans.

   26. Applicants state that the Commission has permitted the amendment of a
substantially similar original order for the purpose of adding a party to the
original order and has permitted open-end management investment companies to
offer their shares directly to Qualified Plan in addition to separate accounts
of affiliated or unaffiliated insurance companies which issue either or both
variable annuity contracts or variable life insurance contracts. Applicants
state that the amended order sought in the application is identical to precedent
with respect to the conditions Applicants propose should be imposed on Qualified
Plans in connection with investment in the Funds.

                                       33
<PAGE>

   Applicants' Conditions:

   If the requested amended order is granted, Applicants consent to the
following conditions:

   1. A majority of the Board of each Fund shall consist of persons who are not
"interested persons" thereof, as defined by Section 2(a)(19) of the 1940 Act,
and the rules thereunder and as modified by any applicable orders of the
Commission, except that if this condition is not met by reason of the death,
disqualification or bona fide resignation of any Board Member or Members, then
the operation of this condition shall be suspended: (a) for a period of 45 days
if the vacancy or vacancies may be filled by the remaining Board Members; (b)
for a period of 60 days if a vote of shareholders is required to fill the
vacancy or vacancies; or (c) for such longer period as the Commission may
prescribe by order upon application.

   2. The Board will monitor their respective Fund for the existence of any
material irreconcilable conflict among the interests of the Variable Contract
owners of all Separate Accounts investing in the Funds and of the Qualified Plan
participants investing in the Funds. The Board will determine what action, if
any, shall be taken in response to such conflicts. A material irreconcilable
conflict may arise for a variety of reasons, including: (a) an action by any
state insurance regulatory authority; (b) a change in applicable federal or
state insurance, tax or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretive letter, or any similar action
by insurance, tax or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of the Funds are being managed; (e) a difference in voting
instructions given by variable annuity contract owners, variable life insurance
contract owners, and trustees of Qualified Plans; (f) a decision by an insurer
to disregard the voting instructions of Variable Contract owners; or (g) if
applicable, a decision by a Qualified Plan to disregard the voting instructions
of Qualified Plan participants.

   3. Participating Insurance Companies, the Investment Managers, and any
Qualified Plan that executes a fund participation agreement upon becoming an
owner of 10 percent or more of the assets of an Fund (a "Participating Qualified
Plan"), will report any potential or existing conflicts of which it becomes
aware to the Board of any relevant Fund. Participating Insurance Companies, the
Investment Managers and the Participating Qualified Plans will be responsible
for assisting the Board in carrying out its responsibilities under these
conditions by providing the Board with all information reasonably necessary for
the Board to consider any issues raised. This responsibility includes, but is
not limited to, an obligation by each Participating Insurance Company to inform
the Board whenever voting instructions of Contract owners are disregarded and,
if pass-through voting is applicable, an obligation by each Participating
Qualified Plan to inform the Board whenever it has determined to disregard
Qualified Plan participant voting instructions. The responsibility to report
such information and conflicts, and to assist the Board, will be contractual
obligations of all Participating Insurance Companies investing in the Funds
under their agreements governing participation in the Funds, and such agreements
shall provide that these responsibilities will be carried out with a view only
to the interests of the Variable Contract owners. The responsibility to report
such information and conflicts, and to assist the Board, will be contractual
obligations of all Participating Qualified Plans under their agreements
governing participation in the Funds, and such agreements will provide that

                                       34
<PAGE>

their responsibilities will be carried out with a view only to the interests of
Qualified Plan participants.

   4. If it is determined by a majority of the Board of a Fund, or by a majority
of the disinterested Board Members, that a material irreconcilable conflict
exists, the relevant Participating Insurance Companies and Participating
Qualified Plans will, at their own expense and to the extent reasonably
practicable as determined by a majority of the disinterested Board Members, take
whatever steps are necessary to remedy or eliminate the material irreconcilable
conflict, which steps could include: (a) in the case of Participating Insurance
Companies, withdrawing the assets allocable to some or all of the Separate
Account s from the Fund or any portfolio thereof and reinvesting such assets in
a different investment medium, including another portfolio of an Fund or another
Fund, or submitting the question as to whether such segregation should be
implemented to a vote of all affected Variable Contract owners and, as
appropriate, segregating the assets of any appropriate group (i.e., variable
annuity contract owners or variable life insurance contract owners of one or
more Participating Insurance Companies) that votes in favor of such segregation,
or offering to the affected Variable Contract owners the option of making such a
change; (b) in the case of Participating Qualified Plans, withdrawing the assets
allocable to some or all of the Qualified Plans from the Fund and reinvesting
such assets in a different investment medium; and (c) establishing a new
registered management investment company or managed Separate Account. If a
material irreconcilable conflict arises because of a decision by a Participating
Insurance Company to disregard Variable Contract owner voting instructions, and
that decision represents a minority position or would preclude a majority vote,
then the insurer may be required, at the Fund's election, to withdraw the
insurer's Separate Account investment in such Fund, and no charge or penalty
will be imposed as a result of such withdrawal. If a material irreconcilable
conflict arises because of a Participating Qualified Plan's decision to
disregard Qualified Plan participant voting instructions, if applicable, and
that decision represents minority position or would preclude a majority vote,
the Participating Qualified Plan may be required, at the Fund's election, to
withdraw its investment in such Fund, and no charge or penalty will be imposed
as a result of such withdrawal. The responsibility to take remedial action in
the event of a determination by a Board of a material irreconcilable conflict
and to bear the cost of such remedial action will be a contractual obligation of
all Participating Insurance Companies and Participating Qualified Plans under
their agreements governing participation in the Funds, and these
responsibilities will be carried out with a view only to the interest of
Variable Contract owners and Qualified Plan participants.

   5. For purposes of Condition 4, a majority of the disinterested Board Members
of the applicable Board will determine whether or not any proposed action
adequately remedies any material irreconcilable conflict, but in no event will
the relevant Fund or the Investment Managers be required to establish a new
funding medium for any Contract. No Participating Insurance Company shall be
required by Condition 4 to establish a new funding medium for any Variable
Contract if any offer to do so has been declined by vote of a majority of the
Variable Contract owners materially and adversely affected by the material
irreconcilable conflict. Further, no Participating Qualified Plan shall be
required by Condition 4 to establish a new funding medium for any Participating
Qualified Plan if (a) a majority of Qualified Plan participants materially and
adversely affected by the irreconcilable material conflict vote to decline such
offer, or (b) pursuant to governing Qualified Plan documents and applicable law,

                                       35
<PAGE>

the Participating Qualified Plan makes such decision without a Qualified Plan
participant vote.

   6. The determination of the Board of the existence of a material
irreconcilable conflict and its implications will be made known in writing
promptly to all Participating Insurance Companies and Participating Qualified
Plans.

   7. Participating Insurance Companies will provide pass-through voting
privileges to Variable Contract owners who invest in registered Separate
Accounts so long as and to the extent that the Commission continues to interpret
the 1940 Act as requiring pass-through voting privileges for Variable Contract
owners. As to Variable Contracts issued by unregistered Separate Accounts,
pass-through voting privileges will be extended to participants to the extent
granted by issuing insurance companies. Each Participating Insurance Company
will also vote shares of the Funds held in its Separate Accounts for which no
voting instructions from Contract owners are timely received, as well as shares
of the Funds which the Participating Insurance Company itself owns, in the same
proportion as those shares of the Funds for which voting instructions from
contract owners are timely received. Participating Insurance Companies will be
responsible for assuring that each of their registered Separate Accounts
participating in the Funds calculates voting privileges in a manner consistent
with other Participating Insurance Companies. The obligation to calculate voting
privileges in a manner consistent with all other registered Separate Accounts
investing in the Funds will be a contractual obligation of all Participating
Insurance Companies under their agreements governing their participation in the
Funds. Each Participating Qualified Plan will vote as required by applicable law
and governing Qualified Plan documents.

   8. All reports of potential or existing conflicts received by the Board of a
Fund and all action by such Board with regard to determining the existence of a
conflict, notifying Participating Insurance Companies and Participating
Qualified Plans of a conflict, and determining whether any proposed action
adequately remedies a conflict, will be properly recorded in the minutes of the
meetings of such Board or other appropriate records, and such minutes or other
records shall be made available to the Commission upon request.

   9. Each Fund will notify all Participating Insurance Companies that separate
disclosure in their respective Separate Account prospectuses may be appropriate
to advise accounts regarding the potential risks of mixed and shared funding.
Each Fund shall disclose in its prospectus that (a) the Fund is intended to be a
funding vehicle for variable annuity and variable life insurance contracts
offered by various insurance companies and for qualified pension and retirement
plans; (b) due to differences of tax treatment and other considerations, the
interests of various Contract owners participating in the Fund and/or the
interests of Qualified Plans investing in the Fund may at some time be in
conflict; and (c) the Board of such Fund will monitor events in order to
identify the existence of any material irreconcilable conflicts and to determine
what action, if any, should be taken in response to any such conflict.

   10. Each Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders (which, for these purposes, will be the persons having a
voting interest in the shares of the Funds), and, in particular, the Funds will
either provide for annual shareholder meetings (except insofar as the Commission

                                       36
<PAGE>

may interpret Section 16 of the 1940 Act not to require such meetings) or comply
with Section 16(c) of the 1940 Act, although the Funds are not the type of trust
described in Section 16(c) of the 1940 Act, as well as with Section 16(a) of the
1940 Act and, if and when applicable, Section 16(b) of the 1940 Act. Further,
each Fund will act in accordance with the Commission's interpretation of the
requirements of Section 16(a) with respect to periodic elections of Board
Members and with whatever rules the Commission may promulgate with respect
thereto.

   11. If and to the extent Rules 6e-2 or 6e-3(T) under the 1940 Act is amended,
or proposed Rule 6e-3 under the 1940 Act is adopted, to provide exemptive relief
from any provision of the 1940 Act or the rules promulgated thereunder, with
respect to mixed or shared funding on terms and conditions materially different
from any exemptions granted in the order requested in the application, then the
Funds and/or Participating Insurance Companies and Participating Qualified
Plans, as appropriate, shall take such steps as may be necessary to comply with
such Rules 6e-2 and 6e-3(T), as amended, or proposed Rule 6e-3, as adopted, to
the extent that such Rules are applicable.

   12. The Participating Insurance Companies and Participating Qualified Plans
and/or the Investment Managers, at least annually, will submit to the Board such
reports, materials or data as the Board may reasonably request so that the Board
may fully carry out obligations imposed upon it by the conditions contained in
the application. Such reports, materials and data will be submitted more
frequently if deemed appropriate by the Board. The obligations of the
Participating Insurance Companies and Participating Qualified Plans to provide
these reports, materials and data to the Board, when the Board so reasonably
requests, shall be a contractual obligation of all Participating Insurance
Companies and Participating Qualified Plans under their agreements governing
participation in the Funds.

   13. If a Qualified Plan should ever become a holder of ten percent or more of
the assets of a Fund, such Qualified Plan will execute a participation agreement
with the Fund that includes the conditions set forth herein to the extent
applicable. A Qualified Plan will execute an application containing an
acknowledgment of this condition upon such Qualified Plan's initial purchase of
the shares of any Fund.

   Conclusion:

   Applicants assert that, for the reasons summarized above, the requested
exemptions are appropriate in the public interest and consistent with the
protection of investors and the purposes fairly intended by the policy and
provisions of the 1940 Act.

   For the Commission, by the Division of Investment Management, pursuant to
delegated authority.



                                       37
<PAGE>

                 Templeton Variable Products Series Fund, et al.

                               File No. 812-11698

                       SECURITIES AND EXCHANGE COMMISSION

                              Release No. IC-24079

                               1999 SEC LEXIS 2177

                                October 13, 1999

ACTION:  Order Granting Exemptions

TEXT: Templeton Variable Products Series Fund ("Templeton Trust"), Franklin
Templeton Variable Insurance Products Trust ("VIP Trust"), Templeton Funds
Annuity Company ("TFAC") or any successor to TFAC, and any future open-end
investment company for which TFAC or any affiliate is the administrator,
sub-administrator, investment manager, adviser, principal underwriter, or
sponsor ("Future Funds") filed an application on July 14, 1999, and an amendment
on September 17, 1999 seeking an amended order of the Commission pursuant to
Section 6(c) of the Investment Company Act of 1940 ("1940 Act") exempting them
from the provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15). The prior order (Rel. No. IC-19879)
granted exemptive relief to permit shares of the Templeton Trust to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies. The proposed relief
would amend the prior order to add as parties to that order the VIP Trust and
any Future Funds and to permit shares of the Templeton Trust, the VIP Trust, and
Future Funds to be issued to and held by qualified pension and retirement plans
outside the separate account context.

   A notice of the filing of the application was issued on September 17, 1999
(Rel. No.IC-24018). The notice gave interested persons an opportunity to request
a hearing and stated that an order granting the application would be issued
unless a hearing should be ordered. No request for a hearing has been filed, and
the Commission has not ordered a hearing.

   The matter has been considered, and it is found that granting the requested
exemptions is appropriate in the public interest and consistent with the
protection of investors and the purposes intended by the policy and provisions
of the 1940 Act.

   Accordingly,

   IT IS ORDERED, pursuant to Section 6(c) of the 1940 Act, that the requested
exemptions from Sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and Rules
6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, be, and hereby are, granted,
effective forthwith.

<PAGE>

   For the Commission, by the Division of Investment Management, pursuant to
delegated authority.




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.50
<SEQUENCE>7
<FILENAME>0007.txt
<DESCRIPTION>KOREA AGREEMENT
<TEXT>


- --------------------------------------------------------------------------------


                            STOCK PURCHASE AGREEMENT


- --------------------------------------------------------------------------------





                                 BY AND BETWEEN

                        GOOD MORNING SECURITIES CO., LTD.

                                       AND

                       TEMPLETON INVESTMENT COUNSEL, INC.











                             DATED: 29th JUNE, 2000



<PAGE>


                            STOCK PURCHASE AGREEMENT

This STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of 29th
June, 2000 by and between Good Morning Securities Co., Ltd., a corporation
incorporated under the 1aws of Republic of Korea and having its principal place
of business at Good Morning Tower, 23-2, Youido-dong, Yongdungpo-gu, Seoul,
Korea 150-712 (the "Seller") and Templeton Investment Counsel, Inc., a
corporation incorporated under the laws of the state of Florida, United States
of America and having its principal place of business at 500 East Broward Blvd.
Suite 2100, Fort Lauderdale, Florida 33394, (the "Buyer").

Seller and Buyer are hereinafter referred to collectively as the "Parties" and
individually as a "Party."

                                   WITNESSETH

WHEREAS, the Seller is the owner of 3,207,000 shares of common stock (the Sale
Shares") of Templeton Investment Trust Management Company Limited, a corporation
duly organized and validly existing under the laws of Korea (the "Company"); and

WHEREAS, the Seller desires to sell to the Buyer, and the Buyer desires to
purchase from Seller, the Sale Shares under the terms and conditions set forth
herein.

NOW, THEREFORE, in consideration of the mutual premises and covenants and
agreements contained herein below, and intending to be legally bound hereby, the
Parties hereby agree as follows:

ARTICLE 1.  SALE AND PURCHASE OF THE SHARES

1.1 SALE AND PURCHASE OF THE SALE SHARES. Subject to the terms and conditions
set forth on this Agreement, the Seller agrees to sell the Buyer, and the Buyer
agree to purchase the from the Seller, the Sale Shares. The total price to be
paid by the Buyer for the Sale Shares shale be aggregate of KRW 21,151,730,000
less any adjustments to the Purchase Price as agreed to by the Parties (the
"Purchase Price").

ARTICLE 2.  CLOSING

2.1 CLOSING DATE. The purchase and sale of the Sale Shares contemplated by this
Agreement shall be consummated at a closing (the "Closing) to be held on 31st
July, 2000, at the principal place of business of the Company or at such other
time as the Parties to this Agreement may agree (such date and time being herein
referred to as the "Closing Date").

2.2 CLOSING DELIVERIES OF THE SELLER. At or as of the Closing, the Seller shall
deliver, or have delivered, to the Buyer the stock certificates representing the
Sale Shares, duly endorsed for transfer to the Buyer.

2.3 CLOSING DELIVERIES OF THE BUYER. At or as of the Closing, the Buyer shall
deliver, or have delivered, to the Buyer an instrument evidencing that the
<PAGE>

Purchase Price has been paid by means of wire transfer of immediately available
funds to the bank account designated by the Seller.

ARTICLE 3.  TERMINATION

3.1 TERMINATION. The obligation of the Parties hereto to consummate the purchase
and the sale contemplated hereby may be terminated and abandoned at any time on
or before the Closing Date by the mutual agreement of the Parties.

ARTICLE 4.  MISCELLANEOUS

4.1 ARBITRATION. Any disagreement, dispute, controversy or claim arising out of
relating to this Agreement or in the interpretation hereof or any arrangements
relating hereto or contemplated herein or the breach, termination or invalidity
hereof shall be settled exclusively and finally by arbitration. The arbitration
shall be conducted pursuant to the Rules of Arbitration of the International
Chamber of Commerce (the "ICC Rules"). The arbitrage triennial shall consist of
a single arbitrator appointed in accordance with the ICC Rules. The arbitration
shall be conducted in Korea unless otherwise mutually agreed by the Parties. The
language used in the arbitration shall be the English Language. Any decision or
award of the arbitral tribunal shall be final and binding upon the Parties to
the arbitration proceeding.

4.2   GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of Korea.

4.3 ASSIGNMENT. Neither Party may assign any of its rights or delegate any of
its duties under this Agreement without obtaining the prior written consent of
the other Party, provided, however, that Buyer may assign to an affiliate or
other designee the right to purchase all or part of the Sale Shares.

IN WITNESS WHEREOF, the Parties executed this agreement as of the date first
above written.




GOOD MORNING SECURITIES                   TEMPLETON INVESTMENT CO., LTD
COUNSEL, INC.
By: /s/ K. K. Doh                         By:  /s/ Michael Reed
        --------------------                       ------------------------
Name:   K. K. Doh                         Name:    Michael Reed
Title:  President & CEO                   Title:   Attorney in Fact




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.51
<SEQUENCE>8
<FILENAME>0008.txt
<DESCRIPTION>SOUTH AFRICA MERGER AGREEMENTS
<TEXT>


                                A G R E E M E N T

                              entered into between

                     NEDCOR INVESTMENT BANK HOLDINGS LIMITED
                     ---------------------------------------
          (a company duly incorporated in the Republic of South Africa
            with its principal place of business at 1 Newtown Avenue,
                                   Killarney)
                        (Registration No. 1963/003972/06)

                                       and

                         NEDCOR INVESTMENT BANK LIMITED
                         ------------------------------
          (a company duly incorporated in the Republic of South Africa
            with its principal place of business at 1 Newtown Avenue,
                                   Killarney)
                        (Registration No. 1955/003181/06)

                                       and

                          TEMPLETON INTERNATIONAL, INC.
                          -----------------------------
           (a company incorporated in accordance with the laws of the
                                State of Delaware

          with its principal place of business at Suite 2100, 500 East
                                Broward Boulevard
                        Fort Lauderdale, Florida, 33394)
                          (Corporate File No. 230 9185)

                                       and

            FRANKLIN TEMPLETON ASSET MANAGEMENT (PROPRIETARY) LIMITED
            ---------------------------------------------------------
           (a company incorporated in accordance with the laws of the
              Republic of South Africa with its principal place of
                   business at Harrow Court, Isle of Houghton,
                            Boundary Road, Parktown)
                        (Registration No. 1997/009637/07)

                                       and

                        TEMPLETON GLOBAL ADVISORS LIMITED
                        ---------------------------------
           (a company incorporated in accordance with the laws of the
             Commonwealth of the Bahamas with its principal place of
                    business at Lyford Cay, Nassau, Bahamas)
                             (Reference No. 38,984)


<PAGE>

                                TABLE OF CONTENTS

CLAUSE NO.              DESCRIPTION                         PAGE

PART I - PRELIMINARY.........................................1

1.    INTERPRETATION.........................................1

2.    PREAMBLE...............................................9

3.    CONDITION PRECEDENT...................................10

4.    DUE DILIGENCE INVESTIGATIONS..........................11

PART  II - SALE  OF THE  SOLD  SHARES,  SOLD  CLAIMS
           AND  THE BUSINESS................................12

5.    SALE OF THE SOLD SHARES AND THE SOLD CLAIMS...........12

6.    SALE OF THE BUSINESS..................................12

7.    PURCHASE PRICE........................................14

8.    PAYMENT OF THE PURCHASE PRICE.........................14

9.    THE DESIGNATED ACCOUNTS AND THE EFFECTIVE DATE ACCOUNTS16

10.   IMPLEMENTATION........................................18

11.   WARRANTIES AND REPRESENTATIONS........................20

12.   RELEASE FROM GUARANTEES...............................22

13.   SALE..................................................24

14.   PURCHASE PRICE........................................25

15.   PAYMENT OF THE PURCHASE PRICE.........................25

PART IV - GENERAL...........................................27

16.   SHAREHOLDERS AGREEMENT................................27

17.   PRE-IMPLEMENTATION DATE MATTERS.......................27

18.   POST IMPLEMENTATION DATE MATTERS......................29

19.   PUBLICITY.............................................31

<PAGE>

CLAUSE NO.              DESCRIPTION                         PAGE

20.   ARBITRATION...........................................31

21.   WHOLE AGREEMENT, NO AMENDMENT.........................34

22.   NOTICES...............................................36

23.   NO CESSION OR ASSIGNMENT..............................39

24.   INTEREST ON OVERDUE AMOUNTS...........................39

25.   COSTS.................................................39

26.   INDIVISIBILITY........................................40

27.   GOVERNING LAW.........................................40

ANNEXURE A - FAM DESIGNATED ACCOUNTS.........................1

ANNEXURE B - NIBAM DESIGNATED ACCOUNTS.......................1

ANNEXURE C - SHAREHOLDERS AGREEMENT..........................1

ANNEXURE D - THE BUSINESS....................................1

ANNEXURE E - PROVISIONS OF PAYMENT OF PURCHASE PRICE.........1

ANNEXURE F - SCHEDULE OF WARRANTIES GIVEN BY THE SELLER......1

ANNEXURE G - SCHEDULE OF WARRANTIES GIVEN BY TII.............1

ANNEXURE H - FORM OF UNDERTAKING TO THE
             FINANCIAL SERVICES BOARD........................1

<PAGE>

WHEREBY  IT  IS  AGREED  AS  FOLLOWS :
- ------------------------------------

                              PART I - PRELIMINARY

1.    INTERPRETATION

      The  headings  of the  clauses in this  agreement  are for the  purpose of
      convenience and reference only and shall not be used in the interpretation
      of nor  modify  nor  amplify  the terms of this  agreement  nor any clause
      hereof. Unless a contrary intention clearly appears -

      1.1. words importing -

           1.1.1.    any one  gender  include  the  other  two genders;

           1.1.2.    the  singular   include  the  plural  and VICE VERSA;  and

           1.1.3.    natural     persons    include    created entities
                    (corporate or unincorporate) and the state and VICE VERSA;

      1.2. the   following   terms  shall  have  the  meanings
           assigned to them hereunder and cognate  expressions
           shall have corresponding meanings, namely -

           1.2.1.    "Act"  means the  Companies  Act No 61 of 1973;

<PAGE>


                                                        Page 2

           1.2.2.    "business"  means  the  asset  management
                     business  and  related  activities   presently
                     conducted  by the NIBAM  group  referred to in
                     clause 6.1;

           1.2.3.    "Competition    Commission"   means   the
                     Competition  Commission  established under the
                     Competition Act, 1998;

           1.2.4.    "condition precedent" means the condition precedent
                     in clause 3.1;

           1.2.5.    "conversion  rate" means, in converting from US dollars to
                     South African Rands, the mid spot rate of exchange quoted
                     by the treasury division of NEDCOR INVESTMENT BANK  LIMITED
                     at 11h00 (South African time) on the implementation date;

           1.2.6.    "effective date" means 1 August 2000, provided  that if the
                     condition  precedent  has not been  fulfilled by 31 August
                     2000, the effective  date shall be the first day of the
                     calendar month during which the condition precedent is
                     fulfilled;

           1.2.7.    "FAM designated  accounts" means the unaudited draft
                     financial statements of the companies  comprising  the FAM
                     group as at the close of  business  on 30 June  2000  which
                     are  annexed  hereto marked ANNEXURE A;


<PAGE>


                                                        Page 3

           1.2.8.    "FAM effective  date accounts"  means the
                     audited financial  statements of the companies
                     comprising  the FAM  group as at the  close of
                     business on the date  preceding  the effective
                     date;

           1.2.9.    "FAM group" means collectively:-

                1.2.9.1.  the purchaser;

                1.2.9.2.  FRANKLIN    TEMPLETON     MANAGEMENT
                          COMPANY LIMITED;

           1.2.10.    "implementation   date"   means the later of:-

                 1.2.10.1.     1 August 2000; and

                 1.2.10.2.     the  business   day   following
                               that upon  which the  condition
                               precedent is fulfilled;

           1.2.11.   "liabilities" means, in respect of the members of the
                     NIBAM group and the members of the FAM group, any
                     liability  of any member of the relevant  group,  whether
                     actual or contingent, which  arose prior to the  effective
                     date  including  without limiting  the  generality  of the
                     aforegoing,  any  claims  or liabilities (including claims
                     or liabilities for consequential loss) as a result of any
                     breach of contract or legislation or any delict  occurring

<PAGE>

                                                        Page 4

                     prior to the  effective  date,  and any liability  of any
                     member of the  relevant  group for  taxation arising from
                     or out of the profits or income or activities of any
                     member of the  relevant group for any period  prior to the
                     effective date;

           1.2.12.   "merger"  means  the  merger  of the
                     asset  management   businesses  conducted  by
                     each of the  members  of the NIBAM  group and
                     the    members    of   the   FAM   group   as
                     contemplated by this agreement;

           1.2.13.  "NIBAM"  means NIB ASSET  MANAGEMENT LIMITED;

           1.2.14.  "NIBAM   companies"   means collectively:-

                 1.2.14.1.     NIBAM;

                 1.2.14.2.     NIB MANAGEMENT COMPANY LIMITED;

           1.2.15.  "NIBAM  designated   accounts"  means  the  unaudited  draft
                    financial  statements of each of the companies and the
                    business comprising  the NIBAM  group as at the close of
                    business on 30 June 2000, which are annexed hereto as
                    ANNEXURE B;



           1.2.16.  "NIBAM   effective   date  accounts"
                    means the  audited  financial  statements  of
                    each  of  the   companies  and  the  business
<PAGE>


                                                        Page 5

                    comprising  the  NIBAM  group as at the close
                    of   business  on  the  day   preceding   the
                    effective date;

           1.2.17.  "NIBAM group" means collectively:-

                 1.2.17.1.     the NIBAM companies; and

                 1.2.17.2.     the business;

           1.2.18.  "NIBF"  means NIB  INTERNATIONAL  FINANCE  LIMITED (a
                    company incorporated in the Isle of Man, having its
                    principal place of business at Nedcor House, 29 - 33 Bucks
                    Road, Douglas,  Isle of Man, 1M1 3DD (Registration No.
                    096059C));

           1.2.19. "purchaser"      means      FRANKLIN
                   TEMPLETON  ASSET   MANAGEMENT   (PROPRIETARY)
                   LIMITED;

           1.2.20. "seller"  means  NEDCOR   INVESTMENT BANK HOLDINGS LIMITED;

           1.2.21. "shareholders  agreement" means the agreement to be entered
                   into between the seller, the purchaser,  TGAL and TII in the
                   form of the draft agreement which is ANNEXURE C hereto, which
                   will be signed simultaneously with this agreement, regulating
                   their relationship INTER SE as shareholders of the purchaser;


<PAGE>


                                                        Page 6

           1.2.22. "sold  claims"  means all  claims of
                   whatsoever  nature and from whatsoever  cause
                   arising,  if any,  which the  seller may have
                   against  each of the NIBAM  companies  on the
                   implementation date;

           1.2.23. "sold  shares"  means   collectively
                   the entire  issued  share  capital of each of
                   the NIBAM companies;

           1.2.24. "taxation" shall include:-

                 1.2.24.1.     levies    payable   to    government authorities;

                 1.2.24.2.     income tax;

                 1.2.24.3.     sales tax;

                 1.2.24.4.     value-added tax;

                 1.2.24.5.     any   taxation   arising   from  new
                               assessments  of taxation  and/or the
                               reopening     of    any     taxation
                               assessments  for  any  period  prior
                               to the effective date;

                 1.2.24.6.     donations tax;


<PAGE>


                                                        Page 7

                 1.2.24.7.     customs duty;

                 1.2.24.8.     stamp duty;

                 1.2.24.9.     all other forms of  taxation,  other
                               than deferred tax benefits;

                 1.2.24.10.    any  penalties  or  interest on
                               any of the aforegoing;

                 1.2.24.11.    regional services levies;

           1.2.25. "TGAL"   means   TEMPLETON    GLOBAL ADVISORS LIMITED;

           1.2.26. "TII" means TEMPLETON INTERNATIONAL, INC.;

      1.3. any  reference  in  this   agreement  to  "date  of
           signature  hereof"  shall  be  read  as  meaning  a
           reference  to the  date of the  last  signature  of
           this agreement;

      1.4. any reference to an enactment is to that  enactment
           as at the date of  signature  hereof and as amended
           or re-enacted from time to time;

      1.5. if any  provision in a definition  is a substantive
           provision    conferring    rights    or    imposing
           obligations on any party,  notwithstanding  that it


<PAGE>


                                                        Page 8


           is only in the definition  clause,  effect shall be
           given to it as if it were a  substantive  provision
           in the body of the agreement;

     1.6.  when any number of days is prescribed in this agreement,same shall be
           reckoned  exclusively  of the  first and inclusively  of the last day
           unless the last day falls on a Saturday, Sunday or public holiday, in
           which case the last day shall be the next succeeding day which is not
           a Saturday, Sunday or public holiday;

     1.7.  where  figures are referred to in numerals  and in words, if there is
           any conflict between the two, the words shall prevail;

     1.8.  expressions defined in this agreement shall bear the same meanings in
           schedules  or annexures  to this  agreement  which do not  themselves
           contain their own conflicting definitions;

     1.9.  the  use of any  expression  in this  agreement  covering  a  process
           available  under  South  African  law such as a  winding-up  (without
           limitation  EIUSDEM  GENERIS)  shall,  if any of the  parties to this
           agreement  is  subject  to  the  law of any  other  jurisdiction,  be
           construed as including any equivalent or analogous  proceedings under
           the law of such jurisdiction;

     1.10. where any term is defined within the context of any particular clause
           in this  agreement,  the term so defined, unless it is clear from the
           clause in question that the term so defined has limited application
<PAGE>


                                                        Page 9


           to the relevant clause, shall bear the meaning ascribed to it for all
           purposes in terms of this agreement,  notwithstanding  that that term
           has not been defined in this interpretation clause;

     1.11. the expiration or termination of this agreement shall not affect such
           of the provisions  of this  agreement as expressly  provide that they
           will operate after any such  expiration  or  termination  or which of
           necessity must  continue  to have  effect  after such  expiration  or
           termination, notwithstanding  that  the  clauses  themselves  do  not
           expressly provide for this;

     1.12. the rule of construction  that  the  contract  shall  be  interpreted
           against the party responsible  for the drafting or preparation of the
           agreement, shall not apply.

2.    PREAMBLE

      It is recorded that:-

      2.1. each of:-

           2.1.1.  the seller, through the NIBAM group;

           2.1.2.  the purchaser, through the FAM group,

           provides asset management and related services;


<PAGE>


                                                       Page 10

      2.2. it has  been  agreed  to merge  the  aforementioned
           asset  management   activities  and  conduct  those
           activities through the vehicle of the purchaser;

      2.3. the parties have reached  agreement as to the terms
           and  conditions of the merger and on the basis upon
           which the relationship  between the seller and TII,
           as shareholders of the purchaser, will be governed;

      2.4. the  parties  wish  to  record  the  terms  of  the
           agreement in writing.

3.    CONDITION PRECEDENT

      3.1. This agreement,  save for the provisions of this clause 3 and clauses
           19, 20, 21, 22, 23, 24 and 25 which shall be of  immediate  force and
           effect, is subject to the following suspensive condition,  namely the
           approval, insofar as and to the extent required, of:-

           3.1.1.  the Registrar of Banks;

           3.1.2.  the Financial Services Board;

           3.1.3.  the  Exchange   Control   Department  of  the
                   South African Reserve Bank; and

           3.1.4.  the Competition Commission,

<PAGE>


                                                       Page 11

           to  the  conclusion  and   implementation  of  this
           agreement.

      3.2. Forthwith after  signature of this  agreement,  the
           seller  shall use its best  endeavours  to  procure
           the  fulfilment,  at the  purchaser's  cost, of the
           condition referred to in clause 3.1.  To this end:-

           3.2.1.  the purchaser and TII undertake to give whatever assistance
                   to and as may be  required  by the  seller,  including,  but
                   without   limitation,   the  information  and  documentation
                   applicable  to the FAM group  necessary  for the filing with
                   the Competition Commission;

           3.2.2.  the  seller  and TII shall  sign and send to the  Executive
                   Officer of the Financial  Services  Board an  undertaking in
                   the  form  of  the  draft  undertaking  attached  hereto  as
                   ANNEXURE H.

      3.3. Unless the condition is fulfilled by not later than 31 December 2000,
           or such later date as may be agreed to by the parties in writing, the
           provisions of this clause 3 and clauses 19, 20, 21, 22, 23, 24 and 25
           shall  continue to be of force or effect,  but the  remainder of this
           agreement shall never become effective.

4.    DUE DILIGENCE INVESTIGATIONS

      It is recorded that:-



<PAGE>


                                                       Page 12

      4.1. the   seller   has   conducted   a  due   diligence
           investigation  into the business and affairs of the
           FAM group; and

      4.2. TII has  conducted  a due  diligence  investigation
           into the business and affairs of the NIBAM group.

PART II - SALE OF THE SOLD SHARES, SOLD CLAIMS AND THE BUSINESS

5.    SALE OF THE SOLD SHARES AND THE SOLD CLAIMS

      5.1. The seller sells to the purchaser,  which purchases
           as one  indivisible  transaction,  the sold  shares
           and the sold claims.

      5.2. Notwithstanding  the date upon which this agreement is signed and the
           date upon which the sold shares and sold claims are  delivered to the
           purchaser,  the sold  shares and sold  claims are sold with effect on
           and as from  the  effective  date,  from  which  date all risk in and
           benefits  attaching  to them  shall be deemed  to have  passed to the
           purchaser.

6.    SALE OF THE BUSINESS

      6.1. The seller  sells,  transfers  and cedes to the  purchaser as a going
           concern, with effect from the effective date from which date the risk
           in and the benefit to the business shall vest in the  purchaser,  the
           business described in ANNEXURE D hereto and comprising the assets and
           liabilities  as  reflected  in  the  NIBAM  effective  date  accounts
           applicable to the business.


<PAGE>


                                                       Page 13

      6.2. The parties agree that Section  197(2) of the Labour  Relations  Act,
           1995 is applicable to the seller in terms of this  agreement and that
           accordingly  the employment of each employee of the seller,  employed
           in regard to the business,  will continue in force with the purchaser
           as  the  "new  employer".   The  parties  agree  that  no  agreements
           contemplated  in  terms  of  section  197(3)  of  that  Act  will  be
           concluded.

      6.3. This  transaction  shall not be advertised as contemplated by Section
           34 of the Insolvency  Act, 1936.  The seller hereby  indemnifies  the
           purchaser  against  any loss or  damage  which  may be  sustained  or
           incurred by the purchaser as a result of the provisions of section 34
           of the Insolvency Act, 1936, being invoked by any creditor in respect
           of the business.

      6.4. The seller and the  purchaser  agree that the business is disposed of
           as a going  concern and for the  purposes of Section  11(1)(e) of the
           Value- Added Tax Act, 1991, agree that the business will be an income
           earning  activity on the effective date and the  implementation  date
           and that the assets which are  necessary for carrying on the business
           have been disposed of by the seller to the purchaser in terms hereof.
           If,  notwithstanding  the  aforegoing,  value-added tax is payable in
           respect of any of the assets sold in terms hereof,  the same shall be
           borne and paid by the purchaser.


<PAGE>

                                                       Page 14

7.    PURCHASE PRICE

      7.1. The aggregate  purchase price of the sold shares, the sold claims and
           the  business  is the South  African  Rand  equivalent  of US $54 000
           000,00  (fifty four million US dollars)  converted at the  conversion
           rate.

      7.2. Of the purchase price:-

           7.2.1.  so much as does not  exceed  the  face  value
                   of the  sold  claims  shall be  allocated  in
                   respect of the sold claims;

           7.2.2.  the South  African  Rand  equivalent  of US $ 2 628 570,00
                   (two  million  six hundred and twenty  eight  thousand  five
                   hundred and seventy US dollars)  converted at the conversion
                   rate, less the amount referred to in clause 7.2.1,  shall be
                   allocated in respect of the sold shares; and

           7.2.3.  the  balance shall be  allocated  in respect of the business.

8.    PAYMENT OF THE PURCHASE PRICE

      8.1. The   purchase   price  shall  be  payable  by  the
           purchaser to the seller as follows -

           8.1.1.  as to an  amount  equal to the  equivalent  amount in South
                   African Rands of US $9 000 000,00 (nine million US dollars),
                   converted at the conversion rate, by the allotment and issue
                   to the seller or its nominee, on the implementation date and

<PAGE>


                                                       Page 15

                   against compliance by the seller of its obligations in terms
                   of clause 10, of 100 (one hundred)  ordinary shares of R1,00
                   (one rand) each in the capital of the purchaser ranking PARI
                   PASSU  with the  remaining  issued  ordinary  shares  in the
                   capital of the purchaser, at the appropriate premium. Of the
                   shares  to be  allotted  and  issued  to the  seller  or its
                   nominee as aforesaid,  50% (fifty per cent) thereof shall be
                   allotted in  renounceable  form so as to facilitate the sale
                   contemplated  by clause 13. The balance of such shares shall
                   be allotted and issued to and  registered in the name of the
                   seller. The purchaser and the seller hereby record and agree
                   that  payment in terms of this clause  8.1.1  constitutes  a
                   full and proper  discharge of the purchase price of the sold
                   shares and the sold claims,  and a partial  discharge of the
                   purchase price of the business;

           8.1.2.  the balance of the purchase price of the business, being an
                   amount equal to the equivalent amount in South African Rands
                   of US $45  000  000,00  (forty  five  million  US  dollars),
                   converted at the conversion  rate,  shall constitute a claim
                   on  loan  account  in  favour  of  the  seller  against  the
                   purchaser and, save as may otherwise be provided herein, the
                   relevant provisions of the shareholders  agreement governing
                   the  terms  and  conditions  of  shareholder  claims on loan
                   account against the purchaser applying to such claim.


<PAGE>


                                                       Page 16

      8.2. Unless the effective date occurs on or prior to Friday 4 August 2000,
           the purchase  price shall bear  interest at the 3 (three) month LIBOR
           rate quoted by Chase from 5 August 2000 to the  implementation  date,
           both days inclusive. Such interest, if payable in accordance with the
           aforegoing   provisions,   shall  be  paid  to  the   seller  on  the
           implementation   date  against   compliance  by  the  seller  of  its
           obligations in terms of clause 10.

9.    THE DESIGNATED ACCOUNTS AND THE EFFECTIVE DATE ACCOUNTS

      9.1. The seller  warrants in favour of the  purchaser in
           regard to the NIBAM designated  accounts that, save
           as disclosed and/or noted-

           9.1.1.  they have been  prepared in  accordance  with
                   the  provisions  of the  Act  and  any  other
                   applicable legislation;

           9.1.2.  they  fairly  present the state of affairs of
                   the NIBAM group as at 30 June 2000;

           9.1.3.  there  has in the  preparation  thereof  been
                   taken  into   account   good  and   generally
                   accepted     accounting     principles    and
                   practice; and

           9.1.4.  all  actual   liabilities  shall  be  reflected  as  actual
                   liabilities  and  all  contingent   liabilities  and  future
                   commitments will have been provided for or noted.


<PAGE>


                                                       Page 17

      9.2. TII  warrants  in favour of the seller in regard to
           the  FAM   designated   accounts   that,   save  as
           disclosed and/or noted:-

           9.2.1.  they have been  prepared in  accordance  with
                   the  provisions  of the  Act  and  any  other
                   applicable legislation;

           9.2.2.  they  fairly  present the state of affairs of
                   the FAM group as at  30 June 2000;

           9.2.3.  there  has in the  preparation  thereof  been
                   taken  into   account   good  and   generally
                   accepted     accounting     principles    and
                   practice; and

           9.2.4.  all  actual   liabilities  shall  be  reflected  as  actual
                   liabilities  and  all  contingent   liabilities  and  future
                   commitments will have been provided for or noted.

      9.3. As soon as  practicable  after the effective  date,  the seller shall
           cause the NIBAM  effective date accounts to be prepared and completed
           and a copy  delivered to TII. The seller gives to the  purchaser  the
           same  warranties  MUTATIS  MUTANDIS in regard to the NIBAM  effective
           date  accounts  as those  set out in  clauses  9.1.1 to 9.1.4  and in
           addition warrants that the same accounting  methods and bases as were
           used in the  preparation  of the NIBAM  designated  accounts  will be
           employed in the preparation thereof.


<PAGE>


                                                       Page 18

      9.4. As soon as practicable  after the effective date, TII shall cause the
           FAM  effective  date accounts to be prepared and completed and a copy
           delivered to the seller.  TII gives to the seller the same warranties
           MUTATIS  MUTANDIS  in regard to the FAM  effective  date  accounts as
           those set out in clauses 9.2.1 to 9.2.4 and in addition warrants that
           the same accounting methods and bases as were used in the preparation
           of the FAM  designated  accounts will be employed in the  preparation
           thereof.

10.   IMPLEMENTATION

      On the implementation  date,  representatives of the parties shall meet at
      the offices of the seller. At that meeting the seller shall deliver to the
      purchaser  against  compliance by the purchaser  with its  obligations  in
      terms of clauses 8.1.1, 8.2 and 15:-

     10.1. as regards the sold shares and the sold claims:-

           10.1.1. the share  certificates  in respect  of the sold  shares,
                   together with declarations for the transfer thereof in blank
                   as to  transferee,  duly  signed  by  the  seller/registered
                   holders  on a date not being  more than 14  (fourteen)  days
                   before the date of delivery and otherwise complying with the
                   provisions of the company's  articles of association and the
                   Stamp Duties Act, 1968;


<PAGE>


                                                       Page 19

           10.1.2. a  certified  copy  of a  resolution
                   passed  by  the  directors  of  each  of  the
                   NIBAM companies -

                 10.1.2.1.     approving  of  the  transfer  of the
                               sold shares to the purchaser;

                 10.1.2.2.     noting  the   cession  of  the  sold
                               claims;

           10.1.3. such   other    documents   as   are
                  necessary  in order to enable  the  purchaser
                  to  procure  the  registration  of  the  sold
                  shares into its name;

           10.1.4. the  books,   licences,   registers,
                   records,   title  deeds,   leases  and  other
                   documents  of  whatsoever  nature  of each of
                   the NIBAM companies.

     10.2. as regards the business:-

           10.2.1. the  delivery of all assets  forming
                   part of the business;

           10.2.2. such   documentation   as   may   be
                   necessary  in order to  enable  ownership  of
                   the  assets  comprising  the  business  to be
                   transferred   to,   and   where    applicable
                   registered in, the name of the purchaser.


<PAGE>


                                                       Page 20

11.   WARRANTIES AND REPRESENTATIONS

     11.1. The seller gives to the  purchaser  all the  warranties in respect of
           the  NIBAM  group  set out in  ANNEXURE  F  hereto  as read  with any
           disclosure schedule attached hereto by the seller when it signs.

     11.2. The  purchaser  shall not be entitled to cancel this  agreement  as a
           consequence of a breach by the seller of any warranty  referred to in
           clauses  9.1, 9.3 or in ANNEXURE F, unless the breach is incapable of
           being  remedied  by  being  caused  to  cease  or by the  payment  of
           compensation  or otherwise or, if it is capable of so being remedied,
           the seller fails so to remedy the breach  within 30 (thirty) days (or
           such  longer   period  as  may  be   reasonably   necessary   in  the
           circumstances) of the receipt of written notice calling upon it to do
           so.

     11.3. Save for the warranties referred to in clauses 9.1, 9.3 and 11.5, and
           in ANNEXURE F hereto,  the seller has not given and accordingly shall
           not be bound  by any  warranties  or  representations  of  whatsoever
           nature, whether express or implied, in respect of the NIBAM group.

     11.4. Notwithstanding  anything to the contrary hereinbefore contained, the
           purchaser  shall not have any claim  against the seller in respect of
           any action arising from a breach of any warranty unless the aggregate
           of amounts  payable  as a result of all such  breaches  exceeds  R100
           000,00 (one hundred  thousand rand).  Any such claim shall be limited
           to the amount in excess of R100 000,00 (one hundred thousand rand).


<PAGE>

                                                       Page 21

     11.5. The  seller  gives  to TII the  same  warranties  as it  gives to the
           purchaser in clauses 9.1, 9.3 and in ANNEXURE F hereto  provided that
           TII shall only be  entitled  to  exercise  its rights  pursuant  to a
           breach of warranty if the purchaser is precluded,  through any act or
           omission  on the part of the  seller,  from  instituting  proceedings
           against the seller for a breach of the warranty in question  given in
           its  favour,  in which event the  purchaser  shall not be entitled to
           exercise  its rights  pursuant to a breach of the  relevant  warranty
           given in its favour.

     11.6. TII gives to the  seller  all the  warranties  in  respect of the FAM
           group  set out in  ANNEXURE  G hereto  as read  with  any  disclosure
           schedule attached hereto by TII when it signs.

     11.7. The  seller  shall not be  entitled  to cancel  this  agreement  as a
           consequence of a breach by TII of any warranty referred to in clauses
           9.2, 9.4 or in ANNEXURE G, unless the breach is incapable of remedied
           by being  caused  to  cease  or by the  payment  of  compensation  or
           otherwise or, if it is capable of so being remedied,  TII fails so to
           remedy the breach  within 30 (thirty)  days (or such longer period as
           may be reasonably  necessary in the  circumstances) of the receipt of
           written notice calling upon it to do so.

     11.8. Save  for the  warranties  referred  to in  clauses  9.2,  9.4 and in
           ANNEXURE  G hereto,  TII has not given and  accordingly  shall not be
           bound by any  warranties or  representations  of  whatsoever  nature,
           whether express or implied, in respect of the FAM group.


<PAGE>


                                                       Page 22

     11.9. Notwithstanding anything to the contrary herein before contained, the
           seller shall not have any claim  against the  purchaser in respect of
           any action arising from a breach of any warranty unless the aggregate
           of amounts  payable  as a result of all such  breaches  exceeds  R100
           000,00 (one hundred  thousand rand) . Any such claim shall be limited
           to the amounts in excess of R100 000,00 (one hundred thousand rand).

12.   RELEASE FROM GUARANTEES

     12.1. TII shall use its best  endeavours  to  procure  the  release  of the
           seller  from 50% (fifty per cent) of any  liability  which the seller
           may have from  causes  arising  after the  effective  date  under all
           guarantees,  suretyships or indemnities  which have been given by the
           seller for the  obligations  of the NIBAM  group;  provided  that TII
           shall -

           12.1.1. not   be   obliged   to   discharge   any
                   principal  obligation  or  agree  to  any
                   variation   of  the  terms  of  any  such
                   guarantee,  suretyship  or indemnity  nor
                   shall  it  be   obliged   to  cause   the
                   company to discharge the principal debt;

           12.1.2. tender its own  guarantee,  suretyship or
                   indemnity if that is necessary,

           to procure any such release.


<PAGE>


                                                       Page 23

     12.2. Until the  release of the seller is  procured,  TII  indemnifies  the
           seller  against 50% (fifty per cent) of any liability  referred to in
           clause  12.1.  TII  shall  be  obliged  to make  payment  under  this
           indemnity  as soon as the seller  becomes  obliged to make payment in
           respect of any such liability.

     12.3. The seller  shall use its best  endeavours  to procure the release of
           TII from 50%  (fifty  per cent) of any  liability  which TII may have
           from causes  arising after the effective  date under all  guarantees,
           suretyships  or  indemnities  which  have  been  given by TII for the
           obligations of the FAM group; provided that the seller shall:-

           12.3.1. not   be   obliged   to   discharge   any
                   principal  obligation  or  agree  to  any
                   variation   of  the  terms  of  any  such
                   guarantee,  suretyship  or indemnity  nor
                   shall  it  be   obliged   to  cause   the
                   company to discharge the principal debt;

           12.3.2. be obliged  to tender its own  guarantee,
                   suretyship   or   indemnity  if  that  is
                   necessary,

           to procure any such release.

     12.4. Until the  release of TII is  procured,  the seller  indemnifies  TII
           against 50% (fifty per cent) of any  liability  referred to in clause
           12.3.  The seller  shall be obliged to make payment in respect of any
           such  liabilities  as soon as TII becomes  obliged to make payment in
           respect of any such liability.


<PAGE>


                                                       Page 24


            PART III - SALE OF PORTION OF THE SELLER'S SHARES IN AND
                          CLAIMS AGAINST THE PURCHASER

13.   SALE

     13.1. The seller  hereby  cedes and sells,  with effect from the  effective
           date but immediately following the implementation of clause 8.1:-

           13.1.1. to  TII,  50%  (fifty  per  cent)  of the
                   shares to be  allotted  and issued to the
                   seller  or  its   nominee   in  terms  of
                   clause 8.1.1  (namely  the  shares  to be
                   allotted  in  renounceable   form),   the
                   transfer  of  such  shares   (hereinafter
                   referred   to  as  "the   specified   TII
                   shares")  to  be  effected  by  way  of a
                   renunciation  by the  seller in favour of
                   TII; and

           13.1.2. to  TGAL,  50%  (fifty  per  cent) of the
                   loan     account     referred    to    in
                   clause 8.1.2  (such  loan  account  being
                   hereinafter    referred    to   as   "the
                   specified loan account").

     13.2. Notwithstanding  the date upon which this  agreement  is signed,  the
           specified  TII shares and the  specified  loan  account are ceded and
           sold with effect on and as from the effective  date,  from which date
           all risk in and benefits  attaching  thereto  shall be deemed to have
           passed to TII and TGAL respectively.


<PAGE>


                                                       Page 25

14.   PURCHASE PRICE

      The purchase  price of the  specified TII shares and the
      specified loan account is:-

     14.1. in  respect  of the  specified  TII  shares,  an amount  equal to the
           equivalent  in South  African Rands of US $4 500 000,00 (four million
           five hundred thousand US dollars), converted at the conversion rate;

     14.2. in respect of the  specified  loan  account,  an amount  equal to the
           equivalent in South  African  Rands of US $22 500 000,00  (twenty two
           million  five  hundred  thousand  US  dollars)  ,  converted  at  the
           conversion rate.

15.   PAYMENT OF THE PURCHASE PRICE

      The purchase  price of the  specified  TII shares and the  specified  loan
      account shall be payable to the seller as follows:-

     15.1. an amount of US $4 500 000,00 (four million five hundred  thousand US
           dollars)  shall be  discharged  by TII  paying  such  amount,  on the
           implementation  date and in cash,  to NIBF as payment and  collection
           agent for and behalf of the seller and such payment shall  constitute
           a full  and  proper  discharge  by TII of the  purchase  price of the
           specified TII shares;

     15.2. an amount of US $9 000  000,00  (nine  million US  dollars)  shall be
           discharged by TGAL paying such amount, on the implementation date and
<PAGE>

                                                      Page 26

           in cash,  to NIBF as payment and  collection  agent for and behalf of
           the  seller  and such  payment  shall  constitute  a full and  proper
           discharge  by TGAL of  such  portion  of the  purchase  price  of the
           specified loan account;

     15.3. the balance of the purchase  price shall be paid to
           the  seller  in South  African  Rands on the  fifth
           anniversary  of the  implementation  date.  In this
           regard:-

           15.3.1. the balance of the  purchase  price,  for
                   the   aforegoing   purpose,    shall   be
                   converted  into  South  African  Rands at
                   the conversion rate;

           15.3.2. an    amount    of   US    $13 500 000,00
                   (thirteen  million five hundred  thousand
                   US   dollars),   being   the  US   dollar
                   equivalent  on  the  implementation  date
                   of  the  Rand   amount   referred  to  in
                   clause 15.3.1,      shall,     on     the
                   implementation  date,  be paid by TGAL to
                   NIBF  to be held  by  NIBF  (as  security
                   agent  on  behalf  of  the   seller)   as
                   security   for   the   due   and   proper
                   discharge   by  the   purchaser   of  its
                   obligations  to pay  the  balance  of the
                   purchase  price,  it being  recorded that
                   an  agreement   governing  the  terms  of
                   this   security   will  be  entered  into
                   between the parties concerned.



<PAGE>


                                                       Page 27

           All payments to be effected by the  purchaser to the  seller/NIBF  in
           terms of this  Part III  shall be  effected  in  accordance  with the
           provisions of ANNEXURE E hereto. By its signature  hereto,  TII binds
           itself in favour of the seller as surety for and co-principal  debtor
           IN SOLIDUM with TGAL for the due and punctual  performance by TGAL of
           its obligations hereunder.

                                PART IV - GENERAL

16.   SHAREHOLDERS AGREEMENT

      Simultaneously  with signature of this  agreement,  the parties shall sign
      the shareholders agreement.

17.   PRE-IMPLEMENTATION DATE MATTERS

      TII undertakes to procure that:-

     17.1. all its shares in and claims against  FRANKLIN  TEMPLETON  MANAGEMENT
           COMPANY LIMITED  ("FTManco) are sold to and registered in the name of
           the  purchaser  for a purchase  consideration  of R2 322 651,00  (two
           million  three  hundred and twenty two thousand six hundred and fifty
           one rand) such that, prior to the implementation date but with effect
           from the effective date, FTManco will be a wholly owned subsidiary of
           the purchaser.  The purchase  price shall  constitute a claim on loan
           account in favour of TII which  shall be repaid by the  purchaser  as
           soon as  possible  after the  implementation  date but which claim on
           loan account shall not be subject to the provisions of clause 19.2 of
<PAGE>


                                                       Page 28


           the  shareholders'  agreement  relating to the PRO RATA  provision of
           loan accounts;

     17.2. the aggregate of its claims on loan account  against the purchaser as
           at the effective date are (other than the claim of R2 322 651,00 (two
           million  three  hundred and twenty two thousand six hundred and fifty
           one rand)  arising  pursuant to the  implementation  of clause 17.1),
           prior to the implementation  date, applied in subscribing for one new
           share in the capital of the company at an appropriate  premium,  thus
           effectively capitalising such claims;

     17.3. the authorised  share capital of the purchaser will be  such as to
           facilitate  the  implementation  of this agreement;

     17.4. the seller will  subscribe  for 101 (one  hundred  and one)  ordinary
           shares  of  R1,00  (one  rand)  each  in  the  share  capital  of the
           purchaser,  at par,  which  shares shall be issued to the seller upon
           payment,  on the  implementation  date, of the subscription  price of
           R101,00 (one hundred and one rand) and which shall,  upon issue, rank
           pari passu in all respects  with the then issued share capital of the
           purchaser;

     17.5. the employment  contracts of the employees of FTManco will,  prior to
           the  implementation  date but with effect from the effective date, be
           assigned to the purchaser.


<PAGE>


                                                       Page 29

      It is recorded that the parties are in the course of concluding employment
      contracts,  embodying, INTER ALIA, restraint of trade provisions, with key
      personnel  who  will be  employed,  or  continue  to be  employed,  by the
      purchaser.

18.   POST IMPLEMENTATION DATE MATTERS

     18.1. It    is     recorded     that    the     following
           agreements/matters  have been or are  currently  in
           the course of being concluded/undertaken, namely:-

           18.1.1. an   agreement   of  lease   between  the
                   purchaser  (as  tenant)  and  the  seller
                   (as  landlord)  in  respect  of  premises
                   from  which the Cape Town  operations  of
                   the  merged  business  will be  conducted
                   with  effect   from  the   implementation
                   date,   it   being   recorded   that  any
                   on-going    liability   in   respect   of
                   premises   currently   occupied   by  the
                   NIBAM   group   and  the  FAM   group  in
                   respect of their  business  operations in
                   Cape  Town  shall  be  borne  and paid by
                   the purchaser;

           18.1.2. an    agreement    between    NIBAM   and
                   FinSource      (PROPRIETARY)      LIMITED
                   (Registration     No.     1998/004065/07)
                   (which   will   incorporate   appropriate
                   provisions  to enable  the  agreement  to
                   be  assigned to the  purchaser)  relating
                   to the outsourcing of certain functions;

<PAGE>

                                                       Page 30

           18.1.3. service level  agreements  between NEDCOR
                   INVESTMENT    BANK    LIMITED   and   the
                   purchaser;

           18.1.4. a   sub-distributor   agreement   between
                   TGAL  and the  purchaser  regulating  the
                   distribution of off-shore business;

           18.1.5. the   completion   and   filing   of  all
                   taxation   (including   provisional  tax)
                   returns  of  the  purchaser  by no  later
                   than 31 August 2000.

           The parties shall liaise and consult with each other in regard to the
           finalisation of these agreements.

     18.2. It is agreed that  unutilised  asset swap capacity of or available to
           the merged business will, insofar as legally permissible, be applied,
           within 3 (three) months of the date of signature hereof, to off-shore
           funds  nominated  by TII  provided  that such  funds  are  reasonably
           acceptable  to the seller taking  cognisance  of client  mandates and
           client interests.

     18.3. It is intended  that NIBAM will continue to operate on the same basis
           and in the same manner as hitherto.

     18.4. The parties  undertake  to procure,  as soon as  reasonably  possible
           after the  implementation  date,  that the articles of association of
<PAGE>

                                                       Page 31

           the  purchaser are amended so as to permit share  buy-backs,  buy-ins
           and payments to  shareholders  as contemplated by sections 85 - 90 of
           the Act.

19.   PUBLICITY

      No party shall  publish to any third party the fact of or any  information
      concerning  the  conclusion of this  agreement or the terms hereof without
      the  consent  of the  others,  which  consent  shall  not be  unreasonably
      withheld,  save for any  publication  required by the  Johannesburg  Stock
      Exchange and/or as required by law.

20.   ARBITRATION

     20.1. Save in respect of those  provisions of the  agreement  which provide
           for their own remedies which would be incompatible  with arbitration,
           a dispute which arises in regard to -

           20.1.1. the interpretation of;  or

           20.1.2. the carrying into effect of;  or

           20.1.3. any of the parties' rights and obligations
                   arising from;  or

           20.1.4. the termination or purported termination of or
                   arising from the termination of; or

           20.1.5. the rectification or proposed rectification of


<PAGE>


                                                       Page 32



                   this  agreement,  or out of or pursuant to this agreement or
                   on any  matter  which in terms  of this  agreement  requires
                   agreement by the parties,  (other than where an interdict is
                   sought  or urgent  relief  may be  obtained  from a court of
                   competent  jurisdiction),  shall be submitted to and decided
                   by arbitration.

     20.2. That arbitration shall be held -

           20.2.1. with   only   the   parties   and   their
                   representatives present thereat;

           20.2.2. at Sandton.

           It is the intention that the arbitration  shall,  where possible,  be
           held and  concluded in 21 (twenty one) working days after it has been
           demanded.  The parties shall use their best endeavours to procure the
           expeditious  completion  of the  arbitration.  The  arbitrator  shall
           determine  his own rules of procedure  and the parties shall be bound
           thereby.

     20.3. The arbitration  shall not be subject to the arbitration  legislation
           for the time being in force in the Republic of South Africa.

     20.4. The  arbitrator  shall be, if the matter in dispute is principally -

<PAGE>


                                                       Page 33

           20.4.1. a  legal  matter,  a  practising   senior
                   advocate   of  not  less  than  5  (five)
                   years  standing  as such  and  practising
                   at the  Johannesburg  or  Sandton  Bar's,
                   or a  senior  lawyer  (whether  or not an
                   attorney   as    contemplated    by   the
                   Attorneys  Act,  No 53 of  1979)  of  not
                   less than 15  (fifteen)  years  standing,
                   in   either    case    specialising    in
                   commercial law;

           20.4.2. an   accounting   matter,   a  practising
                   chartered  accountant  of not  less  than
                   15 (fifteen) years standing;

           20.4.3. any other matter,  an independent  person
                   agreed upon between the parties.

           If the parties fail to agree on an  arbitrator  within 7 (seven) days
           after the  arbitration  has been demanded,  the  arbitrator  shall be
           nominated by the  President  for the time being of the Law Society of
           the Transvaal (or its  successor-in-Gauteng).  If the parties fail to
           agree  whether the dispute is of a legal,  accounting or other nature
           within the said 7 (seven) day period, it shall be considered a matter
           referred to in clause 20.4.3.

     20.5. The  parties   shall  keep  the   evidence  in  the
           arbitration  proceedings  and any order made by any
           arbitrator     confidential     unless    otherwise
           contemplated herein.

<PAGE>

                                                       Page 34

     20.6. The  arbitrator  shall be obliged to give his award in writing  fully
           supported by reasons.  The arbitrator shall make an award as to costs
           which shall be paid accordingly,  it being agreed that the arbitrator
           shall, in making any costs award in favour of TII, take cognisance of
           the costs that may necessarily have been incurred by TII in arranging
           for non-South  African  residents to be present in South Africa so as
           to attend the arbitration proceedings and/or prepare therefor.

     20.7. The  provisions  of this clause are  severable  from the rest of this
           agreement  and  shall  remain  in effect  even if this  agreement  is
           terminated for any reason.

     20.8. The arbitrator  shall have the power to give default  judgment if any
           party fails to make submissions on due date and/or fails to appear at
           the arbitration.

21.   WHOLE AGREEMENT, NO AMENDMENT

      21.1.This agreement  constitutes the whole  agreement  between the parties
           relating to the subject matter hereof.

     21.2. No  amendment or  consensual  cancellation  of this  agreement or any
           provision  or term  hereof or of any  agreement,  bill of exchange or
           other  document  issued or  executed  pursuant to or in terms of this
           agreement  and no  settlement  of any  disputes  arising  under  this
           agreement  and  no  extension  of  time,   waiver  or  relaxation  or
           suspension  of or agreement  not to enforce or to suspend or postpone
<PAGE>


                                                       Page 35

           the  enforcement  of any of the provisions or terms of this agreement
           or of any  agreement,  bill of  exchange  or  other  document  issued
           pursuant  to or in terms of this  agreement  shall be binding  unless
           recorded in a written  document signed by the parties (or in the case
           of an extension of time,  waiver or relaxation or suspension,  signed
           by the party granting such extension, waiver or relaxation). Any such
           extension,  waiver or relaxation  or suspension  which is so given or
           made shall be strictly  construed as relating  strictly to the matter
           in respect whereof it was made or given.

     21.3. No extension of time or waiver or relaxation of any of the provisions
           or terms of this  agreement  or any  agreement,  bill of  exchange or
           other  document  issued or  executed  pursuant to or in terms of this
           agreement,  shall operate as an estoppel against any party in respect
           of its  rights  under this  agreement,  nor shall it operate so as to
           preclude such party thereafter from exercising its rights strictly in
           accordance with this agreement.

     21.4. To the  extent  permissible  by law no  party  shall  be bound by any
           express or implied  term,  representation,  warranty,  promise or the
           like not  recorded  herein,  whether it induced the  contract  and/or
           whether it was negligent or not.


<PAGE>


                                                       Page 36

22.  NOTICES

     22.1. The parties choose for all purposes under this agreement,  whether in
           respect   of  court   process,   notices   or  other   documents   or
           communications of whatsoever nature, the following addresses :

           22.1.1. NEDCOR INVESTMENT BANK HOLDINGS LIMITED

                           Physical: 1 Newtown Avenue
                                     Killarney
                                     2193

                           Postal:   P O Box 582
                                     Johannesburg
                                     2000

                           Telefax:  (011) 480-1779/80

           22.1.2. NEDCOR INVESTMENT BANK LIMITED

                           Physical: 1 Newtown Avenue
                                     Killarney
                                     2193

                           Postal:   P O Box 582
                                     Johannesburg
                                     2000

                           Telefax:  (011) 480-1779/80

           22.1.3. TEMPLETON INTERNATIONAL, INC.

                           Physical: c/o Templeton Asset Management Limited
                                     Harrow Court II
                                     Isle of Houghton
                                     Boundary Road
                                     Parktown
                                     2193


<PAGE>


                                                       Page 37

                                     Postal:   P O Box 87587
                                     Houghton
                                     2041

                           Telefax:  (011) 643-1366
                        US Telefax:  (091) 954 847-2229


           22.1.4. FRANKLIN TEMPLETON ASSET MANAGEMENT (PROPRIETARY) LIMITED

                           Physical: c/o Templeton Asset Management Limited
                                     Harrow Court II
                                     Isle of Houghton
                                     Boundary Road
                                     Parktown
                                     2193

                           Postal:   P O Box 87587
                                     Houghton
                                     2041

                          Telefax:   (011) 643-1366

           22.1.5. TEMPLETON GLOBAL ADVISORS LIMITED

                          Physical:  c/o Templeton Asset Management Limited
                                     Harrow Court II
                                     Isle of Houghton
                                     Boundary Road
                                     Parktown
                                     2193

                           Postal:   P O Box 87587
                                     Houghton
                                     2041

                           Telefax:  (011) 643-1366


     22.2. Any notice or  communication  required  or  permitted  to be given in
           terms of this agreement shall be valid and effective only :-

           22.2.1. if delivered or given by telefax;


<PAGE>


                                                       Page 38

           22.2.2.   in   the    case   of   a    notice    or
                     communication  to  the  purchaser,  if  a
                     copy  thereof is also  delivered or given
                     by  telefax  both to the  seller  and TII
                     (in  the   case  of   TII,   by   telefax
                     transmission  to  its  US  telefax,   the
                     number   of  which   appears   in  clause
                     22.1.3).

     22.3. Any party may by notice to any other  party  change  its'  address to
           another  physical  address  in South  Africa or its  telefax  number,
           provided  that the  change  shall  become  effective  VIS-A-VIS  that
           addressee  on the 10th  (tenth)  business day from the receipt of the
           notice by the addressee.

     22.4. Any notice to a party -

           22.4.1. delivered   by  hand  to  a   responsible
                   person  during  ordinary  business  hours
                   at its chosen  physical  address shall be
                   deemed to have been  received  on the day
                   of delivery; or

           22.4.2. sent by  telefax  to its  chosen  telefax
                   number  stipulated in clause 22.1,  shall
                   be deemed to have  been  received  on the
                   date of  despatch  (unless  the  contrary
                   is proved).

     22.5. Notwithstanding  anything to the contrary herein  contained a written
           notice or  communication  actually  received  by a party  shall be an

<PAGE>


                                                       Page 39


           adequate written notice or communication to it  notwithstanding  that
           it was not sent by telefax to or delivered at its chosen address.

23.   NO CESSION OR ASSIGNMENT

      Save as otherwise expressly provided in this agreement, neither the seller
      on the one hand nor the  purchaser  nor TII on the other shall be entitled
      to cede their rights or assign their rights and  obligations  hereunder to
      any third  party  without  the prior  consent of the other of them,  which
      consent shall not be withheld unreasonably.

24.   INTEREST ON OVERDUE AMOUNTS

      Any amount  falling  due for payment by any party to any other in terms of
      or  pursuant to this  agreement  and not paid on due date,  including  any
      amount  which may be payable as damages,  shall bear  interest at Standard
      Bank's prime overdraft rate compounded monthly in arrear.  Damages for the
      breach of any  warranty  or  representation  as to a  stipulated  state of
      affairs  shall be deemed to have been  sustained on the date to which such
      warranty  or  representation  relates.  In the  case  of a  dispute  as to
      Standard  Bank's  prime  overdraft  rate,  a  certificate  in writing by a
      manager or  accountant  of  Standard  Bank shall be PRIMA  FACIE  evidence
      thereof.

25.   COSTS

     25.1. The  seller  shall pay the costs of  preparing  the NIBAM  designated
           accounts and the NIBAM effective date accounts.

     25.2. TII shall pay the costs of preparing the FAM designated  accounts and
           the FAM effective date accounts.


<PAGE>


                                                       Page 41

      25.3.The  purchaser  shall  pay all  other  costs of and
           incidental to the  implementation of this agreement
           including, but without limitation :-

           25.3.1. the stamp duty in respect of:-

                25.3.1.1.      the   registration  of  transfer  of  the sold
                               shares into the purchaser's name;

                25.3.1.2.      the creation, allotment and issue of the new
                               shares in the capital of the purchaser to be
                               allotted and issued as contemplated by clause
                               8.1.1;

                25.3.1.3.      all  stamp  duty  and  other   costs
                               relating  to the  implementation  of
                               the provisions of clause 17;

           25.3.2. labour  related   costs,   lease   cancellation   costs,
                   relocation  costs  and  the  like.  If  and  to  the  extent
                   permitted,  such costs  shall be  written  off  against  the
                   company's share premium account.

26.   INDIVISIBILITY

      The transactions recorded in this agreement are indivisible.

27.   GOVERNING LAW

     27.1. This  agreement  shall be governed by and  interpreted  in accordance
           with the substantive laws of the Republic of South Africa.


<PAGE>


     27.2. Save  as  otherwise  provided  herein,  the  parties  submit  to  the
           exclusive jurisdiction of the High Court of South Africa.

SIGNED by the parties and witnessed on the following  dates and at the following
places respectively:

DATE     PLACE             WITNESS                SIGNATURE
- ----     -----             -------                ---------
                                          For:        NEDCOR INVESTMENT BANK
                                                      HOLDINGS LIMITED
           1.                                         /s/ Izak Botha
                                                      -----------------
           2.

                                          For:        NEDCOR INVESTMENT BANK
                                                      LIMITED
           1.                                         /s/ Izak Botha
                                                      -----------------
           2.

                                          For:        TEMPLETON INTERNATIONAL,
                                                      INC.
           1.                                         /s/ Charles E. Johnson
                                                      ----------------------
           2.

                                          For:        FRANKLIN TEMPLETON ASSET
                                                      MANAGEMENT (PROPRIETARY)
                                                      LIMITED
           1.                                         /s/ Charles E. Johnson
                                                      ----------------------
           2.


<PAGE>


DATE     PLACE             WITNESS                SIGNATURE

                                          For:        TEMPLETON GLOBAL ADVISORS
                                                      LIMITED
           1.                                        /s/ Charles E. Johnson
                                                     ----------------------

           2.


<PAGE>

            ANNEXURE A - FAM DESIGNATED ACCOUNTS


<PAGE>






           ANNEXURE B - NIBAM DESIGNATED ACCOUNTS


<PAGE>





             ANNEXURE C - SHAREHOLDERS AGREEMENT


<PAGE>





                            ANNEXURE D - THE BUSINESS

The  business  comprises  the  management  of  assets  in terms of the  mandates
received by NIB Asset Management Limited from institutional and private clients.
Such  mandates  are  fulfilled  principally  on an active  judgemental  basis by
portfolio managers.


<PAGE>



0


    ANNEXURE E - PROVISIONS OF PAYMENT OF PURCHASE PRICE


<PAGE>





   ANNEXURE F - SCHEDULE OF WARRANTIES GIVEN BY THE SELLER

1.    In this annexure -

      1.1. the  "agreement"  means  the  agreement  to which
           this annexure is attached;

      1.2. a reference  to "the  company" is a reference  to
           each of the NIBAM companies;

      1.3. a reference  to  "employees"  is a  reference  to
           each employee listed in ANNEXURE F1 hereto;

      1.4. a reference to "SYFRETS"  means SYFRETS  LIMITED,
           a subsidiary of NIBH;

      1.5. a reference to "marks"  means any  registered  or
           unregistered  trademarks,  trade  names  or other
           devices used by the company;

      1.6. to  the   extent   that  at   signature   of  the
           agreement,  the  effective  date may already have
           passed,  and accordingly the use of any tense may
           be  inappropriate,  the warranties  shall be read
           in the appropriate tense;

      1.7. the   warranties   will  be   qualified   by  any
           disclosure  made by the  seller  in the  attached
           disclosure schedule.


<PAGE>


                                                        Page 2

2.    On the effective date and on the implementation date -

      2.1. the company will be regularly  incorporated  as a
           company with limited  liability  according to the
           laws of the Republic of South Africa;

      2.2. no steps  will have been  taken in respect of the
           company in terms of section 73 of the Act;

      2.3. neither  the company  nor its  directors  will be
           under any obligation  (whether  contingently upon
           the  exercise  of  any  right  or  otherwise)  to
           increase  or  reduce  or   otherwise   alter  its
           authorised or issued share capital;

      2.4. the  seller  will be  entitled  and  able to give
           free and  unencumbered  title to the sold  shares
           and sold claims to the purchaser;

      2.5. no person will have any right (including any option or right of first
           refusal)  to acquire  any of the sold shares or the sold claims or to
           subscribe  for, take up or acquire any of the unissued  shares in the
           capital of the company, present or future;

      2.6. no  resolution  will have been  passed,  nor will
           the  company  be  obliged,  to  alter  any of the
           rights  attaching  to any of  the  shares  in the
           capital   of  the   company   or  to  alter   the
           memorandum  or  articles  of  association  of the
           company or to create or to issue any debentures;


<PAGE>


                                                        Page 3

      2.7. no person  will have any right to obtain an order
           for the  rectification of the register of members
           of the company;

      2.8. the company's  books and records will have been  properly  maintained
           according  to law  and  will  in  all  material  respects  accurately
           reflect,  in accordance with generally  accepted and sound accounting
           principles and standards, all of the transactions entered into by the
           company or to which it is a party;

      2.9. no  resolutions  will  have  been  passed  by the
           directors  or members of the  company  which will
           not be  reflected  in  the  minute  books  of the
           company  or  which  have  been  submitted  to the
           purchaser for inspection;

      2.10.as  regards  the  business,  the  seller  will be able to give to the
           purchaser free and  unencumbered  title of the assets forming part of
           the business and the business itself;

      2.11.the  business  and its assets  will be insured  against  the risks to
           which they are subject for amounts  which accord with sound  business
           practice for a period  terminating not earlier than 60 days after the
           implementation  date,  all premiums due in respect of that  insurance
           will have been paid and the seller will have complied with all of the
           conditions to which liability of the insurers under those policies is
           subject;


<PAGE>


                                                        Page 4

      2.12.SYFRETS and the company  will not be in breach of
           any of their  material  statutory  or other legal
           obligations in respect of the business;

      2.13.there are at the date of signature of this agreement by the seller no
           disputes  or pending  litigation,  arbitration,  criminal,  review or
           expropriation  proceedings  in respect of the business or the company
           which are material to this transaction  (including without limitation
           in respect of the assets of the  business)  and  neither  the seller,
           SYFRETS nor the company is aware of any circumstances  which may lead
           to any dispute or proceedings;

      2.14.no person other than the purchaser will have any right (including any
           option or right of first  refusal) to  purchase  any of the assets of
           the  business or the company,  other than in the  ordinary  course of
           business;

      2.15.the  use of the  marks  used  by  SYFRETS  or the
           company  does  not  infringe  the  rights  of any
           third party;

      2.16.neither NEDCOR, SYFRETS nor the company is a party to any proceedings
           under the Labour Relations Act of 1995, as amended, in respect of the
           employees;


<PAGE>


                                                        Page 5


      2.17.no material  transaction  will have been entered  into in  connection
           with the business since 30 June 2000 save in the ordinary and regular
           course of conduct of the business;

      2.18.none of the  seller,  SYFRETS  nor  the  company,
           will have done or  omitted to do  anything  which
           would:-

           2.18.1.   materially   prejudice   the  continued
                     goodwill of the business;

           2.18.2.   materially  reduce  the  scope  of  the
                     business;

           2.18.3.   result   in  any   business   associate
                     ceasing   to  a   material   extent  to
                     transact  business  with the company or
                     to  vary  the  terms   upon   which  it
                     transacts  business  with  the  company
                     (but this  sub-clause  2.18.3 shall not
                     apply  in  respect  of  the   contracts
                     constituting the  institutional  client
                     portfolio   or   the   private   client
                     direct  portfolio of the  business,  as
                     they  are set out in  ANNEXURES  F2 AND
                     F3 respectively);

      2.19.none of the  seller,  SYFRETS  or the  company is
           aware  of any  facts,  matters  or  circumstances
           which may give rise to:-



<PAGE>


                                                        Page 6

           2.19.1.   any   of   the   licences,    consents,
                     permits,     approvals     or     other
                     authorities     required     for    the
                     operation   of   the   business   being
                     cancelled  or not being  renewed in the
                     future or only  being  renewed  subject
                     to the  imposition  of  onerous  terms;
                     or

           2.19.2.   the   cancellation   of   any   of  the
                     contracts   the  rights  to  which  the
                     purchaser  is  acquiring  in  terms  of
                     this  agreement,  whether  as a  result
                     of any  breach  thereof  by  SYFRETS or
                     the company or otherwise;

      2.20.this  transaction does not constitute a breach of any of the material
           contractual  obligations  of the  seller,  SYFRETS or the  company in
           respect of the business,  nor will it entitle any person to terminate
           any contract to which the purchaser is acquiring rights to under this
           agreement;

      2.21.no person other than the seller and its  subsidiaries  is entitled to
           an order  requiring the company to cease using any of the marks which
           it uses;

      2.22.none of the  liabilities in the NIBAM  designated
           accounts arose other than in the ordinary  course
           of conduct of business;



<PAGE>


                                                        Page 7

      2.23.no person other than the  shareholders  of the purchaser or employees
           of the  company  (in  the  latter  case  in  respect  only  of  their
           participation  in a profit  sharing  scheme  approved by the seller's
           remuneration  committee  for the current  financial  year,  up to the
           effective date) will, on or after the  implementation  date, have any
           right to  participate  in any  revenues or profits  generated  by the
           business;

      2.24.no  resolution  will have been  passed by the  members of the seller,
           SYFRETS or the company for its winding-up,  and, as far as the seller
           is aware, no application for that winding-up will have been presented
           by any creditor or member of the seller at the closing date;

      2.25.neither the seller,  SYFRETS, any company nor any
           member,   agent,   employee   or   other   person
           authorised to act on its behalf has:-

           2.25.1.   established     or    maintained    any
                     unlawful   or   unrecorded    fund   or
                     corporate  monies  or  other  corporate
                     assets; or

           2.25.2.   made or promised to make any bribe, kick-back,  pay-off, or
                     other unlawful  payment of a similar or comparable  nature,
                     to any person or entity,  private or public,  regardless of
                     form, whether in money, property or services with regard to
                     the business;


<PAGE>


                                                        Page 8

      2.26.all the  employees  of the NIBAM group are listed
           in ANNEXURE F1 hereto;

      2.27.none of the employees is entitled to any exceptional leave privilege,
           accumulated  leave,  payment  IN LIEU of leave,  pension or the like,
           and, during the period of 12 (twelve) months ending immediately prior
           to the  effective  date,  the  terms of  employment  or  remuneration
           payable  to  any  such  employees  will  not  have  been  varied  and
           compensation  or other benefits  payable on or in connection with the
           termination  of or  retirement  from  employment  or office of any of
           those person will not have been agreed, except for:-

           2.27.1.   normal  salary  and other  remuneration
                     reviews in the ordinary course;

           2.27.2.   changes  arising  from  changes  in the
                     employment   status  of  any  of  those
                     persons (for  instance,  promotions and
                     transfers)  all of which  have  been in
                     the  ordinary  course of the  business;
                     and

           2.27.3.   the  employees  referred to in ANNEXURE
                     F1  whose   names   are   marked   with
                     asterisks,    and   whose   terms   and
                     conditions  of  employment   have  been
                     amended      as       disclosed      to
                     representatives of TII;


<PAGE>


                                                        Page 9

      2.28.without  limiting  clause 2.27,  no employee will
           be entitled to  accumulated  or accrued  leave in
           excess of fifty working days;

      2.29.subject to the provisions of the Labour Relations Act, 1995, and with
           the exception of the  employees  referred to in clause 2.27.3 of this
           Annexure,  the purchaser  will,  after the effective date, be legally
           entitled to terminate  the  employment of any of the employees on one
           month's notice;

      2.30.subject to the  provisions of the Labour  Relations Act, 1995, if any
           of the employees is  retrenched by the purchaser  after the effective
           date, that employee will not be contractually entitled to receive any
           compensation  in excess of that  provided  for in section  196 of the
           Labour  Relations Act, 1995 (which provides for payment of one week's
           pay for every completed year of service);

      2.31.no employee  will be  entitled to more than thirty six working  days'
           leave for each 12 (twelve) months of completed service;

      2.32.no employee will on the effective  date be entitled to participate in
           any employee share incentive or participation  scheme, other than the
           NIBH Share Incentive Scheme, or the profit sharing scheme referred to
           in sub-clause 2.23;


<PAGE>


                                                       Page 10

      2.33.no  employee  will on the  effective  date  have any  claims  for any
           bonuses, gratuities, share of profits or the like, other than through
           their  participation  in the profit  sharing  scheme  referred  to in
           sub-clause 2.23;

      2.34.the  company  has no  obligations  to  contribute  on  behalf  of any
           employee to any  pension/provident  fund scheme other than the Nedcor
           Group scheme in which the employees participate;

      2.35.neither  NEDCOR  INVESTMENT  BANK LIMITED nor the company has unusual
           obligations  to any of its  employees  arising from their  employment
           contracts  (and for purposes of this warranty any term which is not a
           "standard"  term applicable to all employees or all employees of that
           particular class or category shall be considered as unusual).

3.    Between the date of  signature  of the  agreement  and
      the  implementation  date,  save as  disclosed in  the
      attached disclosure schedule -

      3.1. the company will  continue to carry on its business in the  ordinary,
           normal and regular course thereof and will not incur any liability or
           obligation or enter into any  transaction  or sell or alienate any of
           its assets otherwise than in the ordinary,  normal and regular course
           of business;


<PAGE>


                                                       Page 11

      3.2. the company will  continue to trade in accordance
           with the trading style presently adopted by it;
      3.3. there will be no material  adverse  change in the
           company's financial position;

      3.4. no  transaction  will  be  entered  into  and  no
           assets  will be  acquired  or  disposed of and no
           liabilities  will be incurred  otherwise  than in
           the normal,  ordinary  and regular  course of the
           business.

4.    At  the  effective  date  the  company  will  have  no
      liabilities  other than those  disclosed  in the NIBAM
      effective  date  accounts,  and at the  implementation
      date the company will have no  liabilities  other than
      those  disclosed in the NIBAM  effective date accounts
      and other than those  incurred  between the  effective
      date  and the  implementation  date  in the  ordinary,
      normal and regular course of the company's business.

5.    Save as  disclosed  in the  schedule  hereto,  the  NIBAM  effective  date
      accounts will reflect a financial  position not materially  worse than the
      financial position reflected in the NIBAM designated accounts.

6.    All income tax and other  statutory  returns of the company which were due
      on or before the  effective  date have been  submitted  to the  revenue or
      other competent statutory or regulatory authorities.


<PAGE>


                                                       Page 12

7.    The  institutional  client  portfolio  list  which  is
      ANNEXURE F2 and the private  client  direct  portfolio
      which is ANNEXURE  F3, each  accurately  reflects  the
      clients of the business  constituting  that  portfolio
      as at the date  set  forth  in that  annexure  and the
      values  of the  investments  in  each  of  the  client
      portfolios at that date, and the unit trust  portfolio
      list  which is  ANNEXURE F4  accurately  reflects  the
      unit  trusts  constituting  that  portfolio  as at the
      date set forth in that  annexure and the values of the
      portfolios in each of those unit trusts at that date.

8.    The memorandum by Peter Brown dated 31 July 2000  accurately  reflects the
      unutilized  asset swap capacity in the  portfolios in ANNEXURES F2, F3 AND
      F4 at 31 July 2000.

9.    The  execution,  delivery and  performance of this agreement by the seller
      and NEDCOR INVESTMENT BANK LIMITED does not and will not violate or result
      in the breach of any  material  provision  of, or require  the  consent or
      approval  of any person  (other  than as  contemplated  in clause 3 of the
      agreement) under -

      9.1. any   statute   or   government   or   regulatory
           authority regulation or rule;

      9.2. judgment  or order of any court,  or aware of any
           arbitration or equivalent tribunal;

      9.3. the  memorandum or articles of association of the
           company.


<PAGE>


                                                       Page 13

10.   The payment of any amounts  under the agreement of NIBF will not cause TII
      or TGAL to breach or violate any South African law, regulation or rule.


<PAGE>




       ANNEXURE G - SCHEDULE OF WARRANTIES GIVEN BY TII

1.    In this annexure -

      1.1. the  "agreement"  means the agreement to which this
           annexure is attached;

      1.2. the "business" means the asset management  business
           and related activities  presently  conducted by the
           FAM group;

      1.3. a reference  to "the  company"  is a  reference  to
           each of the members of the FAM group;

      1.4. a reference to  "employees"  is a reference to each
           employee listed in ANNEXURE G1 hereto;

      1.5. a  reference  to "marks"  means any  registered  or
           unregistered  trademarks,   trade  names  or  other
           devices used by the company;

      1.6. to the extent that at signature  of the  agreement,
           the  effective  date may already have  passed,  and
           accordingly   the   use   of  any   tense   may  be
           inappropriate,  the warranties shall be read in the
           appropriate tense;

      1.7. the warranties  will be qualified by any disclosure
           made by TII in the attached disclosure schedule;


<PAGE>


                                                        Page 2

      1.8. to the extent that the  agreement  requires TII and/or the company to
           perform certain  action(s)  contrary to any warranty recorded herein,
           such  warranty  shall be subject  to the  relevant  clause(s)  of the
           agreement  that  require the  performance  of such  action(s)  to the
           extent necessary to facilitate the implementation of the agreement.

2.    On the effective date and on the implementation date -

      2.1. the company  will be  regularly  incorporated  as a
           company  with  limited  liability  according to the
           laws of the Republic of South Africa;

      2.2. no steps  will have been  taken in  respect  of the
           company in terms of section 73 of the Act;

      2.3. neither  the  company  nor  its  directors  will be
           under any  obligation  (whether  contingently  upon
           the  exercise  of  any  right  or   otherwise)   to
           increase   or   reduce  or   otherwise   alter  its
           authorised or issued share capital;

      2.4. TII  will be  entitled  and  able to give  free and
           unencumbered   title  to  the  shares  referred  to
           clause 17.4 of the agreement;



<PAGE>


                                                        Page 3

      2.5. no  person  will  have  any  right  (including  any
           option or right of first  refusal)  to acquire  any
           of the  shares or the claims or to  subscribe  for,
           take up or acquire  any of the  unissued  shares in
           the capital of the company, present or future;

      2.6. no resolution  will have been passed,  nor will the
           company  be  obliged,  to alter  any of the  rights
           attaching  to any of the  shares in the  capital of
           the company or to alter the  memorandum or articles
           of  association  of the  company or to create or to
           issue any debentures;

      2.7. no  person  will  have any right to obtain an order
           for the  rectification  of the  register of members
           of the company;

      2.8. the company's  books and records will have been  properly  maintained
           according  to law  and  will  in  all  material  respects  accurately
           reflect,  in accordance with generally  accepted and sound accounting
           principles and standards, all of the transactions entered into by the
           company or to which it is a party;

      2.9. no  resolutions   will  have  been  passed  by  the
           directors or members of the company  which will not
           be  reflected in the minute books of the company or
           which  have been  submitted  to the  purchaser  for
           inspection;

      2.10.as regards the  business,  TII will be able to give to the  purchaser
           free  and  unencumbered  title  of the  assets  forming  part  of the
           business and the business itself;


<PAGE>


                                                        Page 4

      2.11.the  business  and its assets  will be insured  against  the risks to
           which they are subject for amounts  which accord with sound  business
           practice for a period  terminating not earlier than 60 days after the
           implementation  date,  all premiums due in respect of that  insurance
           will  have  been  paid and TII  will  have  complied  with all of the
           conditions to which liability of the insurers under those policies is
           subject;

      2.12.the  company  will not be in  breach  of any of its
           material  statutory or other legal  obligations  in
           respect of the business;

      2.13.there  are at the  date  of  signature  of this  agreement  by TII no
           disputes  or pending  litigation,  arbitration,  criminal,  review or
           expropriation  proceedings  in  respect  of  the  company  which  are
           material to this transaction and neither TII nor the company is aware
           of any circumstances which may lead to any dispute or proceedings;

      2.14.no  person  other  than  the  shareholders  of  the
           purchaser  will  have  any  rights  in  and  to the
           assets of the business or the company;

      2.15.the  use  of the  marks  by the  company  does  not
           infringe the rights of any third party;

      2.16.the  company  is a not a party  to any  proceedings
           under  the  Labour   Relations   Act  of  1995,  as
           amended, in respect of the employees;


<PAGE>


                                                        Page 5

      2.17.no material  transaction  will have been entered  into in  connection
           with the business since 30 June 2000 save in the ordinary and regular
           course of conduct of the business;

      2.18.the  company  will not have done or omitted to have
           done anything which would:-

           2.18.1.   materially    prejudice   the   continued
                     goodwill of the business;

           2.18.2.   materially   reduce   the  scope  of  the
                     business;

           2.18.3.   result   in   any   business    associate
                     ceasing   to   a   material   extent   to
                     transact  business  with the  company  or
                     to  vary   the   terms   upon   which  it
                     transacts   business   with  the  company
                     (but  this  sub-clause  2.18.3  shall not
                     apply  in   respect   of  the   contracts
                     constituting  the  institutional   client
                     portfolio  or the private  client  direct
                     portfolio  of the  business,  as they are
                     set out in ANNEXURE G2);

      2.19.the  company is not aware of any facts,  matters or
           circumstances which may give rise to:-



<PAGE>


                                                        Page 6

           2.19.1.   any of the licences,  consents,  permits,
                     approvals or other  authorities  required
                     for the  operation of the business  being
                     cancelled  or not  being  renewed  in the
                     future or only being  renewed  subject to
                     the imposition  of onerous terms; or

           2.19.2.   the    cancellation   of   any   of   the
                     contracts   the   rights   to  which  the
                     seller  is  acquiring  in  terms  of this
                     agreement,  whether  as a  result  of any
                     breach  thereof  by TII,  the  company or
                     otherwise;

      2.20.this  transaction does not constitute a breach of any of the material
           contractual  obligations  of TII or the  company  in  respect  of the
           business, nor will it entitle any person to terminate any contract to
           which the seller is acquiring rights to under this agreement;

      2.21.no person  other than TII or a member of the TII group (as defined in
           the Shareholders Agreement,  attached to the agreement as ANNEXURE C)
           is entitled to an order  requiring  the company to cease using any of
           the marks which it uses;

      2.22.none  of  the  liabilities  in the  FAM  designated
           accounts  arose other than in the  ordinary  course
           of conduct of business;

      2.23.no  resolution   will  have  been  passed  by  the  company  for  its
           winding-up,  and,  as far as TII is aware,  no  application  for that
           winding-up  will have been presented by any creditor or member of the
           company at the closing date;


<PAGE>


                                                        Page 7

      2.24.neither TII, the company,  any other  company nor any member,  agent,
           employee or other person authorised to act on its behalf has:-

           2.24.1.   established  or  maintained  any unlawful
                     or  unrecorded  fund or corporate  monies
                     or other corporate assets; or

           2.24.2.   made or promised to make any bribe, kick-back,  pay-off, or
                     other unlawful  payment of a similar or comparable  nature,
                     to any person or entity,  private or public,  regardless of
                     form, whether in money, property or services with regard to
                     the business;

      2.25.all the  employees  of the FAM group are  listed in
           ANNEXURE G1 hereto;

      2.26.none of the employees is entitled to any exceptional leave privilege,
           payment IN LIEU of leave, pension or the like, and, during the period
           of 12 (twelve) months ending immediately prior to the effective date,
           the terms of employment or remuneration payable to any such employees
           will not have been varied and  compensation or other benefits payable
           on or in  connection  with  the  termination  of or  retirement  from
           employment  or  office  of any of those  person  will  not have  been
           agreed, except for:-

           2.26.1.   normal  salary  and  other   remuneration
                     reviews in the ordinary course;


<PAGE>


                                                        Page 8


           2.26.2.   changes   arising  from  changes  in  the
                     employment   status   of  any  of   those
                     persons  (for  instance,  promotions  and
                     transfers)  all of  which  have  been  in
                     the  ordinary  course  of  the  business;
                     and

           2.26.3.   the  employees  referred  to in  ANNEXURE
                     G1   whose    names   are   marked   with
                     asterisks,    and    whose    terms   and
                     conditions   of   employment   have  been
                     amended as disclosed  to  representatives
                     of the seller;

      2.27.without   limiting  clause  26,  no  employee  will  be  entitled  to
           accumulated or accrued leave in excess of fifty working days;

      2.28.subject to the provisions of the Labour Relations Act, 1995, and with
           the exception of the  employees  referred to in clause 2.26.3 of this
           Annexure,  the purchaser  will,  after the effective date, be legally
           entitled to terminate  the  employment of any of the employees on one
           month's notice;

      2.29.subject to the  provisions of the Labour  Relations Act, 1995, if any
           of the employees is  retrenched by the purchaser  after the effective
           date,  that purchaser will not be  contractually  entitled to receive
           any compensation in excess of that provided for in section 196 of the
           Labour  Relations Act, 1995 (which provides for payment of one week's
           pay for every completed year of service);


<PAGE>


                                                        Page 9

      2.30.no employee  will be  entitled to more than thirty six working  days'
           leave for each 12 (twelve) months completed service;

      2.31.no employee will on the effective  date be entitled
           to participate  in any employee share  incentive or
           participation   scheme,  other  than  the  Franklin
           Resources Inc.  Restricted Stock Bonus Plan and the
           1998 Stock Option Plan;

      2.32.no  employees  will on the  effective  date have any  claims  for any
           bonuses, gratuities, share of profits or the like, other than through
           their  participation  in the profit  sharing  scheme  referred  to in
           sub-clause 2.31;

      2.33.the company has no  obligations  to  contribute  on
           behalf  of any  employee  to any  pension/provident
           fund  scheme   other  than  the   .................
           scheme in which the employees participate;

      2.34.the  company  has no  unusual  obligations  to  any of its  employees
           arising  from their  employment  contracts  (and for purposes of this
           warranty any term which is not a "standard"  term  applicable  to all
           employees or all employees of that particular class or category shall
           be considered as unusual).

3.    Between the date of signature of the  agreement  and the
      implementation  date,  save as disclosed in the attached
      disclosure schedule :-



<PAGE>


                                                       Page 10

      3.1. the company will  continue to carry on its business in the  ordinary,
           normal and regular course thereof and will not incur any liability or
           obligation or enter into any  transaction  or sell or alienate any of
           its assets otherwise than in the ordinary,  normal and regular course
           of business;

      3.2. the company  will  continue to trade in  accordance
           with the trading style presently adopted by it;

      3.3. there  will be no  material  adverse  change in the
           company's financial position;

      3.4. no  transaction  will be entered into and no assets
           will be acquired or disposed of and no  liabilities
           will be  incurred  otherwise  than  in the  normal,
           ordinary and regulator course of the business.

4.    At  the   effective   date  the  company  will  have  no
      liabilities  other  than  those  disclosed  in  the  FAM
      effective date accounts,  and at the implementation date
      the company  will have no  liabilities  other than those
      disclosed in the FAM  effective  date accounts and other
      than those  incurred  between the effective date and the
      implementation date in the ordinary,  normal and regular
      course of the company's business.

5.    Save as disclosed in the schedule hereto,  the FAM effective date accounts
      will reflect a financial  position not materially worse than the financial
      position reflected in the FAM designated accounts.


<PAGE>


                                                       Page 11

6.    All income tax and other  statutory  returns of the company which were due
      on or before the effective date will have been submitted to the revenue or
      other  competent  statutory or  regulatory  authorities  no later than the
      implementation date.

7.    The  institutional  client,  private client direct  portfolio and the unit
      trust portfolio list which is ANNEXURE G2, accurately reflects the clients
      of the  business  constituting  those  portfolios  and the  values  of the
      investments  in each of those  portfolios as at the date set forth in that
      annexure.

8.    The executive,  delivery and  performance of this agreement by TII and the
      company  does not and will not  violate  or  result  in the  breach of any
      material  provision  of, or require  the consent or approval of any person
      (other than as contemplated in clause 3 of the agreement) under -

      8.1. any statute or government  or regulatory  authority
           regulatory or rule;

      8.2. judgment  or  order of any  court,  or aware of any
           arbitration or equivalent tribunal;

      8.3. the  memorandum or articles of  association  of the
           company.

9.    The Net Asset  Value of FT Manco as at the  effective  date shall equal or
      exceed the amount of R2 300 000,00 (two  million  three  hundred  thousand
      rand).


<PAGE>


                                                       Page 12

10.   As  regards  the  leases  in  respect  of the  following
      premises :-

      10.1. Harrow Court 2, Isle of Houghton
            Boundary Road, Parktown
            Johannesburg; and

      10.2. Letterstedt House, Fedsure on Main,
            Main Road, Claremont
            Cape Town; and

      10.3. Suite 6, 9 Frosterly,
            Frosterly Park
            La Lucia Ridge

     the landlord,  insofar as may be required, will prior to the implementation
     date, have approved the change of shareholding in the purchaser and the
     landlord will approve thereto..


<PAGE>




ANNEXURE H - FORM OF UNDERTAKING TO THE FINANCIAL SERVICES BOARD


<PAGE>


                                                                      ANNEXURE C

                                A G R E E M E N T

                              entered into between

                          TEMPLETON INTERNATIONAL, INC.

  (a company incorporated in accordance with the laws of the State of Delaware
 with its principal place of business at Suite 2100, 500 East Broward Boulevard

                        Fort Lauderdale, Florida, 33394)
                          (Corporate File No. 230 9185)

                                       and

                     NEDCOR INVESTMENT BANK HOLDINGS LIMITED
                     ---------------------------------------
          (a company duly incorporated in the Republic of South Africa
      with its principal place of business at 1 Newtown Avenue, Killarney)
                        (Registration No. 1963/003972/06)

                                       and

      FRANKLIN TEMPLETON ASSET MANAGEMENT (PROPRIETARY) LIMITED (a company
        incorporated in accordance with the laws of the Republic of South

          Africa with its principal place of business at Harrow Court,
                   Isle of Houghton, Boundary Road, Parktown)

                        (Registration No. 1997/009637/07)

                                       and

                        TEMPLETON GLOBAL ADVISORS LIMITED

  (acompany incorporated in accordance with the laws of the Commonwealth of the
       Bahamas with its principal place of business at Lyford Cay, Nassau,

                                    Bahamas)
                             (Reference No. 38,984)


<PAGE>
                                TABLE OF CONTENTS

CLAUSE NO.           DESCRIPTION                            PAGE

1.    INTERPRETATION AND PRELIMINARY.........................1

2.    CONFLICTS WITH MEMORANDUM AND/OR
      ARTICLES OF ASSOCIATION................................7

3.    ISSUE OF SHARES........................................8

4.    APPOINTMENT OF DIRECTORS...............................8

5.    QUORUM FOR DIRECTORS' MEETINGS.........................9

6.    QUORUM FOR SHAREHOLDERS' MEETINGS.....................10

7.    OFFICERS..............................................10

8.    RESOLUTIONS...........................................12

9.    GOVERNANCE AND MANAGEMENT.............................14

10.   GENERAL PROVISIONS RELATING TO TRANSFERS OF SHARES....16

11.   PUT...................................................23

12.   CALL..................................................27

13.   DISPOSALS OF SHARES...................................30

14.   NAME OF THE PURCHASER AND BRANDING....................37

15.   EXCLUSIVITY...........................................38

16.   EMPOWERMENT ASSET MANAGEMENT COMPANY..................41

17.   RESTRUCTURING AND OTHER CHARGES.......................41

18.   LODGING OF SHARES.....................................41

19.   CAPITAL AND LOAN ACCOUNTS.............................42

20.   GOOD FAITH............................................44

21.   RIGHT OF MEMBERS TO INSPECT BOOKS OF THE COMPANY......44

22.   APPLICATION OF THE SHAREHOLDERS' AGREEMENT TO
      SUBSIDIARIES OF THE COMPANY...........................44
<PAGE>


CLAUSE NO.           DESCRIPTION                           PAGE

23.   WHOLE AGREEMENT, NO AMENDMENT.........................44

24.   OPERATIONAL ISSUES....................................46

25.   NOTICES...............................................46

26.   COSTS.................................................49

27.   GOVERNING LAW.........................................49

28.   ARBITRATION...........................................49

ANNEXURE A - TII GROUP NAMES.................................1

ANNEXURE B - NIBH GROUP NAMES................................1

ANNEXURE C - CATEGORIES OF SERVICES..........................1

<PAGE>

WHEREBY IT IS AGREED AS FOLLOWS :
- -------------------------------

1.    INTERPRETATION AND PRELIMINARY

      The  headings  of the  clauses in this  agreement  are for the  purpose of
      convenience and reference only and shall not be used in the interpretation
      of nor  modify  nor  amplify  the terms of this  agreement  nor any clause
      hereof. Unless a contrary intention clearly appears -

      1.1. words importing -

           1.1.1.    any one gender include the other two genders;

           1.1.2.    the singular include the plural and VICE VERSA;  and

           1.1.3.    natural  persons include  created  entities  (corporate or
                     unincorporate) and the state and VICE VERSA;

      1.2. the  following  terms  shall  have  the  meanings  assigned  to them
           hereunder   and  cognate   expressions   shall  have   corresponding
           meanings, namely -

           1.2.1.    "business"  means the  provision of asset  management  and
                     related services;

           1.2.2.    "company"  means  FRANKLIN   TEMPLETON  ASSET   MANAGEMENT
                     (PROPRIETARY) LIMITED;


<PAGE>


                                                        Page 2

           1.2.3.    "FR" means FRANKLIN RESOURCES INC;

           1.2.4.    "implementation  date"  means the  implementation  date as
                     defined in the merger agreement;

           1.2.5.    "initial  period"  means the  period of 21  (twenty  one)
                     months  reckoned  from midnight  on  the  last  day  of the
                     calendar month during which the implementation date occurs;

           1.2.6.    "merger  agreement"  means  the  agreement  to which  this
                     agreement is attached as ANNEXURE C;

           1.2.7.    "NEDCOR" means NEDCOR LIMITED;

           1.2.8.    "NIBH" means NEDCOR INVESTMENT BANK HOLDINGS LIMITED and a
                     reference to NIBH  embraces a  reference  to any  permitted
                     successor-in-title;

           1.2.9.    "NIBH  group" means NIBH and its  subsidiaries  and NEDCOR
                     and NEDCOR's subsidiaries from time to time;

           1.2.10.   "QUANTS"    means     QUANTITATIVE     ASSET    MANAGEMENT
                     (PROPRIETARY) LIMITED;



<PAGE>
                                                        Page 3



           1.2.11.   "shareholders" means the registered shareholders in
                     the company from time to time;

           1.2.12.   "strike  price" for the  purposes of  clauses 11 and 12
                     means the price  determined  by applying the  following
                     formula:-


                         x = a [1,2% * b) + (2,45% * c)]


                     where:-
                               x =  strike price;
                               a =  the   percentage   equivalent  to  the  TII
                                    group's  percentage   shareholding  in  the
                                    company as at the relevant effective date;
                               b =  the  average  of  the  company's  audited
                                    month-end    institutional    funds    under
                                    management  over  the 6 (six)  month  period
                                    ending on the last day of the calendar month
                                    preceding   the  month   during   which  the
                                    relevant effective date occurs;

                               c =  the  average  of  the  company's  audited
                                    month-end   non-institutional   funds  under

<PAGE>


                                                        Page 4

                                    management  over  the 6 (six)  month  period
                                    ending on the last day of the calendar month
                                    preceding   the  month   during   which  the
                                    relevant effective date occurs;

           1.2.13.   "subsidiary"  means a  subsidiary  as defined in and
                     contemplated  by the South African  Companies Act, Act No
                     61 of 1973;

           1.2.14.   "territory"  means the countries  comprising the
                     South African Development Community;

           1.2.15.   "TGAL" means TEMPLETON GLOBAL ADVISERS LIMITED;

           1.2.16.   "TII" means TEMPLETON INTERNATIONAL,  INC. and a reference
                     to  TII  embraces  a  reference  to  any  permitted
                     successor-in-title;

          1.2.17.    "TII  group"  means  TII and its  subsidiaries  and FR and
                     FR's subsidiaries from time to time;

          1.2.18.    "trigger event" shall mean:-

                1.2.18.1.      NIBH ceasing to be a subsidiary of NEDCOR; and/or

                1.2.18.2.      TII ceasing to be a subsidiary of FR; and/or



<PAGE>


                                                        Page 5

                 1.2.18.3.     a third party (excluding a trust for the benefit
                               of the disposing shareholders and/or their
                               descendants but only  for so long as the trust is
                               for the benefit of those persons) acquiring
                               beneficially, whether directly or indirectly,
                               more than 25% (twenty five per cent) of the
                               issued share capital of NIBH; and/or

                 1.2.18.4.     a third party (excluding a trust for the benefit
                               of the disposing shareholders and/or their
                               descendants but only for so long as the  trust is
                               for the benefit of those persons) acquiring
                               beneficially, whether directly or indirectly
                               more than 25% (twenty five per cent) of the
                               issued share capital of TII;

                1.2.18.5.      a meeting of  directors or  shareholders  is
                               adjourned for the third (or more) successive
                               occasion for want of a quorum;

      1.3. any  reference in this  agreement  to "date of  signature  hereof"
           shall  be read as  meaning  a  reference  to the date of the last
           signature of this agreement;

      1.4. any reference to an enactment is to that  enactment as at the date of
           signature hereof and as amended or re-enacted from time to time;



<PAGE>


                                                        Page 6

      1.5. if any provision in a definition is a substantive provision
           conferring rights or imposing obligations on any party,
           notwithstanding that it is only in the definition clause, effect
           shall be given to it as if it were a substantive provision in the
           body of the agreement;

      1.6. when any number of days is prescribed in this agreement, same shall
           be reckoned exclusively of the first and inclusively of the last day
           unless the last day falls on a Saturday, Sunday or public holiday, in
           which case the last day shall be the next succeeding day which is not
           a Saturday, Sunday or public holiday;

      1.7. where figures are referred to in numerals and in words,  if there is
           any conflict between the two, the words shall prevail;

      1.8. expressions defined in this agreement shall bear the same meanings in
           schedules  or annexures  to this  agreement  which do not  themselves
           contain their own conflicting definitions;

      1.9. the  use of any  expression  in  this  agreement covering  a  process
           available  under  South  African  law  such as a winding-up  (without
           limitation  EIUSDEM  GENERIS)  shall,  if any of the parties  to this
           agreement  is  subject  to  the  law  of any  other jurisdiction,  be
           construed as including any equivalent or analogous proceedings  under
           the law of such jurisdiction;


<PAGE>


                                                        Page 7

      1.10. where  any term is defined  within  the  context  of any  particular
            clause in this  agreement, the term so  defined,  unless it is clear
            from the  clause in  question that the term so defined  has  limited
            application to the relevant clause,  shall bear the meaning ascribed
            to it for all  purposes in terms of this agreement,  notwithstanding
            that that term has not been defined in this interpretation clause;

      1.11. the expiration or  termination  of this  agreement  shall not affect
            such of the provisions of this  agreement as expressly  provide that
            they will operate after any such expiration or  termination or which
            of necessity  must  continue to have effect after such expiration or
            termination,  notwithstanding  that  the clauses  themselves  do not
            expressly provide for this;

      1.12. the  rule of  construction  that  the  contract  shall  be
            interpreted  against  the  party  responsible for the  drafting  or
            preparation of the agreement, shall not apply.

2.    CONFLICTS WITH MEMORANDUM AND/OR ARTICLES OF ASSOCIATION

      2.1. If there is any conflict  between the  provisions of this  agreement
           and the  memorandum and articles of association of the company at any
           time, the provisions of this agreement shall prevail.

      2.2. If  required by any of the  shareholders,  the  shareholders  and the
           company  undertake  to take all such steps and do all such  things as
<PAGE>


                                                        Page 8


           may be necessary to alter (promptly after a notice of such request is
           given to the company) the  memorandum  and articles of association of
           the  company so as to  reflect,  insofar as may be  appropriate,  the
           provisions of this agreement.

3.    ISSUE OF SHARES

      After the  implementation  date,  no shares in the  capital of the company
      shall  be  issued  other  than by way of a PRO  RATA  rights  offer to the
      shareholders  at the time. If any shareholder  does not personally  follow
      its  rights,  it shall  be  deemed  to have  renounced  same to the  other
      shareholders  who do follow their rights in the same  proportions  as they
      follow their rights.

4.    APPOINTMENT OF DIRECTORS

      4.1. TII shall be entitled  by written  notice to the company to appoint 5
           (five) directors of the company.  TII shall be entitled to remove any
           such  directors  appointed and to replace any such director who is so
           removed or who ceases for any reason  other than  pursuant  to clause
           4.2 to be a  director  of the  company.  NIBH  shall be  entitled  by
           written  notice to the company to appoint 5 (five)  directors  of the
           company.  NIBH  shall  be  entitled  to  remove  any  such  directors
           appointed  and to replace any such  director who is so removed or who
           ceases  for any  reason  other  than  pursuant  to clause 4.2 to be a
           director of the company.  Each of TII and NIBH is entitled to appoint
           alternate directors.


<PAGE>


                                                        Page 9

      4.2. If TII or NIBH disposes of all of its shares,  it shall,  unless the
           remaining shareholder agrees otherwise,  remove any directors of the
           company  appointed  by it as  directors  of the company  without any
           claims for compensation -

           4.2.1.    if  such   shares   are   acquired   by   other   existing
                     shareholders  in the  company,  on  payment in full of the
                     purchase price by those purchasing shareholders;  or

           4.2.2.    if such  shares are to be acquired  by a third  party,  on
                     the  implementation  of the sale  agreement with the third
                     party

           and the shareholder  which  appointed such directors  indemnifies the
           company if the directors fail or refuse to resign.

5.    QUORUM FOR DIRECTORS' MEETINGS

      A meeting of  directors  shall be convened on not less than 14  (fourteen)
      days written  notice.  It is intended  that  directors'  meetings  will be
      convened quarterly.  The quorum for any directors' meetings of the company
      shall  be 2 (two)  non-executive  directors  appointed  by TII and 2 (two)
      non-executive  directors appointed by NIBH or the alternate(s) of any such
      director,  provided  that if,  within 30  (thirty)  minutes  from the time
      appointed for a meeting, a quorum is not present,  the meeting shall stand
      adjourned to the same day in the next week, at the same time and place or,
      if that day be a public  holiday,  a  Saturday  or a  Sunday,  to the next
      succeeding  day  other  than a public  holiday,  a  Saturday  or a Sunday,
<PAGE>

                                                       Page 10

      provided  that if within 30 (thirty)  minutes from the time  appointed for
      the  meeting  a quorum is not  present,  the  meeting  shall  again  stand
      adjourned as aforesaid and this procedure shall continue until a quorum is
      present.

6.    QUORUM FOR SHAREHOLDERS' MEETINGS

      A  shareholders'  meeting shall be convened on not less than 14 (fourteen)
      days written notice. The quorum for shareholders'  meetings of the company
      shall be TII and NIBH  present  in person or by proxy,  provided  that if,
      within 30 (thirty) minutes from the time appointed for a meeting, a quorum
      is not present,  the meeting shall stand  adjourned to the same day in the
      next week, at the same time and place or, if that day be a public holiday,
      a Saturday  or a Sunday,  to the next  succeeding  day other than a public
      holiday,  a  Saturday  or a Sunday,  provided  that if within 30  (thirty)
      minutes from the time  appointed  for the meeting a quorum is not present,
      the meeting shall again stand  adjourned as aforesaid  and this  procedure
      shall continue until a quorum is present.

7.    OFFICERS

      7.1. NIBH shall appoint the person to preside as the Chairperson of any:-

           7.1.1.    shareholders' meeting;

           7.1.2.    directors'  meeting  from  amongst  the  directors  on the
                     board,



<PAGE>

                                                       Page 11

           during  the  first  year  of  this  agreement  and  thereafter   such
           Chairpersons shall be appointed in respect of each succeeding year in
           rotation by NIBH and TII. Such Chairpersons  shall not have a casting
           vote.

      7.2. TII shall  appoint the chief  operating  officer of the company whose
           appointment  shall be subject to the prior  written  approval of NIBH
           which approval shall not be withheld unreasonably. To the extent that
           the  remuneration  package  payable  from  time to time to the  chief
           operating officer exceeds,  in cost to the company,  the package that
           would in the  ordinary  and normal  course be paid to such an officer
           employed  by  another  company  of  comparable  size  engaged  in the
           business of asset  management  in South Africa,  such excess  portion
           shall not be paid by the company but shall be the  responsibility  of
           TII and shall be paid by TII or a party nominated by TII.

      7.3. NIBH shall appoint the chief  executive  officer of the company whose
           appointment  shall be subject to the prior  written  approval  of TII
           which approval shall not be withheld unreasonably. To the extent that
           the  remuneration  package  payable  from  time to time to the  chief
           executive officer exceeds,  in cost to the company,  the package that
           would in the  ordinary  and normal  course be paid to such an officer
           employed  by  another  company  of  comparable  size  engaged  in the
           business of asset  management  in South Africa,  such excess  portion
           shall not be paid by the company but shall be the  responsibility  of
           and shall be paid by NIBH.


<PAGE>


                                                       Page 12

      7.4. It is recorded that each of the shareholders  shall bear the costs of
           reasonable travel expenses  incurred by directors  appointed by it in
           attending meetings of the board.

8.    RESOLUTIONS

      8.1. Resolutions  of  directors of the company in order to be of force and
           effect  must be  approved  unanimously  by the  directors  (or  their
           alternates) present at a meeting.

      8.2. In circumstances  where there is a failure to achieve  unanimity on a
           resolution at a directors' meeting,  the resolution in question shall
           be referred for determination to the shareholders.

      8.3. Resolutions  of  shareholders  of the company in order to be of force
           and effect must be approved  unanimously by the  shareholders  of the
           company   present  at  any   meeting  in  person  or  by  proxy.   In
           circumstances  where  there is a failure  to achieve  unanimity  on a
           resolution at a  shareholders'  meeting,  the  resolution in question
           shall fail.

      8.4. Resolutions  signed in writing by all the  directors or  shareholders
           (as the case may be) shall be as valid and  effectual as if passed at
           a meeting of directors or shareholders, as the case may be.

      8.5. In the case of matters  requiring  urgent  resolution  or, if for any
           reason  it  is   impracticable  to  meet  or  pass  a  resolution  as
           contemplated   by  the  Articles  of   Association  of  the  company,
<PAGE>


                                                       Page 14

           proceedings  may  be  conducted  by  utilising   telephone  or  video
           conference  facilities,  provided that the required  quorum is met. A
           resolution agreed to unanimously by the directors or shareholders, as
           the case may be,  participating during the course of such proceedings
           shall be as valid and effectual as if it had been passed at a meeting
           of the directors or shareholders, as the case may be, duly called and
           constituted.  The  secretary  of the  company  shall  as  soon  as is
           reasonably  possible  after such  meeting has been held,  be notified
           thereof by the  relevant  parties to the meeting,  and the  secretary
           shall prepare a written minute thereof.

      8.6. If any  resolution  of the  company  is  proposed  that  the  company
           institute any legal proceedings against any shareholder or any member
           of a group of which the shareholder forms part or any director of the
           company,   such   resolution   shall  be  deemed  to  be  within  the
           shareholders'  domain not the directors'  domain.  If any shareholder
           vetos any such resolution,  and as a result the requisite majority to
           pass the  resolution  cannot  be  obtained  then,  provided  that the
           remaining  shareholders  furnish an indemnity to the company  against
           all costs,  losses or damages of whatsoever  nature which the company
           may  sustain in bringing  any such legal  proceedings,  such  vetoing
           shareholder   shall  be  deemed  to  have  voted  in  favour  of  the
           resolution.


<PAGE>


                                                       Page 14

9.    GOVERNANCE AND MANAGEMENT

      9.1. As soon as reasonably  possible after the merger  agreement  becomes
           unconditional,  the  shareholders  will procure that  structures are
           put into place to ensure that:-

           9.1.1.    the  company  is  managed  and its  affairs  conducted  in
                     accordance   with  the  highest   standards  of  corporate
                     governance; and

           9.1.2.    the  business  and affairs of the company  will be managed
                     and conducted  professionally  and efficiently within such
                     corporate governance structures.

      9.2. To  this  end,  the  shareholders  shall  procure  that,  as soon as
           reasonably  possible after the implementation date:-

           9.2.1. appropriate  corporate  governance  principles are formulated
                  and adopted.  This will include,  INTER ALIA the  appointment
                  of an audit  committee  and a  remuneration  committee  which
                  will report to the board of directors of the company;

           9.2.2. formulate   a   "household   policy   document"   which  will
                  incorporate principles,  policies,  guidelines and directives
                  regarding  the  implementation  of the merger and the ongoing
                  management of the business including, INTER ALIA:-


<PAGE>


                                                       Page 15

                  9.2.2.1.     the appointment of management and the
                               establishment of  a  management committee   which
                               representatives of the shareholders shall be
                               entitled to attend;

                  9.2.2.2.     the basis upon which  authority  is delegated by
                               the board to management and the levels of
                               authority so delegated including, but without
                               limitation, authority regarding capital
                               expenditure,  borrowings and signing powers;

                  9.2.2.3.     reporting procedures applicable to management and
                               to the executive  members of the board, it being
                               recorded in this regard that (a) the chief
                               executive  officer will report to a director
                               designated  by the board and (b) the  chief
                               operating  officer  will  report to the board in
                               relation  to those  issues  designated  by the
                               board  from  time to time  and to the  chief
                               executive officer in relation to all other
                               matters;

                  9.2.2.4.     risk and  compliance  procedures  and accounting
                               practices and standards.



<PAGE>


                                                       Page 16

      9.3. It is recorded that the board of NIBH has, at a duly convened meeting
           confirmed  its  intention  to  make  Messrs  I Botha  and J  Bestbier
           available,  subject to their agreement,  to devote sufficient time to
           the business and affairs of the company,  over and above their duties
           and  functions as  non-executive  directors of the company and within
           the parameters of the structures contemplated by clauses 9.1 and 9.2,
           so as to assist in ensuring the growth and success of the company and
           the maximisation of shareholder value.

10.   GENERAL PROVISIONS RELATING TO TRANSFERS OF SHARES

     10.1. Unless  otherwise  agreed in writing by all the  shareholders  of the
           company but subject to the  provisions  of clause 10.2, a shareholder
           may sell or  otherwise  dispose  of or  transfer  (including  but not
           limited to EJUSDEM GENERIS by way of donation or dividend) the shares
           held by it in the  company  only in terms of the  provisions  of this
           agreement  specifically  providing for disposal,  and only if, in one
           and the same transaction, it likewise sells, disposes of or alienates
           a PRO RATA share of its claim  against  the  company on loan  account
           ("loan account").  Accordingly,  all references in this agreement and
           in the lien,  transmission and forfeiture  provisions of the articles
           of  association  of  the  company  to  the  offer,  sale,   disposal,
           alienation, transfer or transmission of a share in the company shall,
           unless the context otherwise requires, be deemed to apply also to the
           PRO RATA share of the loan account of the holder of such share and to
           any rights offers or allotments.


<PAGE>


                                                       Page 17

      10.2.

           10.2.1.   It is recorded that notwithstanding the provisions of
                     clause 10.1, an exception has been made in regard to TII
                     such that TII's claims on loan account against the company
                     will pursuant to the merger  agreement be acquired and held
                     by TGAL and/or one or  more  other  TII  group  companies
                     nominated  by TII. Similarly  it is  agreed  that  any
                     additional  funding  that shareholders  may be obliged to
                     provide to the  company  from time to time in  accordance
                     with the  provisions of clause 19 will, in the case of TII,
                     be contributed by TGAL and/or one or more  other  TII group
                     companies nominated by TII. For the purposes of this clause
                     10, the holder/s of all such claims on loan  account  shall
                     hereinafter  be  referred  to  as  "the designated loan
                     account holder".

           10.2.2.   Notwithstanding the aforegoing, the company and NIBH shall
                     be entitled to regard TII and not the designated loan
                     account holder as the loan account creditor as if it and
                     not the designated loan account holder was the actual loan
                     account creditor, and as regards any  obligations  imposed
                     on  a shareholder  VIS-A-VIS  its claim on loan account
                     against the company,  the  company  and NIBH shall be
                     entitled to enforce compliance of  those  obligations  by
                     TII  and TII  shall  be obliged to procure that the
                     designated  loan  account  holder complies with such
                     obligations.


<PAGE>


                                                       Page 18


           10.2.3.For the avoidance of doubt and by way of example only:-

                  10.2.3.1.    to the extent  that a  shareholder  is obliged to
                               capitalise its claim on loan account against  the
                               company in terms of this agreement or any other
                               agreement between the shareholders of the
                               company, TII shall be obliged to subscribe for
                               the  appropriate number of additional  shares  in
                               the  capital  of the company, at the appropriate
                               subscription price, and the proceeds will be
                               utilised to repay the relevant portion of the
                               designated  loan account  holder's claim against
                               the company;

                    10.2.3.2.  if TII  disposes  of its shares in the capital of
                               the company,  the designated  loan account holder
                               shall be obliged, as provided for in clause 10.1,
                               to dispose of its claims on loan account  against
                               the company to the  purchaser of TII's shares and
                               TII shall be obliged to procure that the
                               designated  loan  account holder complies with
                               such obligations.

     10.3. Subject to clause 10.7-

         10.3.1.     all (and  not part only of) the  shares  held by TII  may,
                     provided that the transferee is approved by NIBH in writing
                     which approval it may not withhold unreasonably, be

<PAGE>


                                                       Page 19



                    transferred by TII to any other member of the TII group and
                    VICE VERSA and from any member of the TII group to any other
                    member of the TII group (provided that if it ceases to be a
                    member of the TII group, it shall transfer same to any other
                    member of the TII  group  within  30 (thirty)  days of such
                    cessation failing which TII shall be deemed to have offered
                    all  its shares  to  NIBH  at  the  strike  price  and  the
                    provisions of  clauses  13.1.2  (save  in  relation  to the
                    identity of a third  party  purchaser),  13.1.3  (excluding
                    13.1.3.1) and 13.1.4 shall apply  MUTATIS  MUTANDIS on the
                    basis that the offer will be deemed to have been received by
                    NIBH when NIBH becomes aware that transfer to any other
                    member of the TII group  did not  occur  within the said 30
                    (thirty) day period following such cessation);

           10.3.2.  all  (and  not part  only  of) the shares held by NIBH may ,
                    provided  that the  transferee is approved by TII in writing
                    which approval it may not withhold unreasonably, be
                    transferred by NIBH to any other member of the NIBH group
                    and VICE VERSA and from any member of the NIBH group to any
                    other member of the NIBH group  (provided  that if it ceases
                    to be a member of the NIBH group,  it shall transfer same to
                    any other member of the NIBH group within 30 (thirty)days of
                    such cessation failing which NIBH shall be deemed to have
                    offered all its shares to TII at the strike  price and the

<PAGE>

                                                       Page 20

                    provisions of clauses 13.2.2 (save in relation to the
                    identity of a third party purchaser), 13.2.3 (excluding
                    13.2.3.1) and 13.2.4 shall apply  MUTATIS  MUTANDIS  on the
                    basis  that the offer will be deemed to have been  received
                    by TII when TII  becomes  aware that  transfer  to any other
                    member of the NIBH group did not occur within the said 30
                    (thirty) day period following such cessation),

           provided however that:

           10.3.3.  TII, by its signature hereto, binds itself as surety for and
                    co-principal  debtor   IN   SOLIDUM  with   any   transferee
                    contemplated by  clause  10.3.1  for  the  due  and punctual
                    fulfilment and  performance by the transferee of  all its
                    obligations hereunder;

           10.3.4.   NIBH, by its signature hereto, binds itself as surety for
                     and co-principal debtor IN SOLIDUM with any transferee
                     contemplated by clause 10.3.2  for  the  due  and  punctual
                     fulfilment and performance by the  transferee  of  all  its
                    obligations hereunder.

     10.4. Any  disposal  of  shares  to  any  non-shareholder  of  the  company
           (including  as  contemplated  by clauses  10.3.1 and 10.3.2) shall be
           subject to the  condition  that the  transferee  shall  undertake  in
           writing not, whilst it is a shareholder, to operate in competition to

<PAGE>


                                                       Page 21


           the business of the company by providing asset management services in
           the territory  that are  substantially  the same as those provided by
           the company.

     10.5. Subject to clause  10.7,  transfer of any shares  acquired in
           terms of the  provisions  of this  agreement,  shall be given to the
           person so acquiring them.

     10.6. Except as provided in any express provision of this agreement,  or in
           any written agreement in force between all the shareholders, no share
           may be  disposed  of,  pledged or  transferred  without  the  written
           consent of all  shareholders,  which  consent  shall not be  withheld
           unreasonably.

     10.7. Notwithstanding  anything to the contrary  herein  contained,
           no shares shall be transferred to a non-shareholder unless:-

           10.7.1.   the shares constitute all (and not fewer) of the shares in
                     the company held by the transferor;

           10.7.2.   the non-shareholder agrees to be bound by any written
                     agreement in force between the company and its shareholders
                     and/or between the shareholders governing their
                     relationship as shareholders in the company and nominates
                     an address for the purposes of clause 25.


<PAGE>


                                                       Page 22

     10.8. Any shareholder  which disposes of its shares as contemplated
           by  clause 13  shall be entitled to stipulate as a condition of such
           sale that -

           10.8.1.   the disposing shareholder shall be released as a surety or
                     guarantor or indemnitor on behalf of the company,subject to
                     the purchaser of the shares in question  binding  itself as
                     surety or guarantor or indemnitor in its stead; or

           10.8.2.   if the release  contemplated  in clause  10.8.1  cannot be
                     achieved,  or pending such release  being implemented,  the
                     disposing shareholder shall be indemnified by the purchaser
                     of the shares against any claims made against the disposing
                     shareholder by  reason  of such  suretyship,  guarantee  or
                     indemnity. Such  purchaser  shall be liable  for any amount
                     payable  in terms  hereof  together  with  value-added  tax
                     thereon.

     10.9. The  transferee of any shares and loan accounts  acquired in terms of
           this agreement, shall pay the stamp duty and any other similar duties
           payable thereon.

    10.10. The company will be entitled,  with effect from the effective  date
           of a sale  pursuant to the exercise of a put or call as  contemplated
           by clauses 11 and 12, to the  benefit of all ongoing  income,  of the

<PAGE>


                                                       Page 23

           type  received  by it  prior  to the  effective  date,  flowing  from
           transactions concluded prior to the effective date.

    10.11. For the purposes of this clause 10, any transfer and/or disposal of
           shares  among  members of the TII group or among  members of the NIBH
           group shall be treated as a transfer or disposal to a shareholder  of
           the company.

11.   PUT

     11.1. TII shall be entitled

                 (a)  at any time after the initial period;

                 (b)  within the initial  period or at any time  thereafter  if
                      pursuant to the occurrence of a trigger event,

           by  giving  written  notice  to this  effect,  to put all  (but not a
           portion only) of the TII group's shares in and claims on loan account
           against  the company to NIBH  (provided  that in the event of the put
           being exercised  pursuant to the occurrence of a trigger event,  such
           written  notice shall be given within (but not after) 60 (sixty) days
           after the date upon  which the  occurrence  of the  relevant  trigger
           event  comes to the  attention  of TII) in which event a sale of such
           shares  and  claims  shall be deemed to have  been  concluded  on the
           following terms and conditions:-


<PAGE>


                                                       Page 24


           11.1.1.    the shares and claims  shall be acquired  with effect from
                      the date on which the  notice  was given  ("the  effective
                      date") from which date all risk in and benefits  attaching
                      to the shares and claims shall pass to NIBH;

           11.1.2.    the purchase price of the shares and claims shall be:-

                 11.1.2.1. an  amount  equal to the  strike  price  less  12,5%
                           (twelve comma five per cent) thereof; provided that

                 11.1.2.2. if the  put  was  exercised  by TII  pursuant  to the
                           occurrence of a trigger event,  the purchase price of
                           the shares and claims shall be an amount equal to the
                           strike  price  unless  the  trigger  event  was  that
                           contemplated by clause 1.2.18.5 and TII's  appointees
                           on the board or TII  itself,  as the case may be, was
                           responsible  for the  failure  to achieve a quorum on
                           each  occasion,  in which event the purchase price of
                           the shares and claims shall be an amount equal to the
                           strike price less 12,5% (twelve comma five per cent);

           11.1.3.    the purchase price shall be payable on the later of:-



<PAGE>


                                                       Page 25

                  11.1.3.1.    the expiry of 90 (ninety) days reckoned from the
                               effective date; and

                  11.1.3.2.    the date upon which the sale becomes
                               unconditional; and

                  11.1.3.3.    in the event of:-

                               (a) a dispute as contemplated by clause 11.2; and

                               (b) it being determined that the put was
                                   exercised pursuant to a trigger event,

                               the date of such determination.

           11.1.4.   the sale  shall be  subject  to a  suspensive  condition,
                     namely  the  approval,  to the extent  necessary,  of all
                     regulatory  and other  competent  authorities  (including
                     the   Competition   Commission)   provided  that  if  the
                     suspensive  condition has not been  fulfilled  within 180
                     (one hundred and eighty) days of the  effective  date (or
                     such later date as the  parties  may agree to in writing)
                     by reason of the  disapproval  of the  transaction by the
                     Competition  Commission or any other competent regulatory
                     authority, the sale shall never become effective;


<PAGE>


                                                       Page 26


           11.1.5.   if the sale does not  become  effective  by reason of the
                     disapproval  of  the   transaction  by  the   Competition
                     Commission or any other competent  regulatory  authority,
                     TII  shall  not,  until  the  lapse  of a  period  of  12
                     (twelve)   months   reckoned  from  the  failure  of  the
                     suspensive  condition,  be entitled again to exercise its
                     rights  under this  clause 11.  Thereafter,  in the event
                     of a  sale  not  becoming  effective  by  virtue  of  the
                     disapproval  of  the   transaction  by  the   Competition
                     Commission or any other  competent  regulatory  authority
                     pursuant to a  subsequent  exercise  of the put,  the put
                     may  be  exercised  only  once  in  each   successive  12
                     (twelve) month cycle;

           11.1.6.   TII and NIBH  undertake to use their best  endeavours  to
                     procure  the  fulfilment  of  the  suspensive   condition
                     referred to in clause 11.1.4.

     11.2. If there is a dispute  between  the  parties as to whether or not the
           put was exercised pursuant to the occurrence of a trigger event, such
           dispute  shall be determined  in  accordance  with the  provisions of
           clause 28.


<PAGE>


                                                       Page 27

12.   CALL

     12.1. NIBH shall be entitled

                 (a)  at any time after the initial period;

                 (b)  within the initial  period or at any time  thereafter  if
                      pursuant to the occurrence of a trigger event,

           by giving written notice to this effect,  to call upon TII to sell to
           it all (but not a  portion  only) of the TII  group's  shares  in and
           claims on loan account  against the company to NIBH (provided that in
           the event of the call being exercised pursuant to the occurrence of a
           trigger  event,  such  written  notice shall be given within (but not
           after) 60 (sixty)  days after the date upon which the  occurrence  of
           the relevant  trigger  event comes to the attention of NIBH) in which
           event a sale of such  shares  and claim  shall be deemed to have been
           concluded on the following terms and conditions:-

           12.1.1.   the shares and claims  shall be acquired  with effect from
                     the date on which the  notice  was given  ("the  effective
                     date") from which date all risk in and benefits  attaching
                     to the shares and claims shall pass to NIBH;

           12.1.2.   the purchase price of the shares and claims shall be,



<PAGE>


                                                       Page 28

                  12.1.2.1.    an amount equal to the strike price plus 12,5%
                               (twelve comma five per cent) thereof; provided
                               that

                  12.1.2.2.    if the call was exercised by NIBH pursuant to the
                               occurrence of a trigger event, the purchase price
                               of the shares and claims shall be an amount equal
                               to the strike price unless the trigger event was
                               that contemplated by clause 1.2.18.5 and NIBH's
                               appointees on the board or NIBH itself, as the
                               case may be, was responsible for the failure  to
                               achieve a quorum on each occasion, in which event
                               the purchase price of the shares and claims shall
                               be an amount equal to the strike price plus 12,5%
                               (twelve comma five per cent);

           12.1.3.   the purchase price shall be payable on the later of:-

                  12.1.3.1.    the expiry of 90 (ninety) days reckoned  from the
                               effective date; and

                  12.1.3.2.    the date upon which the sale becomes
                               unconditional; and

                  12.1.3.3.    in the event of:-


<PAGE>


                                                       Page 29


                           (a) a dispute as contemplated by clause 12.2; and

                           (b) it being  determined that the call was exercised
                               pursuant to the occurrence of a trigger event,

                           the date of such determination.

           12.1.4.   the  sale  shall be  subject  to a  suspensive  condition
                     namely  the  approval,  to the extent  necessary,  of all
                     regulatory  and other  competent  authorities  (including
                     the  Competition   Commission),   provided  that  if  the
                     suspensive  condition has not been  fulfilled  within 180
                     (one hundred  eighty) days of the effective date (or such
                     later date as the  parties  may agree to in  writing)  by
                     reason  of  the  disapproval  of the  transaction  by the
                     Competition  Commission or any other competent regulatory
                     authority, the sale shall never become effective;

           12.1.5.   if the sale does not  become  effective  by reason of the
                     disapproval  of  the   transaction  by  the   Competition
                     Commission or any other competent  regulatory  authority,
                     NIBH  shall  not,  until  the  lapse  of a  period  of 12

<PAGE>


                                                       Page 30


                     (twelve)   months   reckoned  from  the  failure  of  the
                     suspensive  condition,  be entitled again to exercise its
                     rights  under this  clause 12.  Thereafter,  in the event
                     of a  sale  not  becoming  effective  by  virtue  of  the
                     disapproval  of  the   transaction  by  the   Competition
                     Commission or any other  competent  regulatory  authority
                     pursuant to a subsequent  exercise of the call,  the call
                     may  be  exercised  only  once  in  each   successive  12
                     (twelve) month cycle;

           12.1.6.   TII and NIBH  undertake to use their best  endeavours  to
                     procure  the  fulfilment  of  the  suspensive   condition
                     referred to in clause 12.1.4.

     12.2. If there is a dispute  between  the  parties as to whether or not the
           call was exercised  pursuant to the  occurrence of the trigger event,
           such dispute shall be determined  MUTATIS MUTANDIS in accordance with
           the provisions of clause 28.

13.   DISPOSALS OF SHARES

     13.1. DISPOSAL BY TII

           13.1.1.   The provisions of this  clause 13.1 shall apply only in the
                     event of TII having exercised its put in terms of clause 11
                     but  the  sale  not becoming effective  by  virtue  of  the
                     non-fulfilment of the suspensive condition.


<PAGE>


                                                       Page 31

           13.1.2.   When it is intended  by TII to dispose of its shares (other
                     than in terms of clause 11) TII shall, in writing, offer
                     all (and not a portion only) of its shares to NIBH ("the
                     offer"), stating the price (which shall sound in money in
                     South African currency) and the terms of payment required
                     by it and no other terms shall be stipulated save for that
                     contemplated in clauses 10.7.2 and 10.8 and if it intends
                     selling or otherwise disposing or transferring all its
                     shares to a particular  third  party if the offer is not
                     accepted by the other shareholders, it shall disclose the
                     name of such third party.

           13.1.3.   If, within 90 (ninety) days after the receipt of the offer
                     during which period the offer shall be irrevocable  ("the
                     offer period"), it is not accepted in writing in respect of
                     all the shares offered, by NIBH, then if -

                  13.1.3.1.    a third  party was named in the  offer,  TII may
                               within  a  further  90  (ninety)  days  or  such
                               extended  period  as the  parties  may  agree in
                               writing,   but  not  thereafter   without  again
                               making   an   offer   to   NIBH  in   terms   of
                               clause 13.1,  dispose of the shares offered (but
                               not fewer) to the third party  only,  at a price
                               not lower and on terms  not more  favourable  to
                               such  person  than  the  price  at and  terms on
<PAGE>


                                                       Page 32


                               which NIBH was entitled to purchase them;

                  13.1.3.2.    a third  party was not named in the  offer,  TII
                               shall  notify  NIBH in writing  of the  proposed
                               third  party  acquirer  after  finding  a  third
                               party   acquirer  (but  if  no  such  notice  is
                               received  by NIBH  within 60 (sixty)  days after
                               the expiry of the offer period,  TII shall if it
                               wishes to dispose of the  shares,  be obliged to
                               recommence   entirely  the   procedure  in  this
                               clause 13.1)  and the  offer  shall be deemed to
                               have  been  made  to  NIBH  for a  period  of 48
                               (forty-eight)  hours from such  notification  on
                               the  same  terms   (during  which  it  shall  be
                               irrevocable).  If it is not  accepted by NIBH in
                               writing   within  48   (forty-eight)   hours  in
                               respect of all the shares offered,  by NIBH, TII
                               may  dispose  of the  shares  offered  (but  not
                               fewer)  to  such  third  party   (provided  such
                               disposal  occurs  within 30 (thirty) days of the
                               expiry  of  the 48  (forty  eight)  hour  period
                               referred to above,  but not  thereafter  without
                               again  making  an offer to NIBH in terms of this

<PAGE>


                                                       Page 33

                               clause 13.1),  to such  named  third  party at a
                               price   not   lower   and  on  terms   not  more
                               favourable  to such  person  than the  price and
                               terms at and on which was  entitled  to purchase
                               them.

           13.1.4.   The fact that TII gives any third party such warranties  as
                     would be usual for transactions of such a nature, such
                     shall not constitute terms more favourable than those given
                     to NIBH who will not be given any warranties; save that TII
                     shall be deemed to have warranted in favour of NIBH that it
                     will be the registered and beneficial owner of its shares
                     which will constitute all of the issued shares in the
                     capital of the company held  by it and will be able to give
                     free and unencumbered title thereof to NIBH or its nominee.

           13.1.5.   It is recorded for the sake of clarity and the avoidance of
                     doubt that a reference in this clause 13.1 to a third party
                     is a reference to one third party only and as such for this
                     purpose the singular does not include the plural.

     13.2. DISPOSAL BY NIBH

         13.2.1.     The  provisions of this clause 13.2 shall apply only in the
                     event of NIBH having exercised its call in terms of clause

<PAGE>


                                                       Page 34
04515MAM.ACF
ACF/gl/13d/0e/04122000

NEDC6093-078
SHAREHOLDERS AGREEMENT


           13.2.1.   12 but the sale not becoming effective  by  virtue  of  the
                     non-fulfilment of the suspensive condition.

           13.2.2.   When it is  intended  by NIBH to  dispose  of its  shares
                     (other  than in terms of clause 12 NIBH  shall, in writing,
                     offer all (and not a  portion  only) of its  shares  to TII
                     ("the offer"), stating the price (which shall sound in
                     money in South African currency) and the terms of payment
                     required by it and no other terms shall be stipulated  save
                     for that contemplated  in  clauses 10.7.2 and 10.8 and if
                     it intends selling  or  otherwise disposing or transferring
                     all its shares to a  particular third party if the offer is
                     not accepted by the other shareholders, it shall disclose
                     the name of such third party.

           13.2.3.   If, within 90 (ninety)  days after the receipt of the offer
                     during which period the offer  shall be  irrevocable  ("the
                     offer period"), it is not accepted in writing in respect of
                     all the shares offered, by TII, then if -

                  13.2.3.1.    a third  party was named in the offer,  NIBH may
                               within  a  further  90  (ninety)  days  or  such
                               extended  period  as the  parties  may  agree in
                               writing,   but  not  thereafter   without  again
                               making an offer to TII in terms of  clause 13.2,
<PAGE>


                                                      Page 35


                               dispose  of the shares  offered  (but not fewer)
                               to the third  party  only,  at a price not lower
                               and on terms not more  favourable to such person
                               than  the  price at and  terms on which  TII was
                               entitled to purchase them;


                  13.2.3.2.    a third  party was not named in the offer,  NIBH
                               shall  notify  TII in  writing  of the  proposed
                               third  party  acquirer  after  finding  a  third
                               party   acquirer  (but  if  no  such  notice  is
                               received  by TII  within 60  (sixty)  days after
                               the  expiry of the offer  period,  NIBH shall if
                               it wishes to dispose of the  shares,  be obliged
                               to  recommence  entirely  the  procedure in this
                               clause 13.2)  and the  offer  shall be deemed to
                               have  been  made  to  TII  for  a  period  of 48
                               (forty-eight)  hours from such  notification  on
                               the  same  terms   (during  which  it  shall  be
                               irrevocable).  If it is not  accepted  by TII in
                               writing   within  48   (forty-eight)   hours  in
                               respect  of all the  shares  offered,  NIBH  may
                               dispose  of the shares  offered  (but not fewer)
                               to such  third  party  (provided  such  disposal
                               occurs  within 30 (thirty) days of the expiry of

<PAGE>


                                                       Page 36


                               the 48 (forty  eight)  hour  period  referred to
                               above,  but not thereafter  without again making
                               an offer  to TII in terms of this  clause 13.2),
                               to such named  third  party at a price not lower
                               and on terms not more  favourable to such person
                               than the  price and terms at and on which it was
                               entitled to purchase them.

           13.2.4.   The fact that NIBH gives any third party such warranties as
                     would be usual for transactions of such a nature, such
                     shall not constitute terms more favourable than those given
                     to TII who will not be given any warranties; save that NIBH
                     shall be deemed to have warranted in favour of TII that it
                     will be the registered and beneficial  owner of its  shares
                     which will constitute all of the issued shares in the
                     capital of the company  held  by it and  will  be  able  to
                     give  free  and unencumbered title thereof to TII or its
                     nominee.

           13.2.5. It is recorded  for the sake of clarity and the  avoidance of
                   doubt that a  reference  in this clause 13.2 to a third party
                   is a  reference  to one third party only and as such for this
                   purpose the singular does not include the plural.


<PAGE>


                                                       Page 37

14.   NAME OF THE PURCHASER AND BRANDING

     14.1. The name of the company will, as soon as  reasonably  possible  after
           signature  hereof,  be  changed  to  "FRANKLIN  TEMPLETON  NIB  ASSET
           MANAGEMENT  (PROPRIETARY)  LIMITED"  and the  business of the company
           will be conducted  under such name and style as is  determined by the
           board.

     14.2. It is intended  that the names of existing  FAM group and NIBAM group
           (as defined in the merger agreement)  investment products will remain
           unchanged for a period of 6 (six) months (or such extended  period as
           may be necessary so as to obtain all relevant  regulatory  approvals)
           during  which  time  the  board of the  company  will  determine  the
           branding  that will apply with effect from the expiry of such 6 (six)
           month period.

     14.3. If the  company  or  any  of  its  subsidiaries  bears  or  uses  any
           distinctive part of the name or uses any trademarks or trade names or
           similar devices of the TII group or the NIBH group ("the marks"), and
           TII or NIBH,  as the  case  may be,  disposes  of its  shares  in the
           company or if any subsidiary  ceases to be a subsidiary,  it shall be
           entitled  but not obliged to require the company  and/or the relevant
           subsidiary  to change  its name or cease  using the marks  within 120
           (one  hundred and twenty)  days of the giving by the  shareholder  of
           written notice to that effect to the company (or such extended period
           as  may  be  necessary  so  as  to  obtain  all  relevant  regulatory
           approvals)  and the  company  shall  comply  and  procure  compliance
           therewith.


<PAGE>


                                                       Page 38

     14.4. If any  investment  products  marketed  by the  company or any of its
           subsidiaries from time to time bears any distinctive part of the name
           of the  TII  group  or the  NIBH  group  or  bears  any of the  names
           reflected  in  ANNEXURE A hereto (in  relation  to TII) or ANNEXURE B
           hereto  (in  relation  to  NIBH)  or  any  derivation  thereof  which
           resembles  such name or employs the marks of or  associated  with the
           TII  group or the NIBH  group,  and TII or NIBH,  as the case may be,
           disposes of its shares in the company or if any subsidiary  ceases to
           be a  subsidiary,  TII or NIBH, as the case may be, shall be entitled
           but not obliged to require the company and/or the relevant subsidiary
           to change the name of the relevant  investment  products and to cease
           using such marks  within 120 (one  hundred  and  twenty)  days of the
           giving of  written  notice to this  effect  to the  company  (or such
           extended period as may reasonable and necessary in the circumstances)
           and the company shall comply and procure compliance therewith.

15.   EXCLUSIVITY
     15.1. Subject to clauses 15.2 and 15.3, each of NIBH and TII undertake not,
           within the territory, whether directly or indirectly, to compete with
           the business of the  company,  it being  recorded  that the TII group
           will market all its  products  intended for South  African  residents
           through the company.  TII  undertakes to procure that FR binds itself
           to the provisions of this clause 15.1.  The  provisions  hereof shall
           endure for so long as NIBH and TII hold  shares in the capital of the
           company unless agreed otherwise.  Notwithstanding  the aforegoing the

<PAGE>


                                                       Page 39


           parties  agree that  should  the  company  decide not to market  such
           products during the term of this agreement, any FR subsidiary will be
           entitled to market such products in South Africa.

     15.2. It is recorded that NIBH:-

           15.2.1.   through QUANTS and otherwise,  conducts an asset management
                     business  utilising  quantitative  analyses and hedge  fund
                     techniques to manage its funds;

           15.2.2.   through  its  subsidiary   companies  and  other  equity
                     investments  conducts or may in the future conduct an asset
                     management  business through a multi-manager approach where
                     third party asset managers manage the relevant funds;

           15.2.3.   has  an  equity  interest  in  COMMUNITY   GROWTH  ASSET
                     MANAGEMENT COMPANY (PROPRIETARY) LIMITED, which is a client
                     of NIBAM.

           Nothing herein contained shall be construed as limiting NIBH from:-

           15.2.4.   conducting  the  businesses  referred to in  clauses 15.2.1
                     and 15.2.2;


<PAGE>


                                                       Page 40

           15.2.5.   continuing to  hold  the  equity  interest  referred  to in
                     clause 15.2.3; and

           15.2.6.   acquiring and/or   continuing  to  hold  equity  and  other
                     interests, whether directly or indirectly,  in  companies
                     (other  than  those  of which it is a  holding  company  as
                     contemplated by the South African Companies Act, Act No. 61
                     of 1973) which do not at the  time of  acquisition  provide
                     asset management services as part of their business but
                     which subsequently undertake the business of asset
                     management.  In such circumstances however NIBH will use
                     reasonable efforts to procure that the assets of the
                     companies in question are placed under management of the
                     company in terms of a service level agreement.

     15.3. It is recorded that  TEMPLETON  ASSET  MANAGEMENT  LIMITED  ("TAML"),
           through  one or  more  representative  offices,  undertakes  research
           activities  within the territory.  Nothing herein  contained shall be
           construed as limiting TAML from continuing to undertake such research
           activities within the territory.

     15.4. It is recorded that  subsidiaries of FR currently  manages  non-South
           African  domiciled  funds and accounts  that invest in South  African
           securities.  Nothing herein  contained shall be construed as limiting
           any FR subsidiary from investing in South Africa Securities.


<PAGE>


                                                       Page 41

16.   EMPOWERMENT ASSET MANAGEMENT COMPANY

      It is  recorded  that NIBH has  undertaken  to  introduce  an  empowerment
      company  to market  asset  management  services,  and will use  reasonable
      efforts to ensure that the relevant  assets will be managed by the company
      in terms of a service level agreement.

17.   RESTRUCTURING AND OTHER CHARGES

     17.1. NIBH will fund appropriate loyalty and performance bonuses to certain
           personnel  currently  employed by NEDCOR  INVESTMENT BANK LIMITED and
           the company in respect of the business  which are estimated to amount
           to  approximately  R14 000  000,00  (fourteen  million  rand)  in the
           aggregate.

     17.2. TII shall bear the costs of  termination  of any existing  employment
           contract  of an employee  of the  company if such  employee  had been
           seconded by the TII group.

     17.3. The company  will be  responsible  for all other costs and charges of
           and arising  from any  restructuring  that may be  undertaken  by the
           company pursuant to the implementation of the merger  contemplated by
           the merger agreement.

18.   LODGING OF SHARES

      In order to ensure compliance with the provisions of this agreement,  each
      shareholder shall be obliged to lodge the share certificates in respect of
<PAGE>


                                                       Page 42



      its shares with KPMG, one of the initial joint auditors of the company, in
      trust.

19.   CAPITAL AND LOAN ACCOUNTS

     19.1. The amount of funding required from time to time by the company shall
           be  determined  by the board of  directors  of the  company but in no
           event shall the  borrowings  of the  company  exceed a debt to equity
           ratio of 3:1 as determined in accordance  with Practice Note 2 issued
           by SARS on 14 May 1996.

     19.2. All funding  required  from time to time as  determined in accordance
           with the  provisions  of clause  19.1,  after  having  regard to such
           funding as is made  available to the company  from  outside  sources,
           shall be provided  on loan  account by the  shareholders  PRO RATA to
           their respective shareholdings.

     19.3. Save  as may be,  unanimously  otherwise  determined  in  writing  by
           shareholders of the company,  shareholders' loan accounts against the
           company  shall be  subject  to the  following  terms and  conditions,
           namely -

           19.3.1.   subject to  clause  19.4,   they  shall  bear  interest  at
                     Standard Bank's prime lending rate,  compounded  monthly in
                     arrear. Such interest  shall be due and payable  monthly in
                     arrear;

<PAGE>


                                                       Page 43

           19.3.2.   subject  to clauses  19.3.3 and  19.3.4 and  subject to the
                     availability of funds of the company,  they shall be repaid
                     as may unanimously  be agreed from time to time between the
                     company and its shareholders;

           19.3.3.   they shall in any event be repaid  on the  granting  of any
                     order (whether provisional  or final)  placing  the company
                     under judicial  management or  in  liquidation  or  on  the
                     granting  of any final judgement against the company if the
                     company does not satisfy the  judgement  within 30 (thirty)
                     days after it becomes final;

           19.3.4.   all repayments by the company to the shareholders  shall be
                     made PRO RATA to their respective loan  accounts but to the
                     extent that any  shareholder's loan account exceeds its PRO
                     RATA share based on its shareholding  in the  company  such
                     excess shall first be repaid.

     19.4. For so long as funding  required  by the company as  contemplated  in
           this clause 19 is not provided by the  shareholders PRO RATA to their
           respective  shareholdings,  interest  shall  accrue  and  be  payable
           monthly  in arrears  on the  amount by which any  shareholder's  loan
           account  exceeds  such  shareholder's  PRO  RATA  share  of all  loan
           accounts of shareholders, at the publicly quoted basic rate per annum
           ruling from time to time at which  Standard  Bank lends on  overdraft
           plus 2% (two per cent) per annum, compounded monthly in arrear.


<PAGE>


                                                       Page 44

     19.5. Nothing  herein shall be construed as precluding  the NIBH group from
           providing  funding and/or facilities to the company on an arms-length
           basis  which are not and which  will not be  treated  as  shareholder
           claims on loan account against the company.

20.   GOOD FAITH

      Shareholders shall owe to each other a duty of good faith at all times.

21.   RIGHT OF MEMBERS TO INSPECT BOOKS OF THE COMPANY

      The books of account and other books and documents of the company shall be
      kept  at  the  registered  office  of  the  company  and,  subject  to the
      reasonable  restrictions as to the time and manner of inspecting same that
      may be imposed by a  resolution  of the  members of the company in general
      meeting,  shall be open to inspection  of the members  during the hours of
      business.

22.   APPLICATION OF THE SHAREHOLDERS'  AGREEMENT TO SUBSIDIARIES OF THE COMPANY
      All  provisions  of  this  shareholders'  agreement  shall  apply  MUTATIS
      MUTANDIS to any subsidiaries of the company from time to time.

23.   WHOLE AGREEMENT, NO AMENDMENT

     23.1. This agreement  constitutes the whole  agreement  between the parties
           relating to the subject matter hereof.

     23.2. No  amendment or  consensual  cancellation  of this  agreement or any
           provision  or term  hereof or of any  agreement,  bill of exchange or
<PAGE>


                                                       Page 45
04515MAM.ACF
ACF/gl/13d/0e/04122000

NEDC6093-078
SHAREHOLDERS AGREEMENT



           other  document  issued or  executed  pursuant to or in terms of this
           agreement  and no  settlement  of any  disputes  arising  under  this
           agreement  and  no  extension  of  time,   waiver  or  relaxation  or
           suspension  of or agreement  not to enforce or to suspend or postpone
           the  enforcement  of any of the provisions or terms of this agreement
           or of any  agreement,  bill of  exchange  or  other  document  issued
           pursuant  to or in terms of this  agreement  shall be binding  unless
           recorded in a written  document signed by the parties (or in the case
           of an extension of time,  waiver or relaxation or suspension,  signed
           by the party granting such extension, waiver or relaxation). Any such
           extension,  waiver or relaxation  or suspension  which is so given or
           made shall be strictly  construed as relating  strictly to the matter
           in respect whereof it was made or given.

     23.3. No extension of time or waiver or relaxation of any of the provisions
           or terms of this  agreement  or any  agreement,  bill of  exchange or
           other  document  issued or  executed  pursuant to or in terms of this
           agreement,  shall operate as an estoppel against any party in respect
           of its  rights  under this  agreement,  nor shall it operate so as to
           preclude such party thereafter from exercising its rights strictly in
           accordance with this agreement.

     23.4. To the  extent  permissible  by law no  party  shall  be bound by any
           express or implied  term,  representation,  warranty,  promise or the
           like not  recorded  herein,  whether it induced the  contract  and/or
           whether it was negligent or not.


<PAGE>


                                                       Page 46

24.   OPERATIONAL ISSUES

      Simultaneously  with or as soon as reasonably possible or convenient after
      signature of this agreement,  arrangements  shall be concluded between the
      company  and each of TII and NIBH  regulating  the  terms  and  conditions
      applicable  to the supply of value added  services by each of TII and NIBH
      to the  company.  Set out in  ANNEXURE  C  hereto  are the  categories  of
      services  that it is intended will be provided by each of TII and NIBH, it
      being  recorded that the provision of such value added services which will
      involve  skills and knowledge  transfer is essential to the success of the
      merged business.

25.   NOTICES

     25.1. The parties choose for all purposes under this agreement,  whether in
           respect   of  court   process,   notices   or  other   documents   or
           communications of whatsoever nature, the following addresses :

           25.1.1.   TII

                     Physical:   c/o Templeton Asset Management Limited
                                 Harrow Court II
                                 Isle of Houghton
                                 Boundary Road
                                 Parktown
                                 2193

                     Postal:     P O Box 87587
                                 Houghton
                                 2041

                     Telefax:    (011) 643-1366
                     US Telefax: (091) 954 847-2229


<PAGE>


                                                       Page 47

           25.1.2.   NIBH

                     Physical:   1 Newtown Avenue
                                 Killarney
                                 2193

                     Postal:     P O Box 582
                                 Johannesburg
                                 2000

                     Telefax:    (011) 480-1779/80



           25.1.3.   FRANKLIN TEMPLETON ASSET MANAGEMENT (PROPRIETARY) LIMITED

                     Physical:   c/o Templeton Asset Management Limited
                                 Harrow Court II
                                 Isle of Houghton
                                 Boundary Road
                                 Parktown
                                 2193

                     Postal:     P O Box 87587
                                 Houghton
                                 2041

                     Telefax:    (011) 643-1366



           25.1.4.   TEMPLETON GLOBAL ADVISORS LIMITED

                     Physical:   c/o Templeton Asset Management Limited
                                 Harrow Court II
                                 Isle of Houghton
                                 Boundary Road
                                 Parktown
                                 2193

                     Postal:     P O Box 87587
                                 Houghton
                                 2041

                     Telefax:    (011) 643-1366


<PAGE>


                                                       Page 48

     25.2. Any notice or communication  required  or  permitted  to be given in
           terms of this agreement shall be valid and effective only :-

           25.2.1.   if delivered or given by telefax;

           25.2.2.   in the case of a notice or communication to the company, if
                     a copy thereof is also delivered or given by telefax both
                     to NIBH and TII (in the case of TII, by telefax
                     transmission to its US telefax, the number of which appears
                     in clause 25.1.1).

     25.3. Any party may by notice to any other  party  change  it's  address to
           another  physical  address  in South  Africa or its  telefax  number,
           provided  that the  change  shall  become  effective  VIS-A-VIS  that
           addressee  on the 10th  (tenth)  business day from the receipt of the
           notice by the addressee.

     25.4. Any notice to a party -

           25.4.1.   delivered by hand to a responsible  person  during ordinary
                     business  hours  at its  chosen  physical  address shall be
                     deemed to have been received on the day of delivery; or

           25.4.2.   sent by telefax to its chosen telefax  number stipulated in
                     clause 25.1,  shall be deemed to have been received  on the
                     date of despatch (unless the contrary is proved).


<PAGE>


                                                       Page 49

     25.5. Notwithstanding  anything to the contrary herein  contained a written
           notice or  communication  actually  received  by a party  shall be an
           adequate written notice or communication to it  notwithstanding  that
           it was not sent by telefax to or delivered at its chosen address.

26.   COSTS

      The company will pay the costs of and  incidental  to the  preparation  of
      this agreement.

27.   GOVERNING LAW

     27.1. This  agreement  shall be governed by and  interpreted  in accordance
           with the substantive laws of the Republic of South Africa.

     27.2. Save  as  otherwise  provided  herein,  the  parties  submit  to  the
           exclusive jurisdiction of the High Court of South Africa.

28.   ARBITRATION

     28.1. Save in respect of those  provisions of the  agreement  which provide
           for their own remedies which would be incompatible  with arbitration,
           a dispute which arises in regard to -

           28.1.1.   the interpretation of;  or

           28.1.2.   the carrying into effect of;  or

           28.1.3.   any of the parties' rights and  obligations  arising  from;
                     or


<PAGE>


                                                       Page 50

           28.1.4.   the termination  or  purported  termination  of or  arising
                     from the termination of;  or

           28.1.5.   the rectification or proposed rectification of

           this  agreement,  or out of or pursuant to this  agreement  or on any
           matter  which in terms of this  agreement  requires  agreement by the
           parties,  (other than where an interdict  is sought or urgent  relief
           may be obtained  from a court of  competent  jurisdiction),  shall be
           submitted to and decided by arbitration.

     28.2. That arbitration shall be held -

           28.2.1. with  only the  parties  and their  representatives  present
                   thereat;

           28.2.2. at Sandton.

           It is the intention that the arbitration  shall,  where possible,  be
           held and  concluded in 21 (twenty one) working days after it has been
           demanded.  The parties shall use their best endeavours to procure the
           expeditious  completion  of the  arbitration.  The  arbitrator  shall
           determine  his own rules of procedure  and the parties shall be bound
           thereby.

     28.3. The arbitration  shall not be subject to the arbitration  legislation
           for the time being in force in the Republic of South Africa.


<PAGE>


                                                       Page 51

     28.4. The arbitrator shall be, if the matter in dispute is principally -

           28.4.1.   a legal matter, a practising  senior advocate of not less
                     than 5 (five) years standing as such and  practising at the
                     Johannesburg or Sandton Bar's,  or a senior lawyer (whether
                     or not an attorney as contemplated by the Attorneys Act, No
                     53 of 1979) of not less than 15 (fifteen) years standing,
                     in either case specialising in commercial law;

           28.4.2.   an accounting matter, a practising  chartered  accountant
                     of not less than 15 (fifteen) years standing;

           28.4.3.   any other  matter,   an  independent   person  agreed  upon
                     between the parties.

           If the parties fail to agree on an  arbitrator  within 7 (seven) days
           after the  arbitration  has been demanded,  the  arbitrator  shall be
           nominated by the  President  for the time being of the Law Society of
           the Transvaal (or its  successor-in-Gauteng).  If the parties fail to
           agree  whether the dispute is of a legal,  accounting or other nature
           within the said 7 (seven) day period, it shall be considered a matter
           referred to in clause 28.4.3.

     28.5. The parties  shall keep the evidence in the  arbitration  proceedings
           and any order made by any arbitrator  confidential  unless  otherwise
           contemplated herein.


<PAGE>


     28.6. The  arbitrator  shall be obliged to give his award in writing  fully
           supported by reasons.  The arbitrator shall make an award as to costs
           which shall be paid accordingly,  it being agreed that the arbitrator
           shall,  in making any costs  award in favour of the TII  group,  take
           cognisance  of the costs that may  necessarily  have been incurred by
           the  TII  group  in  non-South   African   residents   attending  the
           arbitration proceedings and/or the preparation therefor.

     28.7. The  provisions  of this clause are  severable  from the rest of this
           agreement  and  shall  remain  in effect  even if this  agreement  is
           terminated for any reason.

     28.8. The arbitrator  shall have the power to give default  judgment if any
           party fails to make submissions on due date and/or fails to appear at
           the arbitration.

SIGNED by the parties and witnessed on the following  dates and at the following
places respectively:

DATE            PLACE             WITNESS                SIGNATURE

                                          For:        TEMPLETON INTERNATIONAL,
                                                      INC.
                                1.
August 2000    Johannesburg                          /s/ Charles E. Johnson
                                                      ----------------------
                                2.


<PAGE>


                                                        Page 2



DATE            PLACE             WITNESS                SIGNATURE

                                          For:        NEDCOR INVESTMENT BANK
                                                      HOLDINGS LIMITED
           1.
August 2000    Johannesburg                          /s/ Izak Botha
           2.                                        ---------------


                                          For:        FRANKLIN TEMPLETON ASSET
                                                      MANAGEMENT (PROPRIETARY)
                                                      LIMITED
           1.
August 2000    Johannesburg                          /s/ Charles E. Johnson
                                                     -----------------------
           2.

                                          For:        TEMPLETON GLOBAL ADVISERS
                                                      LIMITED

August 2000    Johannesburg                          /s/ Charles E. Johnson
                                                     -----------------------
           1.

           2.


<PAGE>



                 ANNEXURE A - TII GROUP NAMES


<PAGE>




                 ANNEXURE B - NIBH GROUP NAMES

1.    Nedcor
2.    NIB
3.    NIBH
4.    Life Time Wealth Creator
5.    Prime Select
6.    Quants
7.    Woolworths (Trust Fund)


<PAGE>




              ANNEXURE C - CATEGORIES OF SERVICES



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.52
<SEQUENCE>9
<FILENAME>0009.txt
<DESCRIPTION>DISTRIBUTION AGREEMENT
<TEXT>


                         FRANKLIN GROWTH AND INCOME FUND
                            777 Mariners Island Blvd.
                           San Mateo, California 94404

Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd.
San Mateo, California 94404

Re:   Distribution Agreement

Gentlemen:

We (the "Fund") are a business trust operating as an open-end management
investment company or "mutual fund", which is registered under the Investment
Company Act of 1940, as amended (the "1940 Act") and whose shares are registered
under the Securities Act of 1933, as amended (the "1933 Act"). We desire to
issue one or more series or classes of our authorized but unissued shares of
capital stock or beneficial interest (the "Shares") to authorized persons in
accordance with applicable Federal and State securities laws. The Fund's Shares
may be made available in one or more separate series, each of which may have one
or more classes.

You have informed us that your company is registered as a broker-dealer under
the provisions of the Securities Exchange Act of 1934, as amended and that your
company is a member of the National Association of Securities Dealers, Inc. You
have indicated your desire to act as the exclusive selling agent and distributor
for the Shares. We have been authorized to execute and deliver this Distribution
Agreement ("Agreement") to you by a resolution of our Board of Trustees
("Board") passed at a meeting at which a majority of Board members, including a
majority who are not otherwise interested persons of the Fund and who are not
interested persons of our investment adviser, its related organizations or with
you or your related organizations, were present and voted in favor of the said
resolution approving this Agreement.

                                       1
<PAGE>
      1. APPOINTMENT OF UNDERWRITER. Upon the execution of this Agreement and in
consideration of the agreements on your part herein expressed and upon the terms
and conditions set forth herein, we hereby appoint you as the exclusive sales
agent for our Shares and agree that we will deliver such Shares as you may sell.
You agree to use your best efforts to promote the sale of Shares, but are not
obligated to sell any specific number of Shares.

      However, the Fund and each series retain the right to make direct sales of
its Shares without sales charges consistent with the terms of the then current
prospectus and applicable law, and to engage in other legally authorized
transactions in its Shares which do not involve the sale of Shares to the
general public. Such other transactions may include, without limitation,
transactions between the Fund or any series or class and its shareholders only,
transactions involving the reorganization of the Fund or any series, and
transactions involving the merger or combination of the Fund or any series with
another corporation or trust.

      2. INDEPENDENT CONTRACTOR. You will undertake and discharge your
obligations hereunder as an independent contractor and shall have no authority
or power to obligate or bind us by your actions, conduct or contracts except
that you are authorized to promote the sale of Shares. You may appoint
sub-agents or distribute through dealers or otherwise as you may determine from
time to time, but this Agreement shall not be construed as authorizing any
dealer or other person to accept orders for sale or repurchase on our behalf or
otherwise act as our agent for any purpose.

      3. OFFERING PRICE. Shares shall be offered for sale at a price equivalent
to the net asset value per share of that series and class plus any applicable
percentage of the public offering price as sales commission or as otherwise set
forth in our then current prospectus. On each business day on which the New York
Stock Exchange is open for business, we will furnish you with the net asset
value of the Shares of each available series and class which shall be determined
in accordance with our then effective prospectus. All Shares will be sold in the
manner set forth in our then effective prospectus and statement of additional
information, and in compliance with applicable law.

      4.    COMPENSATION.
            -------------

            A. SALES COMMISSION. You shall be entitled to charge a sales
commission on the sale or redemption, as appropriate, of each series and class

                                       2
<PAGE>
of each Fund's Shares in the amount of any initial, deferred or contingent
deferred sales charge as set forth in our then effective prospectus. You may
allow any sub-agents or dealers such commissions or discounts from and not
exceeding the total sales commission as you shall deem advisable, so long as any
such commissions or discounts are set forth in our current prospectus to the
extent required by the applicable Federal and State securities laws. You may
also make payments to sub-agents or dealers from your own resources, subject to
the following conditions: (a) any such payments shall not create any obligation
for or recourse against the Fund or any series or class, and (b) the terms and
conditions of any such payments are consistent with our prospectus and
applicable federal and state securities laws and are disclosed in our prospectus
or statement of additional information to the extent such laws may require.

            B. DISTRIBUTION PLANS. You shall also be entitled to compensation
for your services as provided in any Distribution Plan adopted as to any series
and class of any Fund's Shares pursuant to Rule 12b-1 under the 1940 Act. The
compensation provided in the Class B Distribution Plan applicable to Class B
Shares (the "Class B Plan") is divided into a distribution fee and a service
fee, each of which fees is in compensation for different services to be rendered
to the Fund. Subject to the termination provisions in the Class B Plan, the
distribution fee with respect to the sale of a Class B Share shall be earned
when such Class B Share is sold and shall be payable from time to time as
provided in the Class B Plan. The distribution fee payable to you as provided in
the Class B Plan shall be payable without offset, defense or counterclaim (it
being understood by the parties hereto that nothing in this sentence shall be
deemed a waiver by the Fund of any claim the Fund may have against you). You may
direct the Fund to cause our custodian to pay such distribution fee to Lightning
Finance Company Limited ("LFL") or other persons providing funds to you to cover
expenses referred to in Section 2(a) of the Class B Plan and to cause our
custodian to pay the service fee to you for payment to dealers or others or
directly to others to cover expenses referred to in Section 2(b) of the Class B
Plan.

We understand that you intend to assign your right to receive certain
distribution fees with respect to Class B Shares to LFL in exchange for funds
that you will use to cover expenses referred to in Section 2(a) of the Class B
Plan. In recognition that we will benefit from your arrangement with LFL, we
agree that, in addition to the provisions of Section 7 (iii) of the Class B
Plan, we will not pay to any person or entity, other than LFL, any such assigned
distribution fees related to Class B Shares sold by you prior to the termination
                                       3
<PAGE>
of either the Agreement or the Class B Plan. We agree that the preceding
sentence shall survive termination of the Agreement.

            C. With respect to the sales commission on the redemption of Shares
of each series and class of the Fund as provided in Subsection 4.A. above, we
will cause our shareholder services agent (the "Transfer Agent") to withhold
from redemption proceeds payable to holders of the Shares all contingent
deferred sales charges properly payable by such holders in accordance with the
terms of our then current prospectuses and statements of additional information
(each such sales charge, a "CDSC"). Upon receipt of an order for redemption, the
Transfer Agent shall direct our custodian to transfer such redemption proceeds
to a general trust account. We shall then cause the Transfer Agent to pay over
to you or your assigns from the general trust account such CDSCs properly
payable by such holders as promptly as possible after the settlement date for
each such redemption of Shares. CDSCs shall be payable without offset, defense
or counterclaim (it being understood that nothing in this sentence shall be
deemed a waiver by us of any claim we may have against you.) You may direct that
the CDSCs payable to you be paid to any other person.

      5. TERMS AND CONDITIONS OF SALES. Shares shall be offered for sale only in
those jurisdictions where they have been properly registered or are exempt from
registration, and only to those groups of people which the Board may from time
to time determine to be eligible to purchase such shares.

      6. ORDERS AND PAYMENT FOR SHARES. Orders for Shares shall be directed to
the Fund's shareholder services agent, for acceptance on behalf of the Fund. At
or prior to the time of delivery of any of our Shares you will pay or cause to
be paid to the custodian of the Fund's assets, for our account, an amount in
cash equal to the net asset value of such Shares. Sales of Shares shall be
deemed to be made when and where accepted by the Fund's shareholder services
agent. The Fund's custodian and shareholder services agent shall be identified
in its prospectus.

      7. PURCHASES FOR YOUR OWN ACCOUNT. You shall not purchase our Shares for
your own account for purposes of resale to the public, but you may purchase
Shares for your own investment account upon your written assurance that the
purchase is for investment purposes and that the Shares will not be resold
except through redemption by us.

                                       4
<PAGE>
      8. SALE OF SHARES TO AFFILIATES. You may sell our Shares at net asset
value to certain of your and our affiliated persons pursuant to the applicable
provisions of the federal securities statutes and rules or regulations
thereunder (the "Rules and Regulations"), including Rule 22d-1 under the 1940
Act, as amended from time to time.

      9.    ALLOCATION OF EXPENSES.  We will pay the expenses:

            (a)   Of the preparation of the audited and certified financial
                  statements of our company to be included in any Post-Effective
                  Amendments ("Amendments") to our Registration Statement under
                  the 1933 Act or 1940 Act, including the prospectus and
                  statement of additional information included therein;

            (b)   Of the  preparation,  including  legal fees, and printing of
                  all Amendments or supplements  filed with the Securities and
                  Exchange   Commission,   including   the   copies   of   the
                  prospectuses  included  in the  Amendments  and the first 10
                  copies  of  the  definitive   prospectuses   or  supplements
                  thereto,  other than those  necessitated  by your (including
                  your   "Parent's")   activities  or  Rules  and  Regulations
                  related  to  your   activities   where  such  Amendments  or
                  supplements  result in expenses which we would not otherwise
                  have incurred;

            (c)   Of  the  preparation,   printing  and  distribution  of  any
                  reports  or  communications  which  we send to our  existing
                  shareholders; and

            (d)   Of filing and other fees to Federal and State securities
                  regulatory authorities necessary to continue offering our
                  Shares.

            You will pay the expenses:

            (a)   Of printing the copies of the prospectuses and any supplements
                  thereto and statements of additional information which are
                  necessary to continue to offer our Shares;

            (b)   Of the preparation, excluding legal fees, and printing of all
                  Amendments and supplements to our prospectuses and statements
                  of additional information if the Amendment or supplement
                  arises from your (including your "Parent's") activities or

                                       5
<PAGE>
                  Rules and Regulations related to your activities and those
                  expenses would not otherwise have been incurred by us;

            (c)   Of printing additional copies, for use by you as sales
                  literature, of reports or other communications which we have
                  prepared for distribution to our existing shareholders; and

            (d)   Incurred by you in  advertising,  promoting  and selling our
                  Shares.

      10. FURNISHING OF INFORMATION. We will furnish to you such information
with respect to each series and class of Shares, in such form and signed by such
of our officers as you may reasonably request, and we warrant that the
statements therein contained, when so signed, will be true and correct. We will
also furnish you with such information and will take such action as you may
reasonably request in order to qualify our Shares for sale to the public under
the Blue Sky Laws of jurisdictions in which you may wish to offer them. We will
furnish you with annual audited financial statements of our books and accounts
certified by independent public accountants, with semi-annual financial
statements prepared by us, with registration statements and, from time to time,
with such additional information regarding our financial condition as you may
reasonably request.

      11. CONDUCT OF BUSINESS. Other than our currently effective prospectus,
you will not issue any sales material or statements except literature or
advertising which conforms to the requirements of Federal and State securities
laws and regulations and which have been filed, where necessary, with the
appropriate regulatory authorities. You will furnish us with copies of all such
materials prior to their use and no such material shall be published if we shall
reasonably and promptly object.

            You shall comply with the applicable Federal and State laws and
regulations where our Shares are offered for sale and conduct your affairs with
us and with dealers, brokers or investors in accordance with the Conduct Rules
of the National Association of Securities Dealers, Inc.

                                       6
<PAGE>
      12. REDEMPTION OR REPURCHASE WITHIN SEVEN DAYS. If Shares are tendered to
us for redemption or repurchase by us within seven business days after your
acceptance of the original purchase order for such Shares, you will immediately
refund to us the full sales commission (net of allowances to dealers or brokers)
allowed to you on the original sale, and will promptly, upon receipt thereof,
pay to us any refunds from dealers or brokers of the balance of sales
commissions reallowed by you. We shall notify you of such tender for redemption
within 10 days of the day on which notice of such tender for redemption is
received by us.

      13.   OTHER  ACTIVITIES.  Your services pursuant to this Agreement shall
not be deemed to be exclusive,  and you may render similar services and act as
an underwriter,  distributor or dealer for other  investment  companies in the
offering of their shares.

      14. TERM OF AGREEMENT. This Agreement shall become effective on the date
of its execution, and shall remain in effect for a period of two (2) years. The
Agreement is renewable annually thereafter, with respect to the Fund or, if the
Fund has more than one series, with respect to each series, for successive
periods not to exceed one year (i) by a vote of (a) a majority of the
outstanding voting securities of the Fund or, if the Fund has more than one
series, of each series, or (b) by a vote of the Board, AND (ii) by a vote of a
majority of the members of the Board who are not parties to the Agreement or
interested persons of any parties to the Agreement (other than as members of the
Board), cast in person at a meeting called for the purpose of voting on the
Agreement.

            This Agreement may at any time be terminated by the Fund or by any
series without the payment of any penalty, (i) either by vote of the Board or by
vote of a majority of the outstanding voting securities of the Fund or any
series on 90 days' written notice to you; or (ii) by you on 90 days' written
notice to the Fund; and shall immediately terminate with respect to the Fund and
each series in the event of its assignment.

      15.   SUSPENSION  OF  SALES.  We  reserve  the  right  at all  times  to
suspend or limit the public  offering of Shares upon two days' written  notice
to you.

      16. MISCELLANEOUS. This Agreement shall be subject to the laws of the
State of California and shall be interpreted and construed to further promote
the operation of the Fund as an open-end investment company. This Agreement
shall supersede all Distribution Agreements and Amendments previously in effect

                                       7
<PAGE>
between the parties. As used herein, the terms "net asset value," "offering
price," "investment company," "open-end investment company," "principal
underwriter," "interested person," "Parent," "affiliated person," and "majority
of the outstanding voting securities" shall have the meanings set forth in the
1933 Act or the 1940 Act and the Rules and Regulations thereunder. The term
"assignment" shall have the meanings set forth only in the 1940 Act and the
Rules and Regulations thereunder.

Nothing herein shall be deemed to protect you against any liability to us or to
our securities holders to which you would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of your
duties hereunder, or by reason of your reckless disregard of your obligations
and duties hereunder.



                                       8
<PAGE>

If the foregoing meets with your approval, please acknowledge your acceptance by
signing the enclosed copy, whereupon this will become a binding agreement as of
the date set forth below.

Very truly yours,

FRANKLIN GROWTH AND INCOME FUND


By:   /s/ David P. Goss
      ____________________________
      David P. Goss
      Vice President &
      Assistant Secretary



Accepted:

Franklin/Templeton Distributors, Inc.


By:   /s/ Harmon E. Burns
      _____________________________
      Harmon E. Burns
      Executive Vice President

DATED:  August 10, 2000



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12
<SEQUENCE>10
<FILENAME>0010.txt
<DESCRIPTION>COMPUTATION OF RATIOS OF EARNINGS
<TEXT>

<TABLE>
<CAPTION>

                                   EXHIBIT 12

COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES

                                          FOR THE YEARS ENDED SEPTEMBER 30

(Dollars in thousands)                       2000          1999         1998
- --------------------------------------------------------------------------------
<S>                                      <C>           <C>           <C>

Income before taxes                      $739,591      $574,084      $676,284

Add fixed charges:
   Interest expense                        25,322        30,611        40,349
   Interest factor on rent                 19,170        12,953        12,416
- --------------------------------------------------------------------------------
Total fixed charges                      $ 44,492        43,564        52,765

Earnings before fixed charges and taxes
on income                                $784,083      $617,648      $729,049

- --------------------------------------------------------------------------------
Ratio of earnings to fixed charges           17.6          14.2          13.8

</TABLE>


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>11
<FILENAME>0011.txt
<DESCRIPTION>LIST OF PRINCIPAL SUBSIDIARIES
<TEXT>


                                   EXHIBIT 21

                            FRANKLIN RESOURCES, INC.
                         LIST OF PRINCIPAL SUBSIDIARIES*
                    FOR FISCAL YEAR ENDED SEPTEMBER 30, 2000
                                                                STATE OR
                                                               NATION OF
NAME                                                         INCORPORATION
- --------------------------------------------------------------------------------
CLOSED JOINT-STOCK COMPANY TEMPLETON                      RUSSIA
CONTINENTAL PROPERTY MANAGEMENT COMPANY                   CALIFORNIA
FCC RECEIVABLES CORP.                                     DELAWARE
FRANKLIN ADVISERS, INC.                                   CALIFORNIA
FRANKLIN ADVISORY SERVICES, LLC                           DELAWARE
FRANKLIN AGENCY, INC.                                     CALIFORNIA
FRANKLIN CAPITAL CORPORATION                              UTAH
FRANKLIN INVESTMENT ADVISORY SERVICES, INC.               DELAWARE
FRANKLIN MANAGEMENT, INC.                                 CALIFORNIA
FRANKLIN MUTUAL ADVISERS, LLC                             DELAWARE
FRANKLIN PROPERTIES, INC.                                 CALIFORNIA
FRANKLIN RECEIVABLES , LLC                                DELAWARE
FRANKLIN TEMPLETON NIB ASSET MANAGEMENT (PTY) LTD         SOUTH AFRICA
FRANKLIN TEMPLETON BANK & TRUST, F.S.B.                   UNITED STATES
FRANKLIN TEMPLETON COMPANIES, INC.                        DELAWARE
FRANKLIN TEMPLETON FRANCE S.A.                            FRANCE
FRANKLIN TEMPLETON HOLDING LIMITED                        MAURITIUS
FRANKLIN TEMPLETON INVESTMENT MANAGEMENT LIMITED          UNITED KINGDOM
FRANKLIN TEMPLETON INVESTMENT (ASIA) LIMITED              HONG KONG
FRANKLIN TEMPLETON INVESTMENT SERVICES GMBH               GERMANY
FRANKLIN TEMPLETON INVESTMENTS CORP.                      CANADA
FRANKLIN TEMPLETON INVESTMENTS JAPAN LIMITED              JAPAN
FRANKLIN TEMPLETON INVESTMENT TRUST MANAGEMENT
  COMPANY, LTD.                                           SOUTH KOREA
FRANKLIN TEMPLETON GLOBAL INVESTORS LIMITED               UNITED KINGDOM
FRANKLIN TEMPLETON MANAGEMENT COMPANY LIMITED             SOUTH  AFRICA
FRANKLIN TEMPLETON MANAGEMENT LUXEMBOURG SA               LUXEMBOURG
FRANKLIN TEMPLETON SERVICES, INC.                         DELAWARE
FRANKLIN TEMPLETON SERVICES LIMITED                       IRELAND
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.                     NEW YORK
FRANKLIN/TEMPLETON INVESTOR SERVICES, INC.                CALIFORNIA
FRANKLIN/TEMPLETON TRAVEL, INC.                           CALIFORNIA
FS CAPITAL GROUP                                          CALIFORNIA
FS PROPERTIES, INC.                                       CALIFORNIA


<PAGE>

FTTRUST COMPANY                                           FLORIDA
HAPPY DRAGON HOLDINGS LTD.                                BRITISH VIRGIN ISLANDS
PROPERTY RESOURCES, INC.                                  CALIFORNIA
T.G.H. HOLDINGS LTD.                                      BAHAMAS
TEMPLETON ASSET MANAGEMENT LTD.                           SINGAPORE
TEMPLETON ASSET MANAGEMENT (INDIA) PVT. LTD.              INDIA
TEMPLETON ASIAN DIRECT INVESTMENTS LIMITED                HONG KONG
TEMPLETON CHINA RESEARCH LIMITED                          HONG KONG
TEMPLETON DO BRASIL LTDA.                                 BRAZIL
TEMPLETON FRANKLIN GLOBAL DISTRIBUTORS LTD.               BERMUDA
TEMPLETON FRANKLIN INVESTMENT SERVICES (ASIA) LIMITED     HONG KONG
TEMPLETON/FRANKLIN INVESTMENT SERVICES, INC.              DELAWARE
TEMPLETON FUNDS ANNUITY COMPANY                           FLORIDA
TEMPLETON GLOBAL ADVISORS LIMITED                         BAHAMAS
TEMPLETON GLOBAL STRATEGIC SERVICES S.A.                  LUXEMBOURG
TEMPLETON HERITAGE LIMITED                                CANADA
TEMPLETON INTERNATIONAL, INC.                             DELAWARE
TEMPLETON INVESTMENT COUNSEL, INC.                        FLORIDA
TEMPLETON INVESTMENT HOLDINGS (CYPRUS) LIMITED            CYPRUS
TEMPLETON INVESTMENT MANAGEMENT (AUSTRALIA) LIMITED       AUSTRALIA
TEMPLETON ITALIA SIM SPA                                  ITALY
TEMPLETON RESEARCH AND MANAGEMENT VENEZUELA, C.A.         VENEZUELA
TEMPLETON RESEARCH POLAND SP.Z.O.O.                       POLAND
TEMPLETON (SWITZERLAND) LTD.                              SWITZERLAND
TEMPLETON TRUST SERVICES PVT. LTD.                        INDIA
TEMPLETON UNIT TRUST MANAGERS LIMITED                     UNITED KINGDOM
TEMPLETON WORLDWIDE, INC.                                 DELAWARE

*ALL SUBSIDIARIES CURRENTLY DO BUSINESS PRINCIPALLY UNDER THEIR CORPORATE NAME
EXCEPT FOR TEMPLETON INVESTMENT COUNSEL, INC. WHICH ALSO OPERATES UNDER THE NAME
"TEMPLETON GLOBAL BOND MANAGERS"; AND TEMPLETON/FRANKLIN INVESTMENT SERVICES,
INC. WHICH ALSO OPERATES UNDER THE ASSUMED NAME, "TEMPLETON PORTFOLIO ADVISORY."
SOME TEMPLETON SUBSIDIARIES ALSO ON OCCASION USE THE NAME TEMPLETON WORLDWIDE.

A MORE DETAILED DESCRIPTION OF SOME OF OUR MORE IMPORTANT SUBSIDIARIES IS SET
FORTH BELOW.



<PAGE>

FRANKLIN ADVISERS, INC.

Franklin Advisers, Inc. ("FAV") is a California corporation formed in 1985 and
is based in San Mateo, California. FAV is registered as an investment adviser
with the SEC under the Investment Advisers Act of 1940 (the "Advisers Act") and
provides investment advisory, portfolio management and administrative services
under management agreements with most of the Franklin Templeton group of funds.

FRANKLIN ADVISORY SERVICES, LLC

Franklin Advisory Services, LLC ("FASI") is a Delaware limited liability company
formed in 1999 and is based in Fort Lee, New Jersey. FASI is registered as an
investment adviser with the SEC under the Advisers Act. FASI provides investment
advisory and portfolio management services under management agreements with
certain of the Franklin Templeton group of funds and also provides sub-advisory
services to non-affiliated entities.

FRANKLIN AGENCY, INC.

Franklin Agency, Inc. ("FAI") is a California corporation organized in 1971,
which provides variable insurance product development for the Franklin Templeton
group of funds.

FRANKLIN CAPITAL CORPORATION

Franklin Capital Corporation ("FCC") is a Utah corporation formed in 1993 to
expand Franklin Templeton Investments' lending activities related to primarily
to the purchase, securitization and servicing of retail installment sales
contracts ("automobile contracts") originated by independent automobile
dealerships. FCC conducts its business primarily in the Western region of the
United States.

FRANKLIN INVESTMENT ADVISORY SERVICES, INC.

Franklin Investment Advisory Services, Inc. ("FIAS") is a Delaware corporation
formed in 1996 and is based in Norwalk, Connecticut. FIAS is registered as an
investment adviser with the SEC under the Advisers Act and provides investment
management services to an investment company.

FRANKLIN MANAGEMENT, INC.

Franklin Management, Inc. ("FMI"), a California corporation organized in 1978,
is registered as an investment adviser with the SEC under the Advisers Act and
provides investment management services to private accounts. FMI also provides
advisory services to third party broker/dealer wrap fee programs.

FRANKLIN MUTUAL ADVISERS, LLC

Franklin Mutual Advisers, LLC ("FMAI") is a Delaware limited liability company
formed in 1999 as a successor in interest to Franklin Mutual Advisers, Inc. and
is based in Short Hills, New Jersey. FMAI is registered as an investment adviser
with the SEC under the Advisers Act. FMAI provides investment management and
portfolio management services under various agreements with Mutual Series. FMAI
principally serves as the investment manager to the Mutual Series funds.



<PAGE>

FRANKLIN PROPERTIES, INC.

Franklin Properties, Inc. ("FPI") is a real estate investment management company
organized in California in 1988,  which  manages a  publicly-traded  real estate
investment trust.  Franklin Select Realty Trust, Inc. is managed by FPI under an
advisory agreement.  Property Resources,  Inc. ("PRI"), a California corporation
organized in 1967 and  acquired by Franklin  Templeton  Investments  in December
1985,  serves as general partner,  property manager or adviser for certain other
real estate investment programs.

FRANKLIN TEMPLETON BANK & TRUST, F.S.B.

Franklin Templeton Bank & Trust (the "Bank"), a wholly-owned subsidiary of
Franklin Resources, Inc., is chartered by the Office of Thrift Supervision as a
federal savings bank. The Bank, formerly known as "Franklin Bank", was formed in
1974 and was acquired by Franklin Templeton Investments in December 1985. The
Bank, with total assets of $117.9 Million as of September 30, 2000, provides
consumer banking products and services such as credit cards, auto loans and
deposit accounts. The Bank converted its charter from a California state
chartered bank to a federal savings bank in May 2000. Immediately following this
conversion, Franklin Templeton Trust Company, a California chartered trust
company organized in 1983, merged into the Bank and continues to carry out
activities as a division of the Bank. These activities include, primarily,
serving as custodian for Individual Retirement Accounts and business retirement
plans whose assets are invested in the Franklin Templeton funds, and as trustee
or fiduciary of private trusts and retirement plans.

FRANKLIN TEMPLETON COMPANIES, INC.

Franklin Templeton Companies, Inc. ("FTCS") is a Delaware corporation
formed in 1998. Based in San Mateo, California, FTCS is the principal
contracting and corporate services subsidiary of Franklin Templeton Investments
through which property management, human resources, information systems and
technology, legal, accounting, treasury, payroll, employment, purchasing,
contracting, tax and similar functions are conducted. FTCS does not manage any
assets.

FRANKLIN TEMPLETON INVESTMENT MANAGEMENT LIMITED

Franklin Templeton Investment Management Limited ("FTIML"), is a corporation
organized in 1985 under the laws of England and is based in Edinburgh, Scotland.
FTIML is registered as the foreign equivalent of an investment adviser with the
Investment Management Regulatory Organization and the Financial Services
Authority of the United Kingdom and is also registered with the SEC under the
Advisers Act. FTIML provides both equity and fixed-income investment advisory
services and serves as an investment adviser to various Franklin Templeton
Investments investment companies registered in foreign jurisdictions.


<PAGE>
FRANKLIN TEMPLETON INVESTMENT TRUST MANAGEMENT COMPANY, LTD.

Franklin Templeton Investment Trust Management Company, Ltd.  ("FTITML") is a
corporation organized under the laws of, and is based in South Korea.  FTITML
provides investment trust management services in South Korea.

FRANKLIN TEMPLETON INVESTMENTS CORP.

Franklin Templeton Investments Corp. ("FTIC") is an Ontario corporation formed
in November 1987. FTIC is registered in the province of Ontario, Canada with the
Ontario Securities Commission in the categories of Investment Counsel, Portfolio
Manager and Mutual Fund Dealer. FTIC provides investment advisory, portfolio
management, distribution and administrative services for Canadian mutual funds,
commingled trusts and private and institutional accounts under various
management agreements.

FRANKLIN TEMPLETON INVESTMENTS (ASIA) LIMITED

Franklin Templeton Investments (Asia) Limited ("FTILHK") is a corporation
organized under the laws of, and is based in Hong Kong.  FTILHK was formed in
late 1993 to distribute and service Franklin Templeton Investments' financial
products in Asia.

FRANKLIN TEMPLETON SERVICES, INC.

Franklin Templeton Services, Inc. ("FTSI") is a Delaware corporation formed in
1996 and is based in San Mateo, California. FTSI provides business management
services, including fund accounting, securities pricing, trading, compliance and
other related administrative activities under various management agreements to
most of the U.S. Franklin Templeton funds.

FRANKLIN/TEMPLETON DISTRIBUTORS, INC.

Franklin/Templeton Distributors, Inc. ("FTDI") is a New York corporation formed
in 1947. FTDI is registered with the SEC as a broker/dealer and is a member of
the National Association of Securities Dealers, Inc. (the "NASD"). As the
principal underwriter of the shares of most of the Franklin Templeton funds,
FTDI earns underwriting commissions on the distribution of shares of the funds.

FRANKLIN/TEMPLETON INVESTOR SERVICES, INC.

Franklin/Templeton Investor Services, Inc. ("FTISI"), is a California
corporation formed in 1981. FTISI is registered with the SEC as a transfer agent
under the '34 Act. FTISI provides shareholder record keeping services and acts
as transfer agent and dividend-paying agent for the Franklin Templeton group of
funds.

FTTRUST COMPANY

FTTrust Company ("FTTC"), a Florida corporation formed in 1985, is a trust
company licensed by the Florida Department of Banking and Finance. FTTC serves
as trustee of commingled trusts for qualified retirement plans.

TEMPLETON ASSET MANAGEMENT LTD.

Templeton Asset Management Ltd. ("TAML") is a corporation organized under the
laws of, and is based in, Singapore. TAML is registered as an investment adviser
in Singapore with the Monetary Authority of Singapore, in Hong Kong with the
Securities and Futures Commission and is also registered with the SEC under the
Advisers Act. TAML provides investment advisory and related services to certain
Templeton funds and portfolios. TAML is principally an investment adviser to
emerging market equity portfolios.


<PAGE>

TEMPLETON FUNDS ANNUITY COMPANY

Templeton Funds Annuity Company ("TFAC") is a Florida corporation formed in
1984, which offers variable annuity and variable life insurance products. TFAC
is principally regulated by the Florida Department of Insurance and Florida's
Treasurer.

TEMPLETON/FRANKLIN INVESTMENT SERVICES, INC.

Templeton/Franklin Investment Services, Inc. ("TFIS") is a Delaware corporation
formed in 1987, and is registered with the SEC as a broker/dealer and an
investment adviser and is a member of the NASD. Its principal business
activities include: (i) through its Templeton Portfolio Advisory division,
serving as a sponsor of a comprehensive fee (wrap account) program, in which it
provides investment advisory and broker/dealer services, as well as serving as
investment adviser in other broker/dealer wrap account programs and directly as
an adviser for separate accounts; and (ii) serving as a direct marketing
broker/dealer for institutional investors in the Franklin Templeton group of
funds.

TEMPLETON GLOBAL ADVISORS LIMITED

Templeton Global Advisors Limited ("TGAL") is a Bahamian corporation located in
Nassau, Bahamas. TGAL is registered as an investment adviser with the SEC under
the Advisers Act. TGAL provides investment advisory, portfolio, management, and
administrative services under various agreements with certain of the Templeton
funds and other sponsored investment products.

TEMPLETON INTERNATIONAL, INC.

Templeton International, Inc. ("TII") is a Delaware corporation organized in
1992 and acts as the holding company for a number of the Templeton international
subsidiaries. This organization is responsible for the development and operation
of businesses outside of North America.

TEMPLETON INVESTMENT COUNSEL, INC.

Templeton  Investment Counsel,  Inc. ("TICI") is a Florida corporation formed in
1979. Based in Ft. Lauderdale, Florida, TICI is the principal investment adviser
to managed and  institutional  accounts.  In  addition,  it provides  investment
advisory  portfolio  management  services to certain of the Templeton  funds and
subadvisory services to certain of the Franklin funds.

TEMPLETON WORLDWIDE, INC.

Templeton Worldwide,  Inc. ("TWW") is a Delaware  corporation  organized in July
1992 as the parent holding company for all of the Templeton companies.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>12
<FILENAME>0012.txt
<DESCRIPTION>CONSENT OF INDEPENDENT ACCOUNTANTS
<TEXT>


                                   EXHIBIT 23

                       CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference of our report dated October 25,
2000, on our audits of the consolidated financial statements of Franklin
Resources, Inc. and subsidiaries as of September 30, 2000 and 1999 and for the
years ended September 30, 2000, 1999, and 1998, which report is included in this
Annual Report on Form 10-K, in the following registration statements of Franklin
Resources, Inc.

  . Form S-3 dated October 9, 1996 for the issuance of medium term notes,
  . Form S-3 filed September 30, 1994 for the registration of shares of common
    stock,
  . Forms S-8 for the Franklin Resources, Inc. 1998 Universal Stock Incentive
    Plan,
  . Form S-8 for Franklin Resources, Inc. United Kingdom Stock Option Plan,
  . Form S-8 for the Canada Stock Option Plan, as amended,
  . Form S-8 for the 1998 Employee Stock Investment Plan,

PricewaterhouseCoopers LLP

San Francisco, California
December 5, 2000

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27
<SEQUENCE>13
<FILENAME>0013.txt
<TEXT>

<TABLE> <S> <C>

<ARTICLE>  5

<LEGEND>

THE SCHEDULE CONTAINS SUMMARY FINANCIAL  INFORMATION EXTRACTED FROM REGISTRANT'S
FINANCIAL  STATEMENTS FOR THE YEAR ENDED  SEPTEMBER 30, 2000 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.

</LEGEND>
<MULTIPLIER>  1,000


<S>                                         <C>
<PERIOD-TYPE>                               12-MOS
<FISCAL-YEAR-END>                           SEP-30-2000
<PERIOD-END>                                SEP-30-2000
<CASH>                                        734,071
<SECURITIES>                                  635,819
<RECEIVABLES>                                 268,387
<ALLOWANCES>                                        0
<INVENTORY>                                         0
<CURRENT-ASSETS>                            1,656,294
<PP&E>                                        444,694
<DEPRECIATION>                                      0
<TOTAL-ASSETS>                              4,042,443
<CURRENT-LIABILITIES>                         489,559
<BONDS>                                             0
<PREFERRED-MANDATORY>                               0
<PREFERRED>                                         0
<COMMON>                                       24,373
<OTHER-SE>                                  2,941,120
<TOTAL-LIABILITY-AND-EQUITY>                4,042,443
<SALES>                                             0
<TOTAL-REVENUES>                            2,340,140
<CGS>                                               0
<TOTAL-COSTS>                               1,676,697
<OTHER-EXPENSES>                                    0
<LOSS-PROVISION>                                    0
<INTEREST-EXPENSE>                             13,960
<INCOME-PRETAX>                               739,591
<INCOME-TAX>                                  177,502
<INCOME-CONTINUING>                                 0
<DISCONTINUED>                                      0
<EXTRAORDINARY>                                     0
<CHANGES>                                           0
<NET-INCOME>                                  562,089
<EPS-BASIC>                                    2.28
<EPS-DILUTED>                                    2.28



</TABLE>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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