SEC Division of Investment Management staff letter: Franklin Templeton Group of Funds

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SECTI01J I S (a. ")
RUL
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MT,ATT.AR ~ / ?-/cri i
JUL 2 3 1997

Our Ref. No. 97-240

Franklin Templeton

RESPONSE OF THE OFFICE OF CHIEF COUNSEL
Group of Funds
DIVISION OF INVSTMNT MAAGEMNT File Nos. 811-730. et al.

Your letter of July 16, 1997 requests our assurance that the

staff will not recommend enforcement action to the Commission

under Section 15(a) ,of the Investment Company Act of 1940 if certain funds (the "Funds") advised by Franklin Advisers, Inc.,

Franklin Advisory Services, Inc., Franklin Investment Advisory

Services, Inc., Templeton Asset Management Ltd., Templeton Global Advisors Limited, or Franklin Mutual Advisers, Inc. (the "Advisers") amend their investment management agreements without

shareholder approval to remove certain fund administration

responsibilities and transfer them to separate fund

administration agreements with one or more affiliated

administrators ("Administrators"), as described below.,'

Facts
Under existing investment management agreements, the

Advisers are responsible for providing both investment advisory

and certain administration services to the Funds. In most cases,

a Fund's Adviser provides both types of services directly, but

for some Funds the Adviser deleg~tes the performnce of

administration services to an Administrator pursuant to a sub-

administration agreement. For providing advisory and

administration services, a Fund's Adviser receives a single

management fee, payable monthly, based on a percentage of the

Fund's average daily net assets.

You propose that each Fund enter into a new agreement with

its current Adviser substantially identical to' the existing

management agreement except that the new agreement ("Advisory

Agreement") would not require the Adviser to provide

administration services. At or about the same time, the Fund

would enter into an agreement (n Administration Agreement")

directly with an Administrator to provide the administration

services for which the Adviser formerly was responsible. i/

Although the contractual relationships will be adjusted so

that a different entity will be responsible for providing fund

.administration services, you represent that the individuals

performing those services will remain the same. You state that

the proposed arrangement is intended to more clearly delineate

i/ For a Fund whose Adviser currently delegates the provision of

administration services to an Administrator, the sub-

administration agreement would be terminated.

• 2
  the nature of payments made by the Funds for various services and

may result in táx advantages and operational efficiencies for the

Advisers.
You represent that each Fund will determine the portion of

the existing investment management fee, calculated as a

percentage of assets under management, attributable to

administration services. This amount will be the fee initially

payable to the Administrator under the Fund's new _ Administration

Agreement. The Advisory Agreement will provide for advisory fees

equal to the total management fee assessed under the existing investment management agreement, reduced by the fee payable under

the Administration Agreement. As a result, the combined fees

payable by a Fund un~er the -proposed Advisory and Administration

Agreements (the "New Agreements") will not exceed the fee payable

under its existing management agreement.

You represent that the New Agreements will be approved by

the board of directors or trustees of each Fund, inClUding a

maj ority of directors or trustees who are not parties to the New

Agreements or interested persons of a party. . Each Fund will

provide written notice of the New Agreements to its existing

shareholders no later than the mailing of the Fund's next

periodic (annual or semi-annual) report, and will include this

notice in any prospectus delivered to prospective shareholders,

until such time as the prospectus is amended to reflect the

existence of the New Agreements. a/ For the reasons discussed

below, you believe that shareholder approval of the new

Agreements is not required.

Analysis
Section 15 (a) of the Investment Company Act provides

generally that no person may serve as an investment adviser to a

registered fund except pursuant to a written contract that, among

other things, has been approved by the vote of a maj ori ty of the fund's outstanding voting securities. l/ Ány material change in

an advisory agreement creates a new contract that must be

approved in accordance with Section 15 (a) . .

You maintain that shareholder approval of a Fund's Advisory

Agreement is unnecessary and would impose a significant expense

2/ Telephone conversation of July 23, 1997 between Sarah A.

Wagmn and Michael P. 0' Hare, counsel to the Advisers. l/ Section 15 (a) does not apply to agreements for the provision

of non-advisory services. See,~, Washingtori Mutual Investors

Fund, Inc. (pub. avail. May 14, 1993). Shareholder approval of

the Administration Agreements therefore is not required.

¡

• 3
  on Fund shareholders, while serving no useful purpose. ~/ You

state that structuring each Advisory Agreement so that total.

management fees will be reduced by the exact amount of fees

payable by a Fund under its Administration Agreement will ensure

that the total advisory and administration services fees payable

by a Fund may not be increased without amending the Advisory

Agreement, which would require shareholder approval. You

represent that the proposed restructuring of the existing

investment management agreements into separate Advisory and

Administration Agreements will not result in any decrease in the

nature or level of the advisory or administration services

provided to the Funds. 5/ In addition, you assert that, because

the same Franklin Templeton personnel will provide the same

administratión services to the Funds as they currently provide

under the existing management agreements, the New Agreements

represent only a contractual change in the entity providing fund

administration services, and will not result in substantive

changes to the administration services provided to the Funds.

On the basis of the facts and representations set. forth in your letter, we would not recommend enforcement action to the

Commission under Section 15 (a) if the Funds' existing investment

management agreements are amended without shareholder approval,

as described in your letter. Our position is based particularly

on your representations that the proposed changes would not

reduce or modify in any way the nature or level of advisory or

administration services provided to a Fund, and that the total

advisory and administration services fees payable by a Fund under

the New Agreements would not exceed the fees payable by the Fund

4/ You assert that shareholder approval of each Advisory

Agreement is unnecessary because the amendments relate to the

provision of administration services, rather than advisory

services. We acknowledge that, if each of the existing

investment management agreements had been structured instead as

two separate agreements - - an administration agreement and an

advisory agreement ~ - it would not be necessary to obtain shareholder approval to amend the administration agreement. This arguent alone, however, does not support the conclusion that a

shareholder vote is not required in this case. See American

Odyssey Funds, Inc. (pub. avail. Oct. 7, 1996) at n.4.

2/ We note that any future material amendment to a Fund's

Advisory Agreement, including any
,amendment to increase total advisory and administration services fees paid by a Fund, or to

modify the nature or level of services provided to a Fund, would

require approval by the Fund's shareholders in aècordance with

Section 15 (a) .

• 4
  under its existing investment management agreement ~ QI You

should note that any different facts or circumstances might

require a different conclusion.

~.~~
At torney
6 I See American Odyssey Funds, Inc., supra note 4 ¡Washington

Mutual Investors Fund, . Inc., supra note 3 i Limited Term Municipal

Fund, Inc. (pub. avail. Nov. 17, 1992).

Andr B. Youn Bret S. Gore John C. Hook Robe D. Cagn S. Goon El Ha JJ. O'Nei James E. O'Nei, m M. Alda Davi Dael S. Kot Wi S. Pi, m Br s. Varo Ke P. Kun Pre C. Aldndge, Jr. Stehen R. Ha Al R. Gech Wi E. Maoney, Jr. STLE . Ge S. Poid,Jr. Todd C. Vanet Da T. Fit Nan lier Maroli HenG, Hager Arold s, moc Mer R. Steer JoshJ. McH RONG)lN .Her G, KceJr. Ed R. Boton Jona P. Bloom Tyo H.E. Sw. Ma, H. Pler Un An Gate Cr Rus BI Dae Ba jç..aåHodn,Jr, De M. Scwa Joa L. Dr Midi P. Bonn "JÒhil'. Douger. Jr. Stehen C. Baer Ma B. Maer Ro S. CaraDael &5~G,IL siii W. KI. P.C. David C. Frace, Jr. Timy J. Capbell Midi V. Par Beet G. Pi Sadr A. Glco Chophe E. Cum Us M. Ki ATTORNEYS Davi S. Hope James F. Podei Thoma G. Ha Andr S. Lawrce John P. O'D Ga P. Sc Rob F. Hect . Vanes L. Caes Andn L. Dcni Zacl P. Alexder John F. Ua Aln T. Fia David R. Ladr John). Murhy, m Wii P. Zier Ma A. Herey Lae Taylor, Jr. Elen Rose Rogoff An Mae Janus Michel p, O'Ha ThomaJ, Reneha, Jr. Audr C. Taley Timothy P. Leon Er D. Scoern WiU R. Sa Jdf A. Lutsky Doy M. Aln Patrci Capen 260 One Commerce Square Rich K. Hc:. WI G, Scroug 'Paul A. Pan Josh D. Cr. Ki A. Hendr An CudyRod Nila De . David H, Josh. ~hldclphia. Pennlyaa 19¡~3;,(098;. . James M, Pa~da m Saue). Ar Jr. Us A.,Du . . . Jc:er R..Beft . Jai ii Be .. . . JosIiV; De Ra Ma Joli : . . ..' Ma Ma, iiei (215) 56-8 ' St M. Pd . Dad M. Looo Do J. McG Midi D~ O'Ma JohJ. Hunter Gtory J. NoW Mi J. Ml RuJ. Reler Fax (215) 564-8120 Da E. Be St A. Scbr Sthe B. NoIa Mel Len Wal Da P. Scton Kev R. Boyle Ma A. Po . Le A. Ro Ke R. Du Brt Roin m- . UC IN DElWAR ONLY Brua: G, Leo Jan Lade Fo Ma P. An .. UaN INWASN.DCONLY -UCEED IN NEl'RK ONLY

July 16, 1997 1940 Act/15(a)
Offce of Chief Counsel

Division of Investment Management
U.S. Securities and Exchange Commission

450 Fifth Street, N. W.

Washington, D.C. 20549
Re: Franklin Templeton Group of Funds

Ladies and Gentleman,
On behalf of the following investment advisers registered under the Investment Advisers Act of 1940: Fraklin Advisers, Inc.; Franklin Advisory Services, Inc.; Fraklin Investment Advisory Services, Inc.; Templeton Asset Management Ltd., Templeton Global Advisors Limited and Fraklin Mutual Advisers, Inc. (each an "Adviser" and collectively, the "Advisers"); as well as the 60 registered investment companies (including their 167 separte series) within the Fraklin Templeton Group of Funds for which one of the Advisers serves as investment adviser (collectively, the "Funds"), i we hereby request confirmation by the staff of the Division of Investment Management that it would not recmmend enforcement action under section lS(a) of the Investment Company Act of 1940, as amended (the" 1940 Act"), if, at the request of the Advisers, the existing investment management agreements for the Funds (the "Existing Management Agreements") are amended without lExhibit A to this letter contains a complete listing of each of the registered investment companies (and series thereof) within the Franklin Templeton Group of Funds for which one of the Advisers serves as investment adviser. The Franklin Templeton Group of Funds is made up of the registered investment companies within both the Franklin Group of Funds4i

and the Templeton Group.
Malvern, Pennsylvania Wilmington, Delaware Cherry Hil: New Jersey

obtaning shareholder approval, to remove certn fund administrtion responsibilties of the Advisers from the Existing Management Agreements. Under the proposed argements, the Advisers would continue to provide investment advisory services under amended versions of the Existig Management Agreements (each, a "Proposed Advisory Agreement," and collectively, the "Proposed Advisory Agreements"), and the fund administrtion servce previously provided by the Advisers would be performed by a separte company, or companies, affiliated with the Advisers (the "Fund Administrtor"), under separte fund administrtion agreements (each, a "Proposed Administration Agreement," and collectively, the "Proposed Administrtion Agreements").

Although the proposed argements involve changes in the entities that wil provide Fund administrtion services to the Funds, the Fraklin Templeton personnel performing such services wil remain the same. Furthermore, the proposed changes wil not result in any increase in the amount of fees paid by any Fund for investment advisory or administrtion services, nor any decreae in the nature or quality of the investment advisory or administrtion services recived by any Fund. For the reasons outlined below, we do not

believe that shareholder approval of the terms of each Proposed Advisory or Administrtion Agreement is required under section IS(a) of the 1940 Act, becuse the amendments relate solely to the fund administration, and not the investment advisory, aspects of such agreements. Background Under the Existing Management Agreements, the Advisers are responsible for providing both investment advisory and certn fund administration services to the Funds. In the case of most of the Funds, the Adviser and its employees directly provide al of the

service caled for under the Existing Management Agreements. For other Funds, the performance of fund administrtion services required by the Existing Management Agreements is delegated by the Adviser to an affiiated company pursuant to a sub-" administrtion agreement. 2

Fund management believes that the fund administrtion servces descnbed in and required to be performed under the Existing Management Agreements should, from a contrctual stadpoint, be provided by the Fund Administrator, whose exclusive business

would involve the provision of fund administration services to the Funds. The proposed argements are expected to more clealy delineate the nature of payments by the Funds for 2In a number of cases, fund administration services are currently provided to Funds pursuant to business management agreements directly between the registrnt and an affilated

company. Funds with such arangements are not the subject of this request.

varous services and may result in ta advantages and operational effciencies for the Advisers. Therefore, Fund management proposes to recmmend to the Boards of Directors or Trustee of each registrt that the Existing Management Agreements be amended to remove references to the provision of fund administrtion services, and to recmmend that the Boards approve the Propose Administrtion Agreements directly between the registrts,

on behalf of the Funds, and the Fund Administrator to provide for the furnishing of fund 3 As a result of the proposed arangements, the Advisers wil no administration services.

longer themselves provide fund administrtion services and there wil be no nee for the

Advisers to delegate fund administrtion responsibilties through sub-administrtion argements. Any such existing sub-administration agreements wil be terminated. A. Exising Agreements

The Existing Management Agreements are each substatially identica to each other with respet to the provision of investment advisory and fund administrtion service relevant to this request, but var in other respects such as fee rates and their effective and

termination dates. The investment advisory services called for under the Existing Management Agreements include the management of the investment and reinvestment of each Fund's assets subject to the supervision of Fund management, the placing of orders for the purchase and sae of each Fund's portfolio securities, the selection of brokers and deaers to effect portfolio trasactions and the provision of regular reports regarding its activities to Fund management as appropriate. With respet to fund administrtion services, the Existing Management Agreements require the Advisers to furnish office space, furnishings, facilities and equipment reaonably required to manage the Funds' businesses. Under the Existig

Management Agreements, the Advisers also provide internal bookkeeping, accunting and auditing services and maintan recrds in connection with the Funds' investment and business activities. The Advisers are also required to employ or compensate the executive, secretaal and clerica personnel necssa to provide such services. The Advisers currently recive monthly fees for performing the investment advisory and fund administration services caled for under the Existing Management Agreements, which are caculated based on a percentage of the average daily net assets of each Fund on an annualize basis. The fee rates var with respect to the parcular Funds, and many of the fee rates contan breaints resulting in reduce fee rates at higher asset levels. \ , ì 3Porms of the Existing Management Agreement, the Proposed Advisory Agreement and the Proposed Administration Agreement are included with this request as Exhibits B, C and D, respetively.

B. Proposed Agrements

Under the propose argements, each Fund wil make a determation as to what porton of the current tota fee are attbutable to advisory services and what porton

are attbutable to fund administrtion services. The fee strcture of the Proposed Advisory

and Administrtion Agreements wil reflect the determined split of advisory and administration fees which, taen together, wil equal the amount of the current tota fees. The Proposed Advisory and Administrtion Agreements would each be approved by a majority of the directors or trstees of the registrat who are not paries to such agreements or interested persons of any such pares. The Proposed Advisory and Administrtion Agreements wil also be strctured so that the tota combined fees may not be increaed without approval of the shareholders of the relevant Funds. Each Propose Advisory Agreement wil contan contrctUal fee rates identica to the current rates contaned in the corresponding Existing Management Agreement, except that each Proposed Advisory Agreement wil provide that the advisory fee shall be reduce by the exact amount of fees payable by the parcular Fund under its Proposed Administration Agreement. This argement wil allow flexibility for the Funds to maintan stadardized administrtion fee .structures within the fund complex, and to adjust such fee strctures, if appropriate, without increasing the overal combined advisory and administrtive fees for any Fund. Any change in the tota amount of the combined fees wil require approval by shareholders of an amendment to the Proposed Advisory Agreement. The advisory and administrtion services to be provided under the new agreements wil be at least identica to the services currently being provided, and the nature and quality of such services shall not be reduce without shareholder approval of such a change. Although the contractual relationships wil be adjusted so that a different entity is responsible for fund ad~inistrtion services, the changes wil not result in substative

differences for the Funds becuse the Fraklin Templeton personnel presently penorming such service for the Advisers wil continue to provide the same services for the Fund

Administrtor.
For the reasons described below, we believe that the registrts and Advisers

should be permitted to amend and split up the Existing Management Agreements as proposed, without obtaning the approval of the shareholders of each Fund. The Funds are generaly not required to hold shareholder meetings, and a requirement to obtan shareholder approval under these circumstaces would serve no useful purpose and would involve a significat, neeless expense. Each Fund would, however, provide written notice of the new argements to its existing shareholders no later than the mailng of its next periodic (annual or semi-annual) shareholder report.

. Furtermore, we believe that our position is consistent with previous

statements of policy and positions taen by the U.S. Securities and Exchange Commission (the "Commission") and its staff. Such precent support the position that there is no nee for shareholder approval of fund administrtion argements and suggests that there should be no nee for shareholders to approve the proposed amendments to the Existing

Management Agreements under section 15(a) 'of the 1940 Act.
Discussion
Section 15(a) of the 1940 Act provides generaly that no person may serve as
an investment adviser to a registered investment company except pursuant to a written contrct that, among other things, has been approved by the vote of a majority of the

company's outstading seurities. The purpse of Section 15(a) is to protect fu~d shareholders against conflcts of interest or overreaching or otherwise detrmerita investment advisory .argements,by allowing shareholders the opportunity to approve the terms of investment advisory agreements. Generaly, any material change in an investment advisory contrct creates a new contract that must be approved by shareholders in accordance with

Section 15(a). Each of the Existing Management Agreements has been approved by
shareholders of the relevant Fund either initially or subsequently as such agreements were changed in any material manner. The Commission and its staff have indicated that argements or agreements with investment companies for the provision of administrtion or other similar non-advisory service, are not the typ of service argements or agreements requiring shareholder

approval under section 15(a) or any other section of the 1940 Act.4 However, the fund administrtion services in question comprise a portion of the Existing Management Agreements which, as a practica matter, normally are subject to the shareholder approval requirements under section 15(a) of the 1940 Act. With respet to administrtion services

contaned in advisory agreements, the Commission has stated that:
the provisions of investment advisory contrcts subject to Section 15 . . . include only those which directly provide for investment advice, portfolio management, and correlative matters such as the compensation for or duration and termination of investment advisory agreements and the execution of portfolio trasactions. Other provisions of such contracts, which dea with 4 See Washington Mutual Investors Fund, Inc., SEC No-Action Letter (publicly available May 14, 1993)(staff declined to respond to no-action request under setion 15(a) involving a proposed fee reduction of an administrative agreement, stating that section l5(a) does not require shareholder approval of such agreements).

housekeeping functions for the investment company, such as trsfer agent

servces or other non"'investment advisory matters are not included with the ambit of Section 15 . . .. s In addition to the Commission and staff positions described above regarding the lack of a requirement of shareholder approval of administration argements, the Commission and its staff have issued a number of exemptive orders and no-action letters interpreting section 15(a) which allow investment companies to amend investment advisory agreements without obtaning shareholder approval in number of relevant circumstaces which we believe support our asserton that the proposed amendments to the Existig Management Agreements should not require shareholder approval. The circumstaces under which such relief was provided generaly involved situations where shareholders ,would not be disadvantaged by the changes, and a shareholder approval requirement wouid serve no useful purpse and involve unnecssa costs. Initially, funds which sought to establish breaoints for reductions in advisory fees at higher asset levels recived assurace that their advisory agreements could be amended to establish such breaoints, pending later shareholder approval of the amended. 6 In later no-action agreements at upcming regular or annual shareholder meetings.

correspondence, the Commission staff agree to allow amendments to advisory agreements to reduce advisory fees by establishing breaoints without ever obtaining shareholder approval 7 The staf position in these later letters was bas of the terms of the amended agreements.

on the fact that the investment advisers for the funds would not reduce the quantity or qualty of the services provided to the funds and that it was proper to assume, without requiring any S Notice of Proposa to Amend Rule 17d-l under the Investment Company Act of 1940 to Provide an Exemption from the Rule for Affiliated Persons with Respet to Certn Service Agreements with Investment Companies, Investment Company Act Releae No. 8245 (1973-1974 Trasfer Binder) Fed. Sec. L. Rep. (CCH) 179,667 (Feb. 25, 1974). 6See USAA Mutual Fund, Inc., SEC No-Action Letter (publicly available Januar 30, 1990); Lord, Abbett &Company, SEC No-Action Letter (1977-1978 Trasfer Binder) Fed. Sec. L. Rep. (CCH) 181,261 (May 16, 1977); In the matter of Wellngton Fund, Inc. and Wellngton Corporation, Investment Company Act Release No. 1455 (Decmber 15, 1965); In the matter of Viking Growth Fund, Inc., Investment Company Act Releae No. 4442 (December 15, 1965). 7See Washington Mutual Investors Fund, Inc., SEC No-Action Letter (publicly available May 14, 1993); Limited Term Municipal Fund, Inc., SEC No-Action Letter (publicly available November 18, 1992).

shareholder vote, that a majonty of the shareholders of such funds would approve a fee reduction. The staf also recgniz in the letters that a requirement of a shareholder meeting to approve such amendments would involve neeless expenses. Most recntly, the staff allowed amendments to an advisory agreement without shareholder approval under Section 15(a) in the context of a mutual fund restrctunng. In

the Pnncipal Preservation Portfolios, Inc. and Prospet Hil Trust no-action lettr (publicly

available Januar 11, 1996), three separte money market funds involved in a master feeer argement were reorganize into a single fund with two classes. At the time of the no￾action request, the assets of two separte feeer funds were invested in a single master fund and the adviser managed the assets at the master fund level pursuant to an advisory agreement with the master fund. Under the restrctunng, the assets of the two feeer funds

were invested in two separte classes of one of the feeer funds, and the master fund as well

as the other feeer fund went out of existence. Thereater, the adviser continued to manage

the sae assets in the same manner under identica contrct terms except that the identity of the investment company that was a pary to the advisory agreement changed from the master fund to the surviving feeer fund. The Commission staff took a no-action position under Section 15(a), allowing the pares to proc with the restrctunng without obtaning shareholder approval of the amended advisory agreement. The staff reasoned that shareholder approval of the amended advisory agreement should not be required under Section 15(a) where the terms of the onginal and amended agreements were "identica with respect to the identity of the adviser and advisory personnel, the management services to be provided, the assets to be managed and the rate of compensation to be paid. " Conclusion The precent descnbed above clealy supports the proposition that an advisory contrct may be amended without shareholder approval to reduce advisory fee where there is no other change in the nature and quality of the services provided. The Pnncipal Preservation no-action lettr further demonstrates the staffs willngness to alow other tys of amendments to advisory contracts without shareholder approval; namely for restrctunngs or under other circumstaces when the advisory services and fees associate with such services remain the same, and the proposed amendments are beneficial to shareholders. The conversion of the Existing Management Agreements into the Proposed Advisory and Administration Agreements wil not involve any change in the Advisers, their personnel, or the investment advisory services provided to the Funds; or any change in the nature or quality of administration services provided to the Funds. In addition, unless shareholders of a Fund approve an amendment to its Proposed Advisory Agreement, once adopted, the tota combined fees payable under the Proposed Advisory and Administrtion

16994.9

Agreements wil never exce the amounts that would be payable under the corresponding. E~s~g. ~anagei.el1t. ~greement. . '. d

For the reåons outlined above, we hereby request that the staf of the Division. of Investment Management confirm that it would not recmmend enforcement action under
section 15(a) of the 1940 Act, if the Existing Management Agreements are amended, as
proposed, without obtaning shareholder approval of the amendments. If you have any questions regarding this request, please contact me at (215) 564-8198 or, in my absence, Bruce G. Leto, Esquire at (215) 564-8115. Very trly yours,

vJ r. Ok

Michael P. O'Hare cc: Debora R. Gatzk, Esquire

Mark H. Plafker, Esquire

Bruce G. Leto, Esquire

EXHIT A

FRKLIN TEMPLETON GROUP OF FUS
LIST OF FUS (AN SERI)
Frankln Gold Fud
Frankl Asset Aloction Fud
Franin Equity Fud
Fran ffgh Income Tr
AGE High Income Fund
Franklin Custodian Funds, Inc.
Growt Series
Utilties Series

Dynatech Series

Income Series

U. S. Governent Securities Series
Frann Money Fund

Frann Templeton Money Fud Tr

Frain Templeton Money Fund IT

Frankn California Tax-Free Income Fund, Inc.
Franklin Federal Money Fund
Franklin Tax-Exempt Money Fud
Franklin New York Tax-Free Income Fund
Franklin Federal Tax-Free Income Fund
Frankin Tax-Free Trus
Franlin Alabama Tax-Free Income Fund

Franklin Anzona Insured Tax-Free Income Fund
Franin Anzona Tax-Free Income Fund

Frain Colorado Tax-Free Income Fund

Frankin Connecticut Tax-Free Income

Franin Florida Tax-Free Income Fund

Frankin Florida Insured Tax-Free Income Fund

Franklin Georgia Tax-Free Income Fund

Frankin Indiana Tax-Free Income Fund

Frankin Kentucky Tax-Free Income Fund

Frankin Louisian Tax-Free Income Fund

Frankin Maryland Tax':Free Income Fund

Frankin Massachusett Insured Tax-Free Income Fund

Franklin Michigan Tax-Free Income Fund

Frankin Michigan Insured Tax-Free Income Fund

Frankin Minnesota Insured Tax-Free Income Fund

Franklin Missouri Tax-Free Income Fund

Franklin New Jersey Tax-Free Income Fund

A-I

Franin Nort Carolin Tax-Free Income Fund

Franin Ohio Insured Tax-Free Income Fund

Frankin Oregon Tax-Free Income Fund

Franin Pennylvana Tax-Free Income Fund

Frankin Puerto Rico Tax-Free Income Fund

Frankin Texas Tax-Free Income Fund

Frankin Virgina Tax-Free Income Fund

Franin Federal Intermediate-Term Tax-Free Income Fund

Frain High Yield Tax-Free Income Fund

Franin Insured Tax-Free Income Fund

Frankin California Tax-Free Tr

Frankin Californa Insured Tax-Free Income Fund

Franin Californa Tax-Exempt Money Fund

Franin Californa Intermediate-Term Tax-Free Income Fund

Franklin New York Tax-Free Trust

Frankin New York Tax-Exempt Money Fund
Franin New York Insured Tax-Free Income Fund

Franin New York Intermediate-Term Tax-Free Income Fund Fran Invesors Securities Trus Franin Global Governent Income Fund

Franin Short-Intermediate U.S. Governent Securities Fund

Frankin Convertible Securities Fund
Frankin Adjustable U.S. Governent Securities Fund Franklin Equity Income Fund Frankin Adjustable Rate Securities Fund Institutional Fiduciary Trust Money Market Portfolio . Frankin U.S. Governent Securities Money Market Portfolio Frankin U.S. Treasury Money Market Portfolio Frankin Institutional Adjustable U.S. Governent Securities Fund Franin Institutional Adjustable Rate Securities Fund Frankin U.S. Governent Agency Money Market Fund

Frankin Cash Reserves Fund

Frankln Value Invesors Trust

Frankin Balance Sheet Investment Fund

Franin MicroCap Value Fund

Frankin Value Fund

Fran Strategic Mortgage Portfolio

Franin Municipal Securities Trust

Franklin Hawaii Municipal Bond Fund
Frankin California High Yield Municipal Fund

Frankin Washington Municipal Bond Fund

Frankin Tennessee Municipal Bond Fund
) Franklin Arkansas Municipal Bond Fund

A-2

Fran Managed Tr
Frain Corporate Qualified Dividend Fund

Frankin Rising Dividends Funds

Frain Investment Grade Income Fund

Franin Strategic Series
Frankin Californa Growt Fund
Frain Biotechnology discovery Fund

Frain Strtegic Income Fund

Franin MidCap Securities Fund
Frain MidCap Growt Fund

Frain Global Utilties Fund

Franin Small Cap Growt Fund

Frain Global Health Care Fund

Franin Natural Resources Fund

Frankin Blue Chip Fund

Adjusble Rate Securities Portfolios
U.S. Governent Adjustable Mortgage Portolio
Adjustable Rate Securties Portolio

The Money Market Portfolios
The Money Market Portolio
The U.S. Governent Securities Money Market Portolio MidCap Growth Portfolio The Portfolios Trus The Rising Dividends Portfolio Franin Templeton International' Trust

Templeton Pacific Growt Fund

Templeton Foreign Smaller Companes Fund

Frann Rea Estate Securities Trust
Franin Real Estate Securities Fund
Frann Templeton Global Trust
Frain Templeton German Governent Bond Fund

Frain Templeton Global Currency Fund

Frain Templeton Hard Currency Fund

Frain Templeton High Income Currency Fund

Fran Valuemark Funds

Money Market Fund

Growt and Income Fund

Natul Resources Securities Fund

Real Estate Securities Fund
Utilty Equity Fund

High Income Fund

Templeton Global Income Securities Fund

Income Securities Fund

Mutual Discovery Securities Fund

A-3

Mutual Shares Securities Fund
U.S. Governent Secunties Fund

Zero Coupon Fund - 200
Zero Coupon Fund -.2005
Zero Coupon Fund - 2010
Rising Dividends Fund
Templeton Pacific Growt Fund
Templeton Interntional Equity Fund
Templeton Developing Markets Equity Fund
Templeton Global Growt Fund
Templeton Global Asset Alloction Fund

Small Cap Fund
Capital Growth Fund
Templeton Interntional Smaller Companies Fund
Natural Resources Fund
Frankl Government Securities Trust
Franin Universal Trust

Frann Principal Maturity Trus
Fran Multi-Income Trus

Fran Mutual Series Fund Inc.
Mutual Shares Fund

Mutual Qualified Fund

Mutual Beacon Fund

Mutual European Fund

Mutual Discovery Fund

Mutual Financial Services Fund

Franklin Templeton Fund Allocator Series
Frankin Templeton Conservative Target Fund

Frankin Templeton Moderate Target Fund

Frankin Templeton Growt Target Fund
Templeton Growth Fund, Inc.
Templeton Funds, Inc.
Templeton World Fund
Templeton Foreign Fund
Templeton Global Smaller Companies Fund, Inc.
Templeton Income Trust

Templeton Global Bond. Fund
Templeton Global Rea Estate Fud
Templeton Capita Accumulator Fund, Inc.
Templeton Capita Accumulation Plans

Templeton Global Opportunities Trust
Templeton America Trust, Inc.
Templeton Institutional Funds, Inc.
Foreign Equity Series
A-4

Growt Series

Emerging Markets Series

Emerging Fixed Income Market Series

Templeton Developing Markets Trus
Templeton Global Invesent Trus

Templeton Growt and Income Fund

Templeton Global Infrastrcture Fund
Templeton Americas Governent Securities Fund
Templeton Greater Europen Fund
Templeton Latin America Fund
Fran Templeton Japan Fund

Templeton Emergig Markets Fund, Inc.
Templeton Global Income Fund, Inc.
Templeton Global Governments Income Trus

Templeton Emerging Markets Income Fund, Inc.

Templeton China World Fund, Inc.

Templeton Emergig Markets Appreciation Fund, Inc.

Templeton Dragon Fud, Inc.

Templeton Vietnam Opportunities Fud, Inc.

Templeton Russia Fund, Inc.
Templeton Variable Products Series Fund
Templeton Money Market Fund
Templeton Bond Fund
Templeton Stock Fund
Templeton Asset Allocation Fund
Templeton International Fund
Templeton Developing Markets Fund
Franin Growt Investments Fund

Mutual Discovery Investments Fund
Mutual Shares Investments Fund
Templeton Variable Annuity Fund
A-5

EXHIT B

FORM OF EXISTIG MAAGEM AGREEMT
(NAME OF TRUST) on behalf of
(NAME OF FUN - SINGLE SERIES ONL YJ

MAAGEMENT AGREEMENT

THS MANAGEMNT AGREEMENT made between (NAME OF TRUST), a (Delaware) business trst (the "Trust"), on behalf of (NAME OF FUN) (the "Fund"), a series of the Trust, and FRANKIN ADVISERS, INC., a California corpration, (the "Manager"). WHEREAS, the Trust has been organized and intends to operate as an investment company registered under the Investment Company Act of 1940 (the "1940 Act") for the purpse of investing and reinvesting its assets in securities, as set forth in its Agreement and Declartion of Trust, its By-Laws and its Registrtion Statements under the 1940 Act and the Securities Act of 1933, all as heretofore and hereafter amended and supplemented; and the Trust desires to avail itself of the services, information, advice, assistace and facilties of an investment manager and to have an investment manager perform varous management, statistica, reseach, investment advisory and other services for the Fund; and, WHEREAS, the Manager is registered as an investment adviser under the Investment Advisers Act of 1940, is engaged in the business of rendering management, investment advisory, counseling and supervisory services to investment companies and other investment counseling clients, and desires to provide these services to the Fund. NOW THREFORE, in consideration of the terms and conditions hereinafter set fort, it is mutually agree as follows:

1. Employment of the Manager. The Trust hereby employs the Manager to manage

the investment and reinvestment of the Fund's assets and to administer its affais, subject to the direction of the Board of Trustee and the officers of the Trust, for the period and on the terms hereinafer set forth. The Manager hereby accpts such employment and agree durig such period to render the services and to assume the obligations herein set fort for the

compensation herein provided. The Manager shall for all purposes herein be deemed to be an independent contrctor and shall, except as expressly provided or authorize (whether herein or otherwise), have no authority to act for or represent the Fund or the Trust in any way or otherwise be deemed an agent of the Fund or the Trust. B-1

2. Obligations of and Servces to be Provided by the Manager. The Manager

undertes to provide the service hereinafer set forth and to assume the following obligations:
A. Administrtive Services. The Manager shall furnish to the Fund adequate (i) office space, which may be space within the offices of the Manager or in such other place as may be agree upon from time to time, (ii) office furnishings, facilties and and conducting the business of the Fund, including conducting correspondence and other communications with equipment as may be reaonably required for managing the affairs

the shareholders of the Fund, maintaning all internal bookkeeping, accuntig and auditig service and recrds in connection with the Fund's investment and business activities. The

Manager shall employ or provide and compensate the executive, secretaal and clerica personnel necssa to provide such services. The Manager shall also compensate all officers and employees of the Trust who are offcers or employees of the Manager or its affiliates. B. Investment Management Services.

(a) The Manager shall manage the Fund's assets subject to and in accrdance with the investment objectives and policies of the Fund and ~y directions which the Trust's Board of Trustees may issue from time to time. In pursuance of the foregoing, the Manager shall make al determinations with respet to the investment of the Fund's assets and the purchase and sae of its investment securities, and shall tae such steps as may be necssa to implement the same. Such determinations and services shall include determining the manner in which any voting rights, rights to consent to corprate action and any other rights pertning to the Fund's investment securities shall be exercised. The

Manager shall render or cause to be rendered regular reports to the Trust, at regular meetings of its Board of Trustees and at such other times as may be reaonably requested by the Trust's Board of Trustees, of (i) the decisions made with respect to the investment of the Fund's assets and the purchase and sae of its investment securities, (ii) the reaons for such decisions and (ii) the extent to which those decisions have been implemented. (b) The Manager, subject to and in accordance with any

directions which the Trust's Board of Trustees may issue from time to time, shall place, in the name of the Fund, orders for the execution of the Fund's securities trsactions. When placing such orders, the Manager shall seek to obtan thè best net price and execution for the Fund, but this requirement shall not be deemed to obligate the Manager to place any order solely on the basis of obtaning the lowest commission rate if the other stadards set fort in

this setion have been satisfied. The paries recognize that there are likely to be many caes in which different brokers are equally able to provide such best price and execution and that, in selecting among such brokers with respect to particular trades, it is desirable to choose those brokers who furnish reseach, statistica, quotations and other information to the Fund and the Manager in accrdance with the stadards set' forth below. Moreover, to the extent that it continues to be lawful to do so and so long as the Board of Trustees determines that B-2

the Fund wi benefit, directly or indirectly, by doing so, the Manager may place orders with a broker who charges a commission for that trsaction which is in exces of the amount of

commission that another broker would have charged for effecting that trsaction, provided

that the exces commission is reaonable in relation to the value of "brokerage and resch service" (as defined in Section 28(e) (3) of the Securities Exchange Act of 1934) provided by that broker. Accrdingly, the Trust and the Manager agree that the Manager shall select brokers for the execution of the Fund's trsactions from among:
(i) Those brokers and deaers who provide quotations and other

services to the Fund, speificaly including the quotations necssa to determine the Fund's net assets, in such amount of tota brokerage as may reaonably be required in light of such services; and (ii) Those brokers and deaers who supply reseach, statistica

. and other data to the Manager or its affiiates which the Manager or its affiliates may lawfully and appropriately use in their. investment advisory capacities, which relate directly to securities, actual or potential, of the Fund, or which place the Manager in a better position to make decisions in connection with the management of the Fund's assets and securities, whether or not such data may also be useful to the Manager and its affiiates in managing other portfolios or advising other clients, in such amount of tota brokerage as may reasonably be required. Provided that the Trust's offcers are satisfied that the best execution is obtaned, the sae of shares of the Fund may also be considered as a factor in the selection of broker-deaers to execute the Fund's portfolio trasactions. (c) When the Manager has determined that the Fund should

tender securities pursuant to a "tender offer solicitation," Fraklin/Templeton Distrbutors, Inc. ("Distrbutors") shall be designated as the "tendering deaer" so long as it is legally permitted to act in such capacity under the federa securities laws and rules thereunder and the rules of any securities exchange or association of which Distrbutors may be a member. Neither the Manager nor Distributors shall be obligated to make any additional commitments of capita, expense or personnel beyond that already committed (other than normal periodic

fees or payments necssa to maintan its corporate existence and membership in the National Association of Securities Deaers, Inc.) as of the date of this Agreement. This Agreement shall not obligate the Manager or Distributors (i) to act pursuant to the foregoing requirement under any circumstaces in which they might reasonably believe that liabilty might be imposed upon them as a result of so acting, or (ii) to institute legal or other procings to collect fees which may be considered to be due from others to it as a result of ) such a tender, unless the Trust on behalf of the Fund shall enter into an agreement with the B-3

Manager and/or Distrbutors to reimburse them for all such expenses connected with attempting to collect such fees, including legal fees and expenses and that porton of the compensation due to their employees which is attrbutable to the time involved in attemptig to collect such fee. .

(d) The Manager shall render regular report to the Trust,. not more frequently than quarrly, of how much tota brokerage business has been place by the Manager, on behalf of the Fund, with brokers falling into each of the categories referred to above and the maner in which the alloction has been accmplished. (e) The Manager agrees that no investment decision wil be made or influence by a desire to provide brokerage for alloction in accordance with the foregoing, and that the right to make such alloction of brokerage shall not intedere with the Manager's parmount duty to obtan the best net price and execution for the Fund.
c. Provision of Information Necssary for Preparation of Securities

Registration Statements. Amendments and Other Materials. The Manager, its officers and employees wil make available and provide accunting and statistica informatiQn.required by the Fund in the prepartion of registrtion statements, report and other documents- required by

federa and state securities laws and with such information as the Fund may reaonably request for use in the prepartion of such documents or of other materials necssa or helpful for the

underwriting and distrbution of the Fund's shares.
D. Other Obligations and Services. The Manager shall make its officers and employees available to the Board of Trustees and officers of the Trust for consultation and discussions regarding the administrtion and management of the Fund and its investment activities.
3. Expenses of the Fund. It is understood that the Fund wil pay all of its own
expenses other than those expressly assumed by the Manager herein, which expenses payable by the Fund shall include:
A. Fees and expenses paid to the Manager as provided herein;

B. Expenses of all audits by independent public accuntats;

c. Expenses of trsfer agent, registr, custodian, dividend disbursing agent
and shareholder recrd-keeping services, including the expenses of issue, repurchase or redemption of its shares; D. Ex~nses of obtaning quotations for calculating the value of the Fund's net assets;

B-4

E. Salares and other còmpensations of executive officers of the Trust who

are not offcers, directors, stockholders or employees of the Manager or its affliates; F.Taxes levied against the Fund; G. Brokerage fees and commissions in connection with the purchas and sae

of seurities for the Fund;
H. Costs, including the interest expense, of borrowing money;
i. Costs incident to meetings of the Board of Trustees and shareholders

of the Fund, report to the Fund's shareholders, the filing of report with regulatory bodies

and the maintenance of the Fund's and the Trust's legal existence; J. Legal fees, including the legal fees related to the registration and

continued qualification of the Fund's shares for sale; K. Trustes' fees and expenses to trstees who are not directors, officers, employees or stockholders of the Manager or any of its affiiates; L.' Costs and expense of registering and maintaning the registration of the Fund and its shares under federal and any applicable state laws; including the printing and mailing of prospetuses to its shareholders; M. Trade association dues; and N. The Fund's pro rata portion of fidelity bond, errorsand omissions, and trstees and offcer liabilty insurace premiums.
4. Compensation of the Manager. The Fund shall pay a management.
fee in cah to the Manager based upon a percentage of the value of the Fund's net assets, caculated as set fort below, as compensation for the seiyices rendered and obligations assumed by the

Manager, during the precing month, on the first business day of the month in each yea. A. For purpses of caculating such fee, the value of the net assets of the Fund shall be determined in the sae manner as that Fund uses to compute the value of its net assets in connection with the determination of the net asset value of its shares, all as set fort more fully in the Fund's current prospectus and statement of additional information. The rate of the management fee payable by the Fund shall be caculated daily at the following annual rates:
.625 of 1 % of the value of net assets up to and including $100,00,00; B-5

.50 of 1 % of the value of net assets over $100,00,00 up to and including $250,00,00; .45 of 1 % of the value of net assets over $250,00,00 up to and including $10,00,00,00; .44 of 1 % of the value of net assets over $10,00,00,00 up to and including $12,500,00,00; .42 of 1 % of the value of net assets over $12,500,00,00 up to and including $15,00,00,00; and . .40 of 1 % of the value of net assets in excess of $15,000,00,00. B. The management fee payable by the Fund shall be reduce or

eliminated to the extent that Distrbutors has actually recived cash payments of tender offer solicitation fee less certn costs and expenses incurred in connection therewitl and to the

extent necsa to comply with the limitations on expenses which may be borne by the Fund

as set fort in the laws, regulations and administrative interpretations of those states in which

the Fund's shares are registered. The Manager may waive all or a portion of its fees provided for hereunder and such waiver shall be treated as a reduction in purchase price of its services. The Manager shall be contractually bound hereunder by the terms of any publicly announce waiver of its fee, or any limitation of the Fund's expenses, as if such waiver or limitation were full set forth herein.
c. If this Agreement is terminated prior to the end of any month, the

accrued management fee shall be paid to the date of termination.
5. Activities of the Manager. The services of the Manager to the Fund hereunder

are not to be deemed exclusive, and the Manager and any of its affiliates shall be free to render similar service to others. Subject to and in accrdance with the Agreement and Declartion of Trust and By-Laws of the Trust and Section lO(a) of the 1940 Act, it is understoo that trstees, officers, agents and shareholders of the Trust are or may be

interested in the Manager or its affiliates as directors, offcers, agents or stockholders; that directors, officers, agents or stockholders of the Manager or its affiliates are or may be interested in the Trust as trstes, offcers, agents, shareholders or otherwise; that the

Manager or its affiliates may be interested in the Fund as shareholders or otherwise; and that the effect of any such interests shall be governed by said Agreement and Declartion of Trust, By-Laws and the 1940 Act. B-6

6. Liabilties of the Manager.

A. In the absence of wilful misfeasace, bad faith, gross negligence, or reckless disregard of obligations or duties hereunder on the par of the Manager, the Manager shall not be subject to liabilty to the Trust or the Fund or to any shareholder of the Fund for any act or omission in the course of, or connected with, rendering services hereunder or for any losses that may be sustaned in the purchase, holding or sae of any security by the Fund. B. Notwithstading the foregoing, the Manager agree to reimburse the

Trust for any and all costs, expenses, and counsel and trstees' fee reaonably incurred by the Trust in the prepartion, printing. and distribution of proxy statements, amendments to its Registrtion Statement, holdings of meetings of its shareholders or trstee, the conduct of

factual investigations, any legal or administrtive proceeings (including any applications for exemptions or determinations by the Securities and Exchange Commission) which the Trust incurs as the result of action or inaction of the Manager or any of its affiliates or any of their officers, directors, employees or stockholders where the action or inaction necssitatig such expenditures (i) is directly or indirectly related to any trsactions or proposed .trsaction in the stock or control of the Manager or its affiliates (or litigation related to any pending or proposed or future trsaction in such shares or control) which shall have been underten without the prior, express approval of the Trust's Board of Trustees; or, (ii) is within the control of the Manager or any of its affliates or any of their offcers, directors, employee or stockholders. The Manager shall not be obligated pursuant to the provisions of this Subpargraph 6(B), to reimburse the Trust for any expenditures related to the institution of an administrtive procing or civil litigation by the Trust or a shareholder seeking to recver all or a portion of the procs derived by any stockholder of the Manager or any of

its 'affiiates from the sae of his shares of the Manager, or similar matters. So long as ths Agreement is in effect, the Manager shall pay to the Trust the amount due for expenses subject to this Subpargraph 6(B) within 30 days after a bil or statement has been recived by the Manager therefor. This provision shall not be deemed to be a waiver of any claim the Trust may have or may assert against the Manager or others for costs, expenses or damages heretofore incurred by the Trust or for costs, expenses or damages the Trust may herear incur which are not reimbursable to it hereunder. .
c. No provision of this Agreement shall be constred to protect any
trstee or officer of the Trust, or director or offcer of the Manager, from liabilty in violation of Sections 17(h) and (i) of the 1940 Act.
7. Renewal and Termination.

A. This Agreement shall become effective on the date written below and

shall continue in effect for two (2) yeas thereafter, unless sooner terminated as hereinafer provided and shall continue in effect thereafter for periods not exceeing one (1) yea so long as such continuation is approved at least annually (i) by a vote of a majority of the B-7

outstading votig securities of each Fund or by a vote of the Board of Trustees of the Trust, and (ü) by a vote of a majority of the Trustee of the Trust who are not pares to the Agreement (other than as Trustees of the Trust), cast in person at a meeting caled for the purpse of voting on the Agreement.

B. This Agreement:

(i) may at any time be terminated without the payment of any

penalty either by vote of the Board of Trustes of the Trust or by vote of a majority of the outstading voting securities of the Fund on 60 days' written notice to the Manager; (ii) shall immediately terminate with respet to the Fund in the

event of its assignment; and
(ii) may be terminated by the Manager on 60 days' written notice

to the Fund.
c. As used in this Pargraph the terms "assignme~t, ~l "interested

person" and "vote of a majority of the outstading voting securities" shall have the meaings set fort for any such terms in the 1940 Act.

D. Any notice under this Agreement shall be given in writing

addressed and delivered, or mailed post-paid, to the other party at any office of such pary.
8. Severabilty. If any provision of this Agreement shall be held or made invalid

by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby.

9. Governing Law. This Agreement shall be governed by and constred in

accrdance with the laws of the State of California.
IN WIS WHREOF, the paries hereto have caused this Agreement to be executed and effective on the _ day of (NAM OF TRUST) By:
FRANKIN ADVISERS, INC.
\
) By:

B-8

EXHmlT C

FORM OF PROPOSED ADVISORY AGREEMT
(NAME OF TRUST)

on behalf of

(NAME OF FUN -- SINGLE SERIES ONLY)

AMNDED AND RETATED MANAGEMENT AGREEME
THIS AMENDED AND RESTATED MANAGEMENT AGREEMENT made between (NAME OF TRUST), a (Delaware) business trst (the "Trust"), on behalf of (NAME OF FUN) (the "Fund"), a series of the Trust, and FRANKIN ADVISERS, INC., a California corporation, (the "Manager"). . WHREAS, the Trust has been organize and intends to operate as an investment company registered under the Investment Company Act of 1940 (the "1940 Açt") for the purpse of investing and reinvesting its assets in securities, as set forth in its Agreement and Declartion of Trust, its By-Laws and its Registration Statements under the 1940 Act and the Securities Act of 1933, all as heretofore and hereafter amended and supplemented; and the Trust desires to avail itself of the services, information, advice, assistace and facilities of an investment manager and to have an investment manager perform varous management, . statistica, reseach, investment advisory and other services for the Fund; and, WHEREAS, the Manager is registered as an investment adviser under the Investment Advisers Act of 1940, is engaged in the business of rendering management, investment advisory, counseling and supervisory services to investment companies and other investment counseling clients, and desires to provide these services to the Fund; and WHEREAS, the Trust and the Manager wish to amend and restate the Management Agreement previously in effect between them solely in order to relieve the Manager of its previous obligation to perform certn administrative services to the Fund, and to reduce the Manager's fee by the amount each Fund has agree to pay its Fund Administrtor; NOW THEREFORE, in consideration of the terms and conditions hereinafer set forth, it is mutually agree as follows: .

1. Employment of the Manager. The Trust hereby employs the Manager to manage

the investment and reinvestment of the Fund's assets and to administer its affairs, subject to the direction of the Board of Trustees and the officers of the Trust, for the period and on the terms hereinafter set forth~ The Manager hereby accepts such employment and agrees during such period to render the services and to assume the obligations herein set forth for the compensation herein provided. The Manager shall for all purposes herein be deemed to be C-l

an independent contrctor and shall, except as expressly provided or authorize (whether herein or otherwise), have no authority to act for or represent the Fund or the Trust in any way or otherwise be deemed an agent of the Fund or the Trust. .

2. Obligations of and Services to be Provided by the Manager. The Manager

undertes to provide the services hereinafter set fort and to assume the following obligations:
A. Investment Management Services.

(a) The Manager shall manage the Fund's aSsets subject to and in accrdance with the investment objectives and policies of the Fund and any directions which the Trust's Board of Trustees may issue from time to time. In pursuance of the foregoing, the Manager shall make all determinations with respet to the investment of the Fund's assets and the purchase and sae of its investment securities, and shall tae such steps as may be necssa to implement the same. Such determinations and services shall include determining the manner in which any voting rights, rights to consent to corprate action and any other rights pertning to the Fund's investment securities shall be exercised.. The Manager shall render or cause to be rendered regular reports to the Trust, at regular meetings of its Board of Trustees and at such other times as may be reaonably requeste by the Trust's Board of Trustees, of (i) the decisions made with respect to the investment of the Fund's assets and the purchase and sale of its investment securities, (ii) the reasons for such decisions and (iii) the extent to which those decisions have been implemented. (b) The Manager, subject to and in accordance with any directions which the Trust's Board of Trustees may issue from time to time, shal place, in the name of the Fund, orders for the execution of the Fund's securities trsactions. When placing such orders, the Manager shall seek to obtan the best net price and execution for the Fund, but this requirement shall not be deemed to obligate the Manager to place any order solely on the basis of obtaning the lowest commission rate if the other stadards set fort in

this section have been satisfied. The pares recgnize that there are likely to be many caes in which different brokers are equally able to provide such best price and execution and that, in selecting among such brokers with respet to paricular trdes, it is desirable to choose those brokers who furnish reseach, statistica, quotations and other information to the Fund and the Manager in accrdance with the stadards set forth below. Moreover, to the extent that it continues to be lawful to do so and so long as the Board of Trustee determes that the Fund wil benefit, directly or indirectly, by doing so, the Manager may place orders with a broker who charges a commission for that trsaction which is in excess of the amount of commission that another broker would have charged for effecting that trasaction, provided that the excess commission is reaonable in relation to the value of "brokerage and reseach services" (as defined in Section 28(e) (3) of the Securities Exchange Act of 1934) provided by that broker. C-2

) Accrdingly, the Trust and the Manager agree that the Manager shal

select brokers for the execution of the Fund's trsactions from among:
(i) Those brokers and deaers who provide quotations and other

services to the Fund, specificaly including the quotations necsa to determine the Fund's net assets, in such amount of tota brokerage as may reaonably be required in light of such service; and (ü) Those brokers and deaers who supply reseach, statistica

and other data to the Manager or its affiliates which the Manager or its affiliates may lawfully and appropriately use il their investment advisory capacities, which relate directly to securities, actual or potential, of the Fund, or which place the Manager in a better position to make decisions in connection with the management of the Fund's assets and securities, whether or not such data may also be useful to the Manager and its affliates in managing other portfolios or advising other clients, in such amount of tota brokerage as may reaonably be required. Provided that the Trust's officers are satisfied. that the best execution is obtaned, the sae of shares of the Fund may also be considered as a factor in the selection of broker-deaers to execute the Fund's portfolio transactions. (c) When the Manager has determined that the Fund should

tender seurities pursuant to a "tender offer solicitation," Franklin/Templeton Distributors, Inc. ("Distnbutors") shall be designated as the "tendering deaer" so long as it is legally permitted to act in such capacity under the federa securities laws and rules thereunder and the rules of any securities exchange or association of which Distributors may be a member. Neither the Manager nor Distnbutors shall be obligated to make any additional commitments of capita, expense or personnel beyond that already committed (other than normal periodic

fee or payments necssa to maintan its corprate existence and membership in the

National Association of Securities Deaers, Inc.) as of the date of this Agreement. Ths Agreement shall not obligate the Manager or Distributors (i) to act pursuant to the foregoing requirement under any circumstaces in which they might reaonably believe that liabilty might be imposed upon them as a result of so acting, or (ii) to institute legal or other procings to collect fees which may be considered to be due from others to it as a result of such a tender, unless the Trust on behalf of the Fund shall enter into an agreement with the Manager and/or Distributors to reimburse them for all such expenses connected with attempting to collect such fees, including legal fees and expenses and that portion of the compensation due to their employees which is attributable to the time involved in attempting to collect such fees. (d) The Manager shall render regular reports to the Trust, not more frequently than quarerly, of how much tota brokerage business has been place by the C-3

Manager, on behalf of the Fund, with brokers falling into each of the categories referred to above and the manner in which the alloction has been accomplished. (e) . The Manager agrees that no investment decision wil be made

or influence by a desìre to provide brokerage for alloction in accrdance with the . foregoing, and tPat the right to make such ,alloction 'of.brokeragt shall.not intedere with .the ", ~ . A1anager':s parmount:dnty .to.oP,tan the .be~t net pri~..~Ø~xëcutiQ~ .for,.tPe. .Fnnd......... ~..:.,

"'. ."

B. Provision of lnformation NeCssary for Preparation of Securities

Registrtion Statements. Amendments and Other Materials. The Manager, its officers and employees wil make available and provide accounting and statistica information required by the Fund in the prepartion of registrtion statements, reports and other documents required by

. federa and state securities laws and with such information as the Fund may reaonably request for use in the prepartion of such documents or of other materials necssa or helpful for the

underwriting and distrbution of the Fund's shares.
C. Other Obligations and Services. The Manager shall make its officers and

employees available to the Board of Trustees and offcers of the Trust for consultation and discussions regarding the administrtion and management of the Fund and its investment activities.
3. Expenses of the Fund. It is understood that the Fund wil pay all of its own

expenses other than those expressly assumed by the Manager herein, which expenses payable by the Fund shall include:
A. Fees and expenses paid to the Manager as provided herein;

B. Expenses of all audits by independent public accountats;

C. Expenses of trasfer agent, registrar, custodian, dividend disbursing agent
and shareholder recrd-keeping services, including the expenses of issue, repurchase or redemption of its shares; D. Expenses of obtaning quotations for calculating the value of the Fund's net assets;

E. Salares and other compensations of executive officers of the Trust who

are not offcers, directors, stockholders or employees of the Manager or its affiiates; F. Taxes levied against the Fund;

G. Brokerage fees and commissions in connection with the purchase and sae

of securities for the Fund;
C-4

H. Costs, including the interest expense, of borrowing

money;

i. 'Costs incident to meetings of the Board of Trus"tees and shareholders

of the Fund, report to the Fund's 'shareholders,. the filing of report. with regulatory bodies and the 'maitenance of the Fund's and th~ Trust's legal existence;, ". .:' . '. .... '. . . ":., .". "." . . . .' :".." . .. . . " . . ....... .... ", ," ,"..:".. " . . ,"' "," .l:

:J. . Legal fees, including .the legal fees related to' the .registrtion and continued qualfication of the Fund's shares for sae;' . .

K. Trustees' fees and expenses to trstees who are not directors, officers, employees or stockholders of the Manager or any of its affiiates;
L. Costs and expense of registering and maintaning the registrtion of

the Fund and its shares under federa and any applicable state laws; including the printing and mailing of prospetu~es to its shareholders; M. Trade association dues; and N. The Fund's pro rata portion of fidelity bond, errors and omissions,

and trustees and offcer liability insurace premiums.

4. Compensation of the Manager. The Fund shall pay a management fee in cah

to the Manager based upon a percentage of the value of the Fund's net assets, caculated as set forth below, as compensation for the services rendered and obligations assumed by the Manager, during the precing month, on the first business day of the month in each yea. A. For purpses of caculating such fee, the value of the net assets of the Fund shall be determined in the same manner as that Fund uses to compute the value of its net assets in connection with the determination of the net asset value of its shares, al as set fort more fully in the Fund's current prospetus and statement of additional information.

The rate of the management fee payable by the Fund shall be caculated at the annua rates set fort in subsection (1) below, and shall be reduced by the amount of fees payable by the

Fund under its administration agreement, which fees are caculated at the annual rates set fort in subsection (2) below:

(1) .625 of 1 % of the value of net assets up to and including

$100,00,00;
.50 of 1 % of the value of net assets over $100,00,00 up to and including $250,000,000; .45 of i % of the value of net assets over $250,00,000 up to and including $10,000,000,000; C-5

.1
.44 of 1 % of the value of net assets over $10,00,00,00 up to and including $12,500,000,00; A2 of 1 % of the value of net assets over $12,500,00,00 up to and including $15,00,00,000; and
~ :. l. ._. . . ..... .' . . . :.40.of l:%.ofthe.v.åIue'of,n~tassetsin elCcess.of... ....;,..,'. .........
. .. .
~ . ,." "
'$15,00;00;00. .'
(2) .15 of 1 % of the value of net assets up to and inCluding

$200,00,00;
.135 of 1 % of the value of net assets over $200,00,00 up to and including $700,000,000; .10 of 1 % of the value of net assets over $700,000,000 up to and including $1,200,00,000; .075 of 1 % of the value of ,net assets in excess of

\ $1,200,00,00.

B. The Manager shall waive all or a portion of its fees, or make payments to limit the expenses of the Fund, or both, to the extent necssar to reduce the annual management fees payable under this agreement, combined with the tota annual administrative fees payable under the (Fund Administration Agreement) between the Fund and (the Fund Administrator), to levels that do not excee the amount of tota management fees that were payable under this agreement prior to its amendment to reflect the trsfer of

the responsibility to provide administrtive services to the (Fund Administrtor) pursuant to the (Fund Administrtion Agreement).
C. The management fee payable by the Fund shall be reduce or
eliminated to the extent that Distrbutors has actually recived cash payments of tender offer solicitation fee less certn costs and expenses incurred in connection therewith and to the extent necsa to comply with the limitations on expenses which may be borne by the Fund

as set fort in the laws, regulations and administrative interpretations of those state in which

the Fund's shares are registered. The Manager may waive all or a porton of its fee provided for hereunder and such waiver shall be treated as a reduction in purchase price of its services. The Manager shall be contractually bound hereunder by the terms of any publicly announce waiver of its fee, or any limitation of the Fund's expenses, as if such waiver or limitation were full set forth herein. C-6

D. If this Agreement is terminated pnor to the end of any month, the

accrued management fee shall be paid to the date of termination.

5. Activities of the Manager. The services of the Manager to the Fund hereunder

are not to be 9eemed exclusive, and the Manager and any öf its affilia.tes shal be free to . render' simiar service to others. Subject to and in accordance with the Agreement ana . ...Declartion of Trust.and B,y-Laws.of .the Trust and Section. '¡O(~)'.of the. J940 Act~'..t is. '..~..: :". :". shareholders of the Trust.areor måy be. . interested in the Manåger or its affiliates'as directors, offcers, agents or stockholders; that directors, officers, agents or stockholders of the Manager or its affiliates are or may be understoO that.trstee, officers, agents and.

interested in the Trust as trstees, officers, agents, shareholders or otherwise; that the

Manager or its affiliates may be interested in the Fund as shareholders or otherwise; and that the effect of any such interests shall be governed by said Agreement and Declartion of Trust, By-Laws and the 1940 Act.
6. Liabilities of the Manager.

A. In the absence of wilful misfeasance, bad faith, gross negligence, or reckless disregard of obligations or duties hereunder on the par of the Manager, the Manager shall not be subject to liabilty to the Trust or the Fund or to any shareholder of the Fund for any act or omission in the course of, or connected with, rendenng services hereunder or for any losses that may be sustaned in the purchase, holding or sae of any secunty by the Fund. B. Notwithstading the foregoing, the Manager agrees to reimburse the

Trust for any and all costs, expenses, and counsel and trustees' fees reaonably incurred by the Trust in the prepartion, pnnting and distnbution of proxy statements, amendments to its Registration Statement, holdings of meetings of its shareholders or trstees, the conduct of

factual investigations, any legal or administrative proceeings (including any applications for exemptions or determinations by the Secunties and Exchange Commission) which the Trust incurs as the result of action or inaction of the Manager or any of its affiliates or any of their officers, directors, employees or stockholders where the action or inaction necssitating such expenditures (i) is directly or indirectly related to any transactions or proposed trsaction in the stock or control of the Manager or its affiiates (or litigation related to any pending or proposed or future trsaction in such shares or control) which shall have been underten without the pnor, express approval of the Trust's Board of Trustees; or, (ii) is within the

control of the Manager or any of its affiliates or any of their offcers, directors, employee

or stockholders. The Manager shall not be obligated pursuant to the provisions of ths

Subpargraph 6(B), to reimburse the Trust for any expenditures related to the institution of an administrative procing or civil litigation by the Trust or a shareholder seeking to recover all or a portion of the proces denved by any stockholder of the Manager or any of its affliates from the sae of his shares of the Manager, or similar matters. So long as ths Agreement is in effect, the Manager shall pay to the Trust the amount due for expenses subject to this Subparagraph 6(B) within 30 days after a bil or statement has been recived C-7

by the Manager therefor. Ths provision shal not be deemed to be a waiver of any, claim the Trust may have or may assert against the Manager or others for costs, expenses or damages heretofore incurred by the Trust or for costs, expenses or damages the Trust may hereaer incur which are not reimbursable to it hereunder. C.' No. provision of this Agreement shall 'be constned .to protec any

. tnstee~.oi:officér.of tne Tn.st, or.drector.çr .officer .of .the Manager,. fro'm .1iåbilty m. 'violation of Sections 1 7 (h) and (i) of the 1940 Act.
7. Renewal and Termination.

A. This Agreement shall become effective on the date written below and

shall continue in effect for two (2) yeas thereafter, unless sooner terminated as hereinafter provided and shall continue in effect thereafter for periods not exceing one (1) yea so long as such continuation is approved at least annually (i) by a vote of a majority of the outstading voting securities of each Fund or by a vote of the Board of Trustees of the Trust, and (ii) by a vote of a majority of the Trustees of the Trust who are not pares to the Agreement (other than as Trustees of the Trust), cast in person at a meeting ca1~ for the purpse of voting on the Agreement. ' B. This Agreement:
(i) may at any time be terminated without the payment of any

penalty either by vote of the Board of Trustees of the Trust or by vote of a majority of the outstading voting securities of the Fund on 60 days' written notice to the Manager; (ii) shall immediately terminate with respect to the Fund in the

event of its assignment; and
(iii) may be terminated by the Manager on 60 days' written notice

to the Fund.
C. As used in this Paragraph the terms "assignment," "intereste

person" and "vote of a majority of the outstanding voting securities" shall have the meaings set forth for any such terms in the 1940 Act. D. Any notice under this Agreement shall be given in writig addressed and delivered, or mailed post-paid, to the other pary at any office of such par.

8. Severability. If any provision of this Agreement shall be held or made invald

by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby.

C-8

9. Governing Law. This Agreement shall be governed by and constred in

accrdance with the laws of the State of Caifornia.
IN WINES WHEREOF, the paries hereto have caused this Agreement to be executed and effective on the -- day of . .

(NAME OF TRUST)
By:
FRANKIN ADVISERS, INC.
By:
)

C-9

EXHIBIT D
FORM OF PROPOSED ADMIISTRATION AGREEMT
(NAME OF REGISTRANT
ON BEHALF OF
(NAME OF SERIES)
AND
(NAME OF FRANKLIN FUND ADMINISTRATOR)
AGREEMENT dated as of (DATE), between (Name of Registrt), a (Massachusetts\Delaware) business trst (the "Trust"), on behalf of the (Name of Seri~s) (the

"Fund"), a separte series of the Trust, and (Name of Fraklin Fund administrtor) (the "Administrtor"). In consideration of the mutual promises herein made, the pares hereby agree as follows:

(1) The Administrator agrees, during the life of this Agreement, to provide the following services to the Fund, to the extent required under the Agreement:
(a) providing office space, telephone, office equipment and supplies for the Fund; (b) paying compensation of the Fund's officers for services rendered as such; (c) authorizing expenditures and approving bils for payment on behalf of the Fund; (d) supervising prepartion of periodic report to Shareholders, notice of

dividends, capita gains distrbutions and ta credits, and attending to routine correspondence

and other communications with individual Shareholders; (e) daily pricing of the Fund's investment portfolio and preparng and

supervising publication of daily quotations of the bid and asked prices of the Fund's Shares, eaings reports and other financial data; (f) monitoring relationships with organizations serving the Fund,

including custodians, trsfer agents, public accounting firms, law firms, printers and other

third pary service providers;

(g) providing trading desk facilities for the Fund;

D-l

(h) supervising compliance by the Fund with recrdkeeping reuirements

under the Investment Company Act of 1940, as amended (the" 1940 Act") and the rules and regulations thereunder, supervising compliance with recrdkeeping requIiements imposed by state laws or regulations, and maintaning books and recrds for the Fund (other than those maintaned by the custodian and trsfer agent);

(i) prepanng and filig of ta report including the Fund's income ta

returns, and monitoring the Fund's compliance with subchapter M of the Internal Revenue Code and other applicable ta laws and regulations; CD monitoring the Fund's compliance with: the 1940 Act and rules and regulations. thereunder; state and foreign law~ and regulations applicable to the ~peration of . investment companies; the Fund's investment objectives, policies and restrctions; and the .

Code of Ethics and other policies adopted by the Fund's Board of Trustee or by the Adviser and applicable to the Fund; (k) providing executive, clerica and secretaal personnel neeed to ca

out the above responsibilties; and
(1) prepanng regulatory report, including without limitation NSARs,

proxy statements and U.S. and foreign ownership reports.
(2) The Trust agrees, during the life of this Agreement, to pay to Administrator as compensation for the foregoing a monthly fee equal on an annual basis to .15 of 1 % of the value of net assets up to and including $200,00,00; .135 of 1 % of the value of net assets over $200,00,00 up to and including $700,00,00; .10 of 1 % of the value of net assets over $700,00,00 up to and including $1,200,00,00; .075 of 1 % of the value of net assets in excess of $1,200,00,00. (3) This Agreement shall remain in full force and effect through (DATE) (or for one yea after its execution) and thereater from yea to yea to the extent contiuance is approved annually by the Board of Trustee of the Trust. (4) This Agreement may be terminated by the Trust at any time on sixty (60) days' written notice without payment of penalty, provided that sUch termination by the Trust shal be directed or approved by the vote of a majority of the Trustees of the Trust in office at the time or by the vote of a majority of the outstanding voting securities of the Trust (as D-2

defined by the 1940 Act); and shall automaticaly and immediately terminate in the event of its assignment (as defined by the 1940 Act). (5) In the absence of wilful misfeasace, bad faith or gross negligence on the par

of Administrtor, or of reckless disregard of its duties and obligations hereunder, Administrtor shal not be subject to liabilty for any act or omission in the course of, or connected with, rendering services hereunder. IN WIS WHEREOF, the pares hereto have cause this Agreement to be duly executed by their duly authorize officers and their respetive corprate seas to be hereunto duly affixed and attested. (NAME OF TRUS11

on behalf of
(NAME OF SERIES)
..
By:
(NAME OF FRANKLIN FUND ADMINISTRATOR)
By:
D-3

of Proposa to Amend Rule 17d- 1 under the Investment Company Act of 1940 to Provide an Exemption from the Rule for Affiliated Persons with Respet to Cert Servce See Notice

Agreements with Investment Companes, Investment Company Act Relea No. 8245 (1973 1974 Trasfer Binder) Fed. Sec. L. Rep. (CCH) , 79,667 (Feb. 25, 1974) (the "Proposing Release") . See Investment Company Contrcts for Service with Affiiated Persons - Withdrawal of Propose Rule Amendment, Investment Company Act Releae No. 10822 (1979 Trasfer

Binder) Fed. Sec. L. Rep. (CCH) '82,172 (August 8, 1979).
See Lindner Fund for Income, Incorprate, SEe No-Action Letter (publicly available May 10, 1984)(provision of trsfer agency service by affiliate); Cntenon Funds, Inc., SEC No￾Action Letter (publicly available Januar 9, 1984)(Provision of bookkeeping and accuntig services by affiliate); Lindner Fund, Incorprated, SEC No-Action Letter (publicly avaiable June 17, 1983)(provision of trsfer agency and dividend disbursing services by affiiate); Boston Safe Deposit and Trust Company, SEC No-Action Letter (publicly available March 30, 1983)(provision of custodian and trsfer agency services by affiliate); The Harord Money Market Fund, Inc., SEe No-Action Letter, (1982-1983 Trasfer Binder) Fed. Sec. L. Rep. (CCH) '77,393 (Feb. 14, 1983)(Provision of administrtive services by affiate). See also Mernll Lynch Capita Fund, Incorprated, SEC No-Action Letter (publicly available Decmber 21, 1990) (use of affiliated pnnter without shareholder approval allowed under rule 17d-l); Washington Square Cash Fund, Incorprated, SEC No-Action Letter (publicly available July 9, 1990) (use of affiiated custodian without shareholder approval allowed under Rule 17d-l); Unified Growth Fund, Inc., See No-Action Letter (publicly available June 28, 1990) (use of affliated pnnter without shareholder approval allowed under Rule'

17d-l); Diversified Secunties,Incorporated, SEC No-Action Letter (publicly available Januar 22, 1985) (use of affiliated transfer agent without shareholder approval allowed under Rule 17d-1); Federated Seeunties Corp.; SEC No-Action Letter, (1983-1984 Trasfer Binder) Fed. Sec. L. Rep. (CCH) '77,548 (Oct. 21, 1983)(Provision of fidelity insurace by affiate without stadard approval allowed under Rule 17d-l). D-4