1
  REGULATORY MATTERS

  Massachusetts Administrative Proceeding
  On September 20, 2004, Franklin Resources, Inc. (Franklin
  Resources, Inc. and its subsidiaries are referred to
  collectively as the "Company") announced that an agreement has
  been reached by two of its subsidiaries, Franklin Advisers,
  Inc. ("Franklin Advisers") and Franklin Templeton Alternative
  Strategies, Inc. ("FTAS"), with the Securities Division of the
  Office of the Secretary of the Commonwealth of Massachusetts
  (the "State of Massachusetts") related to an administrative
  complaint filed on February 4, 2004. The administrative
  complaint addressed one instance of market timing that was
  also a subject of the August 2, 2004 settlement that Franklin
  Advisers reached with the SEC, as described below.

  Under the terms of the settlement consent order issued by the
  State of Massachusetts, Franklin Advisers and FTAS have
  consented to the entry of a cease-and-desist order and agreed
  to pay a $5 million administrative fine to the State of
  Massachusetts. The consent order has multiple sections,
  including "Statements of Fact" and "Violations of
  Massachusetts Securities Laws." The Company admitted the
  "Statements of Fact." The Company did not admit or deny the
  "Violations of the Massachusetts Securities Laws." While
  Franklin Advisers and FTAS did not admit or deny engaging in
  any wrongdoing, the Company believes that it is in its best
  interest and the interests of its funds' shareholders to
  settle this issue now and move forward.

  On October 25, 2004, the State of Massachusetts filed an
  administrative complaint against Franklin Resources, Inc.
  ("FRI") alleging a violation of the Massachusetts Uniform
  Securities law (the "Act") in connection with having filed on
  September 20, 2004, an allegedly false and misleading report
  on Form 8-K with the SEC.  The Massachusetts administrative
  complaint seeks an order calling for FRI to cease and desist
  from further violations of the Act and to pay an
  administrative fine in an amount to be determined.

  FRI's SEC filing of September 20, 2004 described the
  settlement consent order with the State of Massachusetts and
  reported while "Franklin Advisers and FTAS did not admit or
  deny engaging in any wrongdoing, the Company believes that it
  is in the best interest of the Company and its funds'
  shareholders to settle this issue now and move forward." The
  October 25, 2004 State of Massachusetts administrative
  complaint alleges that this description of the settlement
  consent order was materially false and misleading under
  Massachusetts law.  FRI's management disagrees with the
  allegation made in this administrative complaint and continues
  to believe that the description of the terms of the settlement
  consent order issued by the State of Massachusetts is neither
  false nor misleading.

  U.S. Securities and Exchange Commission (SEC) Settlement
  On August 2, 2004, the Company announced that an agreement has
  been reached by Franklin Advisers with the SEC that resolves
  the issues resulting from the SEC's investigation of market
  timing activity and the SEC issued an "Order instituting
  administrative and cease-and-desist proceedings pursuant to
  sections 203(e) and 203(k) of the Investment Advisers Act of
  1940 and sections 9(b) and 9(f) of the Investment Company Act
  of 1940, making findings and imposing remedial sanctions and a
  cease-and-desist order" (the "Order"). The SEC's Order
  concerns the activities of a limited number of third parties
  that ended in 2000 and those that are the subject of the
  Massachusetts administrative complaint described above.

  Under the terms of the SEC's Order, pursuant to which Franklin
  Advisers neither admits nor denies any wrongdoing, Franklin
  Advisers has agreed to pay $50 million, of which $20 million
  is a civil penalty, to be distributed to shareholders of
  certain funds in accordance with a plan to be developed by an
  Independent Distribution Consultant. At this time, it is
  unclear which funds will receive distributions or which
  shareholders of any particular fund will receive
  distributions. The SEC Order also requires Franklin Advisers
  to, among other things, enhance and periodically review
  compliance policies and procedures.

  Other Governmental Investigations
  As part of ongoing investigations by the SEC, the U.S.
  Attorney for the Northern District of California, the New York
  Attorney General, the California Attorney General, the U.S.
  Attorney for the District of Massachusetts, the Florida
  Department of Financial Services and the Commissioner of
  Securities, the West Virginia Attorney General, the Vermont
  Department of Banking, Insurance, Securities, and Health Care
  Administration and the National Association of Securities
  Dealers, relating to certain practices in the mutual fund
  industry, including late trading, market timing and payments
  to securities dealers who sell fund shares, the Company and
  its subsidiaries, as well as certain current or former
  executives and employees of the Company, have received
  requests for information and/or subpoenas to testify or
  produce documents. The Company and its current employees have
  been providing documents and information in response to these
  requests and subpoenas. In addition, the Company has responded
  to requests for similar kinds of information from regulatory
  authorities in some of the foreign countries where the Company
  conducts its global asset management business.

  The staff of the SEC has also informed the Company that it is
  considering recommending a civil action or proceeding against
  Franklin Advisers and Franklin Templeton Distributors, Inc.
  ("FTDI") concerning payments to securities dealers who sell
  fund shares (commonly referred to as "revenue sharing"). The
  staff of the California Attorney General's Office ("CAGO")
  also has advised the Company that the California Attorney
  General is authorized to bring a civil action against the
  Company and FTDI arising from the same events. Even though the
  Company currently believes that the charges the SEC staff and
  CAGO staff are contemplating are unwarranted, it also believes
  that it is in the best interest of the Company's and funds'
  shareholders to resolve these issues voluntarily, to the
  extent the Company can reasonably do so. The Company continues
  to have discussions towards resolving these governmental
  investigations.

  Other Legal Proceedings
  The Company in addition to other entities within Franklin
  Templeton Investments, including the Company and certain of
  its subsidiaries, other funds, and current and former
  officers, employees, and directors have been named in multiple
  lawsuits in different federal courts in Nevada, California,
  Illinois, New York and Florida, alleging violations of various
  federal securities laws and seeking, among other things,
  monetary damages and costs. Specifically, the lawsuits claim
  breach of duty with respect to alleged arrangements to permit
  market timing and/or late trading activity, or breach of duty
  with respect to the valuation of the portfolio securities of
  certain funds managed by Company subsidiaries, resulting in
  alleged market timing activity. The majority of these lawsuits
  duplicate, in whole or in part, the allegations asserted in
  the Massachusetts administrative complaint described above.
  The lawsuits are styled as class actions or derivative actions
  on behalf of either the named funds or the Company.

  Various subsidiaries of the Company have also been named in
  multiple lawsuits filed in state courts in Illinois alleging
  breach of duty with respect to valuation of the portfolio
  securities of certain funds managed by such subsidiaries.

  In addition, the Company and certain of its subsidiaries, as
  well as certain current and former officers, employees, and
  directors have been named in multiple lawsuits alleging
  violations of various securities laws and pendent state law
  claims relating to the disclosure of directed brokerage
  payments and/or payment of allegedly excessive advisory,
  commission, and distribution fees. These lawsuits are styled
  as class actions and derivative actions brought on behalf of
  certain funds.

  The Company's management strongly believes that the claims
  made in each of these lawsuits are without merit and intends
  to vigorously defend against them.

  The Company cannot predict with certainty the eventual outcome
  of the foregoing governmental investigations or class actions
  or other lawsuits. If the Company finds that it bears
  responsibility for any unlawful or inappropriate conduct that
  caused losses to the Fund, it is committed to making the Fund
  or its shareholders whole, as appropriate.