485APOS

File Nos. 333-104602 and 811-07876

As filed with the Securities and Exchange Commission on October 28, 2010

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]

Pre-Effective Amendment No.
Post-Effective Amendment No. 8 and/or	[X]

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]

Amendment No. 12 [X]

Templeton China World Fund

(Exact Name of Registrant as Specified in Charter)

500 East Broward Blvd., Fort Lauderdale, Florida 33394-3091

(Address of Principal Executive Offices) (Zip Code)

(954) 527-7500

(Registrant's Telephone Number, Including Area Code)

Craig S. Tyle, One Franklin Parkway, San Mateo, CA 94403-1906

(Name and Address of Agent for Service of Process)

It is proposed that this filing will become effective (check appropriate box)

[ ]	immediately upon filing pursuant to paragraph (b)
[ ]	on (date) pursuant to paragraph (b)
[ ]	60 days after filing pursuant to paragraph (a)(i)
[X]	on January 1, 2011 pursuant to paragraph (a)(i)
[ ]	75 days after filing pursuant to paragraph (a)(ii)
[ ]	on (date) pursuant to paragraph (a)(ii) of rule 485

If appropriate, check the following box:

[ ] This post-effective amendment designates a new effective date for a previously filed post-effective amendment.

January 1, 2011

The SEC has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense.

Class A	Class B	Class C	Advisor Class
TCWAX	TCWBX	TCWCX	TACWX

	PROSPECTUS
Templeton China World Fund

	Contents
	FUND SUMMARY
INFORMATION ABOUT THE FUND YOU SHOULD KNOW BEFORE INVESTING	Investment Goal Fees and Expenses of the Fund Portfolio Turnover Principal Investment Strategies Principal Risks Performance Investment Manager Portfolio Managers Purchase and Sale of Fund Shares Taxes Payments to Broker-Dealers and Other Financial Intermediaries
	FUND DETAILS
MORE INFORMATION ON INVESTMENT POLICIES, PRACTICES AND RISKS/FINANCIAL HIGHLIGHTS	Goal Principal Investment Policies and Practices Principal Risks Management Distributions and Taxes Financial Highlights
	YOUR ACCOUNT
INFORMATION ABOUT SALES CHARGES, QUALIFIED INVESTORS, ACCOUNT TRANSACTIONS AND SERVICES	Choosing a Share Class Buying Shares Investor Services Selling Shares Exchanging Shares Account Policies Questions
	FOR MORE INFORMATION
WHERE TO LEARN MORE ABOUT THE FUND	Back Cover

FUND SUMMARY

Investment Goal

Long-term capital appreciation.

Fees and Expenses of the Fund

These tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts in Class A if you and your family invest, or agree to invest in the future, at least $50,000 in Franklin Templeton funds. More information about these and other discounts is available from your financial professional and under “Your Account” on page 25 in the Fund's Prospectus and under “Buying and Selling Shares” on page 39 of the Fund’s Statement of Additional Information.

SHAREHOLDER FEES (fees paid directly from your investment)

	Class A	Class B1	Class C	Advisor Class
Maximum Sales Charge (Load) Imposed on Purchases (as percentage of offering price)	5.75%	None	None	None
Maximum Deferred Sales Charge (Load) (as percentage of the lower of original purchase price or sale proceeds)	None	4.00%	1.00%	None

1. New or additional investments into Class B are no longer permitted.

ANNUAL FUND OPERATING EXPENSES (expenses that you pay each year as a percentage of the value of your investment)

	Class A	Class B	Class C	Advisor Class
Management fees	1.24%	1.24%	1.24%	1.24%
Distribution and service (12b-1) fees	0.30%1	0.99%	1.00%	None
Other expenses	0.47%	0.47%	0.47%	0.47%
Total annual Fund operating expenses	2.01%	2.70%	2.71%	1.71%

1. Class A distribution and service (12b-1) fees have been restated to reflect the Fund's contractual 12b-1 fee rate. Consequently, the total annual Fund operating expenses differ from the ratio of expenses to average net assets shown in the "Financial Highlights" due to a timing difference between the end of the 12b-1 plan year and the Fund's fiscal year end.

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of the period. The Example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:

	1 Year	3 Years	5 Years	10 Years
If you sell your shares at the end of the period:
Class A	$ 767	$ 1,169	$ 1,596	$ 2,778
Class B	$ 673	$ 1,138	$ 1,630	$ 2,866
Class C	$ 374	$ 841	$ 1,435	$ 3,041
Advisor Class	$ 174	$ 539	$ 928	$ 2,019
If you do not sell your shares:
Class B	$ 273	$ 838	$ 1,430	$ 2,866
Class C	$ 274	$ 841	$ 1,435	$ 3,041

Portfolio Turnover

The Fund pays transaction costs, such as commissions, when it buys and sells securities (or "turns over" its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund's performance. During the most recent fiscal year, the Fund's portfolio turnover rate was 10% of the average value of its portfolio.

Principal Investment Strategies

Under normal market conditions, the Fund invests at least 80% of its net assets in securities of "China companies." The Fund invests primarily in the equity securities of China companies, which are those:

• that are organized under the laws of, or with a principal office in, the People's Republic of China (China), Hong Kong or Taiwan; or
• for which the principal trading market is in China, Hong Kong or Taiwan; or
• that derive at least 50% of their revenue from goods or services sold or produced, or have at least 50% of their assets, China.

The equity securities in which the Fund invests are primarily common stock. The Fund also invests in American, Global and European Depositary Receipts. China companies may be any size, and include smaller capitalization companies. In addition to the Fund's main investments, the Fund may invest up to 20% of its net assets in securities that do not qualify as China company securities, but whose issuers, in the judgment of the manager, are expected to benefit from developments in the economy of China. The Fund is a "non-diversified" fund, which means it generally invests a greater proportion of its assets in the securities of one or more issuers and invests overall in a smaller number of issuers than a diversified fund.

When choosing equity investments for the Fund, the investment manager applies a “bottom-up,” value-oriented, long-term approach, focusing on the market price of a company’s securities relative to the investment manager’s evaluation of the company’s long-term earnings, asset value and cash flow potential. The investment manager also considers a company’s price/earnings ratio, profit margins and liquidation value.

Principal Risks

You could lose money by investing in the Fund. Mutual fund shares are not deposits or obligations of, or guaranteed or endorsed by, any bank, and are not insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other agency of the U.S. government.

Foreign Securities   Investing in foreign securities typically involves more risks than investing in U.S. securities, and includes risks associated with: political and economic developments - the political, economic and social structures of some foreign countries may be less stable and more volatile than those in the U.S.; trading practices - government supervision and regulation of foreign security and currency markets, trading systems and brokers may be less than in the U.S.; availability of information - foreign issuers may not be subject to the same disclosure, accounting and financial reporting standards and practices as U.S. issuers; limited markets - the securities of certain foreign issuers may be less liquid (harder to sell) and more volatile; and currency exchange rate fluctuations and policies. The risks of foreign investments typically are greater in less developed countries or emerging market countries.

There are special risks associated with investments in China, Hong Kong and Taiwan, including exposure to currency fluctuations, less liquidity, expropriation, confiscatory taxation, nationalization and exchange control regulations (including currency blockage). Inflation and rapid fluctuations in inflation and interest rates have had, and may continue to have, negative effects on the economy and securities markets of China, Hong Kong and Taiwan. In addition, investments in Taiwan could be adversely affected by its political and economic relationship with China. China, Hong Kong and Taiwan are deemed by the investment manager to be emerging markets countries, which means an investment in these countries have more heightened risks than general foreign investing due to a lack of established legal, political, business and social frameworks in these countries to support securities markets.

Region Focus   Because the Fund invests its assets primarily in companies in a specific region, the Fund is subject to greater risks of adverse developments in that region and/or the surrounding regions than a fund that is more broadly diversified geographically. Political, social or economic disruptions in the region, even in countries in which the Fund is not invested, may adversely affect the value of securities values held by the Fund.

Market   The market value of securities owned by the Fund will go up and down, sometimes rapidly or unpredictably. A security’s market value may be reduced by market activity or other results of supply and demand unrelated to the issuer. This is a basic risk associated with all securities. When there are more sellers than buyers, prices tend to fall. Likewise, when there are more buyers than sellers, prices tend to rise.

Generally, stocks have historically outperformed other types of investments over the long term. Individual stock prices, however, tend to go up and down more dramatically. A slower-growth or recessionary economic environment could have an adverse effect on the price of the various stocks held by the Fund.

Smaller Companies   Securities issued by smaller companies may be more volatile in price than those of larger companies, involve substantial risks and should be considered speculative. Such risks may include greater sensitivity to economic conditions, less certain growth prospects, lack of depth of management and funds for growth and development and limited or less developed product lines and markets. In addition, smaller companies may be particularly affected by interest rate increases, as they may find it more difficult to borrow money to continue or expand operations, or may have difficulty in repaying any loans.

Non-Diversification   Because the Fund is non-diversified, it may be more sensitive to economic, business, political or other changes affecting similar issuers or investments than a diversified fund, which may result in greater fluctuation in the value of the Fund’s shares and greater risk of loss.

Value Style Investing   A value stock may not increase in price as anticipated by the investment manager if other investors fail to recognize the company's value and bid up the price, the markets favor faster-growing companies, or the factors that the investment manager believes will increase the price of the security do not occur.

Management   The Fund is subject to management risk because it is an actively managed investment portfolio. The Fund’s investment manager applies investment techniques and risk analyses in making investment decisions for the Fund, but there can be no guarantee that these decisions will produce the desired results.

Performance

The following bar chart and table provide some indication of the risks of investing in the Fund. The bar chart shows changes in the Fund's performance from year to year for Class A shares. The table shows how the Fund's average annual returns for 1 year, 5 years, 10 years or since inception, as applicable, compared with those of a broad measure of market performance. The Fund's past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. You can obtain updated performance information at franklintempleton.com or by calling (800) DIAL BEN.

Sales charges are not reflected in the bar chart, and if those charges were included, returns would be less than those shown.

CLASS A ANNUAL TOTAL RETURNS

Best Quarter:	Q2'09	32.45%
Worst Quarter:	Q3'01	-19.72%
As of September 30, 2010, the Fund's year-to-date return was 10.25% for Class A.

AVERAGE ANNUAL TOTAL RETURNS
(figures reflect sales charges) For the periods ended December 31, 2009

	1 Year	5 Years	10 Years
Templeton China World Fund - Class A
Return Before Taxes	54.54%	15.33%	14.77%
Return After Taxes on Distributions	54.21%	14.44%	13.98%
Return After Taxes on Distributions and Sale of Fund Shares	35.78%	13.21%	12.96%
Templeton China World Fund - Class B	58.88%	15.71%	14.84%
Templeton China World Fund - Class C	61.86%	15.94%	14.69%
Templeton China World Fund - Advisor Class	64.50%	17.09%	15.85%
MSCI Golden Dragon Index (index reflects no deduction for fees, expenses or taxes)	2.94%	3.26%	2.93%

Historical performance for the Fund prior to its conversion from a closed-end fund to an open-end fund in 2003 is based on the performance of the Fund's predecessor closed-end fund. The Fund's performance has been adjusted to reflect differences in all charges, fees and expenses between the Fund and the predecessor closed-end fund.

The after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns for other classes will vary.

Investment Manager

Templeton Asset Management Ltd. (Asset Management)

Portfolio Managers

MARK MOBIUS PH.D.   Executive Chairman of Templeton Emerging Markets Group and Portfolio Manager of Asset Management and portfolio manager of the Fund since inception (1993).

EDDIE CHOW, CFA   Investment Analyst of Asset Management and portfolio manager of the Fund since 2002.

Purchase and Sale of Fund Shares

You may purchase or redeem shares of the Fund on any business day online through our Web site at franklintempleton.com, by mail (Franklin Templeton Investor Services, P.O. Box 33030, St. Petersburg, FL 33733-8030), or by telephone at (800) 632-2301. The minimum initial purchase for most accounts is $1,000 (or $50 under an automatic investment plan).

Taxes

The Fund’s distributions are generally taxable to you as ordinary income, capital gains, or some combination of both, unless you are investing through a tax-deferred arrangement, such as a 401(k) plan or an individual retirement account.

Payments to Broker-Dealers and
Other Financial Intermediaries

If you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment. Ask your financial advisor or visit your financial intermediary's website for more information.

FUND DETAILS

Goal

The Fund's investment goal is long-term capital appreciation.

Principal Investment Policies and Practices

Under normal market conditions, the Fund invests at least 80% of its net assets in securities of "China companies," as defined below. Shareholders will be given at least 60 days' advance notice of any change to this 80% policy.

For purposes of the Fund's investments, China companies are those:

• that are organized under the laws of, or with a principal office in, the People's Republic of China (China), Hong Kong or Taiwan; or
• for which the principal trading market is in China, Hong Kong or Taiwan; or
• that derive at least 50% of their revenues from goods or services sold or produced, or have at least 50% of their assets, in China.

An equity security represents a proportionate share of the ownership of a company; its value is based on the success of the company's business, any income paid to stockholders, the value of the company's assets, and general market conditions. Common stocks, preferred stocks and convertible securities are examples of equity securities. Convertible securities generally are debt securities or preferred stock that may be converted into common stock after certain time periods or under certain circumstances. The Fund may invest in convertible securities without regard to the ratings assigned by ratings services. The Fund also invests in American, Global and European Depositary Receipts. These are certificates typically issued by a bank or trust company that give their holders the right to receive securities issued by a foreign or domestic company. China companies may be any size, and include smaller capitalization companies.

The Fund invests predominantly in the equity securities of China companies. China companies may be smaller, newly organized and relatively unseasoned companies.

In addition to the Fund's main investments, the Fund may invest up to 20% of its net assets in securities that do not qualify as China company securities, but whose issuers, in the judgment of the manager, are expected to benefit from developments in the economy of China. The Fund may also invest up to 20% of its net assets in debt obligations of China companies, which may be lower-rated or unrated, when consistent with the Fund's investment goal. The Fund may also invest up to 10% of its assets in exchange-traded funds to obtain exposure to all or a portion of stocks in certain markets and for cash management purposes.

The Fund is a non-diversified fund, which means it may invest a greater proportion of its assets in a single issuer compared to a diversified fund.

When choosing equity investments for this Fund, the investment manager applies a "bottom-up," value-oriented, long-term approach, focusing on the market price of a company's securities relative to the investment manager's evaluation of the company's long-term earnings, asset value and cash flow potential. The investment manager also considers a company's price/earnings ratio, profit margins and liquidation value. The Fund should be thought of as a long-term investment for the aggressive portion of a well-diversified portfolio.

Temporary Investments

When the manager believes market or economic conditions are unfavorable for investors, the manager may invest up to 100% of the Fund's assets in a temporary defensive manner by holding all or a substantial portion of its assets in cash, cash equivalents or other high quality short-term investments. Temporary defensive investments generally may include short-term and medium-term debt securities rated, at the time of investment, A or higher by Moody's Investors Service (Moody's) or Standard & Poor's (S&P^®) or, if unrated, determined to be of comparable quality. The manager also may invest in these types of securities or hold cash while looking for suitable investment opportunities or to maintain liquidity. In these circumstances, the Fund may be unable to achieve its investment goal.

Principal Risks

Foreign Securities

Investing in foreign securities, including securities of foreign governments and depositary receipts, typically involves more risks than investing in U.S. securities. Certain of these risks also may apply to securities of U.S. companies with significant foreign operations. These risks can increase the potential for losses in the Fund and affect its share price. There are special risks associated with investments in China, Hong Kong and Taiwan including exposure to currency fluctuations, less liquidity, expropriation, confiscatory taxation, nationalization, exchange control regulations (including currency blockage) and differing legal standards. Inflation and rapid fluctuations in inflation and interest rates have had, and may continue to have negative effects on the economies and securities markets of China, Hong Kong and Taiwan. In addition, investments in Taiwan could be adversely affected by its political and economic relationship with China.

Currency exchange rates.   Foreign securities may be issued and traded in foreign currencies. As a result, their values may be affected by changes in exchange rates between foreign currencies and the U.S. dollar, as well as between currencies of countries other than the U.S. For example, if the value of the U.S. dollar goes up compared to a foreign currency, an investment traded in that foreign currency will go down in value because it will be worth fewer U.S. dollars. Although American Depositary Receipts (ADRs) trade in U.S. dollars, the U.S. dollar price of ADR shares may also be affected by changes in exchange rates.

Political and economic developments.   The growing interconnectivity of global economies and financial markets has increased the possibilities that conditions in one country or region might adversely impact the issuers of securities in a different country or region. In particular, the adoption or continuation of protectionist trade policies by one or more countries, or a slowdown in the U.S. economy, could lead to a decrease in demand for Chinese, Hong Kong and Taiwanese products and reduced flows of private capital to these economies.

The political, economic and social structures of foreign countries, including China, Hong Kong and Taiwan, may be less stable and more volatile than those in the U.S. Investments in these countries may be subject to the risks of internal and external conflicts, currency devaluations, foreign ownership limitations and tax increases. It is possible that a government may take over the assets or operations of a company or impose restrictions on the exchange or export of currency or other assets. Some countries also may have different legal systems that may make it difficult for the Fund to vote proxies, exercise shareholder rights, and pursue legal remedies with respect to its foreign investments. Diplomatic and political developments, including rapid and adverse political changes, social instability, regional conflicts, terrorism and war, could affect the economies, industries and securities and currency markets, and the value of the Fund's investments, in non-U.S. countries. These factors are extremely difficult, if not impossible, to predict and take into account with respect to the Fund's investments.

Trading practices.   Brokerage commissions and other fees generally are higher for securities traded in Chinese, Hong Kong and Taiwanese markets. Government supervision and regulation of Chinese, Hong Kong and Taiwanese stock exchanges, currency markets, trading systems and brokers may be less than in the U.S. The procedures and rules governing transactions and custody (holding of the Fund's assets) in China, Hong Kong and Taiwan also may involve delays in payment, delivery or recovery of money or investments.

Availability of information.   China companies may not be subject to the same disclosure, accounting, auditing and financial reporting standards and practices as U.S. companies. Thus, there may be less information publicly available about China companies than about most U.S. companies.

Limited markets.   Certain securities issued by China companies may be less liquid (harder to sell) and more volatile than many U.S. securities. This means the Fund may at times be unable to sell foreign securities at favorable prices.

Emerging markets.   China, Hong Kong and Taiwan are deemed by the manager to be developing or emerging markets. The risks of foreign investments typically are greater in emerging markets. For example, political and economic structures in these countries may be less established and may change rapidly. These countries also are more likely to experience high levels of inflation, deflation or currency devaluation, which can harm their economies and securities markets and increase volatility. In fact, short-term volatility in these markets and declines of 50% or more are not uncommon. Restrictions on currency trading that may be imposed by emerging market countries will have an adverse effect on the value of the securities of companies that trade or operate in such countries.

Geographic Focus

There is a high correlation among the Chinese, Hong Kong and Taiwanese markets. Accordingly, because the Fund invests its assets primarily in these markets, it is subject to much greater risks of adverse events that occur in that region and may experience greater volatility than a fund that is more broadly diversified geographically. Political, social or economic disruptions in the region, including conflicts and currency devaluations, even in countries in which the Fund is not invested, may adversely affect security values in other countries in the region and thus the Fund's holdings.

Market

The market value of securities owned by the Fund will go up or down, sometimes rapidly or unpredictably. Securities may decline in value due to factors affecting individual issuers, securities markets generally or particular industries or sectors within the securities markets. The value of a security may go up or down due to general market conditions which are not specifically related to a particular issuer, such as real or perceived adverse economic conditions, changes in the general outlook for revenues or corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. They may also go up or down due to factors which affect an individual issuer or a particular industry or sector, such as changes in production costs and competitive conditions within an industry. During a general downturn in the securities markets, multiple asset classes may decline in value. When markets perform well, there can be no assurance that the Fund's securities will participate in or otherwise benefit from the advance.

Generally, stocks have historically outperformed other types of investments over the long term. Individual stock prices, however, tend to go up and down more dramatically. A slower-growth or recessionary economic environment could have an adverse effect on the price of the various stocks held by the Fund.

Smaller Companies

While smaller companies may offer substantial opportunities for capital growth, they also involve substantial risks and should be considered speculative. Historically, smaller company securities have been more volatile in price than larger company securities, especially over the short term. Among the reasons for the greater price volatility are the less certain growth prospects of smaller companies, the lower degree of liquidity in the markets for such securities, and the greater sensitivity of smaller companies to changing economic conditions.

In addition, smaller companies may lack depth of management, be unable to generate funds necessary for growth or development, or be developing or marketing new products or services for which markets are not yet established and may never become established.

Non-Diversification

The Fund is a non-diversified fund. It may invest a greater portion of its assets in the securities of one issuer than a diversified fund. The Fund may be more sensitive to economic, business, political or other changes affecting similar issuers or securities, which may result in greater fluctuation in the value of the Fund's shares. The Fund, however, intends to meet certain tax diversification requirements. In addition, as a matter of non-fundamental policy the Fund may not invest more than 15% of its total assets in the securities of any one issuer.

Value Style Investing

Value stock prices are considered "cheap" relative to the company's perceived value and are often out of favor with other investors. The manager may invest in such stocks if it believes the market may have overreacted to adverse developments or failed to appreciate positive changes. However, if other investors fail to recognize the company's value (and do not become buyers, or if they become sellers or favor investing in faster growing companies), value stocks may not increase in value as anticipated by the manager and may even decline in value.

Management

The Fund is actively managed and could experience losses if the investment manager's judgments about markets, interest rates or the attractiveness, relative values, liquidity, or potential appreciation of particular investments made for the Fund's portfolio prove to be incorrect. There can be no guarantee that these techniques or the investment manager's investment decisions will produce the desired results. Additionally, legislative, regulatory, or tax developments may affect the investment techniques available to the investment manager in connection with managing the Fund and may also adversely affect the ability of the Fund to achieve its investment goal.

More detailed information about the Fund, its policies and risks can be found in the Fund's Statement of Additional Information (SAI).

A description of the Fund's policies and procedures regarding the release of portfolio holdings information is also available in the Fund's SAI. Portfolio holdings information can be viewed online at franklintempleton.com.

Management

Templeton Asset Management Ltd. (Asset Management), whose principal office is 7 Temasek Boulevard, Suntec Tower One, #38-03, Singapore 038987, is the Fund's investment manager. Asset Management has a branch office in Hong Kong. Together, Asset Management and its affiliates manage as of September 30, 2010, over $644 billion in assets.

The Fund is managed by a team of dedicated professionals focused on investments in developing or emerging markets. The portfolio managers of the team are as follows:

MARK MOBIUS PH.D.   Executive Chairman of Templeton Emerging Markets Group and Portfolio Manager of Asset Management

Dr. Mobius has been the lead portfolio manager of the Fund since inception. Dr. Mobius has primary responsibility for the investments of the Fund. Dr. Mobius has final authority over all aspects of the Fund's investment portfolio, including but not limited to, purchases and sales of individual securities, portfolio risk assessment, and the management of daily cash balances in accordance with anticipated management requirements. The degree to which Dr. Mobius may perform these functions, and the nature of these functions, may change from time to time. Dr. Mobius joined Franklin Templeton Investments in 1987.

EDDIE CHOW, CFA   Investment Analyst of Asset Management

Mr. Chow has been a portfolio manager of the Fund since 2002, providing research and advice on the purchases and sales of individual securities, and portfolio risk assessment. Mr. Chow joined Franklin Templeton Investments in 1994.

CFA^® and Chartered Financial Analyst^® are trademarks owned by CFA Institute.

The Fund’s SAI provides additional information about portfolio manager compensation, other accounts that they manage and their ownership of Fund shares.

The Fund pays Asset Management a fee for managing the Fund's assets. For the fiscal year ended August 31, 2010, the Fund paid 1.24% of its average weekly net assets to the manager for its services. The manager has agreed to reduce its fee to reflect reduced services resulting from the Fund's investment in a Franklin Templeton money fund as required by the Fund's board of trustees and an exemptive order by the Securities and Exchange Commission. However, this fee reduction was less than 0.01% of the Fund's average net assets. This reduction will continue as long as the Fund relies on the exemptive order.

A discussion regarding the basis for the board of trustees approving the investment management contract of the Fund is available in the Fund's annual report to shareholders for the fiscal year ended August 31.

Special Servicing Agreement

Effective May 1, 2009, the Fund, which is an underlying investment fund of one or more funds of Franklin Templeton Fund Allocator Series Funds (the "Allocator Funds"), entered into a Special Servicing Agreement with the Allocator Funds and certain service providers of the Fund and the Allocator Funds, pursuant to which the Fund may pay a portion of the Allocator Funds' expenses, including transfer agency and shareholder servicing costs, to the extent such payments are less than the amount of the benefits realized or expected to be realized by the Fund from the investment in the Fund by the Allocator Funds. Prior to April 30, 2010, the investment manager and fund administrator voluntarily agreed to limit the increase in the Fund’s net annual operating expense ratio that resulted from the implementation of the Special Servicing Agreement at 0.02%. Effective May 1, 2010, the investment manager and administrator discontinued this voluntary fee waiver.

Legal Proceedings

In 2003 and 2004, multiple lawsuits were filed against Franklin Resources, Inc., and certain of its investment advisor subsidiaries, among other defendants, alleging violations of federal securities and state laws and seeking, among other relief, monetary damages, restitution, removal of fund trustees, directors, investment managers, administrators and distributors, rescission of management contracts and 12b-1 plans, and/or attorneys’ fees 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 Templeton funds managed by Franklin Resources, Inc. subsidiaries, allegedly resulting in market timing activity. The lawsuits are styled as class actions, or derivative actions on behalf of either the named funds or Franklin Resources, Inc., and have been consolidated for pretrial purposes, along with hundreds of other similar lawsuits against other mutual fund companies. All of the Franklin Templeton Investments mutual funds that were named in the litigation as defendants have since been dismissed, as have the independent trustees to those funds.

Franklin Resources, Inc. previously disclosed these private lawsuits in its regulatory filings and on its public website. Any material updates regarding these matters will be disclosed in Franklin Resources, Inc.’s Form 10-Q or Form 10-K filings with the U.S. Securities and Exchange Commission.

Distributions and Taxes

Income and Capital Gain Distributions

As a regulated investment company, the Fund generally pays no federal income tax on the income and gains it distributes to you. The Fund intends to pay income dividends at least annually from its net investment income. Capital gains, if any, may be paid at least annually. The amount of any distribution will vary, and there is no guarantee the Fund will pay either income dividends or capital gain distributions. Your income dividends and capital gain distributions will be automatically reinvested in additional shares at net asset value (NAV) unless you elect to receive them in cash.

Annual statements.   After the close of each calendar year, you will receive a statement from the Fund that shows the federal income tax treatment of the distributions you received during the prior calendar year. If the Fund finds it necessary to reclassify income after it issues your tax statement, the Fund will send you a revised statement. Distributions declared in December to shareholders of record in such month and paid in January are taxable as if they were paid in December. Additional tax information about the Fund's annual distributions is available online at franklintempleton.com.

Avoid "buying a dividend."   For taxable investors, Fund distributions are taxable to you even if they are paid from income or gains earned by the Fund prior to your investment in the Fund. They are included in the price you pay for your shares. If you purchase your shares shortly before or on the record date of a taxable distribution, you will pay the full price for the shares and may receive a portion of your investment back as a taxable distribution.

Tax Considerations

If you are a taxable investor, Fund distributions are generally taxable to you as ordinary income, capital gains or some combination of both. This is the case whether you reinvest your distributions in additional Fund shares or receive them in cash.

Dividend income.   Income dividends are generally subject to tax at ordinary rates. Income dividends designated by the Fund as qualified dividend income may be subject to tax by individuals at reduced long-term capital gains tax rates provided certain holding period requirements are met. These reduced rates of taxation are presently scheduled to sunset and, unless extended, will no longer apply to qualified dividends paid with respect to taxable years of the Fund beginning after December 31, 2010. A return-of-capital distribution is generally not taxable but will reduce the cost basis of your shares.

Capital gains.   Fund distributions of short-term capital gains are also subject to tax at ordinary rates. Fund distributions of long-term capital gains are taxable at the reduced long-term capital gains rates no matter how long you have owned your Fund shares. For individuals in the 10% and 15% tax brackets, the long-term capital gains tax rate is 0%. For individuals in higher tax brackets, the long-term capital gains rate is 15%. These reduced rates are presently scheduled to sunset on December 31, 2010.

Sales of Fund shares.   When you sell your shares in the Fund, or exchange them for shares of a different Franklin Templeton fund, you will generally realize a taxable capital gain or loss. If you have owned your Fund shares for more than one year, any net long-term capital gains will qualify for the reduced rates of taxation on long-term capital gains. An exchange of your shares in one class of the Fund for shares of another class of the same Fund is not taxable and no gain or loss will be reported on the transaction.

Backup withholding.   If you do not provide the Fund your taxpayer identification number and certain required certifications you may be subject to federal backup withholding at 28% on any taxable Fund distributions and proceeds from the sale of your Fund shares.

State, local and foreign taxes.   Distributions of ordinary income and capital gains, and gains from the sale of your Fund shares, are generally subject to state and local taxes. If the Fund qualifies, it may elect to pass through to you as a foreign tax credit or deduction any foreign taxes that it pays on its investments.

Non-U.S. investors.   Non-U.S. investors may be subject to U.S. withholding tax at 30% or a lower treaty rate on Fund dividends of ordinary income. Non-U.S. investors may be subject to U.S. estate tax on the value of their shares. They are subject to special U.S. tax certification requirements to avoid backup withholding, claim any exemptions from withholding and claim any treaty benefits. Exemptions from U.S. withholding tax are provided for capital gain dividends paid by the Fund from long-term capital gains and, with respect to taxable years of the Fund that begin before January 1, 2010 (sunset date), interest-related dividends paid by the Fund from its qualified net interest income from U.S. sources and short-term capital gain dividends.

Other tax information.   This discussion of "Distributions and Taxes" is for general information only and is not tax advice. You should consult your own tax advisor regarding your particular circumstances, and about any federal, state, local and foreign tax consequences before making an investment in the Fund. Additional information about the tax consequences of investing in the Fund may be found in the Statement of Additional Information.

Financial Highlights

These tables present the Fund's financial performance for the past five years or since its inception. Certain information reflects financial results for a single Fund share. The total returns in the tables represent the rate that an investor would have earned or lost on an investment in the Fund assuming reinvestment of dividends and capital gains. This information has been audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's financial statements, are included in the annual report, which is available upon request.

CLASS A	Year Ended August 31,
	2010	2009	2008	2007	2006
Per share operating performance (for a share outstanding throughout the year)
Net asset value, beginning of year	$ 29.91	$ 34.78	$ 41.29	$ 25.76	$ 21.67
Income from investment operations:a
Net investment incomeb	0.17	0.48	0.34	0.37	0.29
Net realized and unrealized gains (losses)	4.23	-2.04	-4.47	15.42	4.12
Total from investment operations	4.40	-1.56	-4.13	15.79	4.41
Less distributions from:
Net investment income	-0.42	-0.30	-0.41	-0.26	-0.32
Net realized gains	—	-3.01	-1.97	—	—
Total distributions	-0.42	-3.31	-2.38	-0.26	-0.32
Redemption feesc	—	—	—d	—d	—d
Net asset value, end of year	$ 33.89	$ 29.91	$ 34.78	$ 41.29	$ 25.76
Total returne	14.76%	-1.10%	-11.63%	61.87%	20.65%
Ratios to average net assets
Expenses	2.02%	2.04%f	2.00%f	2.04%f	2.06%f
Net investment income	0.54%	1.92%	0.86%	1.13%	1.10%
Supplemental data
Net assets, end of year (000’s)	$ 462,960	$ 404,877	$ 414,194	$ 519,266	$ 262,346
Portfolio turnover rate	9.94%	22.36%	10.37%	22.05%	12.96%

a. The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations in the annual report for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

b. Based on average daily shares outstanding.

c. Effective September 1, 2008, the redemption fee was eliminated.

d. Amount rounds to less than $0.01 per share.

e. Total return does not reflect sales commissions or contingent deferred sales charges, if applicable.

f. Benefit of expense reduction rounds to less than 0.01%.

CLASS B	Year Ended August 31,
	2010	2009	2008	2007	2006
Per share operating performance (for a share outstanding throughout the year)
Net asset value, beginning of year	$ 29.74	$ 34.44	$ 40.95	$ 25.53	$ 21.47
Income from investment operations:a
Net investment income (loss)b	-0.05	0.31	0.06	0.12	0.08
Net realized and unrealized gains (losses)	4.20	-1.99	-4.45	15.36	4.15
Total from investment operations	4.15	-1.68	-4.39	15.48	4.23
Less distributions from:
Net investment income	-0.29	-0.01	-0.15	-0.06	-0.17
Net realized gains	—	-3.01	-1.97	—	—
Total distributions	-0.29	-3.02	-2.12	-0.06	-0.17
Redemption feesc	—	—	—d	—d	—d
Net asset value, end of year	$ 33.60	$ 29.74	$ 34.44	$ 40.95	$ 25.53
Total returne	13.97%	-1.81%	-12.22%	60.79%	19.87%
Ratios to average net assets
Expenses	2.70%	2.75%f	2.67%f	2.69%f	2.70%f
Net investment income (loss)	-0.14%	1.21%	0.19%	0.48%	0.46%
Supplemental data
Net assets, end of year (000’s)	$ 9,981	$ 10,760	$ 14,272	$ 20,066	$ 15,269
Portfolio turnover rate	9.94%	22.36%	10.37%	22.05%	12.96%

a. The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations in the annual report for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

b. Based on average daily shares outstanding.

c. Effective September 1, 2008, the redemption fee was eliminated.

d. Amount rounds to less than $0.01 per share.

e. Total return does not reflect sales commissions or contingent deferred sales charges, if applicable.

f. Benefit of expense reduction rounds to less than 0.01%.

CLASS C	Year Ended August 31,
	2010	2009	2008	2007	2006
Per share operating performance (for a share outstanding throughout the year)
Net asset value, beginning of year	$ 29.58	$ 34.29	$ 40.79	$ 25.48	$ 21.49
Income from investment operations:a
Net investment income (loss)b	-0.05	0.30	0.07	0.15	0.13
Net realized and unrealized gains (losses)	4.17	-1.98	-4.42	15.28	4.10
Total from investment operations	4.12	-1.68	-4.35	15.43	4.23
Less distributions from:
Net investment income	-0.31	-0.02	-0.18	-0.12	-0.24
Net realized gains	—	-3.01	-1.97	—	—
Total distributions	-0.31	-3.03	-2.15	-0.12	-0.24
Redemption feesc	—	—	—d	—d	—d
Net asset value, end of year	$ 33.39	$ 29.58	$ 34.29	$ 40.79	$ 25.48
Total returne	13.97%	-1.77%	-12.21%	60.79%	19.91%
Ratios to average net assets
Expenses	2.71%	2.75%f	2.66%f	2.68%f	2.71%f
Net investment income (loss)	-0.15%	1.21%	0.20%	0.49%	0.45%
Supplemental data
Net assets, end of year (000’s)	$ 153,897	$ 135,688	$ 153,068	$ 199,551	$ 107,886
Portfolio turnover rate	9.94%	22.36%	10.37%	22.05%	12.96%

a. The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations in the annual report for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

b. Based on average daily shares outstanding.

c. Effective September 1, 2008, the redemption fee was eliminated.

d. Amount rounds to less than $0.01 per share.

e. Total return does not reflect sales commissions or contingent deferred sales charges, if applicable.

f. Benefit of expense reduction rounds to less than 0.01%.

ADVISOR CLASS	Year Ended August 31,
	2010	2009	2008	2007	2006
Per share operating performance (for a share outstanding throughout the year)
Net asset value, beginning of year	$ 30.06	$ 35.03	$ 41.55	$ 25.93	$ 21.78
Income from investment operations:a
Net investment incomeb	0.29	0.55	0.50	0.47	0.33
Net realized and unrealized gains (losses)	4.24	-2.08	-4.51	15.52	4.18
Total from investment operations	4.53	-1.53	-4.01	15.99	4.51
Less distributions from:
Net investment income	-0.46	-0.43	-0.54	-0.37	-0.36
Net realized gains	—	-3.01	-1.97	—	—
Total distributions	-0.46	-3.44	-2.51	-0.37	-0.36
Redemption feesc	—	—	—d	—d	—d
Net asset value, end of year	$ 34.13	$ 30.06	$ 35.03	$ 41.55	$ 25.93
Total return	15.12%	-0.84%	-11.32%	62.38%	21.08%
Ratios to average net assets
Expenses	1.71%	1.76%e	1.67%e	1.69%e	1.71%e
Net investment income	0.85%	2.20%	1.19%	1.48%	1.45%
Supplemental data
Net assets, end of year (000’s)	$ 330,254	$ 268,107	$ 288,072	$ 375,738	$ 245,331
Portfolio turnover rate	9.94%	22.36%	10.37%	22.05%	12.96%

a. The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations in the annual report for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

b. Based on average daily shares outstanding.

c. Effective September 1, 2008, the redemption fee was eliminated.

d. Amount rounds to less than $0.01 per share.

e. Benefit of expense reduction rounds to less than 0.01%.

YOUR ACCOUNT

The board of trustees has approved the termination of offering Class B shares. Existing shareholders of Class B shares may continue as Class B shareholders, continue to reinvest dividends into Class B shares and exchange their Class B shares for Class B shares of other Franklin Templeton funds as permitted by the current exchange privileges. New or additional investments into Class B are not permitted. For Class B shares outstanding on February 28, 2005 and Class B shares acquired upon reinvestment of dividends, all Class B share attributes, including the associated Rule 12b-1 fee, contingent deferred sales charge and conversion features, will continue.

Choosing a Share Class

Each class has its own sales charge and expense structure, allowing you to choose the class that best meets your situation. Your investment representative can help you decide. Investors may purchase Class C shares only for Fund accounts on which they have appointed an investment representative (financial advisor) of record. Investors who have not appointed an investment representative (financial advisor) to existing Class C share Fund accounts, may not make additional purchases to those accounts but may exchange their shares to a Franklin Templeton fund that offers Class C shares. Dividend and capital gain distributions may continue to be reinvested in existing Class B or Class C share Fund accounts. These provisions do not apply to Employer Sponsored Retirement Plans.

Class A	Class C	Advisor Class
Initial sales charge of 5.75% or less	No initial sales charge	See "Qualified Investors - Advisor Class" below
Deferred sales charge of 1% on purchases of $1 million or more sold within 18 months	Deferred sales charge of 1% on shares you sell within 12 months
Lower annual expenses than Class C due to lower distribution fees	Higher annual expenses than Class A due to higher distribution fees

Class A, B & C

SALES CHARGES - Class A
when you invest this amount	the sales charge makes up this % of the offering price1	which equals this % of your net investment1
Under $50,000	5.75	6.10
$50,000 but under $100,000	4.50	4.71
$100,000 but under $250,000	3.50	3.63
$250,000 but under $500,000	2.50	2.56
$500,000 but under $1 million	2.00	2.04

1. The dollar amount of the sales charge is the difference between the offering price of the shares purchased (which factors in the applicable sales charge in this table) and the net asset value of those shares. Since the offering price is calculated to two decimal places using standard rounding criteria, the number of shares purchased and the dollar amount of the sales charge as a percentage of the offering price and of your net investment may be higher or lower depending on whether there was a downward or upward rounding.

Sales Charge Reductions and Waivers

Quantity discounts.   We offer two ways for you to combine your current purchase of Class A Fund shares with other existing Franklin Templeton fund share holdings that might enable you to qualify for a lower sales charge with your current purchase. You can qualify for a lower sales charge when you reach certain "sales charge breakpoints." This quantity discount information is also available free of charge at franklintempleton.com/retail/jsp_cm/fund_perf/pub/quantity_discount.jsp. This web page can also be reached at franklintempleton.com by clicking the "Funds" tab and then choosing "Quantity Discounts."

1. Cumulative quantity discount - lets you combine certain existing holdings of Franklin Templeton fund shares - referred to as "cumulative quantity discount eligible shares" - with your current purchase of Class A shares to determine if you qualify for a sales charge breakpoint.

Cumulative quantity discount eligible shares are Franklin Templeton fund shares registered to (or held by a financial intermediary for):

• You, individually;
• Your spouse or domestic partner, as recognized by applicable state law, and your children under the age of 21 (each a "Family Member");
• You jointly with one or more Family Members;
• You jointly with another person(s) who is (are) not Family Members if that other person has not included the value of the shares as cumulative quantity discount eligible shares for purposes of that person’s separate investments in Franklin Templeton fund shares;
• A Coverdell Education Savings account for which you or a Family Member is the identified responsible person;
• A trustee/custodian of an IRA (which includes a Roth IRA and an employer sponsored IRA such as a SIMPLE IRA) or your non-ERISA covered 403(b), if the shares are registered/recorded under your or a Family Member's Social Security number;
• A 529 college savings plan over which you or a Family Member has investment discretion and control;
• Any entity over which you or a Family Member has (have) individual or shared authority, as principal, has investment discretion and control (for example, an UGMA/UTMA account for a child on which you or a Family Member is the custodian, a trust on which you or a Family Member is the trustee, a business account [not to include retirement plans] for your solely owned business [or the solely owned business of a Family Member] on which you or a Family Member is the authorized signer);
• A trust established by you or a Family Member as grantor.

Franklin Templeton fund shares held through an administrator or trustee/custodian of an Employer Sponsored Retirement Plan such as a 401(k) plan (see definition below) do not qualify for a cumulative quantity discount.

Franklin Templeton fund assets held in multiple Employer Sponsored Retirement Plans may be combined in order to qualify for sales charge breakpoints at the plan level if the plans are sponsored by the same employer.

If you believe there are cumulative quantity discount eligible shares that can be combined with your current purchase to achieve a sales charge breakpoint (for example, shares held in a different broker-dealer’s brokerage account or with a bank or an investment advisor), it is your responsibility to specifically identify those shares to your financial advisor at the time of your purchase (including at the time of any future purchase).  If you have not designated a financial advisor associated with your Franklin Templeton fund shares, it is your responsibility to specifically identify any cumulative quantity discount eligible shares to the Fund’s transfer agent at the time of any purchase.

If there are cumulative quantity discount eligible shares that would qualify for combining with your current purchase and you do not tell your financial advisor or the Franklin Templeton funds’ transfer agent at the time of any purchase, you may not receive the benefit of a reduced sales charge that might otherwise be available since your financial advisor and the Fund generally will not have that information.

The value of cumulative quantity discount eligible shares equals the cost or current value of those shares, whichever is higher.  The current value of shares is determined by multiplying the number of shares by their highest current public offering price.  It is your responsibility to retain any records necessary to substantiate historical share costs because neither your current financial advisor nor the Franklin Templeton funds may have or maintain this information.

An "Employer Sponsored Retirement Plan" is a Qualified Retirement Plan, ERISA covered 403(b) and certain non-qualified deferred compensation arrangements that operate in a similar manner to a Qualified Retirement Plan, such as 457 plans and executive deferred compensation arrangements, but not including employer sponsored IRAs. A "Qualified Retirement Plan" is an employer sponsored pension or profit sharing plan that qualifies under section 401(a) of the Internal Revenue Code, including 401(k), money purchase pension, profit sharing and defined benefit plans.

2. Letter of intent (LOI) - expresses your intent to buy a stated dollar amount of "cumulative quantity discount eligible shares" (as defined in the "Cumulative quantity discount" section above) over a 13-month period and lets you receive the same sales charge as if all shares had been purchased at one time. We will reserve 5% of your total intended purchase in Class A shares registered in your name until you fulfill your LOI to cover any additional sales charge that may apply if you do not buy the amount stated in your LOI. It is your responsibility to tell your financial advisor when you believe you have fulfilled your LOI with sufficient cumulative quantity discount eligible shares.  If you have not designated a financial advisor associated with your Franklin Templeton fund shares, it is your responsibility to tell the Fund’s transfer agent when you believe you have fulfilled your LOI with sufficient cumulative quantity discount eligible shares.  Please refer to the SAI for more LOI details.

To sign up for these programs, complete the appropriate section of your account application.

Franklin Templeton funds include all of the U.S. registered mutual funds of Franklin Templeton Investments and the Franklin Mutual Recovery Fund. They do not include the funds in the Franklin Templeton Variable Insurance Products Trust.

Sales charge waivers.   Class A shares may be purchased without an initial sales charge or contingent deferred sales charge (CDSC) by certain investors or for certain payments. If you would like information about available sales charge waivers, call your investment representative or call Shareholder Services at (800) 632-2301. A list of available sales charge waivers also may be found in the SAI.

Investments of $1 Million or More

If you invest $1 million or more, either as a lump sum or through our cumulative quantity discount or letter of intent programs, you can buy Class A shares without an initial sales charge. However, there is a 1% CDSC on any shares you sell within 18 months of purchase. The way we calculate the CDSC is the same for each class (please see “Contingent Deferred Sales Charge (CDSC) - Class A, B & C”).

Distribution and Service (12b-1) Fees

Class A has a distribution plan, sometimes known as a Rule 12b-1 plan, that allows the Fund to pay distribution fees of up to 0.35% per year to those who sell and distribute Class A shares and provide other services to shareholders. Because these fees are paid out of Class A's assets on an ongoing basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges. The board of trustees has set the current amount payable under the Class A plan at 0.30% until further notice.

SALES CHARGES - Class B
if you sell your shares within this many years after buying them	this % is deducted from your proceeds as a CDSC
1 Year	4
2 Years	4
3 Years	3
4 Years	3
5 Years	2
6 Years	1
7 Years	0

There is a CDSC if you sell your shares within six years, as described in the table above. The way we calculate the CDSC is the same for each class (please see "Contingent Deferred Sales Charge (CDSC) - Class A, B & C"). After eight years, your Class B shares automatically convert to Class A shares, lowering your annual expenses from that time on.

Distribution and Service (12b-1) Fees

Class B has a distribution plan, sometimes known as a Rule 12b-1 plan, that allows the Fund to pay distribution and other fees of up to 1% per year for the sale of Class B shares and for services provided to shareholders. Because these fees are paid out of Class B's assets on an ongoing basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges.

SALES CHARGES - Class C 

With Class C shares, there is no initial sales charge. 

We place any investment of $1 million or more in Class A shares, since Class A's annual expenses are lower.

CDSC

There is a 1% CDSC on any Class C shares you sell within 12 months of purchase. The way we calculate the CDSC is the same for each class (please see "Contingent Deferred Sales Charge (CDSC) - Class A, B & C").

Distribution and Service (12b-1) Fees

Class C has a distribution plan, sometimes known as a Rule 12b-1 plan, that allows the Fund to pay distribution and other fees of up to 1% per year for the sale of Class C shares and for services provided to shareholders. Because these fees are paid out of Class C's assets on an ongoing basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges.

Contingent Deferred Sales Charge (CDSC) - Class A, B & C

The CDSC for each class is based on the current value of the shares being sold or their net asset value when purchased, whichever is less. There is no CDSC on shares you acquire by reinvesting your dividends or capital gain distributions.

To keep your CDSC as low as possible, each time you place a request to sell shares we will first sell any shares in your account that are not subject to a CDSC. If there are not enough of these to meet your request, we will sell the shares in the order they were purchased. We will use this same method if you exchange your shares into another Franklin Templeton fund (please see “Exchanging Shares”).

The holding period for the CDSC begins on the day you buy your shares. Your shares will age one month on that same date the next month and each following month. For example, if you buy shares on the 18th of the month, they will age one month on the 18th day of the next month and each following month.

Reinstatement Privilege

If you sell shares of a Franklin Templeton fund that were held indirectly for your benefit in an account with your investment representative’s firm or your bank’s trust department or that were registered to you directly by the Fund's transfer agent (or, to an affiliated custodian or trustee of the Fund’s transfer agent), you may reinvest all or a portion of the proceeds from that sale within 90 days of the sale without an initial sales charge. This Reinstatement Privilege does not apply to: (i) a purchase of Fund shares made through a regularly scheduled automatic investment plan such as a purchase by a regularly scheduled payroll deduction or transfer from a bank account, or (ii) a purchase of Fund shares with proceeds from the sale of Franklin Templeton fund shares that were held indirectly through a non-Franklin Templeton individual or employer sponsored IRA.

In order to take advantage of this Reinstatement Privilege, you must inform your investment representative or the Fund's transfer agent of this privilege at the time of your investment. The proceeds from the earlier sale must also be invested within the same share class as that of the sold shares, except proceeds will be reinvested in Class A shares if the proceeds are from the sale of (i) Class B (or Class B1) shares; or (ii) Class C shares or Class R shares if at the time of investment you have not appointed an investment representative (financial advisor) of record for the Fund account(s) in which the purchased shares will be held. Proceeds from the earlier sale of Class Z shares may also be invested in Class A shares under this Reinstatement Privilege.

If you paid a CDSC when you sold your Class A or C shares, we will credit back to you the CDSC paid on the amount you are reinvesting within 90 days of the sale by adding it to the amount of your reinvestment (for example, if you are reinvesting $10,000 within 90 days of an earlier $10,000 sale on which you paid a $100 CDSC, the amount of your reinvestment will equal $10,100). The new shares issued with your reinvestment WILL BE subject to any otherwise applicable CDSC. If, however, you (except Employer Sponsored Retirement Plans) paid a CDSC when you sold (1) Class B shares; or (2) Class C shares held at the time of sale in a Franklin Templeton fund account without an investment representative (financial advisor) appointed by you and invest the proceeds from that sale in Class A shares within 90 days of the sale, you will not be credited with any CDSC paid at the time of sale. In this case, the new Class A shares issued with your reinvestment WILL NOT BE subject to any otherwise applicable CDSC.

Proceeds immediately placed in a Franklin Templeton Bank Certificate of Deposit (CD) also may be reinvested without an initial sales charge if you reinvest them within 90 days from the date the CD matures, including any rollover.

This privilege does not apply to shares you buy and sell under our exchange program. Shares purchased with the proceeds from a money fund may be subject to a sales charge.

Qualified Investors - Advisor Class

The following investors or investments may qualify to buy Advisor Class shares of the Fund:

• Shares acquired by a financial intermediary that has entered into an agreement with Distributors authorizing the sale of Fund shares, in connection with its mutual fund trading platform, that the intermediary holds, directly or indirectly, on behalf of a beneficial owner who has entered into a comprehensive fee or other advisory fee arrangement with any broker-dealer, trust company, registered investment advisor (RIA), or investment advisor with assets under management in excess of $100 million that is exempt from federal registration, that is not an affiliate or associated person of the financial intermediary. Minimum initial investment: $50,000 for individual or multiple clients.
• Shares acquired by a financial intermediary that the intermediary holds on behalf of a beneficial owner who has entered into a comprehensive fee or other advisory fee arrangement with the financial intermediary or an affiliate or associated person of the financial intermediary, provided the financial intermediary has entered into an agreement with Distributors authorizing the sale of Fund shares. No minimum initial investment.
• Governments, municipalities, and tax-exempt entities that meet the requirements for qualification under section 501 of the Internal Revenue Code. Minimum initial investment: $1 million in Advisor Class or Class Z shares of any Franklin Templeton fund.
• Current and former officers, trustees, directors, full-time employees (and, in each case, their family members) of both Franklin Templeton Investments and Franklin Templeton Funds, consistent with our then-current policies. Minimum initial investment: $100 ($50 for accounts with an automatic investment plan).
• Assets held in accounts managed by a subsidiary of Franklin Resources, Inc.: (1) under an advisory agreement (including sub-advisory agreements); and/or (2) as trustee of an inter vivos or testamentary trust.
• Assets held in accounts managed by a state or federally regulated trust company or bank (Trust Company) either as discretionary trustee of an inter vivos or testamentary trust or as manager under an advisory agreement (including sub-advisory) or other agreement that grants the Trust Company investment discretion over those assets (Trust Company Managed Assets) if (i) the aggregate value of Trust Company Managed Assets invested in Franklin Templeton funds at the time of purchase equals at least $1 million; and (ii) the purchased shares are registered directly to the Trust Company in its corporate capacity (not as trustee of an individual trust) and held solely as Trust Company Managed Assets.
• An Employer Sponsored Retirement Plan (Plan) if the employer sponsors one or more Plans with aggregate Plan assets of $1 million or more. An "Employer Sponsored Retirement Plan" includes (a) an employer sponsored pension or profit sharing plan that qualifies (Qualified Plan) under section 401(a) of the Internal Revenue Code (Code), including Code section 401(k), money purchase pension, profit sharing and defined benefit plans; (b) an ERISA covered 403(b); and (c) certain non-qualified deferred compensation arrangements that operate in a similar manner to a Qualified Plan, such as 457 plans and executive deferred compensation arrangements, but not including employer sponsored IRAs.
• Employer Sponsored Retirement Plans that invest indirectly in Fund shares through Fund omnibus accounts registered to a financial intermediary.
• Any trust or plan established as part of a qualified tuition program under Section 529 of the Internal Revenue Code, provided that Distributors or an affiliate of Distributors has entered into a contract with the state sponsor of the program or one of its service providers to provide certain services relating to the operation of the program or to provide Fund shares for purchase in connection with the program.  No initial minimum investment.
• An individual or entity associated with a current customer of Franklin Templeton Institutional, LLC (FTI, LLC) if approved by FTI, LLC in consultation with its customer.
• Unaffiliated U.S. registered mutual funds, including those that operate as "fund of funds."  Minimum initial investment: $1 million in Advisor Class or Class Z shares of any Franklin Templeton fund.
• Assets held in accounts under the recommendation of an investment consultant provided that (1) assets are held with a firm unaffiliated with the investment consultant’s firm; (2) the investment consultant is under a retainer or other similar fee arrangement with its clients; (3) the client is not an individual; and (4) a subsidiary of Franklin Resources, Inc. approves the investment.

Buying Shares

MINIMUM INVESTMENTS - CLASS A & C

	Initial
Regular accounts	$ 1,000
Automatic investment plans	$ 50
UGMA/UTMA accounts	$ 100
Employer Sponsored Retirement Plans, SIMPLE-IRAs, SEP-IRAs, SARSEPs or 403(b) plan accounts	no minimum
IRAs, IRA rollovers, Coverdell Education Savings Plans or Roth IRAs	$ 250
Broker-dealer sponsored wrap account programs	no minimum
Current and former full-time employees, officers, trustees and directors of Franklin Templeton entities, and their family members	$ 100

Please note that you may only buy shares of a fund eligible for sale in your state or jurisdiction.

Account Application

If you are opening a new account, please complete and sign the enclosed account application. Make sure you indicate the share class you have chosen. If you do not indicate a class, we will place your purchase in Class A shares. To save time, you can sign up now for services you may want on your account by completing the appropriate sections of the application (see "Investor Services"). For example, if you would like to link one of your bank accounts to your Fund account so that you may use electronic funds transfer to and from your bank account to buy and sell shares, please complete the bank information section of the application. We will keep your bank information on file for future purchases and redemptions. We do not accept cash, credit card convenience checks, non-bank money orders or travelers checks as forms of payment to purchase shares.

Buying Shares

	Opening an account	Adding to an account
Through your investment representative	Contact your investment representative	Contact your investment representative
By Phone/Online (Up to $100,000 per shareholder per day) (800) 632-2301 franklintempleton.com Note: (1) certain account types are not available for online account access and (2) the amount may be higher for members of Franklin Templeton VIP Services®. Please see “Franklin Templeton VIP Services®” under “Investor Services” for more information regarding eligibility.	If you have another Franklin Templeton fund account with your bank account information on file, you may open a new identically registered account by phone. At this time, a new account may not be opened online. To make a same day investment, your phone order must be received and accepted by us by 1:00 p.m. Pacific time or the close of the New York Stock Exchange, whichever is earlier.	Before requesting a telephone or online purchase into an existing account, please make sure we have your bank account information on file. If we do not have this information, you will need to send written instructions with your bank's name and address and a voided check or savings account deposit slip. If the bank and Fund accounts do not have at least one common owner, your written request must be signed by all fund and bank account owners, and each individual must have his or her signature guaranteed. To make a same day investment, your phone or online order must be received and accepted by us by 1:00 p.m. Pacific time or the close of the New York Stock Exchange, whichever is earlier.
By Mail	Make your check payable to the Fund. Mail the check and your signed application to Investor Services.	Make your check payable to the Fund. Include your account number on the check. Fill out the deposit slip from your account statement. If you do not have a slip, include a note with your name, the Fund name, and your account number. Mail the check and deposit slip or note to Investor Services.
By Wire (800) 632-2301 or (650) 312-2000 collect	Call to receive a wire control number and wire instructions. Wire the funds and mail your signed application to Investor Services. Please include the wire control number or your new account number on the application. To make a same day wire investment, the wired funds must be received and accepted by us by 1:00 p.m. Pacific time or the close of the New York Stock Exchange, whichever is earlier.	Call to receive a wire control number and wire instructions. To make a same day wire investment, the wired funds must be received and accepted by us by 1:00 p.m. Pacific time or the close of the New York Stock Exchange, whichever is earlier.
By Exchange franklintempleton.com	Call Shareholder Services at (800) 632-2301, or send signed written instructions. You also may place an online exchange order. The automated telephone system cannot be used to open a new account. (Please see “Exchanging Shares” for more information on exchanges.)	Call Shareholder Services at (800) 632-2301, or send signed written instructions. You also may place an online exchange order. (Please see “Exchanging Shares” for more information on exchanges.)

Franklin Templeton Investor Services
P.O. Box 33030
St. Petersburg, FL 33733-8030
Call toll-free: (800) 632-2301
(Monday through Friday
5:30 a.m. to 5:00 p.m., Pacific time)
or visit us online 24 hours a day, 7 days a week,
at franklintempleton.com

Investor Services

Automatic Investment Plan

This plan offers a convenient way for you to invest in the Fund by automatically transferring money from your checking or savings account each month to buy shares. To sign up, visit us online at franklintempleton.com or complete the appropriate section of your account application and mail it to Investor Services. If you are opening a new account, please include your minimum initial investment with your application.

Automated Telephone System

Our automated system offers around-the-clock access to information about your account or any Franklin Templeton fund. This service is available by dialing any of the following numbers from a touch-tone phone:

Shareholder Services (800) 632-2301

Advisor Services (800) 524-4040

Retirement Services (800) 527-2020

Distribution Options

You may reinvest distributions you receive from the Fund in an existing account in the same share class* of the Fund or another Franklin Templeton fund. Initial sales charges and CDSCs will not apply to reinvested distributions. You also can have your distributions deposited in a bank account, or mailed by check. Deposits to a bank account may be made by electronic funds transfer.

* Class B and C shareholders may reinvest their distributions in Class A shares of any Franklin Templeton money fund. Advisor Class shareholders may reinvest in Advisor Class or Class A shares of another Franklin Templeton fund. To reinvest your distributions in Advisor Class shares of another Franklin Templeton fund, you must be a current shareholder in Advisor Class or otherwise qualify to buy that fund's Advisor Class shares.

If you received a distribution and chose to return it to purchase additional shares in Class A shares of another Franklin Templeton fund, you will not be charged an initial sales charge if you invest the distribution within 90 days of the distribution date.

Please indicate on your application the distribution option you have chosen, otherwise we will reinvest your distributions in the same share class of the Fund.

Retirement Plans

Franklin Templeton Investments offers a variety of retirement plans for individuals and businesses. These plans require separate applications, may require special forms for redemptions, and their policies and procedures may be different than those described in this prospectus. For more information, including a free retirement plan brochure or application, please call Retirement Services at (800) 527-2020.

Telephone/Online Privileges

You will automatically receive telephone/online privileges when you open your account, allowing you to obtain or view your account information, and conduct a number of transactions by phone or online, including: buy, sell, or exchange shares of most funds; use electronic funds transfer to buy or sell shares of most funds; change your address; and, add or change account services (including distribution options, systematic withdrawal plans and automatic investment plans).

To view your account information or request online transactions, you will first need to register for these services at the shareholder section of our website at franklintempleton.com. You will be asked to accept the terms of an online agreement(s) and establish a password for online services. If you are registered for online services, you may enroll online in Franklin Templeton’s electronic delivery program for your shareholder documents. This will allow you to receive electronic delivery (through our website) of most funds’ prospectuses, annual/semiannual reports to shareholders, and proxy statements, as well as your account(s) statements and trade confirmations, and discontinue receiving your paper copies through the U.S. mail. Using our shareholder website means you are consenting to sending and receiving personal financial information over the Internet, so you should be sure you are comfortable with the risks.

As long as we follow reasonable security procedures and act on instructions we reasonably believe are genuine, we will not be responsible for any losses that may occur from unauthorized requests. We will request passwords or other information, and also may record calls. To help safeguard your account, keep your password confidential, and verify the accuracy of your confirmation statements immediately after you receive them. Contact us immediately if you believe someone has obtained unauthorized access to your account or password. For transactions done over the Internet, we recommend the use of an Internet browser with 128-bit encryption. Certain methods of contacting us (such as by phone or by Internet) may be unavailable or delayed during periods of unusual market activity. Of course, you can decline telephone buy, sell, or exchange privileges on your account application, or choose not to register for online privileges. If you have telephone/online privileges on your account and want to discontinue them, please contact us for instructions. You may reinstate these privileges at any time in writing, including online registration with respect to online privileges.

Note: We discourage you from including confidential or sensitive information in any Internet communication to us. If you do choose to send email (encrypted or not) to us over the Internet, you are accepting the associated risks of lack of confidentiality.

Systematic Withdrawal Plan

This plan allows you to automatically sell your shares and receive regular payments from your account. A CDSC may apply to withdrawals that exceed certain amounts. Certain terms and minimums apply. To sign up, visit us online at franklintempleton.com or complete the appropriate section of your application.

Franklin Templeton VIP Services^®

You may be eligible for Franklin Templeton VIP Services^® if you are currently eligible for the $250,000 sales charge breakpoint based solely on shares registered directly with the Franklin Templeton funds' transfer agent and excluding shares held indirectly through brokerage accounts. Franklin Templeton VIP Services^® shareholders enjoy enhanced service and transaction capabilities. Please contact Shareholder Services at (800) 632-2301 for additional information on this program.

Selling Shares

You can sell your shares at any time. Please keep in mind that a contingent deferred sales charge (CDSC) may apply.

Selling Shares in Writing

Generally, requests to sell $100,000 or less can be made over the phone, online, or with a simple letter. Sometimes, however, to protect you and the Fund we will need written instructions signed by all registered owners, with a signature guarantee for each owner, if:

• you are selling more than $100,000 worth of shares
• you want your proceeds paid to someone who is not a registered owner
• you want to send your proceeds somewhere other than the address of record, or preauthorized bank or brokerage firm account

We also may require a signature guarantee on instructions we receive from an agent, not the registered owners, or when we believe it would protect the Fund against potential claims based on the instructions received.

The amount may be higher for members of Franklin Templeton VIP Services^®. Please see “Franklin Templeton VIP Services^®” above for more information regarding eligibility.

A signature guarantee helps protect your account against fraud. You can obtain a signature guarantee at most banks and securities dealers.

A notary public CANNOT provide a signature guarantee.

Selling Recently Purchased Shares

If you sell shares recently purchased, we may delay sending you the proceeds until your check, draft or wire/electronic funds transfer has cleared, which may take seven business days.

Redemption Proceeds

Your redemption check will be sent within seven days after we receive your request in proper form. We are not able to receive or pay out cash in the form of currency.

Retirement Plans

You may need to complete additional forms to sell shares in a Franklin Templeton Bank & Trust retirement plan. For participants under the age of 59 1/2, tax penalties may apply. Call Retirement Services at (800) 527-2020 for details.

Selling Shares

To sell some or all of your shares

Through your investment representative Contact your investment representative By Mail Send written instructions and endorsed share certificates (if you hold share certificates) to Investor Services. Corporate, partnership or trust accounts may need to send additional documents. Specify the Fund, the account number and the dollar value or number of shares you wish to sell. If you own both Class A and B shares, also specify the class of shares, otherwise we will sell your Class A shares first. Be sure to include all necessary signatures and any additional documents, as well as signature guarantees if required. A check will be mailed to the name(s) and address on the account, or otherwise according to your written instructions. By Phone/Online(800) 632-2301 franklintempleton.com As long as your transaction is for $100,000 or less, you do not hold share certificates and you have not changed your address by phone or online within the last 15 days, you can sell your shares by phone or online. The amount may be higher for members of Franklin Templeton VIP Services®. Please see “Franklin Templeton VIP Services®” above for more information regarding eligibility. A check will be mailed to the name(s) and address on the account, or a pre-authorized secondary address. Written instructions, with a signature guarantee, are required to send the check to another address or to make it payable to another person.

By Electronic Funds Transfer (ACH) You can call, write, or visit us online to have redemption proceeds sent to a bank account. See the policies at left for selling shares by mail, phone, or online. Before requesting to have redemption proceeds sent to a bank account, please make sure we have your bank account information on file. If we do not have this information, you will need to send written instructions with your bank's name and a voided check or savings account deposit slip. If the bank and Fund accounts do not have at least one common owner, you must provide written instructions signed by all fund and bank account owners, and each individual must have his or her signature guaranteed. If we receive your request in proper form by 1:00 p.m. Pacific time, proceeds sent by ACH generally will be available within two to three business days. By Exchange Obtain a current prospectus for the fund you are considering. Prospectuses are available online at franklintempleton.com. Call Shareholder Services at the number below or send signed written instructions. You also may place an exchange order online. See the policies at left for selling shares by mail, phone, or online. If you hold share certificates, you will need to return them to the Fund before your exchange can be processed.

Franklin Templeton Investor Services
P.O. Box 33030, St. Petersburg, FL 33733-8030
Call toll-free: (800) 632-2301
(Monday through Friday 5:30 a.m. to 5:00 p.m., Pacific time)
or visit us online 24 hours a day, 7 days a week,
at franklintempleton.com

Exchanging Shares

Exchange Privilege

Class A, B & C

You can exchange shares between most Franklin Templeton funds within the same class,* generally without paying any additional sales charges. If you exchange shares from a money fund and those shares were not charged a sales charge previously, however, a sales charge may apply.

* Class Z shareholders of Franklin Mutual Series Funds may exchange into Class A without any sales charge. Advisor Class shareholders of another Franklin Templeton fund also may exchange into Class A without any sales charge. Advisor Class shareholders who exchange their shares for Class A shares and later decide they would like to exchange into another fund that offers Advisor Class may do so.

Any CDSC will continue to be calculated from the date of your initial investment and will not be charged at the time of the exchange. The purchase price for determining a CDSC on exchanged shares will be the price you paid for the original shares. If you exchange shares subject to a CDSC into a Class A money fund, the time your shares are held in the money fund will not count towards the CDSC holding period.

If you exchange your Class B shares for the same class of shares of another Franklin Templeton fund, the time your shares are held in that fund will count towards the eight-year period for automatic conversion to Class A shares.

Advisor Class

You can exchange your Advisor Class shares for Advisor Class shares of other Franklin Templeton funds. You also may exchange your Advisor Class shares for Class A shares of a fund that does not currently offer an Advisor Class (without any sales charge)* or for Class Z shares of Franklin Mutual Series Funds.

* If you exchange into Class A shares and you later decide you would like to exchange into a fund that offers an Advisor Class, you may exchange your Class A shares for Advisor Class shares if you are a current shareholder in Advisor Class or you otherwise qualify to buy the fund's Advisor Class shares.

In certain comprehensive fee or advisory programs that hold Class A shares, at the discretion of the financial intermediary, you may exchange to Advisor Class shares or Class Z shares.

All Classes

The remainder of the “Exchanging Shares” section applies to all classes.

Generally exchanges may only be made between identically registered accounts, unless you send written instructions with a signature guarantee.

An exchange is really two transactions: a sale of one fund and the purchase of another. In general, the same policies that apply to purchases and sales apply to exchanges, including minimum investment amounts. Exchanges also have the same tax consequences as ordinary sales and purchases.

Rejected exchanges.   If the Fund rejects an exchange request involving the sale of Fund shares, the rejected exchange request will also mean rejection of the request to purchase shares of another fund with the proceeds of the sale. Of course, you may generally redeem shares of the Fund at any time.

Exchanges through financial intermediaries.   If you are investing indirectly in the Fund through a financial intermediary such as a broker-dealer, a bank, an insurance company separate account, an investment advisor, an administrator or trustee of an IRS-recognized tax-deferred savings plan such as a 401(k) retirement plan and a 529 college savings plan that maintains a master account (an Omnibus Account) with the Fund for trading on behalf of its customers, different exchange and/or transfer limit guidelines and restrictions may apply. The financial intermediary through whom you are investing may choose to adopt different trading restrictions designed to discourage short-term or excessive trading. Consult with your financial intermediary (or, in the case of a 401(k) retirement plan, your plan sponsor) to determine what trading restrictions, including exchange/transfer limitations, may be applicable to you.

Fund exchange privilege changes/waiver.   The Fund may terminate or modify (temporarily or permanently) this exchange privilege in the future. You will receive 60 days' notice of any material changes, unless otherwise provided by law.

Other funds' exchange privileges.   If there is a conflict between the exchange privileges of two funds involved in an exchange transaction, the stricter policy will apply to the transaction. Other Franklin Templeton funds may have different exchange restrictions. Check each fund's prospectus for details.

Frequent Trading Policy

The Fund's board of trustees has adopted the following policies and procedures with respect to frequent trading in Fund shares (Frequent Trading Policy).

The Fund does not intend to accommodate short-term or frequent purchases and redemptions of Fund shares that may be detrimental to the Fund. For example, this type of trading activity could interfere with the efficient management of the Fund's portfolio or materially increase the Fund's transaction costs, administrative costs or taxes.

In addition, since the Fund may invest in foreign securities, it may be vulnerable to a form of short-term trading that is sometimes referred to as “time-zone arbitrage.” Time-zone arbitrage occurs when an investor seeks to take advantage of delays between changes in the value of a mutual fund’s portfolio holdings and the reflection of those changes in the fund’s net asset value per share. These delays are more likely to occur in the case of foreign investments, due to differences between the times during which the Fund’s international portfolio securities trade on foreign markets and the time as of which the Fund’s NAV is calculated (generally as of the close of the NYSE - please see “Calculating Share Price”). Time-zone arbitrage traders seek to purchase or redeem shares of a fund based on events occurring after foreign market closing prices are established, but before calculation of the fund’s NAV. This can result in the value of the Fund’s shares being diluted. One of the objectives of the Fund’s fair value pricing procedures is to minimize the possibility of this type of arbitrage (please see "Valuation - Foreign Securities - Potential Impact of Time Zones and Market Holidays"); however, there can be no assurance that the Fund’s valuation procedures will be successful in eliminating it.

Since the Fund may invest in securities that are, or may be, restricted, unlisted, traded infrequently, thinly traded, or relatively illiquid ("relatively illiquid securities"), it may be particularly vulnerable to arbitrage short-term trading. Such arbitrage traders may seek to take advantage of a possible differential between the last available market prices for one or more of those relatively illiquid securities that are used to calculate the Fund’s NAV and the latest indications of market values for those securities. One of the objectives of the Fund’s fair value pricing procedures is to minimize the possibilities of this type of arbitrage (please see "Fair Valuation - Individual Securities"); however, there can be no assurance that the Fund’s valuation procedures will be successful in eliminating it.

Through its transfer agent, the Fund performs ongoing monitoring of shareholder trading in shares of the Fund and other Franklin Templeton funds in order to try and identify shareholder trading patterns that suggest an ongoing short-term trading strategy. If shareholder trading patterns identified by the transfer agent through monitoring or from other information regarding the shareholder’s trading activity in non-Franklin Templeton funds leads the transfer agent to reasonably conclude that such trading may be detrimental to the Fund as described in this Frequent Trading Policy, the transfer agent, on behalf of the Fund, may temporarily or permanently bar future purchases into the Fund or, alternatively, may limit the amount, number or frequency of any future purchases and/or the method by which you may request future purchases and redemptions (including purchases and/or redemptions by an exchange or transfer between the Fund and any other mutual fund).

In considering an investor’s trading patterns, the Fund may consider, among other factors, the investor’s trading history both directly and, if known, through financial intermediaries, in the Fund, in other Franklin Templeton funds, in non-Franklin Templeton mutual funds, or in accounts under common control or ownership (see, for example, “Investment by asset allocators” in the SAI). The transfer agent may also reject any purchase or redemption request, whether or not it represents part of any ongoing trading pattern, if the Fund manager or transfer agent reasonably concludes that the amount of the requested transaction may disrupt or otherwise interfere with the efficient management of the Fund’s portfolio.

Frequent trading through financial intermediaries.   You are an investor subject to this Frequent Trading Policy whether you are a direct shareholder of the Fund or you are investing indirectly in the Fund through a financial intermediary, such as a broker-dealer, bank, trust company, insurance company product such as an annuity contract, investment advisor, or an administrator or trustee of an IRS-recognized tax-deferred savings plan such as a 401(k) retirement plan and a 529 college savings plan.

Some financial intermediaries maintain master accounts with the Fund on behalf of their customers (“omnibus accounts”). The Fund has entered into “information sharing agreements” with these financial intermediaries, which permit the Fund to obtain, upon request, information about the trading activity of the intermediary’s customers that invest in the Fund. If the Fund’s transfer agent identifies omnibus account level trading patterns that have the potential to be detrimental to the Fund, the transfer agent may, in its sole discretion, request from the financial intermediary information concerning the trading activity of its customers. Based upon its review of the information, if the transfer agent determines that the trading activity of any customer may be detrimental to the Fund, it may, in its sole discretion, request the financial intermediary to restrict or limit further trading in the Fund by that customer. There can be no assurance that the transfer agent’s monitoring of omnibus account level trading patterns will enable it to identify all short-term trading by a financial intermediary’s customers.

Revocation of trades.   While the Fund reserves the right to reject any purchase order for any reason, the Fund may also revoke executed purchase orders that the transfer agent reasonably concludes in its sole discretion may have been contrary to the objectives of the Fund's Frequent Trading Policy.

Account Policies

Calculating Share Price

Class A, B & C

When you buy shares, you pay the "offering price" for the shares. The "offering price" is determined by dividing the NAV per share by an amount equal to 1 minus the sales charge applicable to the purchase (expressed in decimals), calculated to two decimal places using standard rounding criteria. The number of Fund shares you will be issued will equal the amount invested divided by the applicable offering price for those shares, calculated to three decimal places using standard rounding criteria. For example, if the NAV per share is $10.25 and the applicable sales charge for the purchase is 5.75%, the offering price would be calculated as follows: 10.25 divided by 1.00 minus 0.0575 [10.25/0.9425] equals 10.87533, which, when rounded to two decimal points, equals 10.88. The offering price per share would be $10.88.

When you sell shares, you receive the NAV minus any applicable CDSC.

All Classes

The value of a mutual fund is determined by deducting the fund’s liabilities from the total assets of the portfolio. The NAV per share is determined by dividing the total net asset value of each fund’s share class by the applicable number of shares outstanding per share class.

The Fund calculates the NAV per share each business day at the close of trading on the New York Stock Exchange (NYSE) (normally 1:00 p.m. Pacific time). The Fund does not calculate the NAV on days the NYSE is closed for trading, which include New Year's Day, Martin Luther King Jr. Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

When determining its NAV, the Fund values cash and receivables at their realizable amounts, and records interest as accrued and dividends on the ex-dividend date. The Fund generally utilizes two independent pricing services to assist in determining a current market value for each security. If market quotations are readily available for portfolio securities listed on a securities exchange, the Fund values those securities at the last quoted sale price or the official closing price of the day, respectively, or, if there is no reported sale, within the range of the most recent quoted bid and ask prices. The Fund values over-the-counter portfolio securities within the range of the most recent bid and ask prices. If portfolio securities trade both in the over-the-counter market and on a stock exchange, the Fund values them according to the broadest and most representative market.

Requests to buy and sell shares are processed at the NAV next calculated after we receive your request in proper form.

Generally, trading in corporate bonds, U.S. government securities and money market instruments is substantially completed each day at various times before the close of the NYSE. The value of these securities used in computing the NAV is determined as of such times. Occasionally, events affecting the values of these securities may occur between the times at which they are determined and the close of the NYSE that will not be reflected in the computation of the NAV. The Fund relies on third-party pricing vendors to monitor for events materially affecting the value of these securities during this period. If an event occurs, the third-party pricing vendors will provide revised values to the Fund.

Fair Valuation – Individual Securities

Since the Fund may invest in securities that are restricted, unlisted, traded infrequently, thinly traded, or relatively illiquid, there is the possibility of a differential between the last available market prices for one or more of those securities and the latest indications of market values for those securities. The Fund has procedures, approved by the board of trustees, to determine the fair value of individual securities and other assets for which market prices are not readily available (such as certain restricted or unlisted securities and private placements) or which may not be reliably priced (such as in the case of trade suspensions or halts, price movement limits set by certain foreign markets, and thinly traded or illiquid securities). Some methods for valuing these securities may include: fundamental analysis (earnings multiple, etc.), matrix pricing, discounts from market prices of similar securities, or discounts applied due to the nature and duration of restrictions on the disposition of the securities. The board of trustees oversees the application of fair value pricing procedures.

The application of fair value pricing procedures represents a good faith determination based upon specifically applied procedures. There can be no assurance that the Fund could obtain the fair value assigned to a security if it were able to sell the security at approximately the time at which the Fund determines its NAV per share.

Security Valuation – Corporate Debt Securities

Corporate debt securities generally trade in the over-the-counter market rather than on a securities exchange. The Fund may value these portfolio securities by utilizing quotations from bond dealers, information with respect to bond and note transactions and may rely on independent pricing services to assist in determining a current market value for each security. The Fund’s pricing services may utilize independent quotations from bond dealers and bond market activity to determine current value.

Security Valuation – Foreign Securities – Computation of U.S. Equivalent Value

The Fund generally determines the value of a foreign security as of the close of trading on the foreign stock exchange on which the security is primarily traded, or as of the close of trading on the NYSE, if earlier. The value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at the close of the NYSE (generally 1:00 p.m. Pacific time) on the day that the value of the foreign security is determined. If no sale is reported at that time, the foreign security will be valued within the range of the most recent quoted bid and ask prices. Occasionally events (such as repatriation limits or restrictions) may impact the availability or reliability of foreign exchange rates used to convert the U.S. dollar equivalent value. If such an event occurs, the foreign exchange rate will be valued at fair value using procedures established and approved by the board of trustees.

Valuation – Foreign Securities – Potential Impact of Time Zones and Market Holidays

Trading in securities on foreign securities stock exchanges and over-the-counter markets, such as those in Europe and Asia, may be completed well before the close of business on the NYSE on each day that the NYSE is open. Occasionally, events occur between the time at which trading in a foreign security is completed and the close of the NYSE that might call into question the availability (including the reliability) of the value of a foreign portfolio security held by the Fund. As a result, the Fund may be susceptible to what is referred to as “time-zone arbitrage.” Certain investors in the Fund may seek to take advantage of discrepancies in the value of the Fund’s portfolio securities as determined by the foreign market at its close and the latest indications of value attributable to the portfolio securities at the time the Fund’s NAV is computed. Trading by these investors, often referred to as “arbitrage market timers,” may dilute the value of the Fund’s shares, if such discrepancies in security values actually exist. To attempt to minimize the possibilities for time-zone arbitrage, and in accordance with procedures established and approved by the Fund’s board of trustees, the manager monitors price movements following the close of trading in foreign stock markets through a series of country specific market proxies (such as baskets of American Depositary Receipts, futures contracts and exchange traded funds).

These price movements are measured against established trigger thresholds for each specific market proxy to assist in determining if an event has occurred that might call into question the availability (including the reliability) of the values of foreign securities between the times at which they are determined and the close of the NYSE. If such an event occurs, the foreign securities may be valued using fair value procedures established and approved by the board of trustees. In certain circumstances these procedures include the use of independent pricing services. The intended effect of applying fair value pricing is to compute an NAV that accurately reflects the value of the Fund's portfolio at the time that the NAV is calculated, to discourage potential arbitrage market timing in Fund shares, to mitigate the dilutive impact of such attempted arbitrage market timing and to be fair to purchasing, redeeming and existing shareholders. However, the application of fair value pricing procedures may, on occasion, worsen rather than mitigate the potential dilutive impact of shareholder trading.

In addition, trading in foreign portfolio securities generally, or in securities markets in a particular country or countries, may not take place on every NYSE business day. Furthermore, trading takes place in various foreign markets on days that are not business days for the NYSE, and on which the Fund's NAV is not calculated. Thus, the calculation of the Fund's NAV does not take place contemporaneously with the determination of the prices of many of the foreign portfolio securities used in the calculation. If events affecting the last determined values of these foreign securities occur (determined through the monitoring process described above), the securities will be valued at fair value determined in good faith in accordance with the Fund’s fair value procedures established and approved by the board of trustees.

Accounts with Low Balances

If your account has been open for more than one year and its value falls below $500 ($50 for employee and UGMA/UTMA accounts), we will mail you a notice asking you to bring the account back up to its applicable minimum investment amount. If you choose not to do so within 30 days, we will close your account and mail the proceeds to the address of record. You will not be charged a CDSC if your account is closed for this reason. This policy does not apply to: (1) certain broker-controlled accounts established through the National Securities Clearing Corporation’s Networking system; (2) accounts in Class B and Class A accounts established pursuant to a conversion from Class B; (3) tax-deferred retirement plan accounts; (4) active automatic investment plan accounts; (5) broker-dealer sponsored separately managed accounts (wrap accounts); (6) accounts held through a 529 college savings program; and, (7) Coverdell Education Savings Plan accounts.

Statements, Reports and Prospectuses

You will receive quarterly account statements that show all your account transactions during the quarter. You also will receive written notification after each transaction affecting your account (except for distributions and transactions made through automatic investment or withdrawal programs, which will be reported on your quarterly statement).

You also will receive the Fund's financial reports every six months as well as an annual updated prospectus. To reduce Fund expenses, we try to identify related shareholders in a household and send only one copy of the financial reports and prospectus. This process, called "householding," will continue indefinitely unless you instruct us otherwise. If you prefer not to have these documents householded, please call us at (800) 632-2301. At any time you may view current prospectuses and financial reports on our website.

If you choose, you may receive your statements, financial reports and prospectuses through electronic delivery (please see "Investor Services - Telephone/Online Privileges").

Investment Representative Account Access

If there is a dealer or other investment representative of record on your account, he or she will be able to obtain your account information, conduct transactions for your account, and also will receive copies of all notifications and statements and other information about your account directly from the Fund.

Street or Nominee Accounts

You may transfer your shares from the street or nominee name account of one dealer to another, as long as both dealers have an agreement with Distributors. We will process the transfer after we receive authorization in proper form from your delivering securities dealer.

Joint Accounts

Unless you specify a different registration, shares issued to two or more owners are registered as "joint tenants with rights of survivorship" (shown as "Jt Ten" on your account statement). To make any ownership changes to jointly owned shares, or to sever a joint tenancy in jointly owned shares, all owners must agree in writing.

Joint Account Risk with Telephone/Online Privileges

You will automatically receive telephone/online privileges when you open your account. If your account has more than one registered owner, telephone/online privileges allow the Fund to accept online registration for online services (including electronic delivery of shareholder documents) and transaction instructions online or by telephone from only one registered owner. This means that any one registered owner on your account, acting alone and without the consent of any other registered owner, may give the Fund instructions by telephone, online or in writing (subject to any limitations in telephone or online privileges) to:

• Exchange shares from a jointly registered Fund account requiring all registered owner signatures into an identically registered money fund account that only requires one registered owner’s signature to redeem shares;
• Redeem Fund shares and direct the redemption proceeds to a bank account that may or may not be owned by you and, if owned by you jointly with someone else, only requires one person to withdraw funds by check or otherwise;
• Add/Change the bank account to which Fund share redemption proceeds may be sent, which bank account may not be owned by you;
• Purchase Fund shares by debiting a bank account that may be owned by you; and
• Add/Change the bank account that may be debited for Fund share purchases, which new account may be owned by you.

If you do NOT want another registered owner on your account to be able to issue these kinds of instructions to the Fund without your consent, you must instruct the Fund to deny/terminate online privileges and the ability to issue such instructions by telephone so that these types of instructions will only be accepted in writing signed by all account owners. This decision will apply to any other fund into which you may exchange your jointly owned Fund shares. Any later decision to permit these types of instructions by telephone and/or online will need to be given to the Fund in a written instruction signed by all registered owners.

Additional Policies

Please note that the Fund maintains additional policies and reserves certain rights, including:

• The Fund may restrict, reject or cancel any purchase orders, including an exchange request.
• The Fund may modify, suspend, or terminate telephone/online privileges at any time.
• The Fund may make material changes to or discontinue the exchange privilege on 60 days' notice or as otherwise provided by law.
• The Fund may stop offering shares completely or may offer shares only on a limited basis, for a period of time or permanently.
• Normally, redemptions are processed by the next business day, but may take up to seven days to be processed if making immediate payment would adversely affect the Fund.
• In unusual circumstances, we may temporarily suspend redemptions or postpone the payment of proceeds, as allowed by federal securities laws.
• For redemptions over a certain amount, the Fund may pay redemption proceeds in securities or other assets rather than cash if the manager determines it is in the best interest of the Fund, consistent with applicable law.
• You may only buy shares of a fund (including the purchase side of an exchange) eligible for sale in your state or jurisdiction.
• To permit investors to obtain the current price, dealers are responsible for transmitting all orders to the Fund promptly.

Dealer Compensation

Class A, B & C

Qualifying dealers who sell Fund shares may receive sales commissions and other payments. These are paid by Distributors from sales charges received from purchasing or redeeming shareholders, from distribution and service (12b-1) fees from the Fund and from Distributors' other financial resources. Dealers may also receive shareholder servicing fees for servicing investors who indirectly hold Franklin Templeton fund shares through dealer-maintained brokerage accounts as more fully described under "Shareholder servicing and transfer agent" in the SAI. These fees are paid by the Fund's transfer agent from payments it receives under its agreement with the Fund.

No dealer commission will be paid on Class A NAV purchases by Employer Sponsored Retirement Plans.

If any dealer commissions are paid in connection with a purchase which is subsequently rejected or results in any trading restriction placed on the purchaser as a result of a determination by the Fund's manager or transfer agent that the purchase may be connected with trading activity that may be detrimental to the Fund as described in the Fund's "Frequent Trading Policy," the dealer shall, upon demand, refund such commissions to Distributors.

	Class A	Class B	Class C
Commission (%)	--	--	1.001
Investment under $50,000	5.00	--	--
$50,000 but under $100,000	3.75	--	--
$100,000 but under $250,000	2.80	--	--
$250,000 but under $500,000	2.00	--	--
$500,000 but under $1 milllion	1.60	--	--
$1 million or more	up to 1.002	--	--
12b-1 fee to dealer	0.252, 3	0.254	1.005

1. Commission includes advance of the first year's 0.25% 12b-1 service fee. Distributors may pay a prepaid commission. However, Distributors does not pay a prepaid commission on any purchases by Employer Sponsored Retirement Plans.

2. For purchases at NAV where Distributors paid a prepaid commission, dealers may start to receive the 12b-1 fee in the 13th month after purchase. For purchases at NAV where Distributors did not pay a prepaid commission, dealers may start to receive the 12b-1 fee at the time of purchase.

3. Under the Distribution Plan for Class A, the Fund may pay up to 0.35% to Distributors or others, out of which 0.10% generally will be retained by Distributors for its distribution expenses. The board of trustees has currently determined to set such fees under the Plan at 0.30% (until further notice), thus reducing the amount that will be retained by Distributors.

4. After eight years, Class B shares convert to Class A shares and dealers may then receive the 12b-1 fee applicable to Class A.

5. Dealers may be eligible to receive up to 0.25% at the time of purchase and may be eligible to receive 1% starting in the 13th month. During the first 12 months, the full 12b-1 fee will be paid to Distributors to partially offset the commission and the prepaid service fee paid at the time of purchase. For purchases at NAV where Distributors did not pay a prepaid commission, dealers may start to receive the 12b-1 fee at the time of purchase.

Other dealer and financial intermediary compensation.   Distributors may make payments (a portion of which may be reimbursable under the terms of the Fund's Rule 12b-1 distribution plans) to certain dealers who have sold shares of the Franklin Templeton mutual funds. In the case of any one dealer, marketing support payments will not exceed the sum of 0.08% of that dealer's current year's total sales of Franklin Templeton mutual funds, and 0.05% (or 0.03%) of the total assets of equity (or fixed income) funds attributable to that dealer, on an annual basis. Marketing support payments made to organizations located outside the U.S., with respect to investments in the Fund by non-U.S. persons, may exceed this limitation. Distributors makes these payments in connection with the qualifying dealers' efforts to educate financial advisors about the Franklin Templeton funds. Any current year sales to, or assets held on behalf of, Employer Sponsored Retirement Plans for which payment is made to a financial intermediary pursuant to the following paragraph will be excluded from the calculation of marketing support payments pursuant to this paragraph.

Distributors and/or its affiliates may also make payments (a portion of which may be reimbursable under the terms of the Fund's Rule 12b-1 distribution plans) to certain financial intermediaries in connection with their activities that are intended to assist in the sale of shares of the Franklin Templeton mutual funds, directly or indirectly, to certain Employer Sponsored Retirement Plans. In the case of any one financial intermediary, such payments will not exceed 0.10% of the total assets of Franklin Templeton mutual funds held, directly or indirectly, by such Employer Sponsored Retirement Plans, on an annual basis.

A number of factors will be considered in determining these payments, including the qualifying dealer or financial intermediary's sales, assets and redemption rates, the nature and quality of any servicing provided by the financial intermediary, and the quality of the dealer or financial intermediary's relationship with Distributors. Distributors will, on an annual basis, determine the advisability of continuing these payments. These payments may be in addition to any shareholder servicing fees paid by the Fund's transfer agent from payments it receives under its agreement with the Fund.

To the extent permitted by SEC and Financial Industry Regulatory Authority rules and other applicable laws and regulations, Distributors may pay or allow other promotional incentives or payments to dealers.

Sale of Fund shares, as well as shares of other funds in Franklin Templeton Investments, is not considered a factor in the selection of broker-dealers to execute the Fund's portfolio transactions. Accordingly, the allocation of portfolio transactions for execution by broker-dealers that sell Fund shares is not considered marketing support payments to such broker-dealers.

You can find further details in the SAI about the payments made by Distributors and the services provided by your financial advisor. Your financial advisor may charge you additional fees or commissions other than those disclosed in this prospectus. You should ask your financial advisor for information about any payments it receives from Distributors and any services it provides, as well as about fees and/or commissions it charges.

Questions

If you have any questions about the Fund or your account, you can write to us at P.O. Box 33030, St. Petersburg, FL 33733-8030. You also can call us at one of the following numbers. For your protection and to help ensure we provide you with quality service, all calls may be monitored or recorded.

Department Name	Telephone Number	Hours (Pacific time, Monday through Friday)
Shareholder Services	(800) 632-2301	5:30 a.m. to 5:00 p.m.
Fund Information	(800) DIAL BEN (800) 342-5236	5:30 a.m. to 5:00 p.m.
Retirement Services	(800) 527-2020	5:30 a.m. to 5:00 p.m.
Advisor Services	(800) 524-4040	5:30 a.m. to 5:00 p.m.
TDD (hearing impaired)	(800) 851-0637	5:30 a.m. to 5:00 p.m.
Automated Telephone System	(800) 632-2301 (800) 524-4040 (800) 527-2020	(around-the-clock access)

FOR MORE INFORMATION

You can learn more about the Fund in the following documents:

Annual/Semiannual Report to Shareholders

Includes a discussion of recent market conditions and Fund strategies that significantly affected Fund performance during its last fiscal year, financial statements, detailed performance information, portfolio holdings and, in the annual report only, the independent registered public accounting firm’s report.

Statement of Additional Information (SAI)

Contains more information about the Fund, its investments and policies. It is incorporated by reference (is legally a part of this prospectus).

For a free copy of the current annual/semiannual report or the SAI, please contact your investment representative or call us at the number below. You also can view the current annual/semiannual report and the SAI online through franklintempleton.com.

You also can obtain information about the Fund by visiting the SEC's Public Reference Room in Washington, DC (phone (202) 551-8090) or the EDGAR Database on the SEC's Internet site at http://www.sec.gov. You can obtain copies of this information, after paying a duplicating fee, by writing to the SEC's Public Reference Section, Washington, DC 20549-0102 or by electronic request at the following email address: publicinfo@sec.gov.

	One Franklin Parkway, San Mateo, CA 94403-1906 (800) DIAL BEN® (800) 342-5236 TDD/Hearing Impaired (800) 851-0637 franklintempleton.com
	Investment Company Act file #811-07876
2291	188 P 01/11

Templeton China World Fund
P.O. Box 33030, St. Petersburg, FL 33733-8030
(800) DIAL BEN^® (800) 342-5236

Class A	Class B	Class C	Advisor Class
TCWAX	TCWBX	TCWCX	TACWX

STATEMENT OF ADDITIONAL INFORMATION January 1, 2011 This Statement of Additional Information (SAI) is not a prospectus. It contains information in addition to the information in the Fund's prospectus. The Fund's prospectus, dated January 1, 2011, which we may amend from time to time, contains the basic information you should know before investing in the Fund. You should read this SAI together with the Fund's prospectus. The audited financial statements and Report of Independent Registered Public Accounting Firm in the Fund's Annual Report to Shareholders, for the fiscal year ended August 31, 2010, are incorporated by reference (are legally a part of this SAI). For a free copy of the current prospectus or annual report, contact your investment representative or call (800) DIAL BEN. CONTENTS
Goal, Strategies and Risks
Officers and Trustees
Fair Valuation and Liquidity
Proxy Voting Policies and Procedures
Management and Other Services
Portfolio Transactions
Distributions and Taxes
Organization, Voting Rights and Principal Holders
Buying and Selling Shares
The Underwriter
Performance
Miscellaneous Information
Description of Ratings

Mutual funds, annuities, and other investment products:

• are not insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other agency of the U.S. government;
• are not deposits or obligations of, or guaranteed or endorsed by, any bank; and
• are subject to investment risks, including the possible loss of principal.

188 SAI 01/11

Goal, Strategies and Risks

The following information provided with respect to the Fund is in addition to that included in the Fund’s prospectus.

In addition to the main types of investments and strategies undertaken by the Fund as described in the prospectus, the Fund also may invest in other types of securities and engage in and pursue other investment strategies, which are described in this SAI. Investments and investment strategies mentioned with respect to the Fund are discussed in greater detail in the section below entitled "Glossary of Investments, Techniques, Strategies and Their Risks.”

Generally, the policies and restrictions discussed in this SAI and in the prospectus apply when the Fund makes an investment. In most cases, the Fund is not required to sell a security because circumstances change and the security no longer meets one or more of the Fund's policies or restrictions. If a percentage restriction or limitation is met at the time of investment, a later increase or decrease in the percentage due to a change in the value or liquidity of portfolio securities will not be considered a violation of the restriction or limitation.

If a bankruptcy or other extraordinary event occurs concerning a particular security the Fund owns, the Fund may receive stock, real estate or other investments that the Fund would not, or could not, buy. If this happens, the Fund intends to sell such investments as soon as practicable while trying to maximize the return to shareholders.

The Fund has adopted certain investment restrictions as fundamental and non-fundamental policies. A fundamental policy may only be changed if the change is approved by (i) more than 50% of the Fund's outstanding shares or (ii) 67% or more of the Fund's shares present at a shareholder meeting if more than 50% of the Fund's outstanding shares are represented at the meeting in person or by proxy, whichever is less. A non-fundamental policy may be changed without the approval of shareholders.

Fundamental Investment Policies

The Fund's investment goal is long-term capital appreciation.

The Fund may not:

1.  Borrow money, except to the extent permitted by the Investment Company Act of 1940, as amended (1940 Act), or any rules, exemptions or interpretations thereunder that may be adopted, granted or issued by the U.S. Securities and Exchange Commission (SEC).

2.  Issue senior securities, except to the extent permitted by the 1940 Act or any rules, exemptions or interpretations thereunder that may be adopted, granted or issued by the SEC.

3.  Act as an underwriter, except to the extent the Fund may be deemed to be an underwriter when disposing of securities it owns or when selling its own shares.

4.  Make loans if, as a result, more than 33 1/3% of its total assets would be lent to other persons, including other investment companies to the extent permitted by the 1940 Act or any rules, exemptions or interpretations thereunder that may be adopted, granted or issued by the SEC. This limitation does not apply to (i) the lending of portfolio securities, (ii) the purchase of debt securities, other debt instruments, loan participations and/or engaging in direct corporate loans in accordance with its investment goals and policies, and (iii) repurchase agreements to the extent the entry into a repurchase agreement is deemed to be a loan.

5.  Purchase or sell physical commodities, unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent the Fund from (i) engaging in transactions involving currencies and futures contracts and options thereon or (ii) investing in securities or other instruments that are secured by physical commodities.

6.  Purchase or sell real estate unless acquired as a result of ownership of securities or other instruments and provided that this restriction does not prevent the Fund from (i) purchasing or selling securities or instruments secured by real estate or interests therein, securities or instruments representing interests in real estate or securities or instruments of issuers that invest, deal or otherwise engage in transactions in real estate or interests therein, and (ii) making, purchasing or selling real estate mortgage loans.

7.  Invest more than 25% of the Fund's net assets in securities of issuers in any one industry (other than securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities or securities of other investment companies).

Non-Fundamental Investment Policies

Under normal market conditions, the Fund invests at least 80% of its net assets in securities of “China companies,” as defined below. Net assets for this 80% policy include the amount of borrowings for investment purposes. Shareholders will be given 60 days’ advance notice of any change to this 80% policy. For purposes of the Fund’s investments, China companies are those:

• that are organized under the laws of, or with a principal office in, the People's Republic of China (China), Hong Kong or Taiwan; or
• for which the principal trading market is in China, Hong Kong or Taiwan; or
• that derive at least 50% of their revenues from goods or services sold or produced, or have at least 50% of their assets, in China.

The manager determines whether a specific company meets this definition of a "China company" based on publicly available information. The Fund may invest up to 20% of its net assets in non-Chinese securities that, in the manager's judgment, are expected to benefit from development in the economics of China, Hong Kong and Taiwan. The Fund may also invest up to 20% of its net assets in debt obligations of China companies, which may be lower-rated or unrated when consistent with the Fund's investment goal. The Fund may not invest more than 15% of its total assets in the securities of any one issuer.

Additional Strategies

In trying to achieve its investment goals, the Fund may invest in the types of instruments or engage in the types of transactions identified below. The Fund may or may not use all of these techniques at any one time. A more detailed description of the investment policies as well as the risks associated with these investment policies that the Fund uses is included in the section “Glossary of Investments, Techniques, Strategies and Their Risks.”

The Fund may:

• invest up to 20% of its total assets in debt securities of China companies, which may be lower rated securities, or unrated securities.
• invest in depositary receipts. For purposes of the Fund’s investment policies, the Fund’s investments in depositary receipts will be deemed to be investments in the underlying securities.
• invest up to 10% of its total assets in exchange-traded funds.
• invest up to 5% of its total assets in direct equity investments.
• invest up to 15% of its net assets in illiquid securities.

Glossary of Investments, Techniques, Strategies and Their Risks

Certain words or phrases may be used in descriptions of Fund investment policies and strategies to give investors a general sense of the Fund's levels of investment. They are broadly identified with, but not limited to, the following percentages of Fund total assets:

"small portion"	less than 10%
"portion"	10% to 25%
"significant"	25% to 50%
"substantial"	50% to 66%
"primary"	66% to 80%
"predominant"	80% or more

If the Fund intends to limit particular investments or strategies to no more than specific percentages of Fund assets, the prospectus or SAI will clearly identify such limitations. The percentages above are not limitations unless specifically stated as such in the Fund's prospectus or elsewhere in this SAI.

The Fund may invest in securities that are rated by various rating services such as Moody's Investors Service (Moody's) and Standard & Poor's (S&P^®) or unrated that the manager deems to be of comparable quality.

The value of your shares will increase as the value of the investments owned by the Fund increases and will decrease as the value of the Fund's investments decreases. In this way, you participate in any change in the value of the securities owned by the Fund. In addition to the factors that affect the value of any particular investment that the Fund owns, the value of the Fund's shares may also change with movements in the stock and bond markets as a whole.

In trying to achieve its investment goal, the Fund may invest (unless otherwise indicated) in the following types of securities or engage in the following types of transactions. These securities and transactions, and their associated risks, are described below. The Fund's investment manager is under no obligation to invest in any or all of these securities or engage in any or all of these types of transactions.

The following is a description of various types of securities, instruments and techniques that may be purchased and/or used by the Fund:

Borrowing   The 1940 Act and the SEC's current rules, exemptions and interpretations thereunder, permit the Fund to borrow up to one-third of the value of its total assets (including the amount borrowed, but less all liabilities and indebtedness not represented by senior securities) from banks. The Fund is required to maintain continuous asset coverage of at least 300% with respect to such borrowings and to reduce the amount of its borrowings (within three days) to restore such coverage if it should decline to less than 300% due to market fluctuations or otherwise. In the event that the Fund is required to reduce its borrowings, it may have to sell portfolio holdings, even if such sale of the Fund's holdings would be disadvantageous from an investment standpoint.

If the Fund makes additional investments while borrowings are outstanding, this may be considered a form of leverage. Leveraging by means of borrowing may exaggerate the effect of any increase or decrease in the value of portfolio securities on the Fund's net asset value, and money borrowed will be subject to interest and other costs (which may include commitment fees and/or the cost of maintaining minimum average balances), which may or may not exceed the income or gains received from the securities purchased with borrowed funds.

In addition to borrowings that are subject to 300% asset coverage, the Fund is also permitted under the 1940 Act to borrow for temporary purposes in an amount not exceeding 5% of the value of its total assets at the time when the loan is made. A loan will be presumed to be for temporary purposes if it is repaid within 60 days and is not extended or renewed.

Segregation of assets.   If the Fund enters into certain transactions (such as certain derivative transactions), that may be viewed by the SEC staff as constituting a form of senior security issued by the Fund and thus similar to a borrowing by the Fund, to the extent the Fund covers its commitments under such transactions by the segregation or "earmarking" of assets as set forth below, such an agreement will not be considered a "senior security" or subject to the Fund's limits on borrowing.

The Fund will segregate on its books or those of its custodian bank, cash or liquid securities having an aggregate value equal to the amount of the Fund’s future commitments until payment is made or the transaction is completed. These assets will be marked to market daily and the Fund will increase the aggregate value of the assets, as necessary, to ensure that the assets are equal to 100% of the amount of the Fund’s commitments.

Convertible securities   A convertible security is generally a debt obligation, preferred stock or other security that may be converted within a specified period of time into a certain amount of common stock of the same or of a different issuer. The conversion may occur at the option of the investor in or issuer of the security, or upon a predetermined event. A convertible security typically provides a fixed-income stream and the opportunity, through its conversion feature, to participate in the capital appreciation resulting from a market price advance in its underlying common stock. As with a straight fixed-income security, a convertible security tends to increase in market value when interest rates decline and decrease in value when interest rates rise. Like a common stock, the value of a convertible security also tends to increase as the market value of the underlying stock rises, and it tends to decrease as the market value of the underlying stock declines. Because both interest rate and market movements can influence its value, a convertible security is usually not as sensitive to interest rate changes as a similar fixed-income security, nor is it as sensitive to changes in share price as its underlying stock. Convertible securities are also subject to risks that affect debt securities in general.

Although less than an investment in the underlying stock, the potential for gain on an investment in a convertible security is greater than for similar non-convertible securities. As a result, a lower yield is generally offered on convertible securities than on otherwise equivalent non-convertible securities. There is no guarantee that the Fund will realize gains on a convertible security in excess of the foregone yield it accepts to invest in such convertible security.

A convertible security is usually issued either by an operating company or by an investment bank. When issued by an operating company, a convertible security tends to be senior to the company's common stock, but may be subordinate to other types of fixed-income securities issued by that company. When a convertible security issued by an operating company is "converted," the operating company often issues new stock to the holder of the convertible security. However, if the convertible security is redeemable and the parity price of the convertible security is less than the call price, the operating company may pay out cash instead of common stock.

If the convertible security is issued by an investment bank or other sponsor, the security is an obligation of and is convertible through, the issuing investment bank. However, the common stock received upon conversion is of a company other than the investment bank or sponsor. The issuer of a convertible security may be important in determining the security's true value. This is because the holder of a convertible security will have recourse only to the issuer.

Convertible preferred stock.   A convertible preferred stock is usually treated like a preferred stock for the Fund's financial reporting, credit rating and investment policies and limitations purposes. A preferred stock is subordinated to all debt obligations in the event of insolvency, and an issuer's failure to make a dividend payment is generally not an event of default entitling the preferred shareholder to take action. A preferred stock generally has no maturity date, so that its market value is dependent on the issuer's business prospects for an indefinite period of time. Distributions from preferred stock are dividends, rather than interest payments, and are usually treated as such for corporate tax purposes. Investments in convertible preferred stock, as compared to the debt obligations of an issuer, generally increases the Fund's exposure to the credit risk of the issuer and market risk generally, because convertible preferred stock will fare more poorly if the issuer defaults or markets suffer.

Risks.   An investment in a convertible security may involve risks. The Fund may have difficulty disposing of such securities because there may be a thin trading market for a particular security at any given time. Reduced liquidity may have an adverse impact on market price and the Fund's ability to dispose of a security when necessary to meet the Fund's liquidity needs or in response to a specific economic event, such as the deterioration in the creditworthiness of an issuer. Reduced liquidity in the secondary market for certain securities may also make it more difficult for the Fund to obtain market quotations based on actual trades for purposes of valuing the Fund's portfolio. Although the Fund intends to acquire convertible securities that the investment manager considers to be liquid (i.e., those securities that the investment manager determines may be sold on exchange, or an institutional or other substantial market), there can be no assurances that this will be achieved. Certain securities and markets can become illiquid quickly, resulting in liquidity risk for the Fund. The Fund will also encounter difficulty valuing convertible securities due to illiquidity or other circumstances that make it difficult for the Fund to obtain timely market quotations based on actual trades for convertible securities. Convertible securities may have low credit ratings, which generally correspond with higher credit risk to an investor like the Fund.

Debt securities - general description   In general, a debt security represents a loan of money to the issuer by the purchaser of the security. A debt security typically has a fixed payment schedule that obligates the issuer to pay interest to the lender and to return the lender's money over a certain time period. A company typically meets its payment obligations associated with its outstanding debt securities before it declares and pays any dividend to holders of its equity securities. Bonds, notes and commercial paper are examples of debt securities and differ in the length of the issuer's principal repayment schedule, with bonds carrying the longest repayment schedule and commercial paper the shortest:

Bonds.   A bond is a debt security in which investors loan money to an entity that borrows for a defined period of time, usually a period of more than five years, at a specified interest rate.

Commercial paper.   Commercial paper is an unsecured, short-term loan to a corporation, typically for financing accounts receivable and inventory with maturities of up to 270 days.

Debentures.   A debenture is an unsecured debt security backed only by the creditworthiness of the borrower, not by collateral.

Bills.   A bill is a short-term debt instrument, usually with a maturity of two years or less.

Notes.   A note is a debt security usually with a maturity of up to ten years.

For purposes of the discussion in this SAI of the risks of investing, debt securities generally, loans or other short-term instruments, which otherwise may not technically be considered securities, are included.

Debt securities are all generally subject to interest rate, credit, income and prepayment risks and, like all investments are subject to liquidity and market risks to varying degrees depending upon the specific terms and type of security. The Fund's investment manager attempts to reduce credit and market risk through diversification of the portfolio and ongoing credit analysis of each issuer, as well as by monitoring economic and legislative developments, but there can be no assurance that it will be successful at doing so.

Defaulted debt securities   If the issuer of a debt security in the Fund's portfolio defaults, the Fund may have unrealized losses on the security, which may lower the Fund's net asset value. Defaulted securities tend to lose much of their value before they default. Thus, the Fund's net asset value may be adversely affected before an issuer defaults. The Fund will incur additional expenses if it tries to recover principal or interest payments on a defaulted security. Defaulted debt securities often are illiquid. An investment in defaulted debt securities will be considered speculative and expose the Fund to similar risks as an investment in high-yield debt.

The Fund may not buy defaulted debt securities, however, the Fund is not required to sell a debt security that has defaulted if the investment manager believes it is advantageous to continue holding the security.

The Fund may be required under the Internal Revenue Code and U.S. Treasury Regulations to accrue income for income tax purposes on defaulted debt securities and to distribute such income to the Fund's shareholders even though the Fund is not currently receiving interest payments on such obligations. To generate cash for distributions, the Fund may have to sell portfolio securities that it otherwise would have continued to hold or use cash flows from other sources, such as the sale of Fund shares.

Depositary receipts   Many securities of foreign issuers are represented by American Depositary Receipts (ADRs), Global Depositary Receipts (GDRs), and European Depositary Receipts (EDRs) (collectively, depositary receipts). Generally, depositary receipts in registered form are designed for use in the U.S. securities market and depositary receipts in bearer form are designed for use in securities markets outside the U.S.

ADRs evidence ownership of, and represent the right to receive, securities of foreign issuers deposited in a domestic bank or trust company or a foreign correspondent bank. Prices of ADRs are quoted in U.S. dollars, and ADRs are traded in the U.S. on exchanges or over-the-counter. While ADRs do not eliminate all the risks associated with foreign investments, by investing in ADRs rather than directly in the stock of foreign issuers, the Fund will avoid currency and certain foreign market trading risks during the settlement period for either purchases or sales. In general, there is a large, liquid market in the U.S. for ADRs quoted on a national securities exchange or on NASDAQ. The information available for ADRs is subject to the accounting, auditing and financial reporting standards of the U.S. market or exchange on which they are traded, which standards are generally more uniform and more exacting than those to which many foreign issuers may be subject.

EDRs and GDRs are typically issued by foreign banks or trust companies and evidence ownership of underlying securities issued by either a foreign or a U.S. corporation. EDRs and GDRs may not necessarily be denominated in the same currency as the underlying securities into which they may be converted. The underlying shares are held in trust by a custodian bank or similar financial institution in the issuer's home country. If the issuer's home country does not have developed financial markets, the Fund could be exposed to the credit risk of the custodian or financial institution and greater market risk. The depository bank may not have physical custody of the underlying securities at all times and may charge fees for various services, including forwarding dividends and interest and corporate actions. The Fund would be expected to pay a share of the additional fees, which it would not pay if investing directly in the foreign securities. The Fund may experience delays in receiving its dividend and interest payment or exercising rights as a shareholder.

Depositary receipts may reduce some but not eliminate all the risks inherent in investing in the securities of foreign issuers. Depositary receipts are still subject to the political and economic risks of the underlying issuer's country and, are still subject to foreign currency exchange risk. Depositary receipts will be issued under sponsored or unsponsored programs. In sponsored programs, an issuer has made arrangements to have its securities traded in the form of depositary receipts. In unsponsored programs, the issuer may not be directly involved in the creation of the program. Although regulatory requirements with respect to sponsored and unsponsored programs are generally similar, in some cases it may be easier to obtain financial information about an issuer that has participated in the creation of a sponsored program. There may be an increased possibility of untimely responses to certain corporate actions of the issuer, such as stock splits and rights offerings, in an unsponsored program. Accordingly, there may be less information available regarding issuers of securities underlying unsponsored programs and there may not be a correlation between this information and the market value of the depositary receipts. If the Fund's investment depends on obligations being met by the arranger as well as the issuer of an unsponsored program, the Fund will be exposed to additional credit risk.

Equity securities   Equity securities represent a proportionate share of the ownership of a company; their value is based on the success of the company's business and the value of its assets, as well as general market conditions. The purchaser of an equity security typically receives an ownership interest in the company as well as certain voting rights. The owner of an equity security may participate in a company's success through the receipt of dividends, which are distributions of earnings by the company to its owners. Equity security owners may also participate in a company's success or lack of success through increases or decreases in the value of the company's shares as traded in the public trading market for such shares. Equity securities generally take the form of common stock or preferred stock, as well as securities convertible into common stock. Preferred stockholders typically receive greater dividends but may receive less appreciation than common stockholders and may have different voting rights as well. Equity securities may also include convertible securities, warrants, or rights. Warrants or rights give the holder the right to buy a common stock at a given time for a specified price.

Direct equity investments.   The Fund may invest in direct equity investments that the manager expects will become listed or otherwise publicly traded securities. Direct equity investments consist of (i) the private purchase from an enterprise of an equity interest in the enterprise in the form of shares of common stock or equity interests in trusts, partnerships, joint ventures or similar enterprises, and (ii) the purchase of such an equity interest in an enterprise from a principal investor in the enterprise. Direct equity investments are generally considered to be illiquid. To the degree that the Fund invests in direct equity investments that it considers to be illiquid, it will limit such investments so that they, together with the Fund's other illiquid investments, comply with the Fund's investment restriction on illiquid securities.

In most cases, the Fund will, at the time of making a direct equity investment, enter into a shareholder or similar agreement with the enterprise and one or more other holders of equity interests in the enterprise. The manager anticipates that these agreements may, in appropriate circumstances, provide the Fund with the ability to appoint a representative to the board of directors or similar body of the enterprise, and eventually to dispose of the Fund's investment in the enterprise through, for example, the listing of the securities or the sale of the securities to the issuer or another investor. In cases where the Fund appoints a representative, the representative would be expected to provide the Fund with the ability to monitor its investment and protect its rights in the investment and will not be appointed for the purpose of exercising management or control of the enterprise. In addition, the Fund intends to make its direct equity investments in such a manner as to avoid subjecting the Fund to unlimited liability with respect to the investments. There can be no assurance that the Fund's direct equity investments will become listed, or that it will be able to sell any direct equity investment to the issuer or another investor. The extent to which the Fund may make direct equity investments may be limited by considerations relating to its status as a regulated investment company under U.S. tax law.

Direct equity investments in China companies may involve a high degree of business and financial risk that can result in substantial losses. Because of the absence of a public trading market for these investments, the Fund may take longer to liquidate these positions than would be the case for publicly traded securities and the prices on these sales could be less than those originally paid by the Fund or less than what may be considered the fair value of such securities. Further, issuers whose securities are not publicly traded may not be subject to disclosure and other investor protection requirements applicable to publicly traded securities. If such securities are required to be registered under the securities laws of one or more jurisdictions before being resold, the Fund may be required to bear the expenses of registration. Certain of the Fund's direct equity investments, particularly in China, may include investments in smaller, less-seasoned companies, which may involve greater risks. These companies may have limited product lines, markets or financial resources, or they may be dependent on a limited management group.

Foreign securities   There are substantial risks associated with investing in the securities of governments and companies located in, or having substantial operations in, foreign countries, which are in addition to the usual risks inherent in domestic investments. The value of foreign securities (like U.S. securities) is affected by general economic conditions and individual issuer and industry earnings prospects. Investments in depositary receipts also involve some or all of the risks described below.

There is the possibility of cessation of trading on foreign exchanges, expropriation, nationalization of assets confiscatory or punitive taxation, withholding and other foreign taxes on income or other amounts, foreign exchange controls (which may include suspension of the ability to transfer currency from a given country), restrictions on removal of assets, political or social instability, military action or unrest, or diplomatic developments that could affect investments in securities of issuers in foreign nations. There is no assurance that the investment manager will be able to anticipate these potential events. In addition, the value of securities denominated in foreign currencies and of dividends and interest paid with respect to such securities will fluctuate based on the relative strength of the U.S. dollar.

There may be less publicly available information about foreign issuers comparable to the reports and ratings published about issuers in the U.S. Foreign issuers generally are not subject to uniform accounting or financial reporting standards. Auditing practices and requirements may not be comparable to those applicable to U.S. issuers. Certain countries' legal institutions, financial markets and services are less developed than those in the U.S. or other major economies. The Fund may have greater difficulty voting proxies, exercising shareholder rights, securing dividends and obtaining information regarding corporate actions on a timely basis, pursuing legal remedies, and obtaining judgment with respect to foreign investments in foreign courts than with respect to domestic issuers in U.S. courts. The costs associated with foreign investments, including withholding taxes, brokerage commissions, and custodial costs, are generally higher than with U.S. investments.

Certain countries require governmental approval prior to investments by foreign persons, or limit the amount of investment by foreign persons in a particular company. Some countries limit the investment of foreign persons to only a specific class of securities of an issuer that may have less advantageous terms than securities of the issuer available for purchase by nationals. Although securities subject to such restrictions may be marketable abroad, they may be less liquid than foreign securities of the same class that are not subject to such restrictions. In some countries the repatriation of investment income, capital and proceeds of sales by foreign investors may require governmental registration and/or approval. The Fund could be adversely affected by delays in or a refusal to grant any required governmental registration or approval for repatriation.

From time to time, trading in a foreign market may be interrupted. Foreign markets also have substantially less volume than the NYSE and securities of some foreign issuers are less liquid and more volatile than securities of comparable U.S. issuers. The Fund, therefore, may encounter difficulty in obtaining market quotations for purposes of valuing its portfolio and calculating its net asset value.

In many foreign countries there is less government supervision and regulation of stock exchanges, brokers, and listed companies than in the U.S., which may result in greater potential for fraud or market manipulation. Foreign over-the-counter markets tend to be less regulated than foreign stock exchange markets and, in certain countries, may be totally unregulated. Brokerage commission rates in foreign countries, which generally are fixed rather than subject to negotiation as in the U.S., are likely to be higher. Foreign security trading, settlement and custodial practices (including those involving securities settlement where assets may be released prior to receipt of payment) are often less developed than those in U.S. markets, may be cumbersome and may result in increased risk or substantial delays. This could occur in the event of a failed trade or the insolvency of, or breach of duty by, a foreign broker-dealer, securities depository, or foreign subcustodian.

To the extent that the Fund invests a significant portion of its assets in a specific geographic region or country, the Fund will have more exposure to economic risks related to such region or country than a fund whose investments are more geographically diversified. Adverse conditions in a certain region can affect securities of other countries whose economies appear to be unrelated. In the event of economic or political turmoil or a deterioration of diplomatic relations in a region or country where a substantial portion of the Fund's assets are invested, the Fund may have difficulty meeting a large number of shareholder redemption requests.

The holding of foreign securities may be limited by the Fund to avoid investment in certain Passive Foreign Investment Companies (PFICs) and the imposition of a PFIC tax on the Fund resulting from such investments.

China companies.   Investing in China, Hong Kong and Taiwan involves a high degree of risk and special considerations not typically associated with investing in other more established economies or securities markets. Such risks may include: (a) the risk of nationalization or expropriation of assets or confiscatory taxation; (b) greater social, economic and political uncertainty (including the risk of war); (c) dependency on exports and the corresponding importance of international trade; (d) the increasing competition from Asia’s other low-cost emerging economies; (e) greater price volatility and significantly smaller market capitalization of securities markets, particularly in China; (f) substantially less liquidity, particularly of certain share classes of Chinese securities; (g) currency exchange rate fluctuations and the lack of available currency hedging instruments; (h) higher rates of inflation; (i) controls on foreign investment and limitations on repatriation of invested capital and on the Fund’s ability to exchange local currencies for U.S. dollars; (j) greater governmental involvement in and control over the economy; (k) the risk that the Chinese government may decide not to continue to support the economic reform programs implemented since 1978 and could return to the prior, completely centrally planned, economy; (l) the fact that China companies, particularly those located in China, may be smaller, less seasoned and newly-organized companies; (m) the difference in, or lack of, auditing and financial reporting standards which may result in unavailability of material information about issuers, particularly in China; (n) the fact that statistical information regarding the economy of China may be inaccurate or not comparable to statistical information regarding the U.S. or other economies; (o) the less extensive, and still developing, regulation of the securities markets, business entities and commercial transactions; (p) the fact that the settlement period of securities transactions in foreign markets may be longer; (q) the willingness and ability of the Chinese government to support the Chinese and Hong Kong economies and markets is uncertain; (r) the risk that it may be more difficult, or impossible, to obtain and/or enforce a judgment than in other countries; (s) the rapidity and erratic nature of growth, particularly in China, resulting in inefficiencies and dislocations; and (t) the risk that, because of the degree of interconnectivity between the economies and financial markets of China, Hong Kong and Taiwan, any sizable reduction in the demand for goods from China, or an economic downturn in China, could negatively affect the economies and financial markets of Hong Kong and Taiwan, as well.

Investment in China, Hong Kong and Taiwan is subject to certain political risks. Following the establishment of the People’s Republic of China by the Communist Party in 1949, the Chinese government renounced various debt obligations incurred by China’s predecessor governments, which obligations remain in default, and expropriated assets without compensation. There can be no assurance that the Chinese government will not take similar action in the future. An investment in the Fund involves risk of a total loss. The political reunification of China and Taiwan is a highly problematic issue and is unlikely to be settled in the near future. This situation poses a threat to Taiwan’s economy and could negatively affect its stock market. China has committed by treaty to preserve Hong Kong’s autonomy and its economic, political and social freedoms for fifty years from the July 1, 1997 transfer of sovereignty from Great Britain to China. However, if China would exert its authority so as to alter the economic, political or legal structures or the existing social policy of Hong Kong, investor and business confidence in Hong Kong could be negatively affected, which in turn could negatively affect markets and business performance.

Developing markets or emerging markets.   Investments in companies domiciled or with significant operations in developing market or emerging market countries may be subject to potentially higher risks than investments in developed countries. These risks include, among others (i) less social, political and economic stability; (ii) smaller securities markets with low or nonexistent trading volume, which result in greater illiquidity and greater price volatility; (iii) certain national policies which may restrict the Fund's investment opportunities, including restrictions on investment in issuers or industries deemed sensitive to national interests; (iv) foreign taxation, including less transparent and established taxation policies; (v) less developed regulatory or legal structures governing private or foreign investment or allowing for judicial redress for injury to private property; (vi) the absence, until recently in many developing market countries, of a capital market structure or market-oriented economy; (vii) more widespread corruption and fraud; (viii) the financial institutions with which the Fund may trade may not possess the same degree of financial sophistication, creditworthiness or resources as those in developed markets; and (ix) the possibility that recent favorable economic developments in some developing market countries may be slowed or reversed by unanticipated economic, political or social events in such countries.

In addition, many developing market countries have experienced substantial, and during some periods, extremely high rates of inflation, for many years. Inflation and rapid fluctuations in inflation rates have had, and may continue to have, negative effects on the economies and securities markets of certain countries. Moreover, the economies of some developing market countries may differ unfavorably from the U.S. economy in such respects as growth of gross domestic product, rate of inflation, currency depreciation, debt burden, capital reinvestment, resource self-sufficiency and balance of payments position. The economies of some developing market countries may be based on only a few industries, and may be highly vulnerable to changes in local or global trade conditions.

Settlement systems in developing market countries may be less organized than in developed countries. Supervisory authorities may also be unable to apply standards which are comparable with those in more developed countries. There may be risks that settlement may be delayed and that cash or securities belonging to the Fund may be in jeopardy because of failures of or defects in the settlement systems. Market practice may require that payment be made prior to receipt of the security which is being purchased or that delivery of a security must be made before payment is received. In such cases, default by a broker or bank (the "counterparty") through whom the relevant transaction is effected might result in a loss being suffered by the Fund. The Fund seeks, where possible, to use counterparties whose financial status reduces this risk. However, there can be no certainty that the Fund will be successful in eliminating or reducing this risk, particularly as counterparties operating in developing market countries frequently lack the substance, capitalization and/or financial resources of those in developed countries. Uncertainties in the operation of settlement systems in individual markets may increase the risk of competing claims to securities held by or to be transferred to the Fund. Legal compensation schemes may be non-existent, limited or inadequate to meet the Fund's claims in any of these events.

Securities trading in developing markets presents additional credit and financial risks. The Fund may have limited access to, or there may be a limited number of, potential counterparties that trade in the securities of developing market issuers. Governmental regulations may restrict potential counterparties to certain financial institutions located or operating in the particular developing market. Potential counterparties may not possess, adopt or implement creditworthiness standards, financial reporting standards or legal and contractual protections similar to those in developed markets. Currency and other hedging techniques may not be available or may be limited.

The local taxation of income and capital gains accruing to non-residents varies among developing market countries and may be comparatively high. Developing market countries typically have less well-defined tax laws and procedures and such laws may permit retroactive taxation so that the Fund could in the future become subject to local tax liabilities that had not been anticipated in conducting its investment activities or valuing its assets.

Many developing market countries suffer from uncertainty and corruption in their legal frameworks. Legislation may be difficult to interpret and laws may be too new to provide any precedential value. Laws regarding foreign investment and private property may be weak or non-existent. Investments in developing market countries may involve risks of nationalization, expropriation and confiscatory taxation. For example, the Communist governments of a number of Eastern European countries expropriated large amounts of private property in the past, in many cases without adequate compensation, and there can be no assurance that such expropriation will not occur in the future. In the event of expropriation, the Fund could lose all or a substantial portion of any investments it has made in the affected countries. Accounting, auditing and reporting standards in certain countries in which the Fund may invest may not provide the same degree of investor protection or information to investors as would generally apply in major securities markets. In addition, it is possible that purported securities in which the Fund invested may subsequently be found to be fraudulent and as a consequence the Fund could suffer losses.

Finally, currencies of developing market countries are subject to significantly greater risks than currencies of developed countries. Some developing market currencies may not be internationally traded or may be subject to strict controls by local governments, resulting in undervalued or overvalued currencies and associated difficulties with the valuation of assets, including the Fund's securities, denominated in that currency. Some developing market countries have experienced balance of payment deficits and shortages in foreign exchange reserves. Governments have responded by restricting currency conversions. Future restrictive exchange controls could prevent or restrict a company's ability to make dividend or interest payments in the original currency of the obligation (usually U.S. dollars). In addition, even though the currencies of some developing market countries, such as certain Eastern European countries, may be convertible into U.S. dollars, the conversion rates may be artificial to the actual market values and may be adverse to the Fund's shareholders.

Foreign corporate debt securities   Foreign corporate debt securities, including Samurai bonds, Yankee bonds, Eurobonds and Global Bonds, may be purchased to gain exposure to investment opportunities in other countries in a certain currency. A Samurai bond is a yen-denominated bond issued in Japan by a non-Japanese company. Eurobonds are foreign bonds issued and traded in countries other than the country and currency in which the bond was denominated. Eurobonds generally trade on a number of exchanges and are issued in bearer form, carry a fixed or floating rate of interest, and typically amortize principal through a single payment for the entire principal at maturity with semiannual interest payments. Yankee bonds are bonds denominated in U.S. dollars issued by foreign banks and corporations, and registered with the SEC for sale in the U.S. A Global Bond is a certificate representing the total debt of an issue. Such bonds are created to control the primary market distribution of an issue in compliance with selling restrictions in certain jurisdictions or because definitive bond certificates are not available. A Global Bond is also known as a Global Certificate.

Foreign currency exchange rates   Changes in foreign currency exchange rates will affect the U.S. dollar market value of securities denominated in such foreign currencies and any income received or expenses paid by the Fund in that foreign currency. This may affect the Fund's share price, income and distributions to shareholders. Some countries may have fixed or managed currencies that are not free-floating against the U.S. dollar. It will be more difficult for the investment manager to value securities denominated in currencies that are fixed or managed. Certain currencies may not be internationally traded, which could cause illiquidity with respect to the Fund's investments in that currency and any securities denominated in that currency. Currency markets generally are not as regulated as securities markets. The Fund endeavors to buy and sell foreign currencies on as favorable a basis as practicable. Some price spread in currency exchanges (to cover service charges) may be incurred, particularly when the Fund changes investments from one country to another or when proceeds of the sale of securities in U.S. dollars are used for the purchase of securities in foreign countries. Some countries may adopt policies that would prevent the Fund from transferring cash out of the country or withhold portions of interest and dividends at the source.

Certain currencies have experienced a steady devaluation relative to the U.S. dollar. Any devaluations in the currencies in which the Fund's portfolio securities are denominated may have a detrimental impact on the Fund. Where the exchange rate for a currency declines materially after the Fund's income has been accrued and translated into U.S. dollars, the Fund may need to redeem portfolio securities to make required distributions. Similarly, if an exchange rate declines between the time the Fund incurs expenses in U.S. dollars and the time such expenses are paid, the Fund will have to convert a greater amount of the currency into U.S. dollars in order to pay the expenses.

Investing in foreign currencies for purposes of gaining from projected changes in exchange rates further increases the Fund's exposure to foreign securities losses.

Foreign governmental and supranational debt securities   The Fund's investments in debt securities may include debt securities of sovereign, governmental or supranational issuers. Such investments are subject to all the risks associated with investment in U.S. and foreign securities and certain additional risks.

Foreign government and sovereign debt securities include debt securities issued, sponsored or guaranteed by: governments or governmental agencies, instrumentalities, or political subdivisions located in emerging or developed market countries; government owned, controlled or sponsored entities located in emerging or developed market countries; entities organized and operated for the purpose of restructuring the investment characteristics of instruments issued by any of the above issuers.

A supranational entity is a bank, commission or company established or financially supported by the national governments of one or more countries to promote reconstruction, trade, harmonization of standards or laws, economic development, and humanitarian, political or environmental initiatives. Supranational debt obligations include: Brady Bonds (which are debt securities issued under the framework of the Brady Plan as a means for debtor nations to restructure their outstanding external indebtedness); participations in loans between emerging market governments and financial institutions; and debt securities issued by supranational entities such as the World Bank, Asia Development Bank, European Investment Bank and the European Economic Community.

Foreign government and sovereign debt securities are subject to risks in addition to those relating to debt securities generally. Governmental issuers of foreign debt securities may be unwilling to pay interest and repay principal, or otherwise meet obligations, when due and may require that the conditions for payment be renegotiated. As a sovereign entity, the issuing government may be immune from lawsuits in the event of its failure or refusal to pay the obligations when due. The debtor's willingness or ability to repay in a timely manner may be affected by, among other factors, its cash flow situation, the extent of its non-U.S. reserves, the availability of sufficient non-U.S. currency on the date a payment is due, the relative size of the debt service burden to the issuing country's economy as a whole, the sovereign debtor's policy toward principal international lenders and the political constraints to which the sovereign debtor may be subject. Governmental debtors also will be dependent on expected disbursements from foreign governments or multinational agencies and the country's access to, or balance of, trade. Some emerging market governmental debtors have in the past rescheduled their debt payments or declared moratoria on payments, and similar occurrences may happen in the future. There is no bankruptcy proceeding by which the Fund may collect in whole or in part on debt subject to default by a government.

High-yield debt securities   High-yield or lower-rated debt securities (also referred to as "junk bonds") are securities that have been rated by Moody's or S&P below their top four rating categories (e.g., BB or Ba and lower) and are considered below investment grade. These securities generally have greater risk with respect to the payment of interest and repayment of principal, or may be in default and are often considered to be speculative and involve greater risk of loss because they are generally unsecured and are often subordinated to other debt of the issuer.

Adverse publicity, investor perceptions, whether or not based on fundamental analysis, or real or perceived adverse economic and competitive industry conditions may decrease the values and liquidity of lower-rated debt securities, especially in a thinly traded market. Analysis of the creditworthiness of issuers of lower-rated debt securities may be more complex than for issuers of higher- rated securities. The Fund relies on the investment manager's judgment, analysis and experience in evaluating the creditworthiness of an issuer of lower-rated securities. In such evaluations, the investment manager takes into consideration, among other things, the issuer's financial resources, its sensitivity to economic conditions and trends, its operating history, the quality of the issuer's management and regulatory matters. There can be no assurance the investment manager will be successful in evaluating the creditworthiness of an issuer or the value of high-yield debt securities generally.

The prices of lower-rated debt securities may be less sensitive to interest rate changes than higher rated debt securities, but more sensitive to economic downturns or individual adverse corporate developments. Market anticipation of an economic downturn or of rising interest rates, for example, could cause a decline in lower-rated debt securities prices. This is because an economic downturn could lessen the ability of a highly leveraged company to make principal and interest payments on its debt securities. Similarly, the impact of individual adverse corporate developments, or public perceptions thereof, will be greater for lower-rated securities because the issuers of such securities are more likely to enter bankruptcy. If the issuer of lower-rated debt securities defaults, the Fund may incur substantial expenses to seek recovery of all or a portion of its investments or to exercise other rights as a security holder. The Fund may choose, at its expense or in conjunction with others, to pursue litigation or otherwise to exercise its rights as a security holder to seek to protect the interests of security holders if it determines this to be in the best interest of the Fund's shareholders.

Lower-rated debt securities frequently have call or buy-back features that allow an issuer to redeem the securities from their holders. Although these securities are typically not callable for a period of time, usually for three to five years from the date of issue, the Fund will be exposed to prepayment risk.

The markets in which lower-rated debt securities are traded are more limited than those in which higher-rated securities are traded. The existence of limited markets for particular securities may diminish the Fund's ability to sell the securities at desirable prices to meet redemption requests or to respond to a specific economic event, such as deterioration in the creditworthiness of the issuer. Reduced secondary market liquidity for certain lower-rated debt securities also may make it more difficult for the Fund to obtain accurate market quotations for the purposes of valuing the Fund's portfolio. Market quotations are generally available on many lower-rated securities only from a limited number of dealers and may not necessarily represent firm bids of such dealers or prices of actual sales, which may limit the Fund's ability to rely on such quotations.

Some lower-rated debt securities are sold without registration under federal securities laws and, therefore, carry restrictions on resale. While many of such lower-rated debt securities have been sold with registration rights, covenants and penalty provisions for delayed registration, if the Fund is required to sell restricted securities before the securities have been registered, it may be deemed an underwriter of the securities under the Securities Act of 1933, which entails special responsibilities and liabilities. The Fund also may incur extra costs when selling restricted securities, although the Fund will generally not incur any costs when the issuer is responsible for registering the securities.

High-yield, fixed-income securities acquired during an initial underwriting involve special credit risks because they are new issues. The investment manager will carefully review the issuer's credit and other characteristics.

The credit risk factors described above also apply to high-yield zero coupon, deferred interest and pay-in-kind securities. These securities have an additional risk, however, because unlike securities that pay interest periodically until maturity, zero coupon bonds and similar securities will not make any interest or principal payments until the cash payment date or maturity of the security. If the issuer defaults, the Fund may not obtain any return on its investment.

Illiquid securities   Generally, an "illiquid security" is any security that cannot be disposed of within seven days at approximately the amount at which the Fund has valued the instrument. Illiquid securities generally include securities for which no market exists or which are legally restricted as to their transfer (such as those issued pursuant to an exemption from the registration requirements of the federal securities laws). Restricted securities are generally sold in privately negotiated transactions, pursuant to an exemption from registration under the 1933 Act, or in a registered public offering. If registration is required, the Fund, as the holder of an unregistered security, may be obligated to pay all or part of the registration expense and a considerable period may elapse between the time it decides to seek registration and the time it will be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, the Fund might obtain a less favorable price than prevailed when it decided to seek registration of the security. To the extent the investment manager determines there is a liquid institutional or other market for restricted securities, the Fund considers them to be liquid securities. An example is a restricted security that may be freely transferred among qualified institutional buyers pursuant to Rule 144A under the 1933 Act, and for which a liquid institutional market has developed. Rule 144A securities may be subject, however, to a greater possibility of becoming illiquid than securities that have been registered with the SEC.

The Fund's board of trustees will review on a periodic basis any determination by the investment manager to treat a restricted security as liquid. In determining whether a restricted security is properly considered a liquid security, the investment manager takes into account the following factors: (i) the frequency of trades and quotes for the security; (ii) the number of dealers willing to buy or sell the security and the number of other potential buyers; (iii) any dealer undertakings to make a market in the security; and (iv) the nature of the security and of the marketplace trades (e.g., any demand, put or tender features, the method of soliciting offers, the mechanics and other requirements for transfer, and the ability to assign or offset the rights and obligations of the security). The nature of the security and its trading includes the time needed to sell the security, the method of soliciting offers to purchase or sell the security, and the mechanics of transferring the security including the role of parties such as foreign or U.S. custodians, subcustodians, currency exchange brokers, and depositories.

The sale of illiquid securities often requires more time and results in higher brokerage charges or dealer discounts and other selling expenses than the sale of securities eligible for trading on national securities exchanges or in the over-the-counter (OTC) markets. Illiquid securities often sell at a price lower than similar securities that are not subject to restrictions on resale.

The risk to the Fund in holding illiquid securities is that they may be more difficult to sell if the Fund wants to dispose of the security in response to adverse developments or in order to raise money for redemptions or other investment opportunities. Illiquid trading conditions may also make it more difficult for the Fund to realize a security's fair value.

The Fund may also be unable to achieve its desired level of exposure to a certain security, issuer, or sector due to overall limitations on its ability to invest in illiquid securities and the difficulty in purchasing such securities.

Investment company securities   The Fund may invest in other investment companies to the extent permitted by the 1940 Act, SEC rules thereunder and exemptions thereto. To the extent that a fund invests in another investment company, because other investment companies charge advisory, administrative and service fees to investors such as the Fund, there may be duplication of investment management and other fees. The Fund may also invest its cash balances in affiliated money market funds to the extent permitted by its investment policies and rules and exemptions granted under the 1940 Act.

Exchange-traded funds.   The Fund may invest in exchange-traded funds (ETFs). ETFs are regulated as registered investment companies under the 1940 Act. Many ETFs acquire and hold securities of all of the companies or other issuers, or a representative sampling of companies or other issuers, that are components of a particular index. Such ETFs are intended to provide investment results that, before expenses, generally correspond to the price and yield performance of the corresponding market index, and the value of their shares should, under normal circumstances, closely track the value of the index's underlying component securities. Because an ETF has operating expenses and transaction costs, while a market index does not, ETFs that track particular indices typically will be unable to match the performance of the index exactly. ETF shares may be purchased and sold in the secondary trading market on a securities exchange, in lots of any size, at any time during the trading day. More recently, actively managed ETFs have been created that are managed similarly to other investment companies.

The shares of an ETF may be assembled in a block (typically 50,000 shares) known as a creation unit and redeemed in kind for a portfolio of the underlying securities (based on the ETF's net asset value) together with a cash payment generally equal to accumulated dividends as of the date of redemption. Conversely, a creation unit may be purchased from the ETF by depositing a specified portfolio of the ETF's underlying securities, as well as a cash payment generally equal to accumulated dividends of the securities (net of expenses) up to the time of deposit.

ETF shares, as opposed to creation units, are generally purchased and sold by smaller investors in a secondary market on a securities exchange. ETF shares can be traded in lots of any size, at any time during the trading day. Although the Fund, like most other investors in ETFs, intends to purchase and sell ETF shares primarily in the secondary trading market, the Fund may redeem creation units for the underlying securities (and any applicable cash), and may assemble a portfolio of the underlying securities and use it (and any required cash) to purchase creation units, if the investment manager believes it is in the Fund's best interest to do so.

An investment in an ETF is subject to all of the risks of investing in the securities held by the ETF and have the same risks as investing in a closed-end fund. In addition, because of the ability of large market participants to arbitrage price differences by purchasing or redeeming creation units, the difference between the market value and the net asset value of ETF shares should in most cases be small. An ETF may be terminated and need to liquidate its portfolio securities at a time when the prices for those securities are falling.

Investment grade debt securities   Debt securities that are rated Baa or higher by Moody's, BBB or higher by S&P, or unrated securities deemed by the Fund's investment manager to be of comparable quality, are considered to be "investment grade." Generally, a higher rating indicates the rating agency's opinion that there is less risk of default of obligations thereunder including timely repayment of principal and payment of interest. Debt securities in the lowest investment grade category may have speculative characteristics and more closely resemble high-yield debt securities than investment-grade debt securities. Lower-rated securities may be subject to all the risks applicable to high-yield debt securities and changes in economic conditions or other circumstances are more likely to lead to a weakened capacity to make principal and interest payments than is the case with higher grade debt securities.

A number of risks associated with rating organizations apply to the purchase or sale of investment grade debt securities.

Repurchase agreements   Under a repurchase agreement, the Fund agrees to buy securities guaranteed as to payment of principal and interest by the U.S. government or its agencies or instrumentalities from a qualified bank or broker-dealer and then to sell the securities back to the bank or broker-dealer on an agreed upon date (generally less than seven days) at a higher price, which reflects currently prevailing short-term interest rates. Entering into repurchase agreements allows the Fund to earn a return on cash in the Fund's portfolio that would otherwise remain un-invested. The bank or broker-dealer must transfer to the Fund's custodian, as collateral, securities with an initial market value of at least 102% of the dollar amount paid by the Fund to the counterparty. The investment manager will monitor the value of such collateral daily to determine that the value of the collateral equals or exceeds the repurchase price.

Repurchase agreements may involve risks in the event of default or insolvency of the bank or broker-dealer, including possible delays or restrictions upon the Fund's ability to sell the underlying securities and additional expenses in seeking to enforce the Fund's rights and recover any losses. The Fund will enter into repurchase agreements only with parties who meet certain creditworthiness standards, i.e., banks or broker-dealers that the investment manager has determined, based on the information available at the time, present no serious risk of becoming involved in bankruptcy proceedings within the time frame contemplated by the repurchase agreement. Although the Fund seeks to limit the credit risk under a repurchase agreement by carefully selecting counterparties and accepting only high quality collateral, some credit risk remains. The counterparty could default which may make it necessary for the Fund to incur expenses to liquidate the collateral. In addition, the collateral may decline in value before it can be liquidated by the Fund.

A repurchase agreement with more than seven days to maturity is considered an illiquid security and is subject to the Fund's investment restriction on illiquid securities.

Securities lending   To generate additional income, the Fund may lend certain of its portfolio securities to qualified banks and broker-dealers (referred to as "borrowers"). In exchange, the Fund receives cash collateral from a borrower at least equal to the value of the security loaned by the Fund. Cash collateral typically consists of any combination of cash, securities issued by the U.S. government and its agencies and instrumentalities, and irrevocable letters of credit. The Fund may invest this cash collateral while the loan is outstanding and generally retains part or all of the interest earned on the cash collateral. Securities lending allows the Fund to retain ownership of the securities loaned and, at the same time, earn additional income.

For each loan, the borrower usually must maintain with the Fund's custodian collateral with an initial market value at least equal to 102% of the market value of the domestic securities loaned (or 105% of the market value of foreign securities loaned), including any accrued interest thereon. Such collateral will be marked-to-market daily, and if the coverage falls below 100%, the borrower will be required to deliver additional collateral equal to at least 102% of the market value of the domestic securities loaned (or 105% of the foreign securities loaned).

The Fund retains all or a portion of the interest received on investment of the cash collateral or receives a fee from the borrower. The Fund also continues to receive any distributions paid on the loaned securities. The Fund seeks to maintain the ability to obtain the right to vote or consent on proxy proposals involving material events affecting securities loaned. The Fund may terminate a loan at any time and obtain the return of the securities loaned within the normal settlement period for the security involved.

If the borrower defaults on its obligation to return the securities loaned because of insolvency or other reasons, the Fund could experience delays and costs in recovering the securities loaned or in gaining access to the collateral. These delays and costs could be greater for foreign securities. If the Fund is not able to recover the securities loaned, the Fund may sell the collateral and purchase a replacement investment in the market. Additional transaction costs would result, and the value of the collateral could decrease below the value of the replacement investment by the time the replacement investment is purchased. Until the replacement can be purchased, the Fund will not have the desired level of exposure to the security which the borrower failed to return. Cash received as collateral through loan transactions may be invested in other eligible securities, including shares of a money market fund. Investing this cash subjects the Fund to greater market risk including losses on the collateral and, should the Fund need to look to the collateral in the event of the borrower's default, losses on the loan secured by that collateral.

The Fund will loan its securities only to parties who meet creditworthiness standards approved by the Fund's board of trustees (i.e., banks or broker-dealers that the investment manager has determined are not apparently at risk of becoming involved in bankruptcy proceedings within the time frame contemplated by the loan).

Subscription rights   Nothing herein shall be deemed to prohibit the Fund from purchasing the securities of any issuer pursuant to the exercise of subscription rights distributed to the Fund by the issuer, except that no such purchase may be made if, as a result, the Fund would no longer be a diversified investment company as defined in the 1940 Act. Foreign corporations frequently issue additional capital stock by means of subscription rights offerings to existing shareholders at a price below the market price of the shares. The failure to exercise such rights would result in dilution of the Fund's interest in the issuing company.

Temporary investments   When the investment manager believes market or economic conditions are unfavorable for investors, the investment manager may invest up to 100% of the Fund's assets in temporary defensive investments, including cash, cash equivalents or other high quality short-term investments, such as short-term debt instruments, including U.S. government securities, high grade commercial paper, repurchase agreements, negotiable certificates of deposit, non-negotiable fixed time deposits, bankers acceptances, and other money market equivalents. To the extent allowed by exemptions from or Rules under the 1940 Act and the Fund's other investment policies and restrictions, the investment manager also may invest the Fund's assets in shares of one or more money market funds managed by the investment manager or its affiliates. Unfavorable market or economic conditions may include excessive volatility or a prolonged general decline in the securities markets, the securities in which the Fund normally invests, or the economies of the countries where the Fund invests. Temporary defensive investments can and do experience default. The likelihood of default on a temporary defensive investment may increase in the market or economic conditions which are likely to trigger the Fund's investment therein. The investment manager also may invest in these types of securities or hold cash while looking for suitable investment opportunities or to maintain liquidity. When the Fund's assets are invested in temporary investments, the Fund may not be able to achieve its investment goal.

Unrated debt securities   Not all debt securities or their issuers are rated by rating agencies, sometimes due to the size of or manner of the securities offering, the decision by one or more rating agencies not to rate certain securities or issuers as a matter of policy, or the unwillingness or inability of the issuer to provide the prerequisite information and fee to the rating agencies. Some debt securities markets may have a disproportionately large number of unrated issuers.

In evaluating unrated securities, the investment manager may consider, among other things, the issuer's financial resources, its sensitivity to economic conditions and trends, its operating history, the quality of the issuer's management and regulatory matters. Although unrated debt securities may be considered to be of investment grade quality, issuers typically pay a higher interest rate on unrated than on investment grade rated debt securities. Less information is typically available to the market on unrated securities and obligors, which may increase the potential for credit and valuation risk.

The following is a description of the general risks associated with the Fund's investing in debt securities:

Credit risk   Debt securities are subject to the risk of an issuer's (or other party's) failure or inability to meet its obligations under the security. Multiple parties may have obligations under a debt security. An issuer or borrower may fail to pay principal and interest when due. A guarantor, insurer or credit support provider may fail to provide the agreed upon protection. A counterparty to a transaction may fail to perform its side of the bargain. An intermediary or agent interposed between the investor and other parties may fail to perform the terms of its service. Also, performance under a debt security may be linked to the obligations of other persons who may fail to meet their obligations. The credit risk associated with a debt security could increase to the extent that the Fund's ability to benefit fully from its investment in the security depends on the performance by multiple parties of their respective contractual or other obligations. The market value of a debt security is also affected by the market's perception of the creditworthiness of the issuer.

The Fund may incur substantial losses on debt securities that are inaccurately perceived to present a different amount of credit risk than they actually do by the market, the investment manager or the rating agencies. Credit risk is generally greater where less information is publicly available, where fewer covenants safeguard the investors' interests, where collateral may be impaired or inadequate, where little legal redress or regulatory protection is available, or where a party's ability to meet obligations is speculative.

Obligations under debt securities held by the Fund may never be satisfied or, if satisfied, only satisfied in part.

Some securities, such as those issued by the United States Treasury or that are backed by the full faith and credit of the United States, have minimal credit risks. Credit risk is a greater concern for high-yield debt securities and debt securities of issuers whose ability to pay interest and principal may be considered speculative. Debt securities are typically classified as investment grade-quality (medium to highest credit quality) or below investment grade-quality (commonly referred to as high-yield or junk bonds). Many individual debt securities are rated by a third party source, such as Moody's or S&P^® to help describe the creditworthiness of the issuer.

Debt securities ratings   The investment manager performs its own independent investment analysis of securities being considered for the Fund's portfolio, which includes consideration of, among other things, the issuer's financial resources, its sensitivity to economic conditions and trends, its operating history, the quality of the issuer's management and regulatory matters. The investment manager also considers the ratings assigned by various investment services and independent rating organizations, such as Moody's and S&P, that publish ratings based upon their assessment of the relative creditworthiness of the rated debt securities. Generally, a lower rating indicates higher credit risk, and higher yields are ordinarily available from debt securities in the lower rating categories to compensate investors for the increased credit risk. These ratings are described at the end of this SAI under "Description of Ratings."

Any use of credit ratings in evaluating debt securities can involve certain risks. For example, ratings assigned by the rating agencies are based upon an analysis completed at the time of the rating of the obligor's ability to pay interest and repay principal, typically relying to a large extent on historical data. Rating agencies typically rely to a large extent on historical data which may not accurately represent present or future circumstances. Ratings do not purport to reflect the risk of fluctuations in market value of the debt security and are not absolute standards of quality and only express the rating agency's current opinion of an obligor's overall financial capacity to pay its financial obligations. A credit rating is not a statement of fact or a recommendation to purchase, sell or hold a debt obligation. Also, credit quality can change suddenly and unexpectedly, and credit ratings may not reflect the issuer's current financial condition or events since the security was last rated. Rating agencies may have a financial interest in generating business, including from the arranger or issuer of the security that normally pays for that rating, and a low rating might affect future business. While rating agencies have policies and procedures to address this potential conflict of interest, there is a risk that these policies will fail to prevent a conflict of interest from impacting the rating. Additionally, legislation has recently been enacted in an effort to reform rating agencies. Rules have also recently been adopted by the SEC to require rating agencies to provide additional disclosure and reduce conflicts of interest, and further reform has been proposed. It is uncertain how such legislation or additional regulation might impact the ratings agency business and the investment manager's investment process.

Interest rate risk   The market value of debt securities generally varies in response to changes in prevailing interest rates. Interest rate changes can be sudden and unpredictable. During periods of declining interest rates, the market value of debt securities generally increases. Conversely, during periods of rising interest rates, the market value of debt securities generally declines. This occurs because new debt securities are likely to be issued with higher interest rates as interest rates increase, making the old or outstanding debt securities less attractive. In general, the market prices of long-term debt securities or securities that make little (or no) interest payments are more sensitive to interest rate fluctuations than shorter-term debt securities. The longer the Fund's average weighted portfolio maturity, the greater the impact a change in interest rates will have on its share price.

The following is a description of the other general risks associated with the Fund's investments:

Focus   The greater the Fund's exposure to (or focus on) any single type of investment – including investment in a given industry, sector, country, region, or type of security – the greater the impact the performance of that investment will have on the Fund's performance. To the extent the Fund has greater exposure to any single type of investment, the Fund's potential for loss (or gain) will be greater than if its portfolio were invested more broadly in many types of investments.

The Fund's exposure to such industries, sectors, regions and other investments may also arise indirectly through the Fund's investments in debt securities (e.g. mortgage or asset-backed securities) that are secured by such investments. Similar risks associated with focusing on a particular type of investment may result if real properties and collateral securing the Fund's investments are located in the same geographical region or subject to the same risks or concerns.

Inside information risk   The investment manager (through its representatives or otherwise) may receive information that restricts the investment manager's ability to cause the Fund to buy or sell securities of an issuer for substantial periods of time when the Fund otherwise could realize profit or avoid loss. This may adversely affect the Fund's flexibility with respect to buying or selling securities.

Liquidity   Liquidity risk exists when particular investments are or become difficult to purchase or sell at the price at which the Fund has valued the security, whether because of current market conditions or the specific type of investment. If the market for a particular security becomes illiquid (for example, due to changes in the issuer's financial condition), the Fund may be unable to sell such security at an advantageous time or price due to the difficulty in selling such securities. Additionally, the market for certain debt securities may become illiquid under adverse market or economic conditions independent of any specific adverse changes in the conditions of a particular issuer. Liquidity risk generally increases (meaning that securities become more illiquid) as the number, or relative need, of investors seeking to liquidate in a given market increases.

The Fund may also need to sell some of the Fund's more liquid securities when it otherwise would not do so in order to increase liquidity, even if such sale of the liquid holdings would be disadvantageous from an investment standpoint. Reduced liquidity may also have an adverse impact on a security's market value and the sale of such securities often results in higher brokerage charges or dealer discounts and other selling expenses. Reduced liquidity in the secondary market for certain securities will also make it more difficult for the Fund to obtain market quotations based on actual trades for purposes of valuing the Fund's portfolio and thus pricing may be prone to error when market quotations are volatile, infrequent and/or subject to large spreads between bid and ask prices.

To the extent that the Fund's principal investment strategies involve foreign (non-U.S.) securities or securities with a thin trading market, the Fund will tend to have greater exposure to liquidity risk.

Management   The investment manager's judgments about markets, interest rates or the attractiveness, relative values or potential appreciation of particular investment strategies or sectors or securities purchased for the Fund's portfolio may prove to be incorrect, all of which could cause the Fund to perform less favorably and may result in a decline in the Fund's share price.

The investment manager selects investments for the Fund based in part on information and data that the issuers of such securities file with various government agencies or make directly available to the investment manager or that the investment manager obtains from other sources. The investment manager is not in a position to confirm the completeness, genuineness or accuracy of such information and data, and in some cases, complete and accurate information is not readily available. Additionally, legislative, regulatory, or tax developments may affect the investment techniques available to the investment manager in connection with managing the Fund and may also adversely affect the ability of the Fund to achieve its investment goal. Management risk is greater when less qualitative information is available to the investment manager about an investment.

Market risk   The market price value of securities owned by the Fund may go up or down, sometimes rapidly or unpredictably due to general market conditions which are not specifically related to a single corporate borrower or security issuer. These general market conditions include real or perceived adverse economic or regulatory conditions, changes in the general outlook for corporate earnings, changes in interest or currency exchange rates or adverse investor sentiment generally. Market values may also decline due to factors which affect a particular industry or sector, such as labor shortages or increased production costs and competitive conditions within an industry, or a particular segment, such as mortgage or government securities. During a general downturn in the securities markets, multiple asset classes may decline in value simultaneously. When markets perform well, there can be no assurance that the Fund's securities will participate in or otherwise benefit from the advance.

Non-Diversification   The Fund is classified as non-diversified for purposes of the 1940 Act. This means it generally does, with respect to more than 25% of the Fund's assets, invests more than 5% of the Fund's assets (taken at market value at the time of purchase) in the outstanding securities of any single issuer and/or owns more than 10% of the outstanding voting securities of any one issuer. However, the Fund intends to meet certain diversification requirements for tax purposes. Generally, to meet federal tax requirements at the close of each quarter, the Fund will not invest more than 25% of its total assets in any one issuer and, with respect to 50% of total assets, will not invest more than 5% of its total assets in any one issuer or more than 10% of the issuer's outstanding voting securities. These limitations do not apply to U.S. government securities and securities issued by regulated investment companies. If applicable federal income tax requirements are revised, the Fund may change its diversification policies without obtaining shareholder approval.

Because the Fund generally invests a greater portion of its assets in a smaller number of issuers and in any one issuer than a diversified fund, the Fund may be more sensitive to a single economic, business, political, regulatory or other occurrence or to the financial results of a single issuer than a more diversified fund might be. Similarly, the Fund's credit risk increases as more of the Fund's assets are invested in a smaller number of issuers.

Portfolio turnover   Portfolio turnover is a measure of how frequently the Fund's portfolio securities are bought and sold. High portfolio turnover rates generally increase transaction costs, which are Fund expenses. Such portfolio transactions may also result in the realization of taxable capital gains, including short-term capital gains, which are generally taxable at ordinary income tax rates for federal income tax purposes for shareholders subject to income tax and who hold their shares in a taxable account. Higher transaction costs reduce the Fund's returns.

The SEC requires annual portfolio turnover to be calculated generally as the lesser of a fund's purchases or sales of portfolio securities during a given fiscal year, divided by the monthly average value of the Fund's portfolio securities owned during that year (excluding securities with a maturity or expiration date that, at the time of acquisition, was less than one year). For example, a fund reporting a 100% portfolio turnover rate would have purchased and sold securities worth as much as the monthly average value of its portfolio securities during the year. The portfolio turnover rates for the Fund are disclosed in the sections entitled "Portfolio Turnover" and "Financial Highlights" of the Fund's prospectus.

Portfolio turnover is affected by factors within and outside the control of the Fund and its investment manager. The investment manager's investment outlook for the type of securities in which the Fund invests may change as a result of unexpected developments in domestic or international securities markets, or in economic, monetary or political relationships. High market volatility may result in the investment manager using a more active trading strategy than it might have otherwise pursued. The Fund's investment manager will consider the economic effects of portfolio turnover but generally will not treat portfolio turnover as a limiting factor in making investment decisions. Investment decisions affecting turnover may include changes in investment policies or management personnel, as well as individual portfolio transactions.

Factors wholly outside the control of the investment manager that may increase portfolio turnover include increased merger and acquisition activity, or increased rates of bankruptcy or default, that may create involuntary transactions for funds that hold affected securities.

The rate of bond calls by issuers of fixed-income debt securities may increase as interest rates decline. This causes "sales" of called bonds by the Fund and the subsequent purchase of replacement investments.

In addition, redemptions or exchanges by investors may require the liquidation of portfolio securities. Changes in particular portfolio holdings may also be made whenever a security is considered to be no longer the most appropriate investment for the Fund, or another security appears to have a relatively better opportunity.

Policies and procedures regarding the release of portfolio holdings   The Fund's overall policy with respect to the release of portfolio holdings is to release such information consistent with applicable legal requirements and the fiduciary duties owed to shareholders. Subject to the limited exceptions described below, the Fund will not make available to anyone non-public information with respect to its portfolio holdings, until such time as the information is made available to all shareholders or the general public.

For purposes of this policy, portfolio holdings information does not include aggregate, composite or descriptive information that does not present risks of dilution, arbitrage, market timing, insider trading or other inappropriate trading for the Fund. Information excluded from the definition of portfolio holdings information generally includes, without limitation: (1) descriptions of allocations among asset classes, regions, countries or industries/sectors; (2) aggregated data such as average or median ratios, market capitalization, credit quality or duration; (3) performance attributions by industry, sector or country; or (4) aggregated risk statistics. Such information, if made available to anyone, will be made available to any person upon request, but, because such information is generally not material to investors, it may or may not be posted on the Fund's website. In addition, other information may also be deemed to not be portfolio holdings information if, in the reasonable belief of the Fund's Chief Compliance Officer (or his/her designee), the release of such information would not present risks of dilution, arbitrage, market timing, insider trading or other inappropriate trading for the Fund.

Consistent with current law, the Fund releases complete portfolio holdings information each fiscal quarter through regulatory filings with no more than a 60-day lag.

In addition, a complete list of the Fund's portfolio holdings is generally released no sooner than 20 calendar days after the end of each calendar quarter. Commentaries and other materials that may reference specific holdings information of the Fund as of the most recent calendar quarter end are also subject to the same 20-day lag requirement. Other descriptive information, such as the Fund's top 10 holdings, may be released monthly, no sooner than five days after the end of each month. Released portfolio holdings information can be viewed on franklintempleton.com.

To the extent that this policy would permit the release of portfolio holdings information regarding a particular portfolio holding for the Fund that is the subject of ongoing purchase or sale orders/programs, or if the release of such portfolio holdings information would otherwise be sensitive or inappropriate, the portfolio manager for the Fund may request that the release of such information be withheld.

Exceptions to the portfolio holdings release policy will be made only when: (1) the Fund has a legitimate business purpose for releasing portfolio holdings information in advance of release to all shareholders or the general public; (2) the recipient is subject to a duty of confidentiality pursuant to a signed non-disclosure agreement; and (3) the release of such information would not otherwise violate the antifraud provisions of the federal securities laws or the Fund's fiduciary duties. The determination of whether to grant an exception, which includes the determination of whether the Fund has a legitimate business purpose for releasing portfolio holdings information in advance of release to all shareholders or the general public shall be made by the Fund's Chief Compliance Officer or his/her designee, following a request submitted in writing.

The eligible third parties to whom portfolio holdings information may be released in advance of general release fall into the following categories: data consolidators (including rating agencies), fund rating/ranking services and other data providers, service providers to the Fund, and municipal securities brokers using the Investor Tools product which brings together buyers and sellers of municipal securities in the normal operation of the municipal securities markets. In addition, should the Fund process a shareholder’s redemption request in-kind, the Fund may, under certain circumstances, provide portfolio holdings information to such shareholder to the extent necessary to allow the shareholder to prepare for receipt of such portfolio securities.

The specific entities to whom the Fund may provide portfolio holdings in advance of their release to the general public are:

• Bloomberg, Capital Access, CDA (Thomson Reuters), FactSet, Fidelity Advisors, Standard & Poor's, Vestek, and Fidelity Trust Company, all of whom may receive portfolio holdings information 15 days after the quarter end.
• Service providers to the Fund that receive portfolio holdings information from time to time in advance of general release in the course of performing, or to enable them to perform, services for the Fund, including: Custodian Bank: JPMorgan Chase Bank; Independent Registered Public Accounting Firm: PricewaterhouseCoopers LLP; Outside Fund Legal Counsel: Stradley Ronon Stevens & Young, LLP; Independent Directors'/Trustees' Counsel: Bleakley, Platt & Schmidt, LLP; Proxy Voting Services: Glass, Lewis & Co. and RiskMetrics Group; Brokerage Analytical Services: Sanford Bernstein, Brown Brothers Harriman, Royal Bank of Canada Capital Markets, JP Morgan Securities Inc.; Financial Printers: RR Donnelley & Sons Company or GCOM Solutions, Inc.

In all cases, eligible third parties are required to execute a non-disclosure agreement. Non-disclosure agreements include the following provisions:

• The recipient agrees to keep confidential, and to limit the dissemination of, any portfolio holdings information received.
• The recipient agrees not to trade on the non-public information received, including some or all of the following: (1) agreeing not to purchase or sell any portfolio securities based on any information received; (2) agreeing not to trade against any U.S. registered Franklin or Templeton fund, including the Fund; (3) agreeing not to knowingly engage in any trading practices that are adverse to any such fund; and (4) agreeing not to trade in shares of any such fund.
• The recipient agrees to refresh its representation as to confidentiality and abstention from trading upon request from Franklin Templeton.

In no case does the Fund receive any compensation in connection with the arrangements to release portfolio holdings information to any of the above-described recipients of the information.

Several investment managers within Franklin Templeton Investments (F-T Managers) serve as investment managers to offshore funds that are registered or otherwise authorized for sale with foreign regulatory authorities. The release of portfolio holdings information for such offshore funds is excluded from the Fund's portfolio holdings release policy if such information is given to offshore banks, broker-dealers, insurance companies, registered investment managers and other financial institutions (offshore investment managers) with discretionary authority to select offshore funds on behalf of their clients. Because such offshore funds may from time to time invest in securities substantially similar to those of the Fund, there is the risk that such portfolio holdings information may be used to trade inappropriately against the Fund. To mitigate such risks, such information may only be disclosed for portfolio analytics, such as risk analysis/asset allocation, and the offshore investment manager will be required to execute a non-disclosure agreement, whereby such offshore investment manager: (1) agrees to maintain such information as confidential, including limiting the dissemination of such information, (2) is prohibited from trading on the information received, including (a) purchasing or selling any portfolio securities based on any information received; (b) trading against any U.S. registered Franklin or Templeton fund, including the Fund; (c) knowingly engaging in any trading practices that are adverse to any such fund; and (d) trading in shares of any such fund that is substantially similar to the offshore fund, and (3) agrees to refresh its representation as to confidentiality and abstention from trading upon request from Franklin Templeton. In addition, an offshore fund may release information regarding the top contributors and detractors to such fund’s portfolio performance monthly to those recipients who have executed a non-disclosure agreement containing the provisions described above, or who have confirmed electronically its agreement to such provisions. Country-specific offshore funds that are not, in the aggregate, substantially similar to the holdings of a U.S. registered Franklin or Templeton fund, are not subject to the restrictions imposed by the policy.

Certain F-T Managers serve as investment advisers to privately placed funds that are exempt from registration, including Canadian institutional pooled funds and commingled trusts maintained by a Franklin Templeton trust company. In certain circumstances, such unregistered private funds may have portfolio holdings that are not, in the aggregate, substantially similar to the holdings of a U.S. registered Fund, as determined by the Chief Compliance Officer or his/her designee. Under such circumstances the release of portfolio holdings information to a client or potential client of the unregistered private fund may be permissible. In circumstances where an unregistered private fund invests in portfolio securities that, in the aggregate, are substantially similar to the holdings of a U.S. registered Fund, such private funds are subject to the restrictions imposed by the policy, except that the release of holdings information to a current investor in the private fund is permissible conditioned upon such investor’s execution of a non-disclosure agreement to mitigate the risk that portfolio holdings information may be used to trade inappropriately against a fund. Such non-disclosure agreement must provide that the investor: (1) agrees to maintain such information as confidential, including limiting the dissemination of such information (except that the investor may be permitted to disseminate such information to an agent as necessary to allow the performance of portfolio analytics with respect to the investor’s investment in the private fund), and (2) is prohibited from trading on the information received, including (a) trading against any U.S. registered Franklin or Templeton fund, including the Fund; (b) knowingly engaging in any trading practices that are adverse to any such fund; and (c) trading in shares of any U.S. registered Franklin or Templeton fund that is managed in a style substantially similar to that of the private fund.

Some F-T Managers serve as sub-advisers to other mutual funds not within the Franklin Templeton Investments fund complex ("other funds"), which may be managed in a style substantially similar to that of a U.S. registered Franklin or Templeton fund. Such other funds are not subject to the Fund's portfolio holdings release policy. The sponsors of such funds may disclose the portfolio holdings of such funds at different times than the Fund discloses its portfolio holdings.

In addition, some F-T Managers also serve as investment managers to separate accounts, which are subject to the Fund’s policy with respect to the release of the separate account’s holdings to consultants and potential clients. Separate accounts that are not, in the aggregate, substantially similar to the holdings of a U.S. registered Franklin or Templeton fund, however, are not subject to the restrictions imposed by the policy.

The Fund's portfolio holdings release policy and all subsequent amendments have been reviewed and approved by the Fund's board, and any other material amendments shall also be reviewed and approved by the board. The investment manager's compliance staff conducts periodic reviews of compliance with the policy and provides at least annually a report to the board regarding the operation of the policy and any material changes recommended as a result of such review. The investment manager's compliance staff also will supply the board yearly with a list of exceptions granted to the policy, along with an explanation of the legitimate business purpose of the Fund that is served as a result of the exception.

Officers and Trustees

The Fund has a board of trustees. Each trustee will serve until that person resigns and/or a successor is elected and qualified. The board is responsible for the overall management of the Fund, including general supervision and review of the Fund's investment activities. The board, in turn, elects the officers of the Fund who are responsible for administering the Fund's day-to-day operations. The board also monitors the Fund to ensure that no material conflicts exist among share classes. While none are expected, the board will act appropriately to resolve any material conflict that may arise.

The name, year of birth and address of the officers and board members, as well as their affiliations, positions held with the Fund, principal occupations during the past five years and number of portfolios overseen in the Franklin Templeton fund complex are shown below.

Independent Board Members
Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member1	Other Directorships Held
Harris J. Ashton (1932) 500 East Broward Blvd. Suite 2100 Fort Lauderdale, FL 33394-3091	Trustee	Since 1993	130	Bar-S Foods (meat packing company) (1981-2010).
Principal Occupation During Past 5 Years: Director of various companies; and formerly, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998).
Ann Torre Bates (1958) 500 East Broward Blvd. Suite 2100 Fort Lauderdale, FL 33394-3091	Trustee	Since 2008	32	SLM Corporation (Sallie Mae), Ares Capital Corporation (specialty finance company) and Allied Capital Corporation (financial services) (2003-2010).
Principal Occupation During Past 5 Years: Independent strategic and financial consultant; and formerly, Executive Vice President and Chief Financial Officer, NHP Incorporated (manager of multifamily housing) (1995-1997); and Vice President and Treasurer, US Airways, Inc. (until 1995).
Frank J. Crothers (1944) 500 East Broward Blvd. Suite 2100 Fort Lauderdale, FL 33394-3091	Trustee	Since 1999	24	Fortis, Inc. (utility holding company) and AML Foods Limited (retail distributors).
Principal Occupation During Past 5 Years: Director and Vice Chairman, Caribbean Utilities Company, Ltd.; director of various other private business and nonprofit organizations; and formerly, Chairman, Atlantic Equipment and Power Ltd. (1977-2003).
Edith E. Holiday (1952) 500 East Broward Blvd. Suite 2100 Fort Lauderdale, FL 33394-3091	Lead Independent Trustee	Trustee since 1996 and Lead Independent Trustee since 2007	130	Hess Corporation (exploration and refining of oil and gas), H.J. Heinz Company (processed foods and allied products), RTI International Metals, Inc. (manufacture and distribution of titanium), Canadian National Railway (railroad) and White Mountains Insurance Group, Ltd. (holding company).
Principal Occupation During Past 5 Years: Director or Trustee of various companies and trusts; and formerly, Assistant to the President of the United States and Secretary of the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and Assistant Secretary for Public Affairs and Public Liaison-United States Treasury Department (1988-1989).
J. Michael Luttig (1954) 500 East Broward Blvd. Suite 2100 Fort Lauderdale, FL 33394-3091	Trustee	Since 2009	130	Boeing Capital Corporation (aircraft financing).
Principal Occupation During Past 5 Years: Executive Vice President, General Counsel and member of the Executive Council, The Boeing Company; and formerly, Federal Appeals Court Judge, U.S. Court of Appeals for the Fourth Circuit (1991-2006).
David W. Niemiec (1949) 500 East Broward Blvd. Suite 2100 Fort Lauderdale, FL 33394-3091	Trustee	Since 2005	24	Emeritus Corporation (assisted living) (1999-2010) and OSI Pharmaceuticals, Inc. (pharmaceutical products) (2006-2010).
Principal Occupation During Past 5 Years: Advisor, Saratoga Partners (private equity fund); and formerly, Managing Director, Saratoga Partners (1998-2001) and SBC Warburg Dillon Read (investment banking) (1997-1998); Vice Chairman, Dillon, Read & Co. Inc. (investment banking) (1991-1997); and Chief Financial Officer, Dillon, Read & Co. Inc. (1982-1997).
Frank A. Olson (1932) 500 East Broward Blvd. Suite 2100 Fort Lauderdale, FL 33394-3091	Trustee	Since 2003	130	Hess Corporation (exploration and refining of oil and gas).
Principal Occupation During Past 5 Years: Chairman Emeritus, The Hertz Corporation (car rental) (since 2000) (Chairman of the Board (1980-2000) and Chief Executive Officer (1977-1999)); and formerly, Chairman of the Board, President and Chief Executive Officer, UAL Corporation (airlines).
Larry D. Thompson (1945) 500 East Broward Blvd. Suite 2100 Fort Lauderdale, FL 33394-3091	Trustee	Since 2005	138	Cbeyond, Inc. (business communications provider) and The Southern Company (energy company).
Principal Occupation During Past 5 Years: Senior Vice President - Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (consumer products); and formerly, Director, Delta Airlines (aviation) (2003-2005) and Providian Financial Corp. (credit card provider) (1997-2001); Senior Fellow of The Brookings Institution (2003-2004); Visiting Professor, University of Georgia School of Law (2004); and Deputy Attorney General, U.S. Department of Justice (2001-2003).
Constantine D. Tseretopoulos (1954) 500 East Broward Blvd. Suite 2100 Fort Lauderdale, FL 33394-3091	Trustee	Since 1999	24	None
Principal Occupation During Past 5 Years: Physician, Chief of Staff, owner and operator of the Lyford Cay Hospital (1987-present); director of various nonprofit organizations; and formerly, Cardiology Fellow, University of Maryland (1985-1987) and Internal Medicine Resident, Greater Baltimore Medical Center (1982-1985).
Robert E. Wade (1946) 500 East Broward Blvd. Suite 2100 Fort Lauderdale, FL 33394-3091	Trustee	Since 2006	39	El Oro Ltd (investments).
Principal Occupation During Past 5 Years: Attorney at law engaged in private practice (1973-2009) and member of various boards.

Interested Board Members and Officers
Name, Year of Birth and Address	Position	Length of Time Served	Number of Portfolios in Fund Complex Overseen by Board Member1	Other Directorships Held
Charles B. Johnson2 (1933) One Franklin Parkway San Mateo, CA 94403-1906	Trustee, Chairman of the Board and Vice President	Trustee and Chairman of the Board since 1995 and Vice President since 1993	130	None
Principal Occupation During Past 5 Years: Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 41 of the investment companies in Franklin Templeton Investments.
Gregory E. Johnson3 (1961) One Franklin Parkway San Mateo, CA 94403-1906	Trustee	Since 2007	87	None
Principal Occupation During Past 5 Years: Director, President and Chief Executive Officer, Franklin Resources, Inc.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 33 of the investment companies in Franklin Templeton Investments.
James M. Davis (1952) One Franklin Parkway San Mateo, CA 94403-1906	Chief Compliance Officer and Vice President - AML Compliance	Chief Compliance Officer since 2004 and Vice President - AML Compliance since 2006	Not Applicable	Not Applicable
Principal Occupation During Past 5 Years: Director, Global Compliance, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments; and formerly, Director of Compliance, Franklin Resources, Inc. (1994-2001).
Laura F. Fergerson (1962) One Franklin Parkway San Mateo, CA 94403-1906	Chief Executive Officer - Finance and Administration	Since 2009	Not Applicable	Not Applicable
Principal Occupation During Past 5 Years: Senior Vice President, Franklin Templeton Services, LLC; officer of 45 of the investment companies in Franklin Templeton Investments; and formerly, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most of the investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC (1997-2003).
Aliya S. Gordon (1973) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2009	Not Applicable	Not Applicable
Principal Occupation During Past 5 Years: Associate General Counsel, Franklin Templeton Investments; officer of 45 of the investment companies in Franklin Templeton Investments; and formerly, Litigation Associate, Steefel, Levitt & Weiss, LLP (2000-2004).
David P. Goss (1947) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2000	Not Applicable	Not Applicable
Principal Occupation During Past 5 Years: Senior Associate General Counsel, Franklin Templeton Investments; and officer and/or director, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments.
Steven J. Gray (1955) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2009	Not Applicable	Not Applicable
Principal Occupation During Past 5 Years: Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc.; and officer of 45 of the investment companies in Franklin Templeton Investments.
Rupert H. Johnson, Jr. (1940) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 1996	Not Applicable	Not Applicable
Principal Occupation During Past 5 Years: Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 25 of the investment companies in Franklin Templeton Investments.
Mark Mobius (1936) 17th Floor The Chater House 8 Connaught Road Central Hong Kong	President and Chief Executive Officer - Investment Management	President since 1993 and Chief Executive Officer - Investment Management since 2002	Not Applicable	Not Applicable
Principal Occupation During Past 5 Years: Portfolio Manager of various Templeton advisory affiliates; Executive Chairman, Templeton Emerging Markets Group; and officer and/or director, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of six of the investment companies in Franklin Templeton Investments.
Mark H. Otani (1968) One Franklin Parkway San Mateo, CA 94403-1906	Treasurer, Chief Financial Officer and Chief Accounting Officer	Since 2009	Not Applicable	Not Applicable
Principal Occupation During Past 5 Years: Director, Global Fund Accounting Operations, Franklin Templeton Investments; and officer of 14 of the investment companies in Franklin Templeton Investments.
Robert C. Rosselot (1960) 500 East Broward Blvd. Suite 2100 Fort Lauderdale, FL 33394-3091	Secretary and Vice President	Secretary since 2004 and Vice President since 2009	Not Applicable	Not Applicable
Principal Occupation During Past 5 Years: Senior Associate General Counsel, Franklin Templeton Investments; Assistant Secretary, Franklin Resources, Inc.; Vice President and Secretary, Templeton Investment Counsel, LLC; Vice President, Secretary and Trust Officer, Fiduciary Trust International of the South; and officer of 45 of the investment companies in Franklin Templeton Investments.
Karen L. Skidmore (1952) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2009	Not Applicable	Not Applicable
Principal Occupation During Past 5 Years: Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments.
Craig S. Tyle (1960) One Franklin Parkway San Mateo, CA 94403-1906	Vice President	Since 2005	Not Applicable	Not Applicable
Principal Occupation During Past 5 Years: General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments; and formerly, Partner, Shearman & Sterling, LLP (2004-2005); and General Counsel, Investment Company Institute (ICI) (1997-2004).
Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the father and uncle, respectively, of Gregory E. Johnson. Note 2: Officer information is current as of the date of this SAI. It is possible that after this date, information about officers may change.

1. We base the number of portfolios on each separate series of the U.S. registered investment companies within the Franklin Templeton Investments fund complex. These portfolios have a common investment manager or affiliated investment managers.

2. Charles B. Johnson is considered to be an interested person of the Fund under the federal securities laws due to his position as officer and director and major shareholder of Franklin Resources, Inc. (Resources), which is the parent company of the Fund's investment manager and distributor.

3. Gregory E. Johnson is considered to be an interested person of the Fund under the federal securities laws due to his position as an officer and director of Resources.

The Trust's independent board members constitute the sole independent board members of 14 investment companies in the Franklin Templeton Investments complex for which each independent board member currently is paid a $145,000 annual retainer fee, together with a $7,000 per meeting fee for attendance at each regularly scheduled board meeting, a portion of which fees are allocated to the Trust. To the extent held, compensation may also be paid for attendance at specially held board meetings. The Trust's lead independent trustee is paid an annual supplemental retainer of $15,000 for service to such investment companies, a portion of which is allocated to the Trust. Board members who serve on the Audit Committee of the Trust and such other funds receive a flat fee of $3,000 per Committee meeting attended in person and $2,000 per telephonic meeting, a portion of which is allocated to the Trust. David W. Niemiec, who serves as chairman of the Audit Committee of the Trust and such other funds receives an additional fee of $15,000 per year, a portion of which is allocated to the Trust. Members of the Committee are not separately compensated for any committee meeting held on the day of a regularly scheduled board meeting. The following table provides the total fees paid to independent board members by the Trust and by other funds in Franklin Templeton Investments.

Name	Total Fees Received from the Fund ($)1	Total Fees Received from Franklin Templeton Investments ($)2	Number of Boards in Franklin Templeton Investments on which Each Serves3
Harris J. Ashton	8,533	468,000	41
Ann Torre Bates4	8,550	355,000	16
Frank J. Crothers	8,474	189,000	14
Edith E. Holiday	8,622	508,000	41
J. Michael Luttig	7,112	47,417	41
David W. Niemiec	8,774	205,000	14
Frank A. Olson	8,438	484,000	41
Larry D. Thompson	8,438	579,063	43
Constantine D. Tseretopoulos	8,550	187,000	14
Robert E. Wade4	8,438	511,000	18

1. For the fiscal year ended August 31, 2010.

2. For the calendar year ended December 31, 2009.

3. We base the number of boards on the number of U.S. registered investment companies in Franklin Templeton Investments. This number does not include the total number of series or portfolios within each investment company for which the board members are responsible.

4. Ms. Bates and Mr. Wade are also independent board members of Franklin Mutual Series Funds and may, in the future, receive payments pursuant to a discontinued retirement plan that generally provides payments to independent board members who have served seven years or longer for such fund.

Independent board members are reimbursed for expenses incurred in connection with attending board meetings and are paid pro rata by each fund in Franklin Templeton Investments for which they serve as director or trustee. No officer or board member received any other compensation, including pension or retirement benefits, directly or indirectly from the Fund or other funds in Franklin Templeton Investments. Certain officers or board members who are shareholders of Franklin Resources, Inc. (Resources) may be deemed to receive indirect remuneration by virtue of their participation, if any, in the fees paid to its subsidiaries.

Board members historically have followed a policy of having substantial investments in one or more of the Franklin Templeton funds, as is consistent with their individual financial goals. In February 1998, this policy was formalized through the adoption of a requirement that each board member invest one-third of fees received for serving as a director or trustee of a Templeton fund (excluding committee fees) in shares of one or more Templeton funds and one-third of fees received for serving as a director or trustee of a Franklin fund (excluding committee fees) in shares of one or more Franklin funds until the value of such investments equals or exceeds five times the annual retainer and regular board meeting fees paid to such board member. Investments in the name of family members or entities controlled by a board member constitute fund holdings of such board member for purposes of this policy, and a three-year phase-in period applies to such investment requirements for newly elected board members. In implementing such policy, a board member's fund holdings existing on February 27, 1998, are valued as of such date with subsequent investments valued at cost.

The following tables provide the dollar range of equity securities beneficially owned by the board members of the Fund on December 31, 2009.

Independent Board Members

Name of Board Member	Dollar Range of Equity Securities in the Fund	Aggregate Dollar Range of Equity Securities in All Funds Overseen by the Board Member in the Franklin Templeton Fund Complex
Harris J. Ashton	$1 - $10,000	Over $100,000
Ann Torre Bates	None	Over $100,000
Frank J. Crothers	$10,001 - $50,000	Over $100,000
Edith E. Holiday	None	Over $100,000
J. Michael Luttig	None	None
David W. Niemiec	None	Over $100,000
Frank A. Olson	None	Over $100,000
Larry D. Thompson	None	Over $100,000
Constantine D. Tseretopoulos	None	Over $100,000
Robert E. Wade	None	Over $100,000

Interested Board Members

Name of Board Member	Dollar Range of Equity Securities in the Fund	Aggregate Dollar Range of Equity Securities in All Funds Overseen by the Board Member in the Franklin Templeton Fund Complex
Charles B. Johnson	$10,001 - $50,000	Over $100,000
Gregory E. Johnson	None	Over $100,000

Board committees   The board maintains two standing committees: the Audit Committee and the Nominating Committee. The Audit Committee is generally responsible for recommending the selection of the Trust's independent registered public accounting firm (auditors), including evaluating their independence and meeting with such auditors to consider and review matters relating to the Fund's financial reports and internal controls. The Audit Committee is comprised of the following independent trustees of the Trust: Ann Torre Bates, Frank J. Crothers, David W. Niemiec and Constantine D. Tseretopoulos. The Nominating Committee is comprised of the following independent trustees of the Trust: Frank J. Crothers, Edith E. Holiday and Frank A. Olson.

The Nominating Committee is responsible for selecting candidates to serve as board members and recommending such candidates (a) for selection and nomination as independent board members by the incumbent independent board member and the full board; and (b) for selection and nomination as interested board members by the full board.

When the board has or expects to have a vacancy, the Nominating Committee receives and reviews information on individuals qualified to be recommended to the full board as nominees for election as board members, including any recommendations by “Qualifying Fund Shareholders” (as defined below). To date, the Nominating Committee has been able to identify, and expects to continue to be able to identify, from its own resources an ample number of qualified candidates. The Nominating Committee, however, will review recommendations from Qualifying Fund Shareholders to fill vacancies on the board if these recommendations are submitted in writing and addressed to the Nominating Committee at the Trust's offices at P.O. Box 33030, St. Petersburg, FL 33733-8030 and are presented with appropriate background material concerning the candidate that demonstrates his or her ability to serve as a board member, including as an independent board member, of the Trust. A Qualifying Fund Shareholder is a shareholder who (i) has continuously owned of record, or beneficially through a financial intermediary, shares of the Fund having a net asset value of not less than two hundred and fifty thousand dollars ($250,000) during the 24-month period prior to submitting the recommendation; and (ii) provides a written notice to the Nominating Committee containing the following information: (a) the name and address of the Qualifying Fund Shareholder making the recommendation; (b) the number of shares of the Fund which are owned of record and beneficially by such Qualifying Fund Shareholder and the length of time that such shares have been so owned by the Qualifying Fund Shareholder; (c) a description of all arrangements and understandings between such Qualifying Fund Shareholder and any other person or persons (naming such person or persons) pursuant to which the recommendation is being made; (d) the name, age, date of birth, business address and residence address of the person or persons being recommended; (e) such other information regarding each person recommended by such Qualifying Fund Shareholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the SEC had the nominee been nominated by the board; (f) whether the shareholder making the recommendation believes the person recommended would or would not be an “interested person” of the Trust, as defined in the 1940 Act; and (g) the written consent of each person recommended to serve as a board member of the Trust if so nominated and elected/appointed.

The Nominating Committee may amend these procedures from time to time, including the procedures relating to the evaluation of nominees and the process for submitting recommendations to the Nominating Committee.

During the fiscal year ended August 31, 2010, the Audit Committee met once; the Nominating Committee met three times.

Board role in risk oversight   The board, as a whole, considers risk management issues as part of its general oversight responsibilities throughout the year at regular board meetings, through regular reports that have been developed by management, in consultation with the board and its counsel. These reports address certain investment, valuation and compliance matters. The board also may receive special written reports or presentations on a variety of risk issues, either upon the board’s request or upon the manager’s initiative. In addition, the Audit Committee of the board meets regularly with the manager’s internal audit group to review reports on their examinations of functions and processes within Franklin Templeton Investments that affect the Fund.

With respect to investment risk, the board receives regular written reports describing and analyzing the investment performance of the Fund. In addition, the portfolio managers of the Fund meet regularly with the boards to discuss portfolio performance, including investment risk. To the extent that the Fund changes a particular investment strategy that could have a material impact on the Fund’s risk profile, the board generally is consulted with respect to such change. To the extent that the Fund invests in certain complex securities, including derivatives, the board receives periodic reports containing information about exposure of the Fund to such instruments. In addition, the manager’s investment risk personnel meet regularly with the board to discuss a variety of issues, including the impact on the Fund of the investment in particular securities or instruments, such as derivatives.

With respect to valuation, the Fund’s administrator provides regular written reports to the board that enable the board to monitor the number of fair valued securities in a particular portfolio, the reasons for the fair valuation and the methodology used to arrive at the fair value. Such reports also include information concerning illiquid securities within the Fund’s portfolio. The board also reviews dispositional analysis information on the sale of securities that require special valuation considerations such as illiquid or fair valued securities. In addition, the Fund’s Audit Committee reviews valuation procedures and results with the Fund’s auditors in connection with such Committee’s review of the results of the audit of the Fund’s year end financial statement.

With respect to compliance risks, the board receives regular compliance reports prepared by the manager’s compliance group and meets regularly with the Fund’s Chief Compliance Officer (CCO) to discuss compliance issues, including compliance risks. As required under SEC rules, the independent trustees meet at least quarterly in executive session with the CCO, and the Fund’s CCO prepares and presents an annual written compliance report to the board. The Fund’s board adopts compliance policies and procedures for the Fund and approves such procedures for the Fund’s service providers. The compliance policies and procedures are specifically designed to detect and prevent violations of the federal securities laws

The manager periodically provides an enterprise risk management presentation to the board to describe the way in which risk is managed on a complex-wide level. Such presentation covers such areas as investment risk, reputational risk, personnel risk, and business continuity risk.

Board structure   Seventy-five percent or more of board members consist of independent trustees who are not deemed to be “interested persons” by reason of their relationship with the Fund’s management or otherwise as provided under the Investment Company Act of 1940. While the Chairman of the Board is an interested person, the board is also served by a lead independent trustee. The lead independent trustee, together with independent counsel, reviews proposed agendas for board meetings and generally acts as a liaison with management with respect to questions and issues raised by the independent trustees. The lead independent trustee also presides at separate meetings of independent trustees held in advance of each scheduled board meeting where various matters, including those being considered at such board meeting are discussed. It is believed such structure and activities assure that proper consideration is given at board meetings to matters deemed important to the Fund and its shareholders.

Trustee qualifications   Information on the Fund's officers and trustees appears above. Such information includes business activities of trustees during the past five years and beyond. In addition to personal qualities, such as integrity, the role of an effective Fund trustee inherently requires the ability to comprehend, discuss and critically analyze materials and issues presented in exercising judgments and reaching informed conclusions relevant to his or her duties and fiduciary obligations. It is believed that the specific background of each trustee evidences such ability and is appropriate to his or her serving on the Fund's board of trustees. As indicated, Harris J. Ashton and Frank A. Olson have both served as chief executive officers of New York Stock Exchange listed public corporations; Larry D. Thompson and Edith E. Holiday, each have legal backgrounds, including high level legal positions with departments of the U.S. Government; David W. Niemiec and Ann Torre Bates have each been chief financial officers of major corporations; J. Michael Luttig has fifteen years of judicial experience as a Federal Appeals Court Judge; Robert E. Wade has over thirty years of experience as a practicing attorney; Constantine Dean Tseretopoulos has professional and executive experience as founder and Chief of Staff of a hospital; Frank J. Crothers has served as the chief executive officer of several foreign closely held corporations; and Charles B. Johnson and Gregory E. Johnson are both high ranking executive officers of Franklin Templeton Investments.

Fair Valuation and Liquidity

The Fund's board of trustees has delegated to the manager the task of ensuring that regulatory guidelines governing the fair valuation for securities are applied to the Fund and that the required level of liquidity is maintained. The manager has formed a Valuation & Liquidity Oversight Committee (VLOC) to oversee these obligations. The VLOC oversees and administers the policies and procedures governing fair valuation and liquidity determination of securities. The VLOC meets monthly to review and approve fair value and liquidity reports and conduct other business, and meets whenever necessary to review potential significant market events and take appropriate steps to adjust valuations in accordance with established policies. The VLOC provides regular reports that document its activities to the board of trustees for its review and approval of pricing determinations at scheduled meetings. VLOC meeting minutes are regularly submitted to the board of trustees for their review.

The Fund's policies and procedures governing fair valuation and liquidity determination of securities have been initially reviewed and approved by the board of trustees and any material amendments will also be reviewed and approved by the board. The manager's compliance staff conducts periodic reviews of compliance with the policies and provides at least annually a report to the board of trustees regarding the operation of the policies and any material changes recommended as a result of such review.

Proxy Voting Policies and Procedures

The board of trustees of the Fund has delegated the authority to vote proxies related to the portfolio securities held by the Fund to the Fund's manager Templeton Asset Management Ltd. in accordance with the Proxy Voting Policies and Procedures (Policies) adopted by the manager.

The manager has delegated its administrative duties with respect to the voting of proxies to the Proxy Group within Franklin Templeton Companies, LLC (Proxy Group), an affiliate and wholly owned subsidiary of Franklin Resources, Inc. All proxies received by the Proxy Group will be voted based upon the manager’s instructions and/or policies. The manager votes proxies solely in the interests of the Fund and its shareholders.

To assist it in analyzing proxies, the manager subscribes to RiskMetrics Group (RiskMetrics), an unaffiliated third-party corporate governance research service that provides in-depth analyses of shareholder meeting agendas, vote recommendations, recordkeeping and vote disclosure services. In addition, the manager subscribes to Glass, Lewis & Co., LLC (Glass Lewis), an unaffiliated third-party analytical research firm, to receive analyses and vote recommendations on the shareholder meetings of publicly held U.S. companies. Although RiskMetrics’ and/or Glass Lewis’ analyses are thoroughly reviewed and considered in making a final voting decision, the manager does not consider recommendations from RiskMetrics, Glass Lewis or any other third party to be determinative of the manager’s ultimate decision. As a matter of policy, the officers, directors/trustees and employees of the manager and the Proxy Group will not be influenced by outside sources whose interests conflict with the interests of the Fund and its shareholders. Efforts are made to resolve all conflicts in the interests of the manager’s clients. Material conflicts of interest are identified by the Proxy Group based upon analyses of client, distributor, broker-dealer and vendor lists, information periodically gathered from directors and officers, and information derived from other sources, including public filings. In situations where a material conflict of interest is identified, the Proxy Group may defer to the voting recommendation of RiskMetrics, Glass Lewis or those of another independent third-party provider of proxy services; or send the proxy directly to the Fund with the manager's recommendation regarding the vote for approval. If the conflict is not resolved by the Fund, the Proxy Group may refer the matter, along with the recommended course of action by the manager, if any, to an interdepartmental Proxy Review Committee (which may include portfolio managers and/or research analysts employed by the manager), for evaluation and voting instructions. The Proxy Review Committee may defer to the voting recommendation of RiskMetrics, Glass Lewis or those of another independent third-party provider of proxy services; or send the proxy directly to the Fund. Where the Proxy Group or the Proxy Review Committee refers a matter to the Fund, it may rely upon the instructions of a representative of the Fund, such as the board or a committee of the board.

Where a material conflict of interest has been identified, but the items on which the manager’s vote recommendations differ from Glass Lewis, RiskMetrics, or another independent third-party provider of proxy services relate specifically to (1) shareholder proposals regarding social or environmental issues or political contributions, (2) “Other Business” without describing the matters that might be considered, or (3) items the manager wishes to vote in opposition to the recommendations of an issuer’s management, the Proxy Group may defer to the vote recommendations of the manager rather than sending the proxy directly to the Fund for approval.

To avoid certain potential conflicts of interest, the manager will employ echo voting, if possible, in the following instances: (1) when the Fund invests in an underlying fund in reliance on any one of Sections 12(d) (1) (E), (F), or (G) of the 1940 Act, or pursuant to an SEC exemptive order; (2) when the Fund invests uninvested cash in affiliated money market funds pursuant to an SEC exemptive order (“cash sweep arrangement”); or (3) when required pursuant to the Fund’s governing documents or applicable law. Echo voting means that the investment manager will vote the shares in the same proportion as the vote of all of the other holders of the Fund’s shares.

The recommendation of management on any issue is a factor that the manager considers in determining how proxies should be voted. However, the manager does not consider recommendations from management to be determinative of the manager’s ultimate decision. As a matter of practice, the votes with respect to most issues are cast in accordance with the position of the company's management. Each issue, however, is considered on its own merits, and the manager will not support the position of the company's management in any situation where it deems that the ratification of management’s position would adversely affect the investment merits of owning that company’s shares.

Manager’s proxy voting policies and principles   The manager has adopted general proxy voting guidelines, which are summarized below. These guidelines are not an exhaustive list of all the issues that may arise and the manager cannot anticipate all future situations. In all cases, each proxy will be considered based on the relevant facts and circumstances.

Board of directors.   The manager supports an independent board of directors, and prefers that key committees such as audit, nominating, and compensation committees be comprised of independent directors. The manager will generally vote against management efforts to classify a board and will generally support proposals to declassify the board of directors. The manager will consider withholding votes from directors who have attended less than 75% of meetings without a valid reason. While generally in favor of separating Chairman and CEO positions, the manager will review this issue as well as proposals to restore or provide for cumulative voting on a case-by-case basis, taking into consideration factors such as the company’s corporate governance guidelines or provisions and performance.

Ratification of auditors of portfolio companies.   The manager will closely scrutinize the role and performance of auditors. On a case-by-case basis, the manager will examine proposals relating to non-audit relationships and non-audit fees. The manager will also consider, on a case-by-case basis, proposals to rotate auditors, and will vote against the ratification of auditors when there is clear and compelling evidence of accounting irregularities or negligence.

Management and director compensation.   A company’s equity-based compensation plan should be in alignment with the shareholders’ long-term interests. The manager believes that executive compensation should be directly linked to the performance of the company. The manager evaluates plans on a case-by-case basis by considering several factors to determine whether the plan is fair and reasonable, including the RiskMetrics quantitative model utilized to assess such plans and/or the Glass Lewis evaluation of the plans. The manager will generally oppose plans that have the potential to be excessively dilutive, and will almost always oppose plans that are structured to allow the repricing of underwater options, or plans that have an automatic share replenishment “evergreen” feature. The manager will generally support employee stock option plans in which the purchase price is at least 85% of fair market value, and when potential dilution is 10% or less.

Severance compensation arrangements will be reviewed on a case-by-case basis, although the manager will generally oppose “golden parachutes” that are considered to be excessive. The manager will normally support proposals that require a percentage of directors’ compensation to be in the form of common stock, as it aligns their interests with those of shareholders.

Anti-takeover mechanisms and related issues.   The manager generally opposes anti-takeover measures since they tend to reduce shareholder rights. However, as with all proxy issues, the manager conducts an independent review of each anti-takeover proposal. On occasion, the manager may vote with management when the research analyst has concluded that the proposal is not onerous and would not harm the Fund or its shareholders’ interests. The manager generally supports proposals that require shareholder rights’ plans (“poison pills”) to be subject to a shareholder vote and will closely evaluate such plans on a case-by-case basis to determine whether or not they warrant support. In addition, the manager will generally vote against any proposal to issue stock that has unequal or subordinate voting rights. The manager generally opposes any supermajority voting requirements as well as the payment of “greenmail.” The manager generally supports “fair price” provisions and confidential voting.

Changes to capital structure.   The manager realizes that a company's financing decisions have a significant impact on its shareholders, particularly when they involve the issuance of additional shares of common or preferred stock or the assumption of additional debt. The manager will review, on a case-by-case basis, proposals by companies to increase authorized shares and the purpose for the increase. The manager will generally not vote in favor of dual-class capital structures to increase the number of authorized shares where that class of stock would have superior voting rights. The manager will generally vote in favor of the issuance of preferred stock in cases where the company specifies the voting, dividend, conversion and other rights of such stock and the terms of the preferred stock issuance are deemed reasonable.

Mergers and corporate restructuring.   Mergers and acquisitions will be subject to careful review by the research analyst to determine whether they would be beneficial to shareholders. The manager will analyze various economic and strategic factors in making the final decision on a merger or acquisition. Corporate restructuring proposals are also subject to a thorough examination on a case-by-case basis.

Social and corporate policy issues.   The manager will generally give management discretion with regard to social, environmental and ethical issues, although the manager may vote in favor of those that are believed to have significant economic benefits or implications for the Fund and its shareholders.

Global corporate governance.   Many of the tenets discussed above are applied to the manager's proxy voting decisions for international investments. However, the manager must be flexible in these instances and must be mindful of the varied market practices of each region.

The manager will attempt to process every proxy it receives for all domestic and foreign issuers. However, there may be situations in which the manager cannot process proxies, for example, where a meeting notice was received too late, or sell orders preclude the ability to vote. If a security is on loan, the manager may determine that it is not in the best interests of the Fund to recall the security for voting purposes. Also, the manager may abstain from voting under certain circumstances or vote against items such as “Other Business” when the manager is not given adequate information from the company.

Shareholders may view the complete Policies online at franklintempleton.com. Alternatively, shareholders may request copies of the Policies free of charge by calling the Proxy Group collect at (954) 527-7678 or by sending a written request to: Franklin Templeton Companies, LLC, 500 East Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy Group. Copies of the Fund’s proxy voting records are available online at franklintempleton.com and posted on the SEC website at www.sec.gov. The proxy voting records are updated each year by August 31 to reflect the most recent 12-month period ended June 30.

Management and Other Services

Manager and services provided   The Fund's manager is Templeton Asset Management Ltd. The manager is an indirect, wholly owned subsidiary of Resources, a publicly owned company engaged in the financial services industry through its subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr. are the principal shareholders of Resources.

The manager provides investment research and portfolio management services, and selects the securities for the Fund to buy, hold or sell. The manager also selects the brokers who execute the Fund's portfolio transactions. The manager provides periodic reports to the board, which reviews and supervises the manager's investment activities. To protect the Fund, the manager and its officers, directors and employees are covered by fidelity insurance.

The Templeton organization has been investing globally since 1940. The manager and its affiliates have offices in Argentina, Australia, Austria, Bahamas, Brazil, Canada, China, France, Germany, the Netherlands, Hong Kong, Hungary, India, Italy, Japan, Luxembourg, Malaysia, Mexico, Poland, Romania, Russia, Singapore, South Africa, South Korea, Spain, Sweden, Switzerland, Turkey, United Arab Emirates, United Kingdom, the United States and Vietnam.

The manager and its affiliates manage numerous other investment companies and accounts. The manager may give advice and take action with respect to any of the other funds it manages, or for its own account, that may differ from action taken by the manager on behalf of the Fund. Similarly, with respect to the Fund, the manager is not obligated to recommend, buy or sell, or to refrain from recommending, buying or selling any security that the manager and access persons, as defined by applicable federal securities laws, may buy or sell for its or their own account or for the accounts of any other fund. The manager is not obligated to refrain from investing in securities held by the Fund or other funds it manages. Because the manager is a subsidiary of a financial holding company (FHC) under the Gramm-Leach-Bliley Act of 1999, federal regulations applicable to FHCs may limit or restrict the Fund's ability to acquire or hold a position in a given security when it might otherwise be advantageous for the Fund to acquire or hold that security.

The Fund, its manager and principal underwriter have each adopted a code of ethics, as required by federal securities laws. Under the code of ethics, employees who are designated as access persons may engage in personal securities transactions, including transactions involving securities that are being considered for the Fund or that are currently held by the Fund, subject to certain general restrictions and procedures. The personal securities transactions of access persons of the Fund, its manager and principal underwriter will be governed by the code of ethics. The code of ethics is on file with, and available from, the SEC.

Management fees   The Fund pays the manager a fee equal to an annual rate of:

• 1.25% of the value of net assets up to and including $1 billion;
• 1.20% of the value of net assets over $1 billion up to and including $5 billion;
• 1.15% of the value of net assets over $5 billion up to and including $10 billion;
• 1.10% of the value of net assets over $10 billion up to and including $15 billion;
• 1.05% of the value of net assets over $15 billion up to and including $20 billion; and
• 1.00% of the value of net assets over $20 billion.

The fee is calculated daily based on the average weekly net assets and paid monthly according to the terms of the management agreement. Each class of the Fund's shares pays its proportionate share of the fee.

For the last three fiscal years ended August 31, the Fund paid the following management fees:

	Management Fees Paid ($)1
2010	11,703,077
2009	7,621,024
2008	13,746,268

1. For the fiscal years ended August 31, 2010, 2009 and 2008, management fees, before any reduction, totaled $11,731,341, $7,650,473 and $13,747,702, respectively. Under an agreement by the manager to reduce its fees to reflect reduced services resulting from the Fund's investment in a Franklin Templeton money fund, the Fund paid the management fees shown.

Portfolio managers   This section reflects information about the portfolio managers as of August 31, 2010.

The following table shows the number of other accounts managed by the portfolio manager and the total assets in the accounts managed within each category:

Name	Number of Other Registered Investment Companies Managed	Assets of Other Registered Investment Companies Managed (x $1 million)	Number of Other Pooled Investment Vehicles Managed1	Assets of Other Pooled Investment Vehicles Managed (x $1 million)1	Number of Other Accounts Managed1	Assets of Other Accounts Managed (x $1 million)1
Mark Mobius	10	7,544.8	32	26,260.5	10	2,727.4
Eddie Chow	1	1,118.9	2	1,380.3	0	N/A

1. The various pooled investment vehicles and accounts listed are managed by a team of investment professionals. Accordingly, the portfolio manager listed would not be solely responsible for managing such listed amounts.

Portfolio managers that provide investment services to the Fund may also provide services to a variety of other investment products, including other funds, institutional accounts and private accounts. The advisory fees for some of such other products and accounts may be different than that charged to the Fund and may include performance based compensation. This may result in fees that are higher (or lower) than the advisory fees paid by the Fund. As a matter of policy, each fund or account is managed solely for the benefit of the beneficial owners thereof. As discussed below, the separation of the trading execution function from the portfolio management function and the application of objectively based trade allocation procedures help to mitigate potential conflicts of interest that may arise as a result of the portfolio managers managing accounts with different advisory fees.

Conflicts.   The management of multiple funds, including the Fund, and accounts may also give rise to potential conflicts of interest if the funds and other accounts have different objectives, benchmarks, time horizons, and fees as the portfolio manager must allocate his or her time and investment ideas across multiple funds and accounts. The manager seeks to manage such competing interests for the time and attention of portfolio managers by having portfolio managers focus on a particular investment discipline. Most other accounts managed by a portfolio manager are managed using the same investment strategies that are used in connection with the management of the Fund. Accordingly, portfolio holdings, position sizes, and industry and sector exposures tend to be similar across similar portfolios, which may minimize the potential for conflicts of interest. As noted above, the separate management of the trade execution and valuation functions from the portfolio management process also helps to reduce potential conflicts of interest. However, securities selected for funds or accounts other than the Fund may outperform the securities selected for the Fund. Moreover, if a portfolio manager identifies a limited investment opportunity that may be suitable for more than one fund or other account, the Fund may not be able to take full advantage of that opportunity due to an allocation of that opportunity across all eligible funds and other accounts. The manager seeks to manage such potential conflicts by using procedures intended to provide a fair allocation of buy and sell opportunities among funds and other accounts.

The structure of a portfolio manager’s compensation may give rise to potential conflicts of interest. A portfolio manager’s base pay and bonus tend to increase with additional and more complex responsibilities that include increased assets under management. As such, there may be a relationship between a portfolio manager’s marketing or sales efforts and his or her bonus.

Finally, the management of personal accounts by a portfolio manager may give rise to potential conflicts of interest. While the funds and the manager have adopted a code of ethics which they believe contains provisions reasonably necessary to prevent a wide range of prohibited activities by portfolio managers and others with respect to their personal trading activities, there can be no assurance that the code of ethics addresses all individual conduct that could result in conflicts of interest.

The manager and the Fund have adopted certain compliance procedures that are designed to address these, and other, types of conflicts. However, there is no guarantee that such procedures will detect each and every situation where a conflict arises.

Compensation.   The manager seeks to maintain a compensation program that is competitively positioned to attract, retain and motivate top-quality investment professionals. Portfolio managers receive a base salary, a cash incentive bonus opportunity, an equity compensation opportunity, and a benefits package. Portfolio manager compensation is reviewed annually and the level of compensation is based on individual performance, the salary range for a portfolio manager’s level of responsibility and Franklin Templeton guidelines. Portfolio managers are provided no financial incentive to favor one fund or account over another. Each portfolio manager’s compensation consists of the following three elements:

Base salary   Each portfolio manager is paid a base salary.

Annual bonus   Annual bonuses are structured to align the interests of the portfolio manager with those of the Fund’s shareholders. Each portfolio manager is eligible to receive an annual bonus. Bonuses generally are split between cash (50% to 65%) and restricted shares of a Franklin Templeton fund which vest over a three-year period (17.5% to 25%) and other mutual fund shares (17.5% to 25%). The deferred equity-based compensation is intended to build a vested interest of the portfolio manager in the financial performance of both Resources and mutual funds advised by the manager. The bonus plan is intended to provide a competitive level of annual bonus compensation that is tied to the portfolio manager achieving consistently strong investment performance, which aligns the financial incentives of the portfolio manager and Fund shareholders. The Chief Investment Officer of the manager and/or other officers of the manager, with responsibility for the Fund, have discretion in the granting of annual bonuses to portfolio managers in accordance with Franklin Templeton guidelines. The following factors are generally used in determining bonuses under the plan:

• Investment performance. Primary consideration is given to the historic investment performance over the 1, 3 and 5 preceding years of all accounts managed by the portfolio manager. The pre-tax performance of each fund managed is measured relative to a relevant peer group and/or applicable benchmark as appropriate.
• Non-investment performance. The more qualitative contributions of a portfolio manager to the manager’s business and the investment management team, including business knowledge, contribution to team efforts, mentoring of junior staff, and contribution to the marketing of the Fund, are evaluated in determining the amount of any bonus award.
• Research. Where the portfolio management team also has research responsibilities, each portfolio manager is evaluated on the number and performance of recommendations over time.
• Responsibilities. The characteristics and complexity of funds managed by the portfolio manager are factored in the manager’s appraisal.

Additional long-term equity-based compensation   Portfolio managers may also be awarded restricted shares or units of one or more mutual funds, and options to purchase common shares of a Franklin Templeton fund. Awards of such deferred equity-based compensation typically vest over time, so as to create incentives to retain key talent.

Portfolio managers also participate in benefit plans and programs available generally to all employees of the manager.

Ownership of Fund shares.   The manager has a policy of encouraging portfolio managers to invest in the funds they manage. Exceptions arise when, for example, a fund is closed to new investors or when tax considerations or jurisdictional constraints cause such an investment to be inappropriate for the portfolio manager. The following is the dollar range of Fund shares beneficially owned by the portfolio manager (such amounts may change from time to time):

Portfolio Manager	Dollar Range of Fund Shares Beneficially Owned
Mark Mobius	None
Eddie Chow	None

Note: Because the portfolio managers are all foreign nationals, they do not hold shares in this U.S. registered Fund, however they own shares in other similar Franklin Templeton funds managed by them, registered offshore and appropriate for foreign nationals.

Administrator and services provided   Franklin Templeton Services, LLC (FT Services) has an agreement with the Fund to provide certain administrative services and facilities for the Fund. FT Services is an indirect, wholly owned subsidiary of Resources and is an affiliate of the Fund's manager and principal underwriter.

The administrative services FT Services provides include preparing and maintaining books, records, and tax and financial reports, and monitoring compliance with regulatory requirements.

Administration fees   The Fund pays FT Services a monthly fee equal to an annual rate of 0.20% of the Fund's average daily net assets.

For the last three fiscal years ended August 31, the Fund paid FT Services the following administration fees:

	Administration Fees Paid ($)
2010	1,880,409
2009	1,224,168
2008	2,195,811

Shareholder servicing and transfer agent   Franklin Templeton Investor Services, LLC (Investor Services) is the Fund's shareholder servicing agent and acts as the Fund's transfer agent and dividend-paying agent. Investor Services is located at 3344 Quality Drive, Rancho Cordova, CA 95670-7313. Please send all correspondence to Investor Services at P.O. Box 33030, St. Petersburg, FL 33733-8030.

Investor Services receives a fee for servicing Fund shareholder accounts. The Fund also will reimburse Investor Services for certain out-of-pocket expenses necessarily incurred in servicing the shareholder accounts in accordance with the terms of its servicing contract with the Fund.

Investor Services may also pay servicing fees, that will be reimbursed by the Fund, in varying amounts to certain financial institutions (primarily to help offset their costs associated with client account maintenance support, statement preparation and transaction processing) that (i) maintain omnibus accounts with the Fund in the institution's name on behalf of numerous beneficial owners of Fund shares who are either direct clients of the institution or are participants in an IRS-recognized tax-deferred savings plan (including Employer Sponsored Retirement Plans and Section 529 Plans) for which the institution, or its affiliate, provides participant level recordkeeping services (called "Beneficial Owners"); or (ii) provide support for Fund shareholder accounts by sharing account data with Investor Services through the National Securities Clearing Corporation (NSCC) networking system. In addition to servicing fees received from the Fund, these financial institutions also may charge a fee for their services directly to their clients. Investor Services will also receive a fee from the Fund for services provided in support of Beneficial Owners and NSCC networking system accounts.

Custodian   JPMorgan Chase Bank, at its principal office at MetroTech Center, Brooklyn, NY 11245, and at the offices of its branches and agencies throughout the world, acts as custodian of the Fund's assets. As foreign custody manager, the bank selects and monitors foreign sub-custodian banks, selects and evaluates non-compulsory foreign depositories, and furnishes information relevant to the selection of compulsory depositories.

Independent Registered Public Accounting Firm   PricewaterhouseCoopers LLP, Three Embarcadero Center, San Francisco, CA 94111-4004, is the Fund's independent registered public accounting firm. The Independent Registered Public Accounting Firm audits the financial statements included in the Fund's Annual Report to Shareholders.

Portfolio Transactions

The manager selects brokers and dealers to execute the Fund's portfolio transactions in accordance with criteria set forth in the management agreement and any directions that the board may give.

When placing a portfolio transaction, the trading department of the manager seeks to obtain "best execution" -- the best combination of high quality transaction execution services, taking into account the services and products to be provided by the broker or dealer, and low relative commission rates with the view of maximizing value for the Fund and its other clients. For most transactions in equity securities, the amount of commissions paid is negotiated between the manager and the broker executing the transaction. The determination and evaluation of the reasonableness of the brokerage commissions paid are based to a large degree on the professional opinions of the persons within the trading department of the manager responsible for placement and review of the transactions. These opinions are based on the experience of these individuals in the securities industry and information available to them about the level of commissions being paid by other institutional investors. The manager may also place orders to buy and sell equity securities on a principal rather than agency basis if the manager believes that trading on a principal basis will provide best execution. Orders for fixed-income securities are ordinarily placed with market makers on a net basis, without any brokerage commissions. Purchases of portfolio securities from underwriters will include a commission or concession paid to the underwriter, and purchases from dealers will include a spread between the bid and ask price.

The manager may cause the Fund to pay certain brokers commissions that are higher than those another broker may charge, if the manager determines in good faith that the amount paid is reasonable in relation to the value of the brokerage and research services it receives. This may be viewed in terms of either the particular transaction or the manager's overall responsibilities to client accounts over which it exercises investment discretion. The brokerage commissions that are used to acquire services other than brokerage are known as "soft dollars." Research provided can be either proprietary (created and provided by the broker-dealer, including tangible research products as well as access to analysts and traders) or third party (created by a third party but provided by the broker-dealer). To the extent permitted by applicable law, the manager may use soft dollars to acquire both proprietary and third-party research.

The research services that brokers may provide to the manager include, among others, supplying information about particular companies, markets, countries, or local, regional, national or transnational economies, statistical data, quotations and other securities pricing information, and other information that provides lawful and appropriate assistance to the manager in carrying out its investment advisory responsibilities. These services may not always directly benefit the Fund. They must, however, be of value to the manager in carrying out its overall responsibilities to its clients.

It is not possible to place an accurate dollar value on the special execution or on the research services the manager receives from dealers effecting transactions in portfolio securities. The allocation of transactions to obtain additional research services allows the manager to supplement its own research and analysis activities and to receive the views and information of individuals and research staffs from many securities firms. The receipt of these products and services does not reduce the manager's research activities in providing investment advice to the Fund.

As long as it is lawful and appropriate to do so, the manager and its affiliates may use this research and data in their investment advisory capacities with other clients.

Because Franklin Templeton Distributors, Inc. (Distributors) is a member of the Financial Industry Regulatory Authority (FINRA), it may sometimes receive certain fees when the Fund tenders portfolio securities pursuant to a tender-offer solicitation. To recapture brokerage for the benefit of the Fund, any portfolio securities tendered by the Fund will be tendered through Distributors if it is legally permissible to do so. In turn, the next management fee payable to the manager will be reduced by the amount of any fees received by Distributors in cash, less any costs and expenses incurred in connection with the tender.

If purchases or sales of securities of the Fund and one or more other investment companies or clients supervised by the manager are considered at or about the same time, transactions in these securities will be allocated among the several investment companies and clients in a manner deemed equitable to all by the manager, taking into account the respective sizes of the accounts and the amount of securities to be purchased or sold. In some cases this procedure could have a detrimental effect on the price or volume of the security so far as the Fund is concerned. In other cases it is possible that the ability to participate in volume transactions may improve execution and reduce transaction costs to the Fund.

For the last three fiscal years ended August 31, the Fund paid the following brokerage commissions:

	Brokerage Commissions ($)
2010	542,902
2009	373,275
2008	418,592

For the fiscal year ended August 31, 2010, the Fund paid brokerage commissions of $122,289 from aggregate portfolio transactions of $128,652,795 to brokers who provided research services.

As of August 31, 2010, the Fund did not own securities of its regular broker-dealers.

Because the Fund may, from time to time, invest in broker-dealers, it is possible that the Fund will own more than 5% of the voting securities of one or more broker-dealers through whom the Fund places portfolio brokerage transactions. In such circumstances, the broker-dealer would be considered an affiliated person of the Fund. To the extent the Fund places brokerage transactions through such a broker-dealer at a time when the broker-dealer is considered to be an affiliate of the Fund, the Fund will be required to adhere to certain rules relating to the payment of commissions to an affiliated broker-dealer. These rules require the Fund to adhere to procedures adopted by the board to ensure that the commissions paid to such broker-dealers do not exceed what would otherwise be the usual and customary brokerage commissions for similar transactions.

Distributions and Taxes

Multiclass distributions   The Fund calculates income dividends and capital gain distributions the same way for each class. The amount of any income dividends per share will differ, however, generally due to any differences in the distribution and service (Rule 12b-1) fees applicable to the classes.

Distributions of net investment income   The Fund receives income generally in the form of dividends and interest on its investments. This income, less expenses incurred in the operation of the Fund, constitutes the Fund's net investment income from which dividends may be paid to you. If you are a taxable investor, any income dividends (other than qualified dividends) the Fund pays are taxable to you at ordinary income tax rates. A portion of the income dividends paid to you may be qualified dividends eligible to be taxed at reduced rates. A portion of the income dividends may also be designated as interest-related or short-term capital gain dividends that will not be subject to nonresident alien withholding for most non-U.S. investors. See the section on "Non-U.S. investors" for more information on interest-related and short-term capital gain dividends.

Distributions of capital gains   The Fund may realize capital gains and losses on the sale of its portfolio securities.

Distributions of short-term capital gains are taxable to you as ordinary income. Distributions of long-term capital gains are taxable to you as long-term capital gains, regardless of how long you have owned your shares in the Fund. Any net capital gains realized by the Fund (in excess of any available capital loss carryovers) generally are distributed once each year, and may be distributed more frequently, if necessary, to reduce or eliminate excise or income taxes on the Fund.

Capital gain dividends and any net long-term capital gains you realize from the sale of Fund shares are subject to a maximum rate of tax of 15% for individuals (0% for individuals in the 10% and 15% federal income tax brackets). These reduced rates of taxation of capital gain dividends and net long-term capital gains are scheduled to sunset on December 31, 2010, unless extended or made permanent before that date. If these rates do sunset at the end of 2010, the rates for taxation of net capital gains that were in effect prior to these changes, including provisions for the taxation of five-year gains, will again be effective for 2011 and later years.

Returns of capital   If the Fund's distributions exceed its taxable income and realized capital gains for a taxable year, all or a portion of the distributions made in that taxable year may be characterized as a return of capital to you. A return of capital distribution will generally not be taxable, but will reduce the cost basis in your Fund shares and will result in a higher capital gain or in a lower capital loss when you sell your shares. Any return of capital in excess of the basis in your Fund shares, however, will be taxable as a capital gain.

Investments in foreign securities   The following paragraphs describe tax considerations that are applicable to the Fund's investments in foreign securities.

Pass-through of foreign tax credits.   The Fund may be subject to foreign withholding taxes on income or gains from certain foreign securities. If more than 50% of the Fund's total assets at the end of a fiscal year is invested in foreign securities, the Fund may elect to pass through to you your pro rata share of foreign taxes paid by the Fund. If this election is made, the Fund may report more taxable income to you than it actually distributes. This is because the Fund is required to include the foreign taxes passed through to you as additional dividend income. You will then be entitled either to deduct your share of these taxes in computing your taxable income, or to claim a foreign tax credit for these taxes against your U.S. federal income tax (subject to limitations for certain shareholders). The Fund will provide you with the information necessary to claim this deduction or credit on your personal income tax return if it makes this election.

The use of qualified dividends may reduce the otherwise available foreign tax credits on your federal income tax return. Shareholders in these circumstances should talk with their personal tax advisors about their foreign tax credits and the procedures that they should follow to claim these credits on their personal income tax returns.

Effect of foreign debt investments on distributions.   Most foreign exchange gains realized on the sale of debt securities are treated as ordinary income by the Fund. Similarly, foreign exchange losses realized on the sale of debt securities generally are treated as ordinary losses. These gains when distributed are taxable to you as ordinary income, and any losses reduce the Fund's ordinary income otherwise available for distribution to you. This treatment could increase or decrease the Fund's ordinary income distributions to you, and may cause some or all of the Fund's previously distributed income to be classified as a return of capital.

PFIC securities.   The Fund may invest in securities of foreign entities that could be deemed for tax purposes to be passive foreign investment companies (PFICs). When investing in PFIC securities, the Fund intends to mark-to-market these securities and recognize any gains at the end of its fiscal and excise (described below) tax years. Deductions for losses are allowable only to the extent of any current or previously recognized gains. These gains (reduced by allowable losses) are treated as ordinary income that the Fund is required to distribute, even though it has not sold the securities. If the Fund is unable to identify an investment as a PFIC security and thus does not make a mark-to-market election, the Fund may be subject to U.S. federal income tax on a portion of any "excess distribution" or gain from the sale of the PFIC shares even if such income is distributed to you as a taxable dividend. Additional charges in the nature of interest may be imposed on the Fund on any deferred taxes arising from such income or gains.

The Fund's designation of a foreign security as a PFIC security will cause the income dividends of any designated securities to fall outside of the definition of qualified foreign corporation dividends. These dividends generally will not qualify for the reduced rate of taxation on qualified dividends when distributed to you by the Fund.

Information on the amount and tax character of distributions   The Fund will inform you of the amount of your income dividends and capital gain distributions at the time they are paid, and will advise you of their tax status for federal income tax purposes shortly after the close of each calendar year. The amount of income dividends designated by the Fund, consisting of qualified dividend income (which is relevant to U.S. investors) and interest-related and short-term capital gain dividends (which are relevant to non-U.S. investors) may exceed the total amount of income dividends paid. These designations will not result in more income being reported to you, but rather will allow the Fund to make its designations in a manner that is more tax efficient to both U.S. and non-U.S. investors. If you have not owned your Fund shares for a full year, the Fund may designate and distribute to you:

• as an ordinary income, qualified dividend, or capital gain dividend (a distribution of net long-term capital gains) if you are a U.S. investor, or
• as an interest-related, short-term capital gain, or capital gain dividend if you are a non-U.S. investor,

a percentage of income that may not be equal to the actual amount of each type of income earned during the period of your investment in the Fund. Distributions declared in December to shareholders of record in such month, but paid in January, are taxable to you as if paid in December.

The Fund may at times find it necessary to reclassify income after it issues your tax reporting statement. This can result from rules in the Code that effectively prevent regulated investment companies such as the Fund from ascertaining with certainty until after the calendar year end the final amount and character of distributions the Fund has received on its investments during the prior calendar year. Prior to issuing your statement, Franklin Templeton Investments makes every effort to identify reclassifications of income to reduce the number of corrected forms mailed to shareholders. However, when necessary, the Fund will send you a corrected tax reporting statement to reflect reclassified information. If you receive a corrected tax reporting statement, use the information on this statement, and not the information on your original statement, in completing your tax returns.

Avoid "buying a dividend."   If you invest in the Fund shortly before it makes a distribution, you may receive some of your investment back in the form of a taxable distribution. For example, if you buy 500 shares in the Fund on December 10th at the Fund's NAV of $10 per share, and the Fund makes a distribution on December 15th of $1 per share, your shares will then have an NAV of $9 per share (disregarding any change in the Fund's market value), and you will have to pay a tax on what is essentially a return of your investment of $1 per share. This tax treatment is required even if you reinvest the $1 per share distribution in additional Fund shares.

Election to be taxed as a regulated investment company   The Fund has elected to be treated as a regulated investment company under Subchapter M of the Code. It has qualified as a regulated investment company for its most recent fiscal year, and intends to continue to qualify during the current fiscal year. As a regulated investment company, the Fund generally pays no federal income tax on the income and gains it distributes to you. The board of trustees reserves the right not to maintain the qualification of the Fund as a regulated investment company if it determines this course of action to be beneficial to shareholders. In that case, the Fund would be subject to federal, and possibly state, corporate taxes on its taxable income and gains, and distributions to you would be taxed as dividend income to the extent of the Fund's earnings and profits.

Excise tax distribution requirements  

Required distributions.   To avoid federal excise taxes, the Code requires the Fund to distribute to you by December 31 of each year, at a minimum, the following amounts:

• 98% of its taxable ordinary income earned during the calendar year;
• 98% of its capital gain net income earned during the 12-month period ending October 31; and
• 100% of any undistributed amounts of these categories of income or gain from the prior year.

The Fund intends to declare and pay these distributions in December (or to pay them in January, in which case you must treat them as received in December), but can give no assurances that its distributions will be sufficient to eliminate all taxes.

Tax reporting for income and excise tax years.   Because the periods for measuring a regulated investment company's income are different for income (determined on a fiscal year basis) and excise tax years (determined as noted above), special rules are required to calculate the amount of income earned in each period, and the amount of earnings and profits needed to support that income. For example, if the Fund uses the excise tax period ending on October 31 as the measuring period for calculating and paying out capital gain net income and realizes a net capital loss between November 1 and the end of the Fund's fiscal year, it will likely have insufficient earnings and profits for its taxable year to support its required excise tax distribution. Accordingly, the Fund is permitted to elect to treat its realized capital loss (its "post-October loss") as occurring on the first day of its next fiscal year. Because these rules are not entirely clear, the Fund may be required to interpret the post-October loss and other rules relating to these different year-ends to determine its taxable income and capital gains. The Fund's reporting of income and its allocation between different taxable and excise tax years may be challenged by the Internal Revenue Service (IRS), possibly resulting in adjustments in the income reported by the Fund on its tax returns and/or by the Fund to you on your year-end tax statements.

Sales of Fund shares.   Sales and exchanges of Fund shares are taxable transactions for federal and state income tax purposes. If you sell your Fund shares, or exchange them for shares of a different Franklin Templeton fund, the IRS requires you to report any gain or loss on your sale or exchange. If you owned your shares as a capital asset, any gain or loss that you realize is a capital gain or loss, and is long-term or short-term, depending on how long you owned your shares.

The automatic conversion of Class B shares into Class A shares in the same Fund will be tax-free for federal income tax reporting purposes. You should talk to your tax advisor regarding the state and local tax consequences of this or any other conversion of shares.

Sales at a loss within six months of purchase.   Any loss incurred on the sale or exchange of Fund shares owned for six months or less is treated as a long-term capital loss to the extent of any long-term capital gains distributed to you by the Fund on those shares.

Wash sales.   All or a portion of any loss that you realize on the sale of your Fund shares is disallowed to the extent that you buy other shares in the Fund within 30 days before or after your sale. Any loss disallowed under these rules is added to your tax basis in the new shares.

Deferral of basis. (Class A only)   In reporting gain or loss on the sale of your Fund shares, you may be required to adjust your basis in the shares you sell under the following circumstances:

IF:

• In your original purchase of Fund shares, you received a reinvestment right (the right to reinvest your sales proceeds at a reduced or with no sales charge), and
• You sell some or all of your original shares within 90 days of their purchase, and
• You reinvest the sales proceeds in the Fund or in another Franklin Templeton fund, and the sales charge that would otherwise apply is reduced or eliminated;

THEN: In reporting any gain or loss on your sale, all or a portion of the sales charge that you paid for your original shares is excluded from your tax basis in the shares sold and added to your tax basis in the new shares.

Cost basis reporting.   Under recently enacted provisions of the Energy Improvement and Extension Act of 2008, the Fund’s administrative agent will be required to provide you cost basis information on the sale of your Fund shares, subject to certain exceptions. This new cost basis reporting requirement is effective for Fund shares purchased on or after January 1, 2012. Information about cost basis reporting for Franklin Templeton Funds is available online at franklintempleton.com (under the Fund’s Tax Information) or through a Customer Service Representative at Franklin Templeton Investments at
(800) DIAL BEN/(800) 342-5236.

Tax certification and backup withholding   Tax laws require that you certify your tax information when you become an investor in the Fund. For U.S. citizens and resident aliens, this certification is made on IRS Form W-9. Under these laws, you may be subject to federal backup withholding at 28%, and state backup withholding may also apply, on a portion of your taxable distributions and sales proceeds unless you:

• provide your correct Social Security or taxpayer identification number,
• certify that this number is correct,
• certify that you are not subject to backup withholding, and
• certify that you are a U.S. person (including a U.S. resident alien).

The Fund must also withhold if the IRS instructs it to do so. When withholding is required, the amount will be 28% of any taxable distributions.

Non-U.S. investors have special U.S. tax certification requirements. See the section below entitled "Tax certification and backup withholding as applied to non-U.S. investors."

U.S. government securities   The income earned on certain U.S. government securities is exempt from state and local personal income taxes if earned directly by you. States also grant tax-free status to mutual fund dividends paid to you from interest earned on these securities, subject in some states to minimum investment or reporting requirements that must be met by the Fund. The income on Fund investments in certain securities, such as repurchase agreements, commercial paper and federal agency-backed obligations (e.g., Ginnie Mae and Fannie Mae securities), generally does not qualify for tax-free treatment. The rules on exclusion of this income are different for corporations.

Qualified dividends   For individual shareholders, a portion of the dividends paid by the Fund may be qualified dividend income eligible for taxation at the 15% long-term capital gain rate (0% for individuals in the 10% and 15% federal rate brackets for dividends paid from income earned by the Fund in 2008 through 2010).

Dividends earned on the following income sources will qualify for this treatment:

• dividends paid by domestic corporations, and
• dividends paid by qualified foreign corporations, including:
• corporations incorporated in a possession of the U.S.,
• corporations eligible for benefits of a comprehensive income tax treaty with the United States that the Treasury Department determines is satisfactory (including an exchange of information program), and
• corporations whose stock is readily tradable on an established securities market in the United States.

Dividends from corporations exempt from tax, passive foreign investment companies (PFICs), and dividends paid from interest earned by the Fund on debt securities generally will not qualify for this favorable tax treatment.

Both the Fund and you must meet certain holding period requirements to qualify Fund dividends for this treatment. Specifically, the Fund must hold the stock for at least 61 days during the 121-day period beginning 60 days before the stock becomes ex-dividend. Similarly, you must hold your Fund shares for at least 61 days during the 121-day period beginning 60 days before the Fund distribution goes ex-dividend. The ex-dividend date is the first date following the declaration of a dividend on which the purchaser of stock is not entitled to receive the dividend payment. When counting the number of days you held your Fund shares, include the day you sold your shares but not the day you acquired these shares.

While the income received in the form of a qualified dividend is taxed at the same rates as long-term capital gains, such income will not be considered as a long-term capital gain for other federal income tax purposes. For example, you will not be allowed to offset your long-term capital losses against qualified dividend income on your federal income tax return. Any qualified dividend income that you elect to be taxed at these reduced rates also cannot be used as investment income in determining your allowable investment interest expense. For other limitations on the amount of or use of qualified dividend income on your income tax return, please contact your personal tax advisor.

After the close of its fiscal year, the Fund will designate the portion of its ordinary dividend income that meets the definition of qualified dividend income taxable at reduced rates. If 95% or more of the Fund’s income is from qualified sources, it will be allowed to designate 100% of its ordinary income distributions as qualified dividend income. This designation rule may have the effect of converting small amounts of ordinary income or net short-term capital gains, that otherwise would be taxable as ordinary income, into qualified dividend income eligible for taxation at reduced rates.

Sunsetting of provisions.   The special provisions dealing with qualified dividend income, and the reduced rate of taxation of long-term capital gains are scheduled to sunset on December 31, 2010, unless extended or made permanent before that date. If these provisions do sunset, the rules on taxation of capital gains that were in effect prior to the adoption of these rules, including provisions for the taxation of five-year gains, will again be effective for 2011 and later years.

Dividends-received deduction for corporations   For corporate shareholders, a portion of the dividends paid by the Fund may qualify for the dividends-received deduction. This deduction generally is available to corporations for dividends paid by a fund out of income earned on its investments in domestic corporations. Because most of the income of the Fund is derived from investments in foreign rather than domestic securities, generally none or only a small percentage of its income dividends will be eligible for the corporate dividends-received deduction. You may be allowed to deduct these qualified dividends, if any, thereby reducing the tax that you would otherwise be required to pay. All dividends (including the deducted portion) are included in your calculation of alternative minimum taxable income. If the portion of income qualifying for this deduction is quite small, the Fund reserves the right to not designate these dividends as qualifying for the corporate dividends-received deduction to the Fund's corporate investors.

Investment in complex securities   The Fund may invest in complex securities that could require it to adjust the amount, timing and/or tax character (ordinary or capital) of gains and losses it recognizes on these investments. This, in turn, could affect the amount, timing and/or tax character of income distributed to you. For example,

Securities lending transactions.   The Fund's entry into securities lending transactions may cause the replacement income earned on the loaned securities to fall outside of the definition of qualified dividend income. This replacement income generally will not be eligible for reduced rates of taxation on qualified dividend income, and, to the extent that debt securities are loaned, will generally not qualify as qualified interest income for foreign withholding tax purposes.

Tax straddles.   If the Fund actively trades stock or otherwise acquires a position with respect to substantially similar or related property in connection with certain hedging transactions, it could be deemed to hold offsetting positions in securities. If the Fund’s risk of loss with respect to specific securities in its portfolio is substantially diminished by the fact that it holds offsetting securities, the Fund could be deemed to have entered into a tax “straddle” or to hold a “successor position” that would require any loss realized by it to be deferred for tax purposes.

Securities purchased at discount.   The Fund is permitted to invest in securities issued or purchased at a discount, such as zero coupon, deferred interest or payment-in-kind (PIK) bonds, that could require it to accrue and distribute income not yet received. These obligations may not pay current interest, but may be subject to tax rules that require the Fund to currently accrue income for tax reporting, and then distribute that income to Fund shareholders to meet its fund qualification and excise tax distribution requirements. If it invests in these securities, the Fund could be required to sell securities in its portfolio that it otherwise might have continued to hold in order to generate sufficient cash to make these distributions.

Each of these investments by the Fund in complex securities is subject to special tax rules that could affect the amount, timing and/or tax character of income realized by the Fund and distributed to you.

Excess inclusion income of certain tax-exempt shareholders from an investment by the Fund in REITs and REMIC residual interests.   Certain tax-exempt shareholders, including qualified pension plans, individual retirement accounts, salary deferral arrangements (401(k)s) and other tax-exempt entities, generally are exempt from federal income taxation except with respect to their unrelated business taxable income (UBTI). Under current law, the Fund serves to block UBTI from being realized by its tax-exempt shareholders. Notwithstanding the foregoing, a tax-exempt shareholder that is subject to UBTI could realize UBTI by virtue of its investment in the Fund if: (i) the Fund invests in a residual interest in a real estate mortgage investment conduit (REMIC) or in a Real Estate Investment Trust (REIT) that holds a REMIC residual interest (income that is attributable to these residual interests is referred to in the Code as an “excess inclusion income”) or (ii) shares in the Fund constitute debt-financed property in the hands of the tax-exempt shareholder within the meaning of Code Section 514(b). In addition, if a REIT, that issues debt securities with more than one maturity, owns a “taxable mortgage pool” within the meaning of Code Section 7701(i) as a portion of the REIT’s assets, or as a REIT subsidiary, then a portion of the REIT’s income may be treated as if it were an excess inclusion from a REMIC. This income generally is required to be allocated by the Fund to you in proportion to the dividends paid to you with the same tax consequences as if you received the excess inclusion income directly. If you are a tax-exempt shareholder, this excess inclusion income may have a tax consequence to you as discussed below.

Under guidance recently issued by the IRS, the Fund will be taxed at the highest corporate income tax rate on its excess inclusion income that is allocable to the percentage of its shares held in record name by a “disqualified organization.” Disqualified organizations generally include certain cooperatives, governmental entities and tax-exempt organizations that are not subject to tax on unrelated business taxable income. To the extent that Fund shares owned by a disqualified organization are held in record name by a broker-dealer or other nominee, the broker-dealer or other nominee would be liable for the corporate level tax on the portion of the Fund’s excess inclusion income allocable to Fund shares held by the broker-dealer or other nominee. The Fund expects that disqualified organizations will own their shares and will not themselves be pass-through entities. Because this tax is imposed at the Fund level, all shareholders, including shareholders that are not disqualified organizations, will bear a portion of the tax cost associated with the Fund’s receipt of excess inclusion income. However, to the extent permitted under the Investment Company Act of 1940, as amended, and under Treasury Regulations, the Fund may, but is not required to, specially allocate this tax expense to the disqualified organizations to which it is attributable, so long as such an allocation will not constitute a preferential dividend to the Fund.

In addition, with respect to Fund shareholders who are not nominees, for Fund taxable years beginning on or after January 1, 2007, the Fund must report excess inclusion income to shareholders in two cases:

• If the excess inclusion income received by the Fund from all sources exceeds 1% of the Fund's gross income, it must inform the non-nominee shareholders of the amount and character of excess inclusion income allocated to them; and
• If the Fund receives excess inclusion income from a REIT whose excess inclusion income in its most recent tax year ending not later than nine months before the first day of the Fund's taxable year exceeded 3% of the REIT's total dividends, the Fund must inform its non-nominee shareholders of the amount and character of the excess inclusion income allocated to them from such REIT.

Any excess inclusion income realized by the Fund and allocated to shareholders under these rules cannot be offset by net operating losses of the shareholders. If the shareholder is a tax-exempt entity and not a "disqualified organization," then this income is fully taxable as unrelated business taxable income under the Code. Charitable remainder trusts do not incur UBTI by receiving excess inclusion income from the Fund. If the shareholder is a non-U.S. person, such shareholder would be subject to U.S. federal income tax withholding at a rate of 30% on this income without reduction or exemption pursuant to any otherwise applicable income tax treaty. If the shareholder is a REIT, a regulated investment company, common trust fund or other pass-through entity, such shareholder's allocable share of the Fund's excess inclusion income would be considered excess inclusion income of such entity and such entity would be subject to tax at the highest corporate tax rate on any excess inclusion income allocated to their owners that are disqualified organizations. Accordingly, investors should be aware that a portion of the Fund's income may be considered excess inclusion income.

Compliance with these requirements will require the Fund to obtain significant cooperation from any REITs in which it invests. There is no guarantee that the Fund will receive the information that it needs to implement these requirements and report any excess inclusion income to you on a timely basis. The Fund will use its best efforts to meet these requirements, and through the Investment Company Institute, will seek additional guidance from the IRS and the cooperation of REITs in providing excess inclusion income information on a timely basis.

Tax-exempt shareholders should talk to their tax advisors about the implications of these rules on their separate tax situations.

Non-U.S. investors   Non-U.S. investors may be subject to U.S. withholding and estate tax, and are subject to special U.S. tax certification requirements. Non-U.S. investors should consult their tax advisors about the applicability of U.S. tax withholding and the use of appropriate forms to certify their foreign status and to claim any applicable treaty benefits to which they are entitled.

In general.   The United States imposes a flat 30% withholding tax (or a tax at a lower treaty rate) on U.S. source dividends. An exemption from this withholding tax is provided for capital gain dividends paid by the Fund from its net long-term capital gains. An exemption from withholding is also provided for short-term capital gain dividends and interest-related dividends as described below, to the extent that these gains and dividends are paid out of income and gains earned by the Fund prior to the end of the Fund's fiscal year ending in 2010. However, notwithstanding such exemptions from U.S. withholding at the source, any taxable distributions and proceeds from the sale of your Fund shares will be subject to backup withholding at a rate of 28% if you fail to properly certify that you are not a U.S. person.

Capital gain distributions and short-term capital gain dividends.   Dividends designated by the Fund as either (i) a distribution from net long-term capital gains (a capital gain dividend), or (ii) a distribution from net short-term capital gains (a short-term capital gain dividend) paid out of income earned within the Fund prior to the sunset date described above, other than long- or short-term capital gains realized on disposition of U.S. real property interests (see discussion below), are not subject to U.S. withholding tax unless you are a nonresident alien individual present in the United States for a period or periods aggregating 183 days or more during the calendar year.

Interest-related dividends.   Interest-related dividends designated and paid by the Fund from qualified net interest income earned prior to the sunset date described above are not subject to U.S. withholding tax. The Fund's qualified net interest income equals its qualified interest income less allocable expenses. "Qualified interest income" includes, in general, the sum of the Fund's U.S. source: i) bank deposit interest, ii) short-term original issue discount, iii) portfolio interest, and iv) any interest-related dividend passed through from another regulated investment company. On any payment date, the amount of an income dividend that is designated by the Fund as an interest-related dividend may be more or less than the amount that is so qualified. This is because the designation is based on an estimate of the Fund's qualified interest income for its entire fiscal year, which can only be determined with exactness at fiscal year end. As a consequence, the Fund may over withhold a small amount of U.S. tax from a dividend payment. In this case, the non-U.S. investor's only recourse may be to either forgo recovery of the excess withholding, or to file a United States nonresident income tax return to recover the excess withholding.

Limitations on tax reporting for interest-related dividends and short-term capital gains dividends for non-U.S. investors.   It may not be practical in every case for the Fund to designate, and the Fund reserves the right in these cases to not designate, small amounts of interest-related or short-term capital gain dividends. Additionally, the Fund's designation of interest-related or short-term capital gain dividends may not be passed through to shareholders by intermediaries who have assumed tax reporting responsibilities for this income in managed or omnibus accounts due to systems limitations or operational constraints. When the Fund has designated interest-related or short-term capital gain dividends, this information will be available online at franklintempleton.com, under the Fund’s Tax Information, or through a Customer Service Representative at Franklin Templeton Investments at (800) DIAL BEN. If you are a shareholder of an institutional fund, you may obtain this information by calling Institutional Services at (800) 321-8563, or through a Customer Service Representative at Franklin Templeton Investments at (800) DIAL BEN.

Other income dividends and effectively connected income.   Income dividends paid by the Fund to non-U.S. investors on the income earned on portfolio investments in (i) the stock of domestic and foreign corporations and (ii) the debt of foreign issuers continue to be subject to U.S. withholding tax at a 30% or lower treaty rate. If you hold your Fund shares in connection with a U.S. trade or business, your income and gains will be considered effectively connected income and taxed in the U.S. on a net basis, in which case you may be required to file a nonresident U.S. income tax return.

U.S. estate tax.   As of the date of this Registration Statement, the U.S. federal estate tax is repealed for one year for decedents dying on or after January 1, 2010 and before January 1, 2011, unless reinstated earlier, possibly retroactively to January 1, 2010. On and after the date the U.S. federal estate tax is reinstated, an individual who is a non-U.S. investor will be subject to U.S. federal estate tax on all or a portion of the value of Fund shares owned at the time of death, unless a treaty exemption applies between the country of residence of the non-U.S. investor and the U.S. Even if a treaty exemption is available, a decedent’s estate may nevertheless be required to file a U.S. estate tax return to claim the exemption, as well as to obtain a U.S. federal transfer certificate. The transfer certificate will identify the property (i.e., Fund shares) on which a U.S. federal tax lien has been released, and is required before the Fund can release a nonresident alien decedent’s investment in the Fund to his or her estate. For estates with U.S. situs assets of not more than $60,000 (there is a statutory estate tax credit for this amount of property), the Fund may accept, in lieu of a federal transfer certificate, an affidavit from the executor of the estate or other authorized individual evidencing that the U.S. situs assets (excluding any exempt assets as noted below) are at or below this threshold amount. Transfers by gift of shares of the Fund by a non-U.S. investor who is a nonresident alien individual will not be subject to U.S. federal gift tax. The tax consequences to a non-U.S. investor entitled to claim the benefits of a treaty between the country of residence of the non-U.S. investor and the U.S. may be different from the consequences described above. Non-U.S. investors should consult with their tax advisors on the estate tax consequences of an investment in the Fund.

For estates of decedents dying before January 1, 2010, the Code also provides for a partial exemption from U.S. estate tax for Fund shares held by an estate of a nonresident decedent. The amount treated as exempt is based on the proportion of the assets held by the Fund at the end of the quarter immediately preceding the decedent’s death that are treated as qualifying assets. In general, qualifying assets include U.S. bank deposits, U.S. debt obligations that pay portfolio interest and other property not within the United States.

Sunsetting of provisions.   The provisions dealing with interest-related dividends and short-term capital gain dividends that are discussed above are scheduled to sunset at the end of the Fund’s fiscal year on December 31, 2009 (calendar year Funds) or in 2010 (fiscal year Funds). The provisions creating a partial exemption from U.S. estate tax are scheduled to sunset on December 31, 2009. Unless these rules are extended, possibly retroactive to January 1, 2010, or made permanent, non-U.S. investors will again be subject to nonresident withholding taxes on any ordinary dividends (including short-term capital gain dividends) that they receive, and will no longer be eligible for a reduction in their U.S. estate tax.

Tax certification and backup withholding as applied to non-U.S. investors.   Non-U.S. investors have special U.S. tax certification requirements to avoid backup withholding (at a rate of 28%), and if applicable, to obtain the benefit of any income tax treaty between the non-U.S. investor's country of residence and the United States. To claim these tax benefits, the non-U.S. investor must provide a properly completed Form W-8BEN (or other Form W-8, where applicable, or their substitute forms) to establish his or her status as a non-U.S. investor, to claim beneficial ownership over the assets in the account, and to claim, if applicable, a reduced rate of or exemption from withholding tax under the applicable treaty. A Form W-8BEN provided without a U.S. taxpayer identification number remains in effect for a period of three years beginning on the date that it is signed and ending on the last day of the third succeeding calendar year. However, non-U.S. investors must advise the Fund of any changes of circumstances that would render the information given on the form incorrect, and must then provide a new W-8BEN to avoid the prospective application of backup withholding. Forms W-8BEN with U.S. taxpayer identification numbers remain valid indefinitely, or until the investor has a change of circumstances that renders the form incorrect and necessitates a new form and tax certification.

Investment in U.S. real property.   The Fund may invest in equity securities of corporations that invest in U.S. real property, including U.S. REITs. The sale of a U.S. real property interest (USRPI) by the Fund or by a U.S. REIT or U.S. real property holding corporation in which the Fund invests may trigger special tax consequences to the Fund's non-U.S. shareholders.

The Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) makes non-U.S. persons subject to U.S. tax on disposition of a USRPI as if he or she were a U.S. person. Such gain is sometimes referred to as FIRPTA gain. A Fund’s investment in USRPI, including U.S. REITs, may trigger FIRPTA gain to the Fund’s non-U.S. investors on certain distributions from the Fund and on the sale or exchange of Fund shares.

Under a look-through rule, the Code treats distributions by a regulated investment company (RIC) received from a U.S. REIT as FIRPTA gain if all of the following requirements are met:

• The RIC is classified as a qualified investment entity. A RIC is classified as a “qualified investment entity” if (1) in general, 50% or more of the RIC’s assets consist of interests in U.S. REITs and U.S. real property holding corporations (USRPHC), and (2) the distribution is attributable directly or indirectly to a distribution from a REIT;
• The distribution from the REIT to the RIC is attributable to gain from the sale or exchange of a USRPI. A USRPI for these purposes excludes shares of a REIT controlled by U.S. persons and holdings by the REIT of 5% or less in the stock of publicly traded USRPHC; and
• You are a non-U.S. shareholder that owns more than 5% of a class of Fund shares at any time during the one-year period ending on the date of the distribution.

If these conditions are met, such Fund distributions to you are treated as gain from the disposition of a USRPI, causing the distributions to be subject to U.S. withholding tax at a rate of 35% (or, to the extent provided in future regulations, 20% in the case of taxable years beginning after December 31, 2010), and requiring that you file a nonresident U.S. income tax return. Even if you do not own more than 5% of a class of Fund shares, but the Fund is a qualified investment entity, such Fund distributions to you will be taxable as ordinary dividends rather than as a capital gain dividend (a distribution of long-term capital gains) or a short-term capital gain dividend subject to withholding at the 30% or lower treaty withholding rate. These rules apply to dividends paid by the Fund after December 31, 2009.

Additionally, if the Fund is a USRPHC, any gain realized on the sale or exchange of Fund shares by a non-U.S. investor that owns more than 5% of a class of Fund shares would be taxed as income “effectively connected with a U.S. trade or business.” The Fund will be a USRPHC if, in general, 50% or more of the fair market value of its assets consists of USRPI. For purposes of determining whether the Fund is a USRPHC, shares of U.S. REITs controlled by U.S. persons and holdings of 5% or less in the stock of publicly traded USRPHCs are not considered USRPI.

Because the Fund expects to invest less than 50% of its assets at all times, directly or indirectly, in U.S. real property interests, it expects that neither gain on the sale or redemption of Fund shares nor Fund dividends and distributions should be subject to FIRPTA reporting and tax withholding.

Other Tax Information   This discussion of “Distributions and Taxes” is not written to provide you with tax advice, and does not purport to deal with all of the tax consequences that may be applicable to your investment in the Fund. You should consult your tax advisor regarding your particular circumstances before making an investment in the Fund, or about the federal, state, local and foreign tax consequences of your investment in the Fund.

Organization, Voting Rights and Principal Holders

The Fund is a non-diversified open-end management investment company, commonly called a mutual fund. The Fund is the successor of a closed-end fund, organized as a Maryland corporation on July 15, 1993. The closed-end fund was reorganized on August 8, 2003 into a Delaware statutory trust created on December 3, 2002 and is registered with the SEC. Prior to August 8, 2003, the Fund’s name was Templeton China World Fund, Inc.

The Fund currently offers four classes of shares: Class A, Class B, Class C, and Advisor Class. New or additional investments into Class B are no longer permitted. Existing shareholders of Class B shares may continue as Class B shareholders, continue to reinvest dividends into Class B shares and exchange their Class B shares for Class B shares of other Franklin Templeton funds as permitted by the current exchange privileges. The Fund may offer additional classes of shares in the future. The full title of each class is:

• Templeton China World Fund - Class A
• Templeton China World Fund - Class B
• Templeton China World Fund - Class C
• Templeton China World Fund - Advisor Class

Shares of each class represent proportionate interests in the Fund's assets. On matters that affect the Fund as a whole, each class has the same voting and other rights and preferences as any other class. On matters that affect only one class, only shareholders of that class may vote. Each class votes separately on matters affecting only that class, or expressly required to be voted on separately by state or federal law.

The Fund has noncumulative voting rights. For board member elections, this gives holders of more than 50% of the shares voting the ability to elect all of the members of the board. If this happens, holders of the remaining shares voting will not be able to elect anyone to the board.

The Fund does not intend to hold annual shareholder meetings. The Fund may hold special meetings, however, for matters requiring shareholder approval.

As of October 1, 2010, the principal shareholders of the Fund, beneficial or of record, were:

Name and Address	Share Class	Percentage (%)
Franklin Templeton Growth Allocation Fund Franklin Templeton Fund Allocator Series 960 Park Place, 4th Floor San Mateo, CA 94403-1906	Advisor	7.25
Franklin Templeton Moderate Allocation Fund Franklin Templeton Fund Allocator Series 960 Park Place, 4th Floor San Mateo, CA 94403-1906	Advisor	10.26
Ellard & Co. c/o Fiduciary Trust Co. Intl. P.O. Box 3199 New York, NY 10008-3199	Advisor	9.86
Comerica Bank FBO Charles Stewart Mott Foundation Trust P.O. Box 75000M C 3446 Detroit, MI 48275-0001	Advisor	6.82

From time to time, the number of Fund shares held in the "street name" accounts of various securities dealers for the benefit of their clients or in centralized securities depositories may exceed 5% of the total shares outstanding.

As of October 1, 2010, the officers and board members, as a group, owned of record and beneficially less than 1% of the outstanding shares of each class. The board members may own shares in other funds in Franklin Templeton Investments.

Buying and Selling Shares

The Fund continuously offers its shares through securities dealers who have an agreement with Franklin Templeton Distributors, Inc. (Distributors). A securities dealer includes any financial institution that, either directly or through affiliates, has an agreement with Distributors to handle customer orders and accounts with the Fund. This reference is for convenience only and does not indicate a legal conclusion of capacity. Banks and financial institutions that sell shares of the Fund may be required by state law to register as securities dealers. If you buy or sell shares through your securities dealer, you may be charged a transaction processing fee by your securities dealer. Your securities dealer will provide you with specific information about any transaction processing fees you will be charged.

For investors outside the U.S., the offering of Fund shares may be limited in many jurisdictions. An investor who wishes to buy shares of the Fund should determine, or have a broker-dealer determine, the applicable laws and regulations of the relevant jurisdiction. Investors are responsible for compliance with tax, currency exchange or other regulations applicable to redemption and purchase transactions in any jurisdiction to which they may be subject. Investors should consult appropriate tax and legal advisors to obtain information on the rules applicable to these transactions.

All checks, drafts, wires and other payment mediums used to buy or sell shares of the Fund must be denominated in U.S. dollars. We may, in our sole discretion, either (a) reject any order to buy or sell shares denominated in any other currency or (b) honor the transaction or make adjustments to your account for the transaction as of a date and with a foreign currency exchange factor determined by the drawee bank. We may deduct any applicable banking charges imposed by the bank from your account.

When you buy shares, if you submit a check or a draft that is returned unpaid to the Fund we may impose a $10 charge against your account for each returned item.

If you buy shares through the reinvestment of dividends, the shares will be purchased at the net asset value determined on the business day following the dividend record date (sometimes known as the "ex-dividend date"). The processing date for the reinvestment of dividends may vary and does not affect the amount or value of the shares acquired.

Investment by asset allocators   The Fund permits investment in the Fund by asset allocators (Asset Allocators) who represent underlying clients that have granted a power of attorney to the Asset Allocators to invest on their behalf. The Asset Allocators typically make asset allocation decisions across similarly situated underlying accounts that are invested in the Fund. As a result of adjustments in such asset allocation decisions, the Fund may experience relatively large purchases and redemptions when the Asset Allocators implement their asset allocation adjustment decisions. In such circumstances, the Fund may nevertheless restrict or reject trading activity by Asset Allocators in accordance with the Frequent Trading Policy of the Fund as set forth in the Fund’s Prospectus. Neither the Fund, nor its investment manager nor any other affiliated party receives any compensation or other consideration in return for permitting Fund investments by Asset Allocators.

Initial sales charges   The maximum initial sales charge is 5.75% for Class A. There is no initial sales charge for Class C and Advisor Class.

The initial sales charge for Class A shares may be reduced for certain large purchases, as described in the prospectus. We offer several ways for you to combine your purchases in Franklin Templeton funds to take advantage of the lower sales charges for large purchases.

Letter of intent (LOI).   You may buy Class A shares at a reduced sales charge by completing the LOI section of your account application. An LOI is a commitment by you to invest a specified dollar amount during a 13-month period. The amount you agree to invest determines the sales charge you pay. By completing the LOI section of the application, you acknowledge and agree to the following:

• You authorize Distributors to reserve approximately 5% of your total intended purchase in Class A shares registered in your name until you fulfill your LOI. Your periodic statements will include the reserved shares in the total shares you own, and we will pay or reinvest dividend and capital gain distributions on the reserved shares according to the distribution option you have chosen.
• You give Distributors a security interest in the reserved shares and appoint Distributors as attorney-in-fact.
• Distributors may sell any or all of the reserved shares to cover any additional sales charge if you do not fulfill the terms of the LOI.
• Although you may exchange your shares, you may not sell reserved shares until you complete the LOI or pay the higher sales charge.

After you file your LOI with the Fund, you may buy Class A shares at the sales charge applicable to the amount specified in your LOI. Sales charge reductions based on purchases in more than one Franklin Templeton fund will be effective only after notification to Distributors that the investment qualifies for a discount. If you file your LOI with the Fund before a change in the Fund's sales charge, you may complete the LOI at the lower of the new sales charge or the sales charge in effect when the LOI was filed.

Your holdings in Franklin Templeton funds acquired before you filed your LOI will be counted towards the completion of the LOI.

If the terms of your LOI are met, the reserved shares will be deposited to an account in your name or delivered to you or as you direct.

If the amount of your total purchases is less than the amount specified in your LOI, the sales charge will be adjusted upward, depending on the actual amount purchased during the period. You will need to send Distributors an amount equal to the difference in the actual dollar amount of sales charge paid and the amount of sales charge that would have applied to the total purchases if the total of the purchases had been made at one time. Upon payment of this amount, the reserved shares held for your account will be deposited to an account in your name or delivered to you or as you direct. If within 20 days after written request the difference in sales charge is not paid, we will redeem an appropriate number of reserved shares to realize the difference. If you redeem the total amount in your account before you fulfill your LOI, we will deduct the additional sales charge due from the sale proceeds and forward the balance to you.

For LOIs filed on behalf of certain retirement plans, the level and any reduction in sales charge for these plans will be based on actual plan participation and the projected investments in Franklin Templeton funds under the LOI. These plans are not subject to the requirement to reserve 5% of the total intended purchase or to the policy on upward adjustments in sales charges described above, or to any penalty as a result of the early termination of a plan.

Waivers for investments from certain payments.   Class A shares may be purchased without an initial sales charge or contingent deferred sales charge (CDSC) by investors who reinvest within 90 days:

• Dividend and capital gain distributions from any Franklin Templeton fund. The distributions generally must be reinvested in the same share class. Certain exceptions apply, however, to Advisor Class or Class Z shareholders of a Franklin Templeton fund who may reinvest their distributions in the Fund's Class A shares.
• Annuity payments received under either an annuity option or from death benefit proceeds, if the annuity contract offers as an investment option the Franklin Templeton Variable Insurance Products Trust. You should contact your tax advisor for information on any tax consequences that may apply.
• Redemption proceeds from the sale of Class A shares of any of the Franklin Templeton Investment Funds if you are a qualified investor.

If you paid a CDSC when you redeemed your Class A shares from a Franklin Templeton Investment Fund, a new CDSC will apply to your purchase of Fund shares and the CDSC holding period will begin again. We will, however, credit your Fund account with additional shares based on the CDSC you previously paid and the amount of the redemption proceeds that you reinvest.

If you immediately placed your redemption proceeds in a Franklin Templeton money fund, you may reinvest them as described above. The proceeds must be reinvested within 90 days from the date they are redeemed from the money fund.

Waivers for certain investors.   The following investors or investments may qualify to buy Class A shares without an initial sales charge or CDSC due to anticipated economies in sales efforts and expenses, including:

• Governments, municipalities, and tax-exempt entities that meet the requirements for qualification under section 501 of the Internal Revenue Code. Please consult your legal and investment advisors to determine if an investment in the Fund is permissible and suitable for you.
• Registered securities dealers and their affiliates, for their investment accounts only
• Current employees of securities dealers and their affiliates and their family members, as allowed by the internal policies of their employer
• Current and former officers, trustees, directors, full-time employees (and, in each case, their family members) of both Franklin Templeton Investments and Franklin Templeton funds, consistent with our then-current policies
• Current partners of law firms that currently provide legal counsel to the funds, Franklin Resources, Inc. or its affiliates
• Assets held in accounts managed by a subsidiary of Franklin Resources, Inc.: (1) under an advisory agreement (including sub-advisory agreements); and/or (2) as trustee of an inter vivos or testamentary trust
• Certain unit investment trusts and their holders reinvesting distributions from the trusts
• Any trust or plan established as part of a qualified tuition program under Section 529 of the Internal Revenue Code, as amended
• Group annuity separate accounts offered to retirement plans
• Chilean retirement plans that meet the requirements described under "Retirement plans" below
• Assets held in accounts managed by a state or federally regulated trust company or bank (Trust Company) either as discretionary trustee of an inter vivos or testamentary trust or as manager under an advisory agreement (including sub-advisory) or other agreement that grants the Trust Company investment discretion over those assets (Trust Company Managed Assets) if (i) the aggregate value of Trust Company Managed Assets invested in Franklin Templeton funds at the time of purchase equals at least $1 million; and (ii) the purchased shares are registered directly to the Trust Company in its corporate capacity (not as trustee of an individual trust) and held solely as Trust Company Managed Assets
• Shares acquired by a financial intermediary that the intermediary holds, directly or indirectly, on behalf of a beneficial owner who has entered into a comprehensive fee or other advisory fee arrangement with any broker-dealer, trust company or registered investment advisor (RIA), whether or not affiliated with the financial intermediary, provided the financial intermediary has entered into an agreement with Distributors authorizing the sale of Fund shares

Retirement plans.   Provided that Franklin Templeton Investor Services, LLC is notified, Class A shares at NAV are available for:

• Employer Sponsored Retirement Plans that invest indirectly in Fund shares through Fund omnibus accounts registered to a financial intermediary; or
• An Employer Sponsored Retirement Plan if the employer sponsors one or more Plans with aggregate Plan assets of $1 million or more; or
• Investors who open an IRA with proceeds rolled over directly from an Employer Sponsored Retirement Plan if the IRA is a "Common Platform IRA." An IRA is a Common Platform IRA if (i) the IRA custodian or recordkeeper, or one of its affiliates, is the recordkeeper for the Plan at the time the IRA is opened; and (ii) current agreements with the Fund, or its agent, make Franklin Templeton fund shares available to both the Plan and the IRA investor; or
• The portion of any direct rollover from a participant’s Employer Sponsored Retirement Plan account or direct transfer from a 403(b) Plan account to a Franklin Templeton IRA with FTB&T as the custodian that is funded by the sale immediately prior to the rollover/transfer of Franklin Templeton fund shares held in the Plan account, provided that documentation accompanies the rollover/transfer instruction that reasonably supports this funding source requirement; or
• Investors who open an IRA as a spousal rollover or a QDRO if opened with proceeds from a "Former DCS Plan" and/or a plan for which FTB&T is trustee; or
• Investors who open a Franklin Templeton IRA prior to November 1, 2012 with proceeds rolled over directly from a "Former DCS Plan."

A "Qualified Retirement Plan" is an employer sponsored pension or profit sharing plan that qualifies under section 401(a) of the Internal Revenue Code, including 401(k), money purchase pension, profit sharing and defined benefit plans.

An "Employer Sponsored Retirement Plan" is a Qualified Retirement Plan, ERISA covered 403(b) and certain non-qualified deferred compensation arrangements that operate in a similar manner to a Qualified Retirement Plan, such as 457 plans and executive deferred compensation arrangements, but not including employer sponsored IRAs.

A "Former DCS Plan" is an Employer Sponsored Retirement Plan that transferred participant level recordkeeping from the DCS Division of Franklin Templeton Investor Services, LLC to Great-West Retirement Services^® (GWRS) on November 2, 2007 and is a recordkeeping client of GWRS at the time of the rollover.

Sales in Taiwan.   Under agreements with certain banks in Taiwan, Republic of China, the Fund's shares are available to these banks' trust accounts without a sales charge. The banks may charge service fees to their customers who participate in the trusts. A portion of these service fees may be paid to Distributors or one of its affiliates to help defray expenses of maintaining a service office in Taiwan, including expenses related to local literature fulfillment and communication facilities.

The Fund's Class A shares may be offered to investors in Taiwan through securities advisory firms known locally as Securities Investment Consulting Enterprises. In conformity with local business practices in Taiwan, Class A shares may be offered with the following schedule of sales charges:

Size of Purchase - U.S. Dollars	Sales Charge (%)
Under $30,000	3.0
$30,000 but less than $50,000	2.5
$50,000 but less than $100,000	2.0
$100,000 but less than $200,000	1.5
$200,000 but less than $400,000	1.0
$400,000 or more	0

Dealer and financial intermediary compensation   Securities dealers may at times receive the entire sales charge. A securities dealer who receives 90% or more of the sales charge may be deemed an underwriter under the Securities Act of 1933, as amended. Financial institutions or their affiliated brokers may receive an agency transaction fee in the percentages indicated in the dealer compensation table in the Fund's prospectus.

Distributors may pay the following commissions to securities dealers who initiate and are responsible for purchases of Class A shares of $1 million or more: 1% (for funds with a maximum initial sales charge of 5.75%) and 0.75% (for funds with a maximum initial sales charge less than 5.75%) on sales of $1 million or more but less than $4 million, plus 0.50% on sales of $4 million or more but less than $50 million, plus 0.25% on sales of $50 million or more. Consistent with the provisions and limitations set forth in its Class A Rule 12b-1 distribution plan, the Fund may reimburse Distributors for the cost of these commission payments.

These payments may be made in the form of contingent advance payments, which may be recovered from the securities dealer or set off against other payments due to the dealer if shares are sold within 18 months of the calendar month of purchase. Other conditions may apply. Other terms and conditions may be imposed by an agreement between Distributors, or one of its affiliates, and the securities dealer.

In addition to the sales charge payments described above and the distribution and service (12b-1) fees described below under "The Underwriter - Distribution and service (12b-1) fees," Distributors and/or its non-fund affiliates may make the following additional payments to securities dealers that sell shares of Franklin Templeton funds:

Marketing support payments.   Distributors may make payments to certain dealers who are holders or dealers of record for accounts in one or more of the Franklin Templeton funds. A dealer's marketing support services may include business planning assistance, advertising, educating dealer personnel about the Franklin Templeton funds and shareholder financial planning needs, placement on the dealer's list of offered funds, and access to sales meetings, sales representatives and management representatives of the dealer. Distributors compensates dealers differently depending upon, among other factors, sales and assets levels, redemption rates and the level and/or type of marketing and educational activities provided by the dealer. Such compensation may include financial assistance to dealers that enable Distributors to participate in and/or present at conferences or seminars, sales or training programs for invited registered representatives and other employees, client and investor events and other dealer-sponsored events. These payments may vary depending upon the nature of the event. Distributors will, on an annual basis, determine whether to continue such payments. In the case of any one dealer, marketing support payments will not exceed the sum of 0.08% of that dealer's current year's total sales of Franklin Templeton mutual funds and 0.05% (or 0.03%) of the total assets respectively, of equity or fixed income funds attributable to that dealer, on an annual basis.

Distributors and/or its non-fund affiliates may also make marketing support payments to financial intermediaries in connection with their activities that are intended to assist in the sale of shares of Franklin Templeton funds, directly or indirectly, to certain Employer Sponsored Retirement Plans that have retained such financial intermediaries as plan service providers. Payments may be made on account of activities that may include, but are not limited to, one or more of the following: business planning assistance for financial intermediary personnel, educating financial intermediary personnel about the Franklin Templeton funds, access to sales meetings, sales representatives, wholesalers, and management representatives of the financial intermediary, and detailed sales reporting. A financial intermediary may perform the services itself or may arrange with a third party to perform the services. In the case of any one financial intermediary, such payments will not exceed 0.10% of the total assets of Franklin Templeton equity or fixed income mutual funds held, directly or indirectly, by such Employer Sponsored Retirement Plans, on an annual basis. Distributors will, on an annual basis, determine whether to continue such payments. Any current year sales to, or assets held on behalf of, Employer Sponsored Retirement Plans for which payment is made to a financial intermediary pursuant to this paragraph will be excluded from the calculation of marketing support payments pursuant to the preceding paragraph.

Consistent with the provisions and limitations set forth in its Rule 12b-1 distribution plans, the Fund may reimburse Distributors for the cost of a portion of these marketing support payments.

Marketing support payments may be in addition to any servicing fees paid by Investor Services and reimbursed by the Fund, as described further under “Shareholder servicing and transfer agent” above.

As noted below, Distributors may provide additional compensation to dealers and financial intermediaries, including dealers and financial intermediaries not listed below, related to transaction support and various dealer-sponsored events intended to educate financial advisers and their clients about the Franklin Templeton funds. The following is a list of FINRA member broker-dealers and financial intermediaries (including their respective affiliates) that Distributors anticipates will receive marketing support payments as of March 31, 2010. In addition to member firms of FINRA, Distributors and/or its non-fund affiliates also makes marketing support and/or administrative services payments to certain other financial intermediaries that sell fund shares or provide services to Franklin Templeton funds and shareholders, such as banks, insurance companies, and plan administrators. These firms are not included in this list. You should ask your financial intermediary if it receives such payments.

ADP Retirement Services, American Portfolios Financial Services, Inc., American United Life Insurance Company, Ameriprise Financial Services, Inc., Ascensus, Inc., AXA Advisors, LLC, Banc of America Investment Services, Inc., BBVA Compass Investment Solutions, Inc., Cadaret Grant & Co., Inc., Cambridge Investment Research Inc., CCO Investment Services Corp., Chase Investment Services Corp., Citigroup Global Markets Inc., Commonwealth Financial Network, CPI Qualified Plan Consultants, Inc., CUNA Brokerage Services, Inc., CUSO Financial Services, L.P., Edward Jones, ExpertPlan, Inc., Fidelity Investments Institutional Services Company, Inc., Fifth Third Securities, Inc., Financial Network Investment Corporation, First Command Financial Planning, Inc., FSC Securities Corporation, Goldman, Sachs & Co., Great-West Retirement Services, Hartford Life, IFC Holdings Inc. D/B/A INVEST Financial Corporation, ING Financial Partners, Inc., ING Institutional Plan Services LLP, Investment Centers of America, Inc., J.J.B. Hilliard, W.L. Lyons, Inc., Janney Montgomery Scott LLC, John Hancock Distributors LLC, Legend Equities Corporation, Lincoln Financial Advisors Corporation, Lincoln Financial Securities Corporation, Lincoln Investment Planning, Inc., LPL Financial Corporation, M&T Securities Inc., Massachusetts Mutual Life Insurance Company, Merrill Lynch, Pierce, Fenner & Smith, Inc., Morgan Stanley & Co., Incorporated, Multi-Financial Securities Corporation, National Planning Corporation, Newport Retirement Services, Inc., PFS Investments, Inc., PNC Investments LLC, PrimeVest Financial Services, Inc., Raymond James & Associates, Inc., Raymond James Financial Services, Inc., RBC Capital Markets Corporation, Richard D. Schubert, Inc., Robert W. Baird & Co., Inc., Royal Alliance Associates, Inc., SagePoint Financial, Inc., Securities America, Inc., Signator Investors, Inc., SII Investments, Inc., Sorrento Pacific Financial, LLC, SunTrust Investment Services, Inc., TFS Securities, Inc., The Investment Center, Inc., TIAA-CREF Individual & Institutional Services, LLC, UBS Financial Services, Inc., UBS Global Asset Management (US) Inc., UnionBanc Investment Services, LLC, U.S. Bancorp Investments, Inc., USI Consulting Group, UVEST Financial Services Group, Inc., Wells Fargo Advisors, LLC, Wells Fargo Investments, LLC.

Marketing support payments made to organizations located outside the U.S., with respect to investments in the Fund by non-U.S. persons, may exceed the above-stated limitation.

Transaction support payments.   The types of payments that Distributors may make under this category include, among others, payment of ticket charges of up to $20 per purchase or exchange order placed by a dealer or one time payments for ancillary services such as setting up funds on a dealer's mutual fund trading system.

Other payments.   From time to time, Distributors, at its expense, may make additional payments to dealers that sell or arrange for the sale of shares of the Fund. Such compensation may include financial assistance to dealers that enable Distributors to participate in and/or present at conferences or seminars, sales or training programs for invited registered representatives and other employees, client and investor events, co-operative advertising, newsletters, and other dealer-sponsored events. These payments may vary depending upon the nature of the event, and can include travel expenses, such as lodging incurred by registered representatives and other employees in connection with training and educational meetings, client prospecting and due diligence trips.

Distributors routinely sponsors due diligence meetings for registered representatives during which they receive updates on various Franklin Templeton funds and are afforded the opportunity to speak with portfolio managers. Invitation to these meetings is not conditioned on selling a specific number of shares. Those who have shown an interest in Franklin Templeton funds, however, are more likely to be considered. To the extent permitted by their firm's policies and procedures, registered representatives' expenses in attending these meetings may be covered by Distributors.

Other compensation may be offered to the extent not prohibited by federal or state laws or any self-regulatory agency, such as FINRA. Distributors makes payments for events it deems appropriate, subject to Distributors' guidelines and applicable law.

You should ask your dealer for information about any payments it receives from Distributors and any services provided.

Contingent deferred sales charge (CDSC) - Class A, B and C   If you invest any amount in Class C shares or $1 million or more in Class A shares, either as a lump sum or through our cumulative quantity discount or letter of intent programs, a CDSC may apply on any Class A shares you sell within 18 months and any Class C shares you sell within 12 months of purchase. The CDSC is 1% of the value of the shares sold or the net asset value at the time of purchase, whichever is less.

For Class B shares, there is a CDSC if you sell your shares within six years, as described in the table below. The charge is based on the value of the shares sold or the net asset value at the time of purchase, whichever is less.

if you sell your Class B shares within this many years after buying them	this % is deducted from your proceeds as a CDSC
1 Year	4
2 Years	4
3 Years	3
4 Years	3
5 Years	2
6 Years	1
7 Years	0

CDSC waivers.   The CDSC for any share class generally will be waived for:

• Assets held in accounts managed by a state or federally regulated trust company or bank (Trust Company) either as discretionary trustee of an inter vivos or testamentary trust or as manager under an advisory agreement (including sub-advisory) or other agreement that grants the Trust Company investment discretion over those assets (Trust Company Managed Assets) if (i) the aggregate value of Trust Company Managed Assets invested in Franklin Templeton funds at the time of purchase equals at least $1 million; and (ii) the purchased shares are registered directly to the Trust Company in its corporate capacity (not as trustee of an individual trust) and held solely as Trust Company Managed Assets.
• Account fees
• Sales of Class A shares purchased without an initial sales charge by certain retirement plan accounts if (i) the account was opened before May 1, 1997, or (ii) the securities dealer of record received a payment from Distributors of 0.25% or less, or (iii) the securities dealer of record has entered into a supplemental agreement with Distributors
• Redemptions by the Fund when an account falls below the minimum required account size
• Redemptions following the death of the shareholder or beneficial owner
• Redemptions through a systematic withdrawal plan, up to 1% monthly, 3% quarterly, 6% semiannually or 12% annually of your account's net asset value depending on the frequency of your plan
• Redemptions by Employer Sponsored Retirement Plans (not applicable to Class B)
• Distributions from individual retirement accounts (IRAs) due to death or disability or upon periodic distributions based on life expectancy or returns of excess contributions and earnings (for Class B, this applies to all retirement plan accounts, not only IRAs)
• Any trust or plan established as part of a qualified tuition program under Section 529 of the Internal Revenue Code of 1986, as amended

Exchange privilege   If you request the exchange of the total value of your account, declared but unpaid income dividends and capital gain distributions will be reinvested in the Fund and exchanged into the new fund at net asset value when paid. Backup withholding and information reporting may apply.

If a substantial number of shareholders should, within a short period, sell their Fund shares under the exchange privilege, the Fund might have to sell portfolio securities it might otherwise hold and incur the additional costs related to such transactions. On the other hand, increased use of the exchange privilege may result in periodic large inflows of money. If this occurs, it is the Fund's general policy to initially invest this money in short-term, interest-bearing money market instruments, unless it is believed that attractive investment opportunities consistent with the Fund's investment goals exist immediately. This money will then be withdrawn from the short-term, interest-bearing money market instruments and invested in portfolio securities in as orderly a manner as is possible when attractive investment opportunities arise.

The proceeds from the sale of shares of an investment company generally are not available until the seventh day following the sale. The funds you are seeking to exchange into may delay issuing shares pursuant to an exchange until that seventh day. The sale of Fund shares to complete an exchange will be effected at net asset value at the close of business on the day the request for exchange is received in proper form.

Systematic withdrawal plan   Our systematic withdrawal plan allows you to sell your shares and receive regular payments from your account on a monthly, quarterly, semiannual or annual basis. The value of your account must be at least $5,000 and the minimum payment amount for each withdrawal must be at least $50. For retirement plans subject to mandatory distribution requirements, the $50 minimum will not apply. There are no service charges for establishing or maintaining a systematic withdrawal plan.

Each month in which a payment is scheduled, we will redeem an equivalent amount of shares in your account on the day of the month you have indicated on your account application or, if no day is indicated, on the 20th day of the month. If that day falls on a weekend or holiday, we will process the redemption on the next business day. For plans set up before June 1, 2000, we will continue to process redemptions on the 25th day of the month (or the next business day) unless you instruct us to change the processing date. Available processing dates currently are the 1st, 5th, 10th, 15th, 20th and 25th days of the month. When you sell your shares under a systematic withdrawal plan, it is a taxable transaction.

To avoid paying sales charges on money you plan to withdraw within a short period of time, you may not want to set up a systematic withdrawal plan if you plan to buy shares on a regular basis. Shares sold under the plan also may be subject to a CDSC.

Redeeming shares through a systematic withdrawal plan may reduce or exhaust the shares in your account if payments exceed distributions received from the Fund. This is especially likely to occur if there is a market decline. If a withdrawal amount exceeds the value of your account, your account will be closed and the remaining balance in your account will be sent to you. Because the amount withdrawn under the plan may be more than your actual yield or income, part of the payment may be a return of your investment.

To discontinue a systematic withdrawal plan, change the amount and schedule of withdrawal payments, or suspend one payment, we must receive instructions from you at least three business days before a scheduled payment. The Fund may discontinue a systematic withdrawal plan by notifying you in writing and will discontinue a systematic withdrawal plan automatically if all shares in your account are withdrawn, if the Fund receives notification of the shareholder's death or incapacity, or if mail is returned to the Fund marked “unable to forward” by the postal service.

Redemptions in kind   The Fund has committed itself to pay in cash (by check) all requests for redemption by any shareholder of record, limited in amount, however, during any 90-day period to the lesser of $250,000 or 1% of the value of the Fund's net assets at the beginning of the 90-day period. This commitment is irrevocable without the prior approval of the SEC. In the case of redemption requests in excess of these amounts, the board reserves the right to make payments in whole or in part in securities or other assets of the Fund, in case of an emergency, or if the payment of such a redemption in cash would be detrimental to the existing shareholders of the Fund. In these circumstances, the securities distributed would be valued at the price used to compute the Fund's net assets and you may incur brokerage fees in converting the securities to cash. The Fund does not intend to redeem illiquid securities in kind. If this happens, however, you may not be able to recover your investment in a timely manner.

Share certificates   We will credit your shares to your Fund account. We do not issue share certificates unless you specifically request them. This eliminates the costly problem of replacing lost, stolen or destroyed certificates. If a certificate is lost, stolen or destroyed, you may have to pay an insurance premium of up to 2% of the value of the certificate to replace it.

Any outstanding share certificates must be returned to the Fund if you want to sell or exchange those shares or if you would like to start a systematic withdrawal plan. The certificates should be properly endorsed. You can do this either by signing the back of the certificate or by completing a share assignment form. For your protection, you may prefer to complete a share assignment form and to send the certificate and assignment form in separate envelopes.

General information   If dividend checks are returned to the Fund marked "unable to forward" by the postal service, we will consider this a request by you to change your dividend option to reinvest all distributions. The proceeds will be reinvested in additional shares at net asset value until we receive new instructions.

Distribution or redemption checks sent to you do not earn interest or any other income during the time the checks remain uncashed. Neither the Fund nor its affiliates will be liable for any loss caused by your failure to cash such checks. The Fund is not responsible for tracking down uncashed checks, unless a check is returned as undeliverable.

In most cases, if mail is returned as undeliverable we are required to take certain steps to try to find you free of charge. If these attempts are unsuccessful, however, we may deduct the costs of any additional efforts to find you from your account. These costs may include a percentage of the account when a search company charges a percentage fee in exchange for its location services.

Sending redemption proceeds by wire or electronic funds transfer (ACH) is a special service that we make available whenever possible. By offering this service to you, the Fund is not bound to meet any redemption request in less than the seven-day period prescribed by law. Neither the Fund nor its agents shall be liable to you or any other person if, for any reason, a redemption request by wire or ACH is not processed as described in the prospectus.

There are special procedures for banks and other institutions that wish to open multiple accounts. An institution may open a single master account by filing one application form with the Fund, signed by personnel authorized to act for the institution. Individual sub-accounts may be opened when the master account is opened by listing them on the application, or by providing instructions to the Fund at a later date. These sub-accounts may be registered either by name or number. The Fund's investment minimums apply to each sub-account. The Fund will send confirmation and account statements for the sub-accounts to the institution.

If you buy or sell shares through your securities dealer, we use the net asset value next calculated after your securities dealer receives your request, which is promptly transmitted to the Fund. If you sell shares through your securities dealer, it is your dealer's responsibility to transmit the order to the Fund in a timely fashion. Your redemption proceeds will not earn interest between the time we receive the order from your dealer and the time we receive any required documents. Any loss to you resulting from your dealer's failure to transmit your redemption order to the Fund in a timely fashion must be settled between you and your securities dealer.

Certain shareholder servicing agents may be authorized to accept your transaction request.

For institutional and bank trust accounts, there may be additional methods of buying or selling Fund shares than those described in this SAI or in the prospectus. Institutional and bank trust accounts include accounts opened by or in the name of a person (includes a legal entity or an individual) that has signed an Institutional Account Application or Bank Trust Account Application accepted by Franklin Templeton Institutional, LLC or entered into a selling agreement and/or servicing agreement with Distributors or Investor Services. For example, the Fund permits the owner of an institutional account to make a same day wire purchase if a good order purchase request is received (a) before the close of the New York Stock Exchange (NYSE) or (b) through the National Securities Clearing Corporation’s automated system for processing purchase orders (Fund/SERV), even though funds are delivered by wire after the close of the NYSE. If funds to be wired are not received as scheduled, the purchase order may be cancelled or reversed and the institutional account owner could be liable for any losses or fees the Fund, Distributors and/or Investor Services may incur.

In the event of disputes involving conflicting claims of ownership or authority to control your shares, the Fund has the right (but has no obligation) to: (i) restrict the shares and require the written agreement of all persons deemed by the Fund to have a potential interest in the shares before executing instructions regarding the shares; or (ii) interplead disputed shares or the proceeds from the court-ordered sale thereof with a court of competent jurisdiction.

Should the Fund be required to defend against joint or multiple shareholders in any action relating to an ownership dispute, you expressly grant the Fund the right to obtain reimbursement for costs and expenses including, but not limited to, attorneys’ fees and court costs, by unilaterally redeeming shares from your account.

The Fund may be required (i) pursuant to a validly issued levy, to turn your shares over to a levying officer who may, in turn, sell your shares at a public sale; or (ii) pursuant to a final order of forfeiture to sell your shares and remit the proceeds to the U.S. or state government as directed.

Using good faith efforts, the manager attempts to identify class action litigation settlements and regulatory or governmental recovery funds involving securities presently or formerly held by the Fund or issuers of such securities or related parties (Claims) in which the Fund may be eligible to participate. When such Claims are identified, the manager will cause the Fund to file proofs of claim. Currently, such Claim opportunities predominate in the U.S. and in Canada; the manager’s efforts are therefore focused on Claim opportunities in those jurisdictions. The manager may learn of such class action lawsuit or victim fund recovery opportunities in jurisdictions outside of North America (Foreign Actions), in which case the manager has complete discretion to determine, on a case-by-case basis, whether to cause the Fund to file proofs of claim in such Foreign Actions. In addition, the manager may participate in bankruptcy proceedings relating to securities held by the Fund and join creditors’ committees on behalf of the Fund.

Further, the manager may on occasion initiate and/or recommend, and the board of trustees of the Fund may approve, pursuit of separate litigation against an issuer or related parties in connection with securities presently or formerly held by the Fund (whether by opting out of an existing class action lawsuit or otherwise).

Clients of financial advisors whose firms have a Selling Agreement with Franklin Templeton Distributors, Inc., and who are eligible for the Financial Advisor Service Team (FAST) may be eligible for Franklin Templeton VIP Services^® which offers enhanced service and transaction capabilities. Please contact Shareholder Services at (800) 632-2301 for additional information on this program.

The Underwriter

Franklin Templeton Distributors, Inc. (Distributors) acts as the principal underwriter in the continuous public offering of the Fund's shares. Distributors is located at One Franklin Parkway, San Mateo, CA 94403-1906.

Distributors pays the expenses of the distribution of Fund shares, including advertising expenses and the costs of printing sales material and prospectuses used to offer shares to the public. The Fund pays the expenses of preparing and printing amendments to its registration statements and prospectuses (other than those necessitated by the activities of Distributors) and of sending prospectuses to existing shareholders.

Distributors does not receive compensation from the Fund for acting as underwriter of the Fund's Advisor Class shares.

The table below shows the aggregate underwriting commissions Distributors received in connection with the offering of the Fund's Class A, B and C shares, the net underwriting discounts and commissions Distributors retained after allowances to dealers, and the amounts Distributors received in connection with redemptions or repurchases of shares for the last three fiscal years ended August 31:

	Total Commissions Received ($)	Amount Retained by Distributors ($)	Amount Received in Connection with Redemptions and Repurchases ($)
2010	2,967,406	467,479	64,081
2009	1,461,034	224,200	48,767
2008	3,400,316	521,044	115,069

Distributors may be entitled to payments from the Fund under the Rule 12b-1 plans, as discussed below. Except as noted, Distributors received no other compensation from the Fund for acting as underwriter.

Distribution and service (12b-1) fees - Class A, B and C   The board has adopted a separate plan pursuant to Rule 12b-1 for each class. Although the plans differ in some ways for each class, each plan is designed to benefit the Fund and its shareholders. The plans are expected to, among other things, increase advertising of the Fund, encourage purchases of Fund shares and service to its shareholders, and increase or maintain assets of the Fund so that certain fixed expenses may be spread over a broader asset base, with a positive impact on per share expense ratios. In addition, a positive cash flow into the Fund is useful in managing the Fund because the manager has more flexibility in taking advantage of new investment opportunities and handling shareholder redemptions.

Under each plan, the Fund pays Distributors or others for the expenses of activities that are primarily intended to sell shares of the class. These expenses also may include service fees paid to securities dealers or others who have executed a servicing agreement with the Fund, Distributors or its affiliates and who provide service or account maintenance to shareholders (service fees); and the expenses of printing prospectuses and reports used for sales purposes, of marketing support and of preparing and distributing sales literature and advertisements. Together, these expenses, including the service fees, are "eligible expenses." The 12b-1 fees charged to each class are based only on the fees attributable to that particular class. Because Class B is currently closed to new investors, the amounts paid by the Fund under its plan are primarily to pay for ongoing shareholder servicing and to pay Distributors in connection with the advancing of commissions to securities broker-dealers who sold Class B shares.

The Class A, B and C plans.   The Fund may pay up to 0.35% per year of Class A’s average daily net assets. Of this amount, the Fund may pay up to 0.35% to Distributors or others, out of which Distributors generally will retain 0.10% for distribution expenses. The board of trustees has set, until further notice, the Class A distribution and service fees paid by the Fund to Distributors at 0.30% per year of Class A's average daily net assets, out of which 0.25% may be paid for services to the shareholders (service fees).

The Fund pays Distributors up to 1% per year of Class B and Class C's average daily net assets, out of which 0.25% may be paid for services to the shareholders (service fees). The Class B and C plans also may be used to pay Distributors for advancing commissions to securities dealers with respect to the initial sale of Class B and C shares. Class B plan fees payable to Distributors are used by Distributors to pay for ongoing shareholder servicing and to pay Distributors in connection with the advancing of commissions to securities dealers who sold Class B shares.

The Class A plan is a reimbursement plan. It allows the Fund to reimburse Distributors for eligible expenses that Distributors has shown it has incurred. The Fund will not reimburse more than the maximum amount allowed under the plan.

The Class B and C plans are compensation plans. They allow the Fund to pay a fee to Distributors that may be more than the eligible expenses Distributors has incurred at the time of the payment. Distributors must, however, demonstrate to the board that it has spent or has near-term plans to spend the amount received on eligible expenses. The Fund will not pay more than the maximum amount allowed under the plans.

Under the Class A plan, the amounts paid by the Fund pursuant to the plan for the fiscal year ended August 31, 2010, were:

	($)
Advertising	145,173
Printing and mailing prospectuses other than to current shareholders	5,009
Payments to underwriters	50,210
Payments to broker-dealers	1,178,299
Other	—
Total	1,378,691

Under the Class B plan, the amounts paid by the Fund pursuant to the plan for the fiscal year ended August 31, 2010, were:

	($)
Advertising	—
Printing and mailing prospectuses other than to current shareholders	—
Payments to underwriters	—
Payments to broker-dealers	26,930
Other	82,575
Total	109,505

Under the Class C plan, the amounts paid by the Fund pursuant to the plan for the fiscal year ended August 31, 2010, were:

	($)
Advertising	57,755
Printing and mailing prospectuses other than to current shareholders	2,065
Payments to underwriters	21,064
Payments to broker-dealers	1,462,095
Other	—
Total	1,542,979

In addition to the payments that Distributors or others are entitled to under each plan, each plan also provides that to the extent the Fund, the manager or Distributors or other parties on behalf of the Fund, the manager or Distributors make payments that are deemed to be for the financing of any activity primarily intended to result in the sale of Fund shares within the context of Rule 12b-1 under the Investment Company Act of 1940, as amended, then such payments shall be deemed to have been made pursuant to the plan.

To the extent fees are for distribution or marketing functions, as distinguished from administrative servicing or agency transactions, certain banks may not participate in the plans because of applicable federal law prohibiting certain banks from engaging in the distribution of mutual fund shares. These banks, however, are allowed to receive fees under the plans for administrative servicing or for agency transactions.

Distributors must provide written reports to the board at least quarterly on the amounts and purpose of any payment made under the plans and any related agreements, and furnish the board with such other information as the board may reasonably request to enable it to make an informed determination of whether the plans should be continued.

Each plan has been approved according to the provisions of Rule 12b-1. The terms and provisions of each plan also are consistent with Rule 12b-1.

Performance

Performance quotations are subject to SEC rules. These rules require the use of standardized performance quotations or, alternatively, that every non-standardized performance quotation furnished by the Fund be accompanied by certain standardized performance information computed as required by the SEC. Average annual total return before taxes, average annual total return after taxes on distributions and average annual total return after taxes on distributions and sale of shares quotations used by the Fund are based on the standardized methods of computing performance mandated by the SEC. An explanation of these and other methods used by the Fund to compute or express performance follows. Regardless of the method used, past performance does not guarantee future results, and is an indication of the return to shareholders only for the limited historical period used.

Average annual total return before taxes   Average annual total return before taxes is determined by finding the average annual rates of return over certain periods that would equate an initial hypothetical $1,000 investment to its ending redeemable value. The calculation assumes that the maximum initial sales charge, if applicable, is deducted from the initial $1,000 purchase, and income dividends and capital gain distributions are reinvested at net asset value. The quotation assumes the account was completely redeemed at the end of each period and the deduction of all applicable charges and fees. If a change is made to the sales charge structure, historical performance information will be restated to reflect the maximum initial sales charge currently in effect.

When considering the average annual total return before taxes quotations for Class A shares, you should keep in mind that the maximum initial sales charge reflected in each quotation is a one-time fee charged on all direct purchases, which will have its greatest impact during the early stages of your investment. This charge will affect actual performance less the longer you retain your investment in the Fund.

The following SEC formula is used to calculate these figures:

where:

P = a hypothetical initial payment of $1,000

T = average annual total return

n = number of years

ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning of each period at the end of each period

Average annual total return after taxes on distributions   Average annual total return after taxes on distributions is determined by finding the average annual rates of return over certain periods that would equate an initial hypothetical $1,000 investment to its ending redeemable value, after taxes on distributions. The calculation assumes that the maximum initial sales charge, if applicable, is deducted from the initial $1,000 purchase, and income dividends and capital gain distributions, less the taxes due on such distributions, are reinvested at net asset value. The quotation assumes the account was completely redeemed at the end of each period and the deduction of all applicable charges and fees, but assumes that the redemption itself had no tax consequences. If a change is made to the sales charge structure, historical performance information will be restated to reflect the maximum initial sales charge currently in effect.

Taxes due on distributions are calculated by applying the highest individual marginal federal income tax rates in effect on the reinvestment date, using the rates that correspond to the tax character of each component of the distributions (e.g., the ordinary income rate for distributions of ordinary income and net short-term capital gains, and the long-term capital gain rate for distributions of net long-term capital gains). The taxable amount and tax character of a distribution may be adjusted to reflect any recharacterization of the distribution since its original date. Distributions are adjusted to reflect the federal tax impact the distribution would have on an individual taxpayer on the reinvestment date; for example, no taxes are assumed to be due on the portion of any distribution that would not result in federal income tax on an individual (e.g., tax-exempt interest or non-taxable returns of capital). The effect of applicable tax credits, such as the foreign tax credit, is taken into account in accordance with federal tax law. Any potential tax liabilities other than federal tax liabilities (e.g., state and local taxes) are disregarded, as are the effects of phaseouts of certain exemptions, deductions, and credits at various income levels, and the impact of the federal alternative minimum tax. Any redemptions of shares required to pay recurring fees charged to shareholder accounts are assumed to result in no additional taxes or tax credits.

The Fund’s sales literature and advertising commonly refer to this calculation as the Fund’s after-tax average annual total return (pre-liquidation). When considering the average annual total return after taxes on distributions quotations for Class A shares, you should keep in mind that the maximum initial sales charge reflected in each quotation is a one-time fee charged on all direct purchases, which will have its greatest impact during the early stages of your investment. This charge will affect actual performance less the longer you retain your investment in the Fund.

The following SEC formula is used to calculate these figures:

where:

P = a hypothetical initial payment of $1,000

T = average annual total return (after taxes on distributions)

n = number of years

ATV_D = ending value of a hypothetical $1,000 payment made at the beginning of each period at the end of each period, after taxes on fund distributions but not after taxes on redemption

Average annual total return after taxes on distributions and sale of fund shares   Average annual total return after taxes on distributions and sale of fund shares is determined by finding the average annual rates of return over certain periods that would equate an initial hypothetical $1,000 investment to its ending redeemable value, after taxes on distributions and sale of fund shares. The calculation assumes that the maximum initial sales charge, if applicable, is deducted from the initial $1,000 purchase, and income dividends and capital gain distributions are reinvested at net asset value. The quotation assumes the account was completely redeemed at the end of each period and the deduction of all applicable charges and fees, including taxes upon sale of fund shares. If a change is made to the sales charge structure, historical performance information will be restated to reflect the maximum initial sales charge currently in effect.

Taxes due on distributions are calculated by applying the highest individual marginal federal income tax rates in effect on the reinvestment date, using the rates that correspond to the tax character of each component of the distributions (e.g., the ordinary income rate for distributions of ordinary income and net short-term capital gains, and the long-term capital gain rate for distributions of net long-term capital gains). The taxable amount and tax character of a distribution may be adjusted to reflect any recharacterization of the distribution since its original date. Distributions are adjusted to reflect the federal tax impact the distribution would have on an individual taxpayer on the reinvestment date; for example, no taxes are assumed to be due on the portion of any distribution that would not result in federal income tax on an individual (e.g., tax-exempt interest or non-taxable returns of capital). The effect of applicable tax credits, such as the foreign tax credit, is taken into account in accordance with federal tax law. Any potential tax liabilities other than federal tax liabilities (e.g., state and local taxes) are disregarded, as are the effects of phaseouts of certain exemptions, deductions, and credits at various income levels, and the impact of the federal alternative minimum tax. Any redemptions of shares required to pay recurring fees charged to shareholder accounts are assumed to result in no additional taxes or tax credits.

The capital gain or loss upon redemption is calculated by subtracting the tax basis from the redemption proceeds, after deducting any nonrecurring charges assessed at the end of the period, subtracting capital gains taxes resulting from the redemption, or adding the tax benefit from capital losses resulting from the redemption. In determining the basis for a reinvested distribution, the distribution is included net of taxes assumed paid from the distribution, but not net of any sales loads imposed upon reinvestment. Tax basis is adjusted for any distributions representing returns of capital and any other tax basis adjustments that would apply to an individual taxpayer, as permitted by applicable federal law. The amount and character (e.g., short-term or long-term) of capital gain or loss upon redemption are separately determined for shares acquired through the initial investment and each subsequent purchase through reinvested distributions. Shares acquired through reinvestment of distributions are not assumed to have the same holding period as the initial investment. The tax character of such reinvestments is determined by the length of the period between reinvestment and the end of the measurement period in the case of reinvested distributions. Capital gains taxes (or the benefit resulting from tax losses) are calculated using the highest federal individual capital gains tax rate for gains of the appropriate character in effect on the redemption date and in accordance with federal law applicable on the redemption date. Shareholders are assumed to have sufficient capital gains of the same character from other investments to offset any capital losses from the redemption, so that the taxpayer may deduct the capital losses in full.

The Fund’s sales literature and advertising commonly refer to this calculation as the Fund’s after-tax average annual total return (post-liquidation). When considering the average annual total return after taxes on distributions quotations for Class A shares, you should keep in mind that the maximum initial sales charge reflected in each quotation is a one-time fee charged on all direct purchases, which will have its greatest impact during the early stages of your investment. This charge will affect actual performance less the longer you retain your investment in the Fund.

The following SEC formula is used to calculate these figures:

where:

P = a hypothetical initial payment of $1,000

T = average annual total return (after taxes on distributions and redemptions)

n = number of years

ATV_DR = ending value of a hypothetical $1,000 payment made at the beginning of each period at the end of each period, after taxes on fund distributions and redemption

Cumulative total return   Like average annual total return, cumulative total return assumes that the maximum initial sales charge, if applicable, is deducted from the initial $1,000 purchase, income dividends and capital gain distributions are reinvested at net asset value, the account was completely redeemed at the end of each period and the deduction of all applicable charges and fees. Cumulative total return, however, is based on the actual return for a specified period rather than on the average return.

Volatility   Occasionally statistics may be used to show the Fund's volatility or risk. Measures of volatility or risk are generally used to compare the Fund's net asset value or performance to a market index. One measure of volatility is beta. Beta is the volatility of a fund relative to the total market, as represented by an index considered representative of the types of securities in which the fund invests. A beta of more than 1.00 indicates volatility greater than the market and a beta of less than 1.00 indicates volatility less than the market. Another measure of volatility or risk is standard deviation. Standard deviation is used to measure variability of net asset value or total return around an average over a specified period of time. The idea is that greater volatility means greater risk undertaken in achieving performance.

Other performance quotations   The Fund also may quote the performance of its shares based on the following methods of calculation: (a) for periods prior to August 11, 2003, based upon the Closed-End Fund's actual performance (and not restated to reflect the applicable charges, fees and expenses of the Fund and Class A, B and C for such period); and (b) for periods after August 11, 2003, actual performance for Class A, B and C reflecting all charges and fees applicable to that class. The Fund also may quote the performance of Class A shares without a sales charge. Sales literature and advertising may quote a cumulative total return, average annual total return and other measures of performance with the substitution of net asset value for the public offering price.

Sales literature referring to the use of the Fund as a potential investment for IRAs, business retirement plans, and other tax-advantaged retirement plans may quote a total return based upon compounding of dividends on which it is presumed no federal income tax applies.

The Fund may include in its advertising or sales material information relating to investment goals and performance results of funds belonging to Franklin Templeton Investments. Resources is the parent company of the advisors and underwriter of Franklin Templeton funds.

Miscellaneous Information

The Fund may help you achieve various investment goals such as accumulating money for retirement, saving for a down payment on a home, college costs and other long-term goals. The Franklin College Savings Planner may help you in determining how much money must be invested on a monthly basis to have a projected amount available in the future to fund a child's college education. (Projected college cost estimates are based upon current costs published by the College Board.) The Franklin Retirement Savings Planner leads you through the steps to start a retirement savings program. Of course, an investment in the Fund cannot guarantee that these goals will be met.

The Fund is a member of Franklin Templeton Investments, one of the largest mutual fund organizations in the U.S., and may be considered in a program for diversification of assets. Founded in 1947, Franklin is one of the oldest mutual fund organizations and now services more than 3 million shareholder accounts. In 1992, Franklin, a leader in managing fixed-income mutual funds and an innovator in creating domestic equity funds, joined forces with Templeton, a pioneer in international investing. The Mutual Series team, known for its value-driven approach to domestic equity investing, became part of the organization four years later. In 2001, the Fiduciary Trust team, known for providing global investment management to institutions and high net worth clients worldwide, joined the organization. Together, Franklin Templeton Investments has, as of September 30, 2010, over $644 billion in assets under management for more than 6 million U.S. based mutual fund shareholder and other accounts. Franklin Templeton Investments offers 108 U.S. based open-end investment companies to the public. The Fund may identify itself by its Nasdaq symbol or CUSIP number.

Currently, there are more mutual funds than there are stocks listed on the NYSE. While many of them have similar investment goals, no two are exactly alike. Shares of the Fund are generally sold through securities dealers, whose investment representatives are experienced professionals who can offer advice on the type of investments suitable to your unique goals and needs, as well as the risks associated with such investments.

Description of Ratings

Corporate Obligation Ratings

Moody's

INVESTMENT GRADE

Aaa: Bonds rated Aaa are judged to be of the highest quality, with minimal credit risk.

Aa: Bonds rated Aa are judged to be high quality and are subject to very low credit risk.

A: Bonds rated A are considered upper medium-grade obligations and are subject to low credit risk.

Baa: Bonds rated Baa are subject to moderate credit risk and are considered medium-grade obligations. As such they may have certain speculative characteristics.

BELOW INVESTMENT GRADE

Ba: Bonds rated Ba are judged to have speculative elements and are subject to substantial credit risk.

B: Bonds rated B are considered speculative and are subject to high credit risk.

Caa: Bonds rated Caa are judged to be of poor standing and are subject to very high credit risk.

Ca: Bonds rated Ca are considered highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest.

C: Bonds rated C are the lowest rated class of bonds and are typically in default. They have little prospects for recovery of principal or interest.

Note: Moody's appends numerical modifiers 1, 2 and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates a ranking in the lower end of that generic rating category.

S&P^®

The issue rating definitions are expressions in terms of default risk. As such, they pertain to senior obligations of an entity. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in bankruptcy. (Such differentiation applies when an entity has both senior and subordinated obligations, secured and unsecured obligations, or operating company and holding company obligations.) Accordingly, in the case of junior debt, the rating may not conform exactly with the category definition.

INVESTMENT GRADE

AAA: This is the highest rating assigned by S&P to a debt obligation. The obligor's capacity to meet its financial commitment on the obligation is extremely strong.

AA: Obligations rated AA differ from AAA issues only in a small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong.

A: Obligations rated A are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in the higher ratings categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong.

BBB: Obligations rated BBB exhibit adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.

BELOW INVESTMENT GRADE

BB, B, CCC, CC, C: Obligations rated BB, B, CCC, CC and C are regarded as having significant speculative characteristics. BB indicates the least degree of speculation and C the highest degree of speculation. While these obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.

BB: An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.

B: An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.

CCC: An obligation rated CCC is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.

CC: An obligation rated CC is currently highly vulnerable to nonpayment.

C: A subordinated debt or preferred stock obligation rated C is currently highly vulnerable to nonpayment. The C rating may be used to cover a situation where a bankruptcy petition has been filed or similar action taken, but payments on this obligation are being continued. The C rating is also assigned to a preferred stock issue in arrears on dividends or sinking fund payments, but that is still making payments.

D: Obligations rated D are in payment default. The D rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating is also used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.

Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.

r: This symbol is attached to the ratings of instruments with significant noncredit risks and highlights risks to principal or volatility of expected returns that are not addressed in the credit rating.

Short-Term Debt Ratings

Moody's

Moody's short-term debt ratings are opinions of the ability of issuers to honor short-term financial obligations. Ratings may be assigned to issuers, short-term programs and to individual short-term debt instruments. These obligations generally have an original maturity not exceeding 13 months, unless explicitly noted. Moody's employs the following designations to indicate the relative repayment capacity of rated issuers:

P-1 (Prime-1): Issuers (or supporting institutions) so rated have a superior ability to repay short-term debt obligations.

P-2 (Prime-2): Issuers (or supporting institutions) so rated have a strong ability to repay short-term debt obligations.

P-3 (Prime-3): Issuers (or supporting institutions) so rated have an acceptable ability to repay short-term debt obligations.

NP: Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime rating categories.

S&P^®

S&P's ratings are a current opinion of the creditworthiness of an obligor with respect to a specific financial obligation, a specific class of financial obligations, or a specific financial program. Short-term ratings are generally assigned to those obligations considered short-term in the relevant market. In the U.S., for example, that means obligations with an original maturity of no more than 365 days -- including commercial paper. Short-term ratings are also used to indicate the creditworthiness of an obligor with respect to put features on long-term obligations. The result is a dual rating, in which the short-term rating addresses the put feature, in addition to the usual long-term rating.

A-1: This designation indicates that the obligor's capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are designated with a plus sign (+). This indicates that the obligor's capacity to meet its financial commitment on these obligations is extremely strong.

A-2: Issues carrying this designation are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations carrying the higher designations. However, the obligor's capacity to meet its financial commitments on the obligation is satisfactory.

A-3: Issues carrying this designation exhibit adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.

B: Issues carrying this designation are regarded as having significant speculative characteristics. The obligor currently has the capacity to meet its financial commitment on the obligation. However, it faces major ongoing uncertainties which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.

C: Issues carrying this designation are currently vulnerable to nonpayment and are dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation.

D: Issues carrying this designation are in payment default. The D rating category is used when payments on an obligation are not made on the due date even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.

Templeton China World Fund

File Nos. 333-104602 and 811-07876

PART C

Other Information

Item 28. Exhibits

The following exhibits are incorporated by reference to the previously filed documents indicated below, except as noted:

(a)Agreement and  Declaration of Trust

(i)	Amended and Restated Agreement and Declaration of Trust dated October 18, 20065
(ii)	Certificate of Trust dated December 3, 20021
(iii)	Certificate of Amendment of Agreement and Declaration of Trust dated October 21, 20086

(b)By-laws

(i) Amended and Restated By-Laws dated October 18, 2006⁵

(c)Instruments Defining Rights of Security Holders

Not Applicable

(d)Investment Advisory Contracts

(i)	Investment Management Agreement between Registrant and Templeton Asset Management Ltd. dated December 3, 20023
(ii)	Amendment to the Investment Management Agreement dated June 1, 20044

(e)Underwriting Contracts

(i)	Distribution Agreement between Registrant and Franklin Templeton Distributors, Inc. dated December 3, 20023
(ii)	Form of Selling Agreements between Registrant, Franklin Templeton Distributors, Inc. and Securities Dealers dated May 1, 2010

(f)Bonus or Profit Sharing Contracts

Not Applicable

(g)Custodian Agreements

(i)	Custody Agreement dated September 7, 19931
(ii)	Amendment dated March 2, 1998 to the Custody Agreement1
(iii)	Amendment No. 2 dated July 23, 1998 to the Custody Agreement1
(iv)	Amendment No. 3 dated May 1, 2001 to the Custody Agreement1
(v)	Assignment and Assumption Agreement dated August 8, 2003 to the Custody Agreement4

(h)Other Material Contracts

(i)	Amended and Restated Transfer Agent and Shareholder Services Agreement between Registrant and Franklin Templeton Investor Services, LLC dated October 21, 20087
(ii)	Fund Administration Agreement between Registrant and Franklin Templeton Services, LLC dated December 3, 20023
(iii)	Special Servicing Agreement dated May 1, 2009
(iv)	Annex I dated September 15, 2010 to the Special Servicing Agreement dated May 1, 2009
(v)	Annex II dated May 1, 2010 to the Special Servicing Agreement dated May 1, 2009

(i)Legal Opinion

(i) Opinion and Consent of Counsel²

(j)Other Opinion

(i) Consent of Independent Registered Public Accounting Firm

(k)   Omitted Financial Statements

Not Applicable

(l)   Initial Capital Agreements

Not Applicable

(m)   Rule 12b-1 Plan

(i)	Amended and Restated Distribution Plan - Class A Shares dated February 24, 20097
(ii)	Amended and Restated Distribution Plan - Class C Shares dated July 15, 20097
(iii)	Amended and Restated Distribution Plan - Class B Shares dated July 15, 20097

(n)   Rule 18f-3 Plan

(i) Multiple Class Plan dated December 3, 2002³

(p)   Code of Ethics

(i) Code of Ethics dated May 2010

(q)   Power of Attorney

(i) Power of Attorney dated December 1, 2009⁷

1. Previously filed with Initial Form N-1A on April 17, 2003.

2. Previously filed with Pre-Effective Amendment No. 1 to the Form N-1A on July 22, 2003.

3. Previously filed with Post-Effective Amendment No. 1 to the Form N-1A on December 30, 2003.

4. Previously filed with Post-Effective Amendment No. 2 to the Form N-1A on December 2, 2004.

5. Previously filed with Post-Effective Amendment No. 5 to the Form N-1A on December 28, 2007.

6. Previously filed with Post-Effective Amendment No. 6 to the Form N-1A on December 29, 2008.

7. Previously filed with Post-Effective Amendment No. 7 to the Form N-1A on December 28, 2009.

Item 29. Persons Controlled by or Under Common Control with Registrant

None

Item 30. Indemnification.

The Agreement and Declaration of Trust (the “Declaration”) provides that any person who is or was a Trustee, officer, employee or other agent, including the underwriter, of such Trust shall be liable to such Trust and its shareholders only for (1) any act or omission that constitutes a bad faith violation of the implied contractual covenant of good faith and fair dealing, or (2) the person’s own willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person (such conduct referred to herein as Disqualifying Conduct) and for nothing else. Except in these instances, these persons shall not be responsible or liable for any act or omission of any other agent of such Trust or its investment adviser or principal underwriter to the fullest extent that limitations of liability are permitted by the Delaware statutory trust Act (the “Delaware Act”). Moreover, except in these instances, none of these persons, when acting in their respective capacity as such, shall be personally liable to any other person, other than such Trust or its shareholders, for any act, omission or obligation of such Trust or any trustee thereof.

The Trust shall indemnify, out of its assets, to the fullest extent permitted under applicable law, any of these persons who was or is a party, or is threatened to be made a party, to any Proceeding (as defined in the Declaration) because the person is or was an agent of such Trust. These persons shall be indemnified against any expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with the Proceeding if the person acted in good faith or, in the case of a criminal proceeding, had no reasonable cause to believe that the conduct was unlawful. The termination of any proceeding by judgment, settlement or its equivalent shall not in itself create a presumption that the person did not act in good faith or that the person had reasonable cause to believe that the person’s conduct was unlawful. There shall nonetheless be no indemnification for a person’s own Disqualifying Conduct.

Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to Trustees, officers and controlling persons of the Fund pursuant to the foregoing provisions, or otherwise, the Fund has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Fund of expenses incurred or paid by a Trustee, officer or controlling person of the Fund in the successful defense of any action, suit or proceeding) is asserted by such Trustee, officer or controlling person in connection with securities being registered, the Fund may be required, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court or appropriate jurisdiction the question whether such indemnification is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

Item 31. Business and Other Connections of Investment Adviser

The officers and directors of Templeton Asset Management Ltd. (TAML) the Registrant’s manager, also serve as officers and/or directors for (1) TAML’s corporate parent, Franklin Resources, Inc., and/or (2) other investment companies in  Franklin Templeton Investments.

For additional information please see Part B and Schedules A and D of Form ADV of TAML (SEC File 801-46997), incorporated herein by reference, which sets forth the officers and directors of TAML and information as to any business, profession, vocation or employment of a substantial nature engaged in by those officers and directors during the past two years.

Item 32. Principal Underwriter

(a)   Franklin Templeton Distributors, Inc. (Distributors) also acts as principal underwriter of shares of:

Templeton Developing Markets Trust

Templeton Funds

Templeton Global Investment Trust

Templeton Global Opportunities Trust

Templeton Global Smaller Companies Fund

Templeton Growth Fund, Inc.

Templeton Income Trust

Templeton Institutional Funds

Franklin California Tax Free Income Fund

Franklin California Tax Free Trust

Franklin Custodian Funds

Franklin Federal Tax-Free Income Fund

Franklin Global Trust

Franklin Gold and Precious Metals Fund

Franklin High Income Trust

Franklin Investors Securities Trust

Franklin Managed Trust

Franklin Money Fund

Franklin Mutual Recovery Fund

Franklin Mutual Series Funds

Franklin Municipal Securities Trust

Franklin New York Tax-Free Income Fund

Franklin New York Tax-Free Trust

Franklin Real Estate Securities Trust

Franklin Strategic Mortgage Portfolio

Franklin Strategic Series

Franklin Tax-Free Trust

Franklin Templeton Fund Allocator Series

Franklin Templeton Global Trust

Franklin Templeton International Trust

Franklin Templeton Money Fund Trust

Franklin Templeton Variable Insurance Products Trust

Franklin Value Investors Trust

Institutional Fiduciary Trust

(b)   The information required by this Item 32 with respect to each director and officer of Distributors is incorporated by reference to Part B of this Form N-1A and Schedule A of Form BD filed by Distributors with the Securities and Exchange Commission pursuant to the Securities Act of 1934 (SEC File No. 8-5889)

(c)   Registrant’s principal underwriter is an affiliated person of an affiliated person of the Registrant.

Item 33. Location of Accounts and Records

Certain accounts, books, and other documents required to be maintained by Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and rules thereunder are located at 500 East Broward Boulevard, Fort Lauderdale, Florida 33394. Other records are maintained at the offices of Franklin Templeton Investor Services, LLC, 100 Fountain Parkway, St. Petersburg, Florida 33716-1205 and 3344 Quality Drive, Rancho Cordova, California 95670-7313.

Item 34. Management Services

There are no management-related service contracts not discussed in Part A or Part B.

Item 35. Undertakings.

Not Applicable.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended and the Investment Company Act of 1940, as amended, the Registrant has duly caused this Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of San Mateo and the State of California, on the 28 day of October, 2010.

TEMPLETON CHINA WORLD FUND

(REGISTRANT)

By: /s/DAVID P. GOSS                     

David P. Goss, Vice President

      Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated:

Mark Mobius*
Mark Mobius	President and Chief Executive Officer – Investment Management
	Dated: October 28, 2010
Laura F. Fergerson*
Laura F. Fergerson	Chief Executive Officer – Finance and Administration
	Dated: October 28, 2010
Mark H. Otani*
Mark H. Otani	Chief Financial Officer and Chief Accounting Officer
	Dated: October 28, 2010
Harris J. Ashton*	Trustee
Harris J. Ashton	Dated: October 28, 2010
Ann Torre Bates*	Trustee
Ann Torre Bates	Dated: October 28, 2010
Frank J. Crothers*	Trustee
Frank J. Crothers	Dated: October 28, 2010
Edith E. Holiday*	Trustee
Edith E. Holiday	Dated: October 28, 2010
Charles B. Johnson*	Trustee
Charles B. Johnson	Dated: October 28, 2010
Gregory E. Johnson*	Trustee
Gregory E. Johnson	Dated: October 28, 2010
J. Michael Luttig*	Trustee
J. Michael Luttig	Dated: October 28, 2010
David W. Niemiec*	Trustee
David W. Niemiec	Dated: October 28, 2010
Frank A. Olson*	Trustee
Frank A. Olson	Dated: October 28, 2010
Larry D. Thompson*	Trustee
Larry D. Thompson	Dated: October 28, 2010
Constantine D. Tseretopoulos*	Trustee
Constantine D. Tseretopoulos	Dated: October 28, 2010
Robert E. Wade*	Trustee
Robert E. Wade	Dated: October 28, 2010

*By: /s/DAVID P. GOSS        

    David P. Goss

    Attorney-in-Fact

    (Pursuant to Power of Attorney previously filed)

TEMPLETON CHINA WORLD FUND

REGISTRATION STATEMENT

EXHIBIT NO.	DESCRIPTION	LOCATION
EX-99 (a)(i)	Amended and Restated Agreement and Declaration of Trust dated October 18, 2006	*
EX-99 (a)(ii)	Certificate of Trust dated December 3, 2002	*
EX-99 (a)(iii)	Certificate of Amendment of Agreement and Declaration of Trust dated October 21, 2008	*
EX-99 (b)(i)	Amended and Restated By-Laws dated October 18, 2006	*
EX-99 (d)(i)	Investment Management Agreement between Registrant and Templeton Asset Management Ltd. dated December 3, 2002	*
EX-99 (d)(ii)	Amendment to the Investment Management Agreement dated June 1, 2004	*
EX-99 (e)(i)	Distribution Agreement between Registrant and Franklin Templeton Distributors, Inc. dated December 3, 2002	*
EX-99 (e)(ii)	Forms of Selling Agreement between Registrant, Franklin Templeton Distributors, Inc. and Securities Dealers dated May 1, 2010	Attached
EX-99 (g)(i)	Custody Agreement dated September 7, 1993	*
EX-99 (g)(ii)	Amendment to the Custody Agreement dated March 2, 1998	*
EX-99 (g)(iii)	Amendment No. 2 to the Custody Agreement dated July 23, 1998	*
EX-99 (g)(iv)	Amendment No. 3 to the Custody Agreement dated May 1, 2001	*
EX-99 (g)(v)	Assignment and Assumption dated August 8, 2003 to the Custody Agreement	*
EX-99 (h)(i)	Amended and Restated Transfer Agent and Shareholder Services Agreement between Registrant and Franklin Templeton Investor Services, LLC dated October 21, 2008	*
EX-99 (h)(ii)	Fund Administration Agreement dated December 3, 2002	*
EX-99.(h)(iii)	Special Servicing Agreement dated May 1, 2009	Attached
EX-99.(h)(iv)	Annex I dated September 15, 2010 to the Special Servicing Agreement dated May 1, 2009	Attached
EX-99.(h)(v)	Annex II dated May 1, 2010 to the Special Servicing Agreement dated May 1, 2009	Attached
EX-99 (i)(i)	Opinion and Consent of Counsel	*
EX-99 (j)(i)	Consent of Independent Registered Public Accounting Firm	Attached
EX-99 (m)(i)	Amended and Restated Distribution Plan – Class A Shares dated February 24, 2009	*
EX-99 (m)(ii)	Amended and Restated Distribution Plan – Class C Shares dated July 15, 2009	*
EX-99 (m)(iii)	Amended and Restated Distribution Plan – Class B Shares dated July 15, 2009	*
EX-99 (n)(i)	Multiple Class Plan dated December 3, 2002	*
EX-99 (p)(i)	Code of Ethics dated May 2010	Attached
EX-99 (q)(i)	Power of Attorney dated December 1, 2009	*

* Incorporated by reference.

EX-99.E UNDR CONTR

FORM OF

Selling Agreement
May 1, 2010

Dear Securities Dealer:

Franklin Templeton Distributors, Inc. (“we” or “us”) invites you to participate in the distribution of shares of the Franklin Templeton investment companies (the “Funds”) for which we now or in the future serve as principal underwriter, subject to the terms of this Agreement. We will notify you from time to time of the Funds that are eligible for distribution and the terms of compensation under this Agreement. This Agreement supersedes any prior dealer or selling agreements between us, as stated in Section 21, below.

1. Licensing.

   (a)      ‑You represent that you are (i) a broker or dealer validly registered with U.S. Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934, as amended, and a member in good standing of the Financial Industry Regulatory Authority (“FINRA”) and are presently licensed to the extent necessary by the appropriate regulatory agency of each jurisdiction in which you will offer and sell shares of the Funds, or (ii) a broker, dealer or other company licensed, registered or otherwise qualified to effect transactions in securities in a country (a “foreign country”) other than the United States of America (the “U.S.”) where you will offer or sell shares of the Funds. You agree that termination or suspension of such membership with FINRA, or of your license to do business by any regulatory agency having jurisdiction, at any time shall terminate or suspend this Agreement forthwith and shall require you to notify us in writing of such action. If you are not a member of FINRA but are a broker, dealer or other company subject to the laws of a foreign country, you agree to conform to the Conduct Rules of FINRA. This Agreement is in all respects subject to the Conduct Rules of FINRA, particularly Conduct Rule 2830 of FINRA, which shall control any provision to the contrary in this Agreement.

   (b)      ‑You agree to notify us immediately in writing if at any time you are not a member in good standing of the Securities Investor Protection Corporation (“SIPC”).

2. Sales of Fund Shares. You may offer and sell shares of each Fund and class of each Fund only at the public offering price which shall be applicable to, and in effect at the time of, each transaction. The procedures relating to all orders and the handling of them shall be subject to the terms of the applicable then current prospectus and statement of additional information (hereafter, the “Prospectus”) and new account application, including amendments, for each such Fund and each class of such Fund, and our written instructions from time to time. This Agreement is not exclusive, and either party may enter into similar agreements with third parties.

3. Duties of Dealer. You agree:

   (a)      ‑Except as otherwise provided herein, to act as principal, or as agent on behalf of your customers, in all transactions in shares of the Funds. Except as otherwise provided, you shall not have any authority to act as agent for the issuer (the Funds), for the Principal Underwriter, or for any other dealer in any respect, nor will you represent to any third party that you have such authority or are acting in such capacity.

   (b)      ‑To purchase shares of the Funds only from us or from your customers.

   (c)      ‑To enter orders for the purchase of shares of the Funds only from us and only for the purpose of covering purchase orders you have already received from your customers or for your own bona fide investment.

   (d)      ‑To maintain records of all sales, redemptions and repurchases of shares made through you and to furnish us with copies of such records on request.

   (e)      ‑To distribute Prospectuses and reports to your customers in compliance with applicable legal requirements, except to the extent that we expressly undertake to do so on your behalf.

   (f)      ‑That you will not withhold placing customers’ orders for shares so as to profit yourself as a result of such withholding or place orders for shares in amounts just below the point at which sales charges are reduced so as to benefit from a higher sales charge applicable to an amount below the breakpoint.

   (g)      ‑That if any shares confirmed to you or your customer hereunder are repurchased or redeemed by any of the Funds within seven (7) business days after such confirmation of the original order, you shall forthwith refund to us the full concession, allowed to you on such orders, including any payments we made to you from our own resources as provided in Section 6(b) hereof with respect to such orders. We shall notify you of such repurchase or redemption within a reasonable time after settlement. Termination or suspension of this Agreement shall not relieve you or us from the requirements of this subsection.

   (h)      ‑That if payment for the shares purchased is not received within the time customary or the time required by law for such payment, the sale may be canceled without notice or demand and without any responsibility or liability on our part or on the part of the Funds, or at our option, we may sell the shares which you ordered back to the Funds, in which latter case we may hold you responsible for any loss to the Funds or loss of profit suffered by us resulting from your failure to make payment as aforesaid. We shall have no liability for any check or other item returned unpaid to you after you have paid us on behalf of a purchaser. We may refuse to liquidate the investment unless we receive the purchaser’s signed authorization for the liquidation.

   (i)      ‑That you shall assume responsibility for any loss to the Funds caused by a correction made subsequent to trade date, provided such correction was not based on any error, omission or negligence on our part, and that you will immediately pay such loss to the Funds upon notification.

   (j)      ‑That if on a redemption which you have ordered, instructions in proper form, including outstanding certificates, are not received within the time customary or the time required by law, the redemption may be canceled forthwith without any responsibility or liability on our part or on the part of any Fund, or at our option, we may buy the shares redeemed on behalf of the Fund, in which latter case we may hold you responsible for any loss to the Fund or loss of profit suffered by us resulting from your failure to settle the redemption.

   (k)      ‑To obtain from your customers all consents required by applicable privacy laws (1) to permit us, any of our affiliates or the Funds to provide you either directly or through a service established for that purpose with confirmations, account statements and other information about your customers’ investments in the Funds and (2) to permit you and your registered representatives, agents, independent contractors and/or employees to transmit and receive confidential information concerning such customers to or from us and through our websites at franklintempleton.com, AdvisorCentral.com, dstvision.com and such other URL(s) through which we may permit you to conduct business concerning the Funds from time to time (referred to collectively as the “Sites”).

   (l)      ‑That orders for the purchase of Fund shares shall be placed by you only for customers for whom you have appropriate identification as required by applicable anti-money laundering laws or policies in your jurisdiction.

   (m)      ‑To the extent you are a “financial intermediary” with respect to the Funds, as that term is defined in Appendix A and Rule 22c-2 under the Investment Company Act of 1940 (the “1940 Act”),  to comply with the additional terms and conditions set forth on Appendix A.

4. Duties of Dealer: Retirement Accounts. In connection with orders for the purchase of shares on behalf of an individual retirement account, self-employed retirement plan or other retirement accounts, by mail, telephone, wire or through the Sites you shall act as agent for the custodian or trustee of such plans and you shall not place such an order until you have received from your customer payment for such purchase and, if such purchase represents the first contribution to such a plan, the completed documents necessary to establish the plan and enrollment in the plan. You agree to indemnify us and Franklin Templeton Bank & Trust, F.S.B. and/or Fiduciary Trust International of the South as applicable for any claim, loss, or liability resulting from incorrect investment instructions received from you which cause a tax liability or other tax penalty.

5. Conditional Orders; Certificates. We will not accept from you any conditional orders for shares of any of the Funds. Delivery of certificates or confirmations for shares purchased shall be made by the Funds only against constructive receipt of the purchase price, subject to deduction for your concession and our portion of the sales charge, if any, on such sale. No certificates for shares of the Funds will be issued unless specifically requested.

6. Dealer Compensation.

   (a)      ‑On each purchase of shares by you from us, the total sales charges and your dealer concessions shall be as stated in each Fund’s then current Prospectus, subject to FINRA rules and applicable laws. Such sales charges and dealer concessions are subject to reductions under a variety of circumstances as described in the Funds’ Prospectuses. For an investor to obtain these reductions, we must be notified at the time of the sale that the sale qualifies for the reduced charge. If you fail to notify us of the applicability of a reduction in the sales charge at the time the trade is placed, neither we nor any of the Funds will be liable for amounts necessary to reimburse any investor for the reduction which should have been effected.

   (b)      ‑In accordance with the Funds’ Prospectuses, we or our affiliates may, but are not obligated to, make payments to you from our own resources as compensation for certain sales which are made at net asset value (“Qualifying Sales”). If you notify us of a Qualifying Sale, we may make a contingent advance payment up to the maximum amount available for payment on the sale. If any of the shares purchased in a Qualifying Sale are repurchased or redeemed within twelve (12) months of the month of purchase, we shall be entitled to recover any advance payment attributable to the repurchased or redeemed shares by reducing any account payable or other monetary obligation we may owe to you or by making demand upon you for repayment in cash. We reserve the right to withhold advances to you, if for any reason we believe that we may not be able to recover unearned advances from you. Termination or suspension of this Agreement shall not relieve you or us from the requirements of this subsection.

   (c)      ‑You agree to waive payment of any dealer concessions payable to you by us until such time as we are in receipt of such dealer concessions.

7. Redemptions or Repurchases. Redemptions or repurchases of shares of the Funds will be made at the net asset value of such shares, less any applicable deferred sales or redemption charges, in accordance with the applicable Prospectuses of the Funds. Except as permitted by applicable law, you agree not to purchase any shares from your customers at a price lower than the net asset value of such shares next computed by the Funds after the purchase is made by you (the “Redemption/Repurchase Price”). You shall, however, be permitted to sell shares of the Funds for the account of the record owner to the Funds at the Redemption/Repurchase Price for such shares.

8. Exchanges. Exchange orders will be effective only for uncertificated shares or for which share certificates have been previously deposited and may be subject to any fees or other restrictions set forth in the applicable Prospectuses. Exchanges from a Fund sold with no sales charge to a Fund which carries a sales charge, and exchanges from a Fund sold with a sales charge to a Fund which carries a higher sales charge may be subject to a sales charge in accordance with the terms of the applicable Fund’s Prospectus. You will be obligated to comply with any additional exchange policies described in the applicable Fund’s Prospectus, including without limitation any policy restricting or prohibiting excessive and/or short term trading activity, the collection of redemption fees associated with such trading activity and the prohibition of “market timing,” as defined in the Prospectus.

9. Transaction Processing. All orders are subject to acceptance by us and by the Fund or its transfer agent, and become effective only upon confirmation by us. If required by law, each transaction shall be confirmed in writing on a fully disclosed basis and if confirmed by us, a copy of each confirmation shall be sent to you if you so request. All sales are made subject to receipt of shares by us from the Funds. We reserve the right in our discretion, without notice, to suspend the sale of shares of the Funds or withdraw the offering of shares of the Funds entirely. Orders will be effected at the price(s) next computed on the day they are received if, as set forth in the applicable Fund’s current Prospectus, the orders are received by us or an agent appointed by us or the Fund prior to the close of trading on the New York Stock Exchange, generally 4:00 p.m. eastern time (“Close of Trading”). Orders received after that time will be effected at the price(s) computed on the next business day. All orders must be accompanied by payment in U.S. Dollars. Orders payable by check must be drawn payable in U.S. Dollars on a U.S. bank, for the full amount of the investment.

   If you have entered into a FundSERV Agreement with us to effect transactions in Fund shares through FundSERV, you are hereby authorized to act on our behalf for the limited purpose of receiving purchase, exchange and redemption orders for Fund shares executed through FundSERV. You represent and warrant that all orders for the purchase, exchange or redemption of Fund shares transmitted to FundSERV for processing on or as of a given business day (Day 1) shall have been received by you prior to the Close of Trading on Day 1. Such orders shall receive the share price next calculated following the Close of Trading on Day 1 .You represent and warrant that orders received by you after the Close of Trading on Day 1 shall be treated by you and transmitted to FundSERV as if received on the next business day (Day 2). Such orders shall receive the share price next calculated following the Close of Trading on Day 2. You represent that you have systems in place reasonably designed to prevent orders received after the Close of Trading on Day 1 from being executed with orders received before the Close of Trading on Day 1.

10. Multiple Classes. We may from time to time provide to you written compliance guidelines or standards relating to the sale or distribution of Funds offering multiple classes of shares (each, a “Class”) with different sales charges and distribution related operating expenses. In addition, you will be bound by any applicable rules or regulations of government agencies or self-regulatory organizations generally affecting the sale or distribution of shares of investment companies offering multiple classes of shares.

11. Rule ­12b-­1 Plans. You are invited to participate in all distribution plans (each, a “Plan”) adopted for a Class of a Fund or for a Fund that has only a single Class (each, a “Plan Class”) pursuant to Rule 12b-1 under the 1940 Act.

   To the extent you provide administrative and other services, including, but not limited to, furnishing personal and other services and assistance to your customers who own shares of a Plan Class, answering routine inquiries regarding a Fund or Class, assisting in changing account designations and addresses, maintaining such accounts or such other services as a Fund may require, to the extent permitted by applicable statutes, rules, or regulations, we shall pay you a Rule 12b-1 servicing fee. To the extent that you participate in the distribution of Fund shares that are eligible for a Rule 12b-1 distribution fee, we shall also pay you a Rule 12b-1distribution fee. All Rule 12b-1 servicing and distribution fees shall be based on the value of shares attributable to customers of your firm and eligible for such payment, and shall be calculated on the basis and at the rates set forth in the compensation schedule then in effect for the applicable Plan (the “Schedule”). Without prior approval by a majority of the outstanding shares of a particular Class of a Fund which has a Plan, the aggregate annual fees paid to you pursuant to such Plan shall not exceed the amounts stated as the “annual maximums” in such Plan Class’ Prospectus, which amount shall be a specified percent of the value of such Plan Class’ net assets held in your customers’ accounts which are eligible for payment pursuant to this Agreement (determined in the same manner as such Plan Class uses to compute its net assets as set forth in its effective Prospectus).

   You shall furnish us and each Fund that has a Plan Class (each, a “Plan Fund”) with such information as shall reasonably be requested by the Board of Directors, Trustees or Managing General Partners (hereinafter referred to as “Directors”) of such Plan Fund with respect to the fees paid to you pursuant to the Schedule of such Plan Fund. We shall furnish to the Directors of the Plan Funds, for their review on a quarterly basis, a written report of the amounts expended under the Plans and the purposes for which such expenditures were made.

   Each Plan and the provisions of any agreement relating to such Plan must be approved annually by a vote of the Directors of the Fund that has such Plan, including such persons who are not interested persons of such Plan Fund and who have no financial interest in such Plan or any related agreement (“Rule 12b-1 Directors”). Each Plan or the provisions of this Agreement relating to such Plan may be terminated at any time by the vote of a majority of the Rule 12b-1 Directors, or by a vote of a majority of the outstanding shares of the Class that has such Plan, on sixty (60) days’ written notice, without payment of any penalty. A Plan or the provisions of this Agreement may also be terminated by any act that terminates the underwriting agreement between us and the Fund that has such Plan, and/or the management or administration agreement between Franklin Advisers, Inc. or Templeton Investment Counsel, LLC or their affiliates and such Plan Fund. In the event of the termination of a Plan for any reason, the provisions of this Agreement relating to such Plan will also terminate.

   Continuation of a Plan and provisions of this Agreement relating to such Plan are conditioned on Rule 12b-1 Directors being ultimately responsible for selecting and nominating any new Rule 12b-1 Directors. Under Rule 12b-1, Directors of any of the Plan Funds have a duty to request and evaluate, and persons who are party to any agreement related to a Plan have a duty to furnish, such information as may reasonably be necessary to an informed determination of whether the Plan or any agreement should be implemented or continued. Under Rule 12b-1, a Plan Fund is permitted to implement or continue a Plan or the provisions of this Agreement relating to such Plan from year to year only if, based on certain legal considerations, the Directors of such Plan Fund are able to conclude that such Plan will benefit the Plan Class. Absent such yearly determination, such Plan and the provisions of this Agreement relating to such Plan must be terminated as set forth above. In addition, any obligation assumed by a Fund pursuant to this Agreement shall be limited in all cases to the assets of such Fund and no person shall seek satisfaction thereof from shareholders of a Fund. You agree to waive payment of any amounts payable to you by us under a Fund’s Plan until such time as we are in receipt of such fee from the Fund.

   The provisions of the Plans between the Plan Funds and us shall have control over the provisions of this Agreement in the event of any inconsistency.

12. Registration of Shares. Upon request, we shall notify you of the states or other jurisdictions in which each Fund’s shares are currently noticed, registered or qualified for offer or sale to the public. We shall have no obligation to make notice filings of, register or qualify, or to maintain notice filings of, registration of or qualification of, Fund shares in any particular state or other jurisdiction.
We shall have no responsibility, under the laws regulating the sale of securities in any U.S. or foreign jurisdiction, for the registration, qualification or licensed status of persons offering or selling Fund shares or for the manner of offering or sale of Fund shares. If it is necessary to file notice of, register or qualify Fund shares in any foreign jurisdictions in which you intend to offer the shares of any Funds, it will be your responsibility to arrange for and to pay the costs of such notice filing, registration or qualification; prior to any such notice filing, registration or qualification, you will notify us of your intent and of any limitations that might be imposed on the Funds, and you agree not to proceed with such notice filing, registration or qualification without the written consent of the applicable Funds and of ourselves. Except as stated in this section, we shall not, in any event, be liable or responsible for the issue, form, validity, enforceability and value of such shares or for any matter in connection therewith, and no obligation not expressly assumed by us in this Agreement shall be implied. Nothing in this Agreement shall be deemed to be a condition, stipulation or provision binding any person acquiring any security to waive compliance with any provision of the Securities Act of 1933, as amended (the “1933 Act”), the Securities Exchange Act of 1934, as amended (the “1934 Act”), the 1940 Act, the rules and regulations of the SEC, or any applicable laws or regulations of any government or authorized agency in the U.S. or any other country having jurisdiction over the offer or sale of shares of the Funds, or to relieve the parties hereto from any liability arising under such laws, rules and regulations.

13. Continuously Offered ­Closed-­End Funds. This Section 13 relates solely to shares of Funds that represent a beneficial interest in shares issued by a fund that is a closed-end investment company registered under the 1940 Act that makes a continuous offering of its shares, for which we or an affiliate of ours serve as principal underwriter, and that periodically repurchases its shares (each, a “Trust”). Shares of a Trust that are offered to the public will be registered under the 1933 Act, and are expected to be offered during an offering period that may continue indefinitely (“Continuous Offering Period”). There is no guarantee that such a continuous offering will be maintained by a Trust. The Continuous Offering Period, shares of a Trust and certain of the terms on which such shares are offered shall be as described in the Prospectus of the Trust.

   As set forth in a Trust’s then current Prospectus, we may, but are not obligated to, provide you with appropriate compensation for selling shares of the Trust. In addition, you may be entitled to a fee for servicing your clients who are shareholders in a Trust, subject to applicable law and FINRA Conduct Rules. You agree that any repurchases of shares of a Trust that were originally purchased as Qualifying Sales shall be subject to Subsection 6(b) hereof.

You expressly acknowledge and understand that, notwithstanding anything to the contrary in this Agreement:

   (a)      ‑No Trust has a Rule 12b-1 Plan and in no event will a Trust pay, or have any obligation to pay, any compensation directly or indirectly to you.

   (b)      ‑Shares of a Trust will not be repurchased by either the Trust (other than through repurchase offers by the Trust from time to time, if any) or by us and no secondary market for such shares exists currently, or is expected to develop. Any representation as to a repurchase or tender offer by a Trust, other than that set forth in the Trust’s then current Prospectus, notification letters, reports or other related material provided by the Trust, is expressly prohibited.

   (c)      ‑An early withdrawal charge payable by shareholders of a Trust to us may be imposed on shares accepted for repurchase by the Trust that have been held for less than a stated period, as set forth in the Trust’s then current Prospectus.

   (d)      ‑In the event your customer cancels his or her order for shares of a Trust after confirmation, such shares will not be repurchased, remarketed or otherwise disposed of by or through us.

14. Fund Information. You are not authorized to give any information or make any representations concerning shares of a Fund except those contained in the Fund’s then current Prospectus, Summary Prospectus, Statement of Additional Information or in other materials produced by us or by the Fund nor may you present or create any information or materials that are contrary to or inconsistent with the materials so provided to you. We will supply reasonable quantities of, and/or reasonable electronic access to, Prospectuses (and/or any applicable Summary Prospectuses), sales or other marketing materials, and additional information as issued by the Fund or by us.  We will not be responsible for reimbursing you for any costs or expenses you may incur for accessing or printing such materials. You are not authorized to modify or translate any materials we have provided to you.

   You agree, represent and warrant that you are solely responsible for any materials prepared by you that are based upon information concerning shares of a Fund produced by us or the Fund and that such materials will  (a) conform to all requirements of any applicable laws or regulations of any government or authorized agency in the U.S. or any other country having jurisdiction over the offering or sale of shares of the Funds, (b) not be contrary to or inconsistent with the information or materials provided to you by us or a Fund, and (c) be made available to us upon request.  You agree to file any advertising or sales material relating to the Funds prepared by you with FINRA, or other applicable legal or regulatory authority, within the timeframes that may be required from time to time by FINRA or such other legal or regulatory authority. Unless otherwise expressly agreed to in writing, it is understood that we will neither review nor approve for use any materials prepared by you and will have no involvement in the preparation of, or responsibility for, any such materials prepared by you.  Notwithstanding the above, you may not use our Franklin Templeton Investments name or logo in materials prepared by you without our prior written consent.

15. Use of Site. Each of your registered representatives, agents, independent contractors and employees will have access to the Sites as provided herein, (a) upon registration by such individual on a Site (including providing certain data and codes identifying you),
(b) if you cause an MOS Site Access Request Form (an “Access Form”) to be signed by your authorized supervisory personnel and submitted to us, as a Schedule to, and legally a part of, this Agreement, or (c) if you provide such individual with the necessary access codes or other information necessary to access the Sites through any generic or firm-wide authorization we may grant you from time to time. Upon receipt by us of a completed registration submitted by an individual through the Sites or a signed Access Form referencing such individual, we shall be entitled to rely upon the representations contained therein as if you had made them directly hereunder and we will issue a user identification, express number and/or password (collectively, “Access Code”). Any person to whom we issue an Access Code or to whom you provide the necessary Access Codes or other information necessary to access the Sites through any generic or firm-wide authorization we may grant you from time to time shall be an “Authorized User.” We shall be entitled to assume that such person validly represents you and that all instructions received from such person are authorized, in which case such person will have access to the Site, including all services and information to which you are authorized to access on the Site. All inquiries and transactions initiated by you (including your Authorized Users) are your responsibility, are at your risk and are subject to our review and approval (which could cause a delay in processing).You agree that we do not have a duty to question information or instructions you (including Authorized Users) give to us under this Agreement, and that we are entitled to treat as authorized, and act upon, any such instructions and information you submit to us. You agree to take all reasonable measures to prevent any individual other than an Authorized User from obtaining access to the Site. You agree to inform us if you wish to restrict or revoke the access of any individual Access Code. If you become aware of any loss or theft or unauthorized use of any Access Code, you agree to contact us immediately. You also agree to monitor your (including Authorized Users’) use of the Site to ensure the terms of this Agreement are followed. You acknowledge that the Sites are transmitted over the Internet on a reasonable efforts basis and we do not warrant or guarantee their accuracy, timeliness, completeness, reliability or non-infringement. Moreover, you acknowledge that the Sites are provided for informational purposes only, and are not intended to comply with any requirements established by any regulatory or governmental agency.

16. Dealer Representation. You represent and warrant that you will comply with all applicable U.S. federal, state and local laws and regulations in performing your obligations hereunder. Without limiting the foregoing, you agree that in recommending to a customer the purchase, sale or exchange of any shares, or class of shares, of a Fund, you shall have reasonable grounds for believing that the recommendation is suitable for such customer. You also agree that you will comply with all policies and agreements concerning Site usage, including without limitation the Terms of Use Agreement(s) posted on the Sites (“Site Terms”), as may be revised and reposted on the Sites from time to time, and those Site Terms (as in effect from time to time) are a part of this Agreement.

17. Indemnification; Defense of Claims; Attorneys’ Fees. You agree to indemnify and hold harmless us and the Funds, as well as our and the Funds’ respective officers, directors and employees (collectively, “indemnitees”), from any and all actual and/or alleged losses, claims, liabilities and expenses (including reasonable attorneys’ fees and expenses) (collectively “Losses”) arising from or as the result of (1) any actual or alleged violation of any statute or regulation (including without limitation U.S. and state securities laws and regulations and consumer protection laws, as well as the laws of any foreign country where you offer or sell shares of the Funds) and/or any actual or alleged violation of common law (including without limitation all tort and/or contract claims), which in any way relate to any offer, sale, redemption, transfer or exchange of shares of the Funds (including any actual and/or alleged mishandling of the transaction and/or misappropriation of the proceeds in connection therewith) by you and/or by or through any of your officers, directors, employees, independent contractors or agents, (2) the breach by you or any of your officers, directors, employees, independent contractors or agents of any of the terms and conditions of this Agreement and/or (3) any use, including unauthorized access obtained through you, of the Sites by you or your officers, directors, employees or agents, provided, however, that an Indemnitee shall not be entitled to indemnification hereunder to the extent the actual and proximate cause of any such Losses is attributed to such Indemnitee’s own negligence, willful misconduct or breach.

   In addition, you agree that in the event that the Indemnitees are named in any legal proceedings (including, but not limited to lawsuits filed in court and statements of claim filed in an arbitration forum) which involve claims and/or liabilities that are the subject of this indemnification agreement, we and the Fund(s) may, following notice to you, retain attorneys of our choice to represent us and/or the Fund(s) in such legal proceedings at your expense, and you will promptly reimburse us and/or the Fund(s) for the attorneys’ fees and expenses incurred in connection with the defense of any such legal proceedings. This Section 17 shall survive the termination of this Agreement.

18. Termination; Succession; Assignment; Amendment. Each party to this Agreement may terminate its participation in this Agreement by giving written notice to the other parties. Such notice shall be deemed to have been given and to be effective on the date on which it was either delivered personally to the other parties or any officer or member thereof, or was mailed postpaid or delivered by electronic transmission to the other parties’ chief legal officers at the addresses shown herein or the address listed with FINRA. This Agreement shall terminate immediately upon the appointment of a Trustee under the Securities Investor Protection Act or any other act of insolvency by you. The termination of this Agreement by any of the foregoing means shall have no effect upon transactions entered into prior to the effective date of termination. A trade placed by you subsequent to your voluntary termination of this Agreement will not serve to reinstate the Agreement. Reinstatement, except in the case of a temporary suspension of a dealer, will be effective only upon written notification by us to you. This Agreement will terminate automatically in the event of its assignment by us. For purposes of the preceding sentence, the word “assignment” shall have the meaning given to it in the 1940 Act. This Agreement may not be assigned by you without our prior written consent. This Agreement may be amended by us at any time by written notice to you at the address given below (or such other address as specified in writing by you) or the address listed with FINRA and your placing of an order for shares of a Fund or acceptance of payments of any kind after the effective date and receipt of notice of any such Amendment shall constitute your acceptance of such Amendment. Notwithstanding the foregoing, the Site Terms may be separately amended as provided therein and as so amended and in effect from time to time shall be a part of this Agreement.

19. Privacy; Anti-Money Laundering.

   (a)      ‑Each party to this Agreement agrees to limit the disclosure of nonpublic personal information of shareholders and customers consistent with its policies on privacy with respect to such information and Regulation S-P of the SEC. Each party hereby agrees that it will comply with all applicable requirements under the regulations implementing Title V of the Gramm-Leach-Bliley Act and any other applicable federal and state consumer privacy acts, rules and regulations. Each party further represents that it has in place, and agrees that it will maintain, information security policies and procedures for protecting nonpublic personal customer information adequate to conform to applicable legal requirements.

   (b)      ‑Each party to this Agreement acknowledges that it is a financial institution subject to the USA PATRIOT Act of 2001, the Bank Secrecy Act and their corresponding implementing regulations (collectively, the “AML Laws”), which require, among other things, that financial institutions adopt compliance programs to guard against money laundering. Each party represents and warrants that it has established policies and procedures reasonably designed to detect and prevent money laundering and to comply with the AML Laws, including FINRA Rule 3011, in all relevant aspects. Each party agrees that it will take such further steps and cooperate with the other party as may be reasonably necessary to facilitate compliance with the AML Laws. Each party also certifies that it complies with the economic sanction programs administered by the U.S. Treasury’s Office of Foreign Assets Control.

20. Setoff; Dispute Resolution. Should any of your concession accounts with us have a debit balance, we may offset and recover the amount owed to us or the Funds from any other account you have with us, without notice or demand to you. In the event of a dispute concerning any provision of this Agreement, either party may require the dispute to be submitted to binding arbitration under the commercial arbitration rules of FINRA or the American Arbitration Association. Judgment upon any arbitration award may be entered by any court having jurisdiction. This Agreement shall be construed in accordance with the laws of the State of California, not including any provision that would require the general application of the law of another jurisdiction.

21. Acceptance; Cumulative Effect. This Agreement is cumulative and supersedes any similar agreement previously in effect. It shall be binding upon the parties hereto when signed by us and accepted by you. If you have a current dealer or selling agreement with us, your first trade or acceptance of payments from us after your receipt of this Agreement, as it may be amended pursuant to Section 18, above, shall constitute your acceptance of its terms. Otherwise, your signature below shall constitute your acceptance of its terms.

FRANKLIN TEMPLETON DISTRIBUTORS, INC.

By _______________________________________

   Peter D. Jones, President

One Franklin Parkway
San Mateo, CA 94403-1906
Attention: Chief Legal Officer (for legal notices only)
(650) 312-2000

100 Fountain Parkway
St. Petersburg, Florida 33716-1205
(727) 299-8712

DEALER: If you have not previously signed a dealer or selling agreement with us, please complete and sign this section and return the original to us.

Dealer Name

                                                 Date

By:

   (Signature)

Name                                             Title

Address                                          City State ZIP

NASD CRD #                                       Telephone

                                                           _{(     )}

(Internal Use Only)

Franklin Templeton dealer number

Appendix A - Additional Terms and Conditions Regarding Rule 22c-2

To the extent you are a “financial intermediary” with respect to the Funds, you agree as follows:

1.1 Agreement to Provide Information. You agree to provide Distributors, upon written request, the taxpayer identification number (“TIN”) of any or all Shareholder(s) of the account and the amount, date, name or other identifier of any investment professional(s) associated with the Shareholder(s) or account (if known), and transaction type (purchase, redemption, transfer, or exchange) of every purchase, redemption, transfer, or exchange of Fund Shares held through an account maintained by you during the period covered by the request.

‑1.1.1 Period Covered by Request. Requests must set forth a specific period, not to exceed ninety (90) days from the date of the request, for which transaction information is sought. Distributors may request transaction information older than ninety (90) days from the date of the request as it deems necessary to investigate compliance with policies established by it for the purpose of eliminating or reducing any dilution of the value of the outstanding Shares issued by the Funds.

‑1.1.2 Form and timing of Response. You agree to transmit the requested information that is on your books and records to Distributors or its designee promptly, but in any event not later than five (5) business days, after receipt of a request. If the requested information is not on your books and records, you agree to: (i) provide or arrange to provide Distributors or its designee the requested information regarding Shareholders who hold an account with an indirect intermediary; or (ii) prohibit further purchases of Fund Shares by such indirect intermediary on behalf of itself or other persons. Responses required by this paragraph must be communicated in writing and in a format mutually agreed upon by the parties. To the extent practicable, the format for any transaction information provided to Distributors should be consistent with the NSCC Standardized Data Reporting Format.

‑1.1.3 Limitations on Use of Information. Distributors agrees not to use the information received for marketing or any other similar purpose without your prior written consent.

1.2 Agreement to Restrict Trading. You agree to execute written instructions from Distributors or its designee to restrict or prohibit further purchases or exchanges of Shares by a Shareholder who has been identified by Distributors or its designee as having engaged in transactions in Shares (directly or indirectly through an account established by you) that violate policies established by the Funds for the purpose of eliminating or reducing any dilution of the value of the outstanding Shares issued by the Funds.

‑1.2.1 Form of Instructions. Instructions must include the TIN and the specific restriction(s) to be executed. If the TIN is not known, the instructions must include an equivalent identifying number of the Shareholder(s) or account(s) or other agreed upon information to which the instruction relates.

‑1.2.2 Timing of Response. You agree to execute instructions as soon as reasonably practicable, but not later than five (5) business days after your receipt of the instructions.

‑1.2.3 Confirmation. You must provide written confirmation to Distributors or its designee that instructions have been executed. You agree to provide confirmation as soon as reasonably practicable, but not later than ten (10) business days after the instructions have been executed.

1.3 Excepted Funds. These terms and conditions shall not apply to any “excepted fund” as defined in Section 1.4.

1.4 Definitions

“Distributors” means Franklin Templeton Distributors, Inc.

“Funds” or a “Fund” means certain registered investment companies, and separate series of such companies, for which Distributors serves as the principal underwriter.

“Financial Intermediary” means:

   (i)‑any broker, dealer, bank, or other person that holds securities issued by a Fund, in nominee name;

‑(ii)‑a unit investment trust or fund that invests in a Fund in reliance on section 12(d)(l)(E) of the 1940 Act (15 U.S.C. 80a-12(d)(l)(E)); and

‑(iii)‑in the case of a participant-directed employee benefit plan that owns the securities issued by a Fund, a retirement plan's administrator under section 3(16)(A) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002 (16)(A)) or any person that maintains the plan's participant records.

‑Notwithstanding the above, “financial intermediary” does not include any person that the Fund treats as an individual investor with respect to the Fund's policies established for the purpose of eliminating or reducing any dilution of the value of the outstanding securities issued by the Fund.

“Excepted Fund” means:

‑(i)‑any Fund that is regulated as a money market fund under Rule 2a-7 under the 1940 Act;

‑(ii)‑any Fund that issues securities that are listed on a national securities exchange; and

‑(iii)‑any Fund that affirmatively permits short-term trading of its securities, if its prospectus clearly and prominently discloses that the Fund permits short-term trading of its securities and that such trading may result in additional costs for the Fund.

“Shareholder” means:

‑(i)‑a beneficial owner of securities held in nominee name;

‑(ii)‑a participant in a participant-directed employee benefit plan;

‑(iii)‑a holder of interests in a fund or unit investment trust that has invested in a Fund in reliance on section 12(d)(l)(E) of the 1940 Act; and

‑(iv)‑a holder of interests in a variable annuity or variable life insurance contract issued by a financial intermediary and for which one or more Funds serve as underlying investments.

‑“Shareholder” does not include a fund investing pursuant to section 12(d)(l)(G) of the 1940 Act, a trust established pursuant to section 529 of the Internal Revenue Code (26 U.S.C. 529), or a holder of an interest in such a trust.

“Shares” means the interests of Fund Shareholders corresponding to the redeemable securities of record issued by the Fund under the 1940 Act that are held by a financial intermediary.

FORM OF

BANK Selling Agreement
May 1, 2010

1. Introduction. The parties to this Agreement are the undersigned bank or trust company (“Bank”) and Franklin Templeton Distributors, Inc. (“FTDI”). This Agreement sets forth the terms and conditions under which FTDI will execute purchases and redemptions of shares of the Franklin or Templeton investment companies or series of such investment companies for which FTDI now or in the future serves as principal underwriter (each, a “Fund”), at the request of Bank upon the order and for the account of Bank’s customers (“Customers”). In this Agreement, “Customer” shall include the beneficial owners of an account and any agent or attorney in fact duly authorized or appointed to act on the owner’s behalf with respect to the account; and “redemptions” shall include redemptions of shares of Funds that are open-end management investment companies and repurchases of shares of Funds that are closed-end investment companies by the Fund that is the issuer of such shares. FTDI will notify Bank from time to time of the Funds that are eligible for distribution and the terms of compensation under this Agreement. This Agreement is not exclusive, and either party may enter into similar agreements with third parties.

2. Representations and Warranties of Bank. Bank warrants and represents to FTDI and the Funds that:

   (a)      ‑Bank is a “bank” as defined in section 3(a)(6) of the Securities Exchange Act of 1934, as amended (the “1934 Act”);

   (b)      ‑Bank is authorized to enter into this Agreement as agent for Customers, and Bank’s performance of its obligations and receipt of consideration under this Agreement will not violate any law, regulation, charter, agreement or regulatory restriction to which Bank is subject;

   (c)      ‑Bank has received all regulatory agency approvals and taken all legal and other steps necessary for offering the services Bank will provide to Customers and receiving any applicable compensation in connection with this Agreement; and

   (d)      ‑Bank will comply with all applicable U.S. federal, state and local laws and regulations in performing its obligations hereunder. Without limiting the foregoing, Bank agrees that in recommending to a customer the purchase, sale or exchange of any shares, or class of shares, of a Fund, Bank shall have reasonable grounds for believing that the recommendation is suitable for such customer. Bank also agrees that it will comply with all policies and agreements concerning Site (as defined in Paragraph 4(b)(4) below) usage, including, without limitation, the Terms of Use Agreement(s) posted on the Sites (“Site Terms”) as may be revised and reposted on the Sites from time to time, and those Site Terms (as in effect from time to time) are part of this Agreement.

3. Representations and Warranties of the Principal Underwriter. FTDI warrants and represents to Bank that:

   (a)      FTDI is a broker/dealer registered under the 1934 Act; and

   (b)      FTDI is the principal underwriter of the Funds.

4. Covenants of Bank.

   (a)      For each purchase, redemption or exchange transaction under this Agreement (each, a “Transaction”), Bank will:

      1) be authorized to engage in the Transaction;

      2) except as otherwise provided herein, act as agent for Customer, unless Bank is the Customer;

      3) act solely for the account of Customer, unless Bank is the Customer;

      4) not submit an order unless Bank has already received the order from Customer, unless Bank is the Customer;

      5) ‑not withhold placing any Customer’s order for the purpose of profiting from the delay or place orders for Fund shares in amounts just below the point at which sales charges are reduced so as to benefit from a higher Fee (as defined in Paragraph 5(e) below) applicable to a Transaction in an amount below the breakpoint;

      6) ‑have no beneficial ownership of the securities in any purchase Transaction (Customer will have the full beneficial ownership), unless Bank is the Customer (in which case, Bank will not engage in the Transaction unless the Transaction is legally permissible for Bank);

      7) ‑not accept or withhold any Fee (as defined in Paragraph 5(e) of this Agreement) otherwise allowed under Paragraphs 5(d) and (e) of this Agreement, if prohibited by the Employee Retirement Income Security Act of 1974, as amended, or trust or similar laws to which Bank is subject, in the case of Transactions of Fund shares involving retirement plans, trusts, or similar accounts;

      8)    ‑maintain records of all Transactions of Fund shares made through Bank and furnish FTDI with copies of such records upon request; and

      9) ‑distribute Prospectuses, statements of additional information and reports to Customers in compliance with applicable legal requirements, except to the extent that FTDI expressly undertakes to do so on behalf of Bank.

   (b)      While this Agreement is in effect, Bank will:

      1) ‑not purchase any Fund shares from any person at a price lower than the redemption or repurchase price, as applicable, next determined by the applicable Fund;

      2) ‑repay FTDI the full Fee received by Bank under Paragraphs 5(d) and (e) of this Agreement, and any payments FTDI or its affiliates made to Bank from their own resources under Paragraph 5(e) of this Agreement (“FTDI Payments”), for any Fund shares purchased under this Agreement which are redeemed or repurchased by the Fund within seven (7) business days after the purchase; in turn, FTDI shall pay to the Fund the amount repaid by Bank (other than any portion of such repayment that is a repayment of FTDI Payments) and will notify Bank of any such redemption within a reasonable time (termination or suspension of this Agreement shall not relieve Bank or FTDI from the requirements of this subparagraph);

      3) ‑in connection with orders for the purchase of Fund shares on behalf of an individual retirement account, self employed retirement plan or other retirement accounts, by mail, telephone, wire or through the Sites, act as agent for the custodian or trustee of such plans and shall not place such an order until Bank has received from its Customer payment for such purchase and, if such purchase represents the first contribution to such a plan, the completed documents necessary to establish the plan and enrollment in the plan (Bank agrees to indemnify FTDI and Franklin Templeton Bank & Trust, F.S.B. and/or Fiduciary Trust International of the South, as applicable, for any claim, loss, or liability resulting from incorrect investment instructions received from Bank which cause a tax liability or other tax penalty);

      4) ‑obtain from its Customers any consents required by applicable federal and/or state privacy laws to (a) permit FTDI, any of its affiliates or the Funds to provide Bank with confirmations, account statements and other information about Customers’ investments in the Funds, and (b) permit Bank and its registered representatives, agents, independent contractors and/or employees to transmit and receive confidential information concerning such Customers to or from FTDI and through its websites at franklintempleton.com, AdvisorCentral.com, dstvision.com and such other URL(s) through which FTDI may permit Bank to conduct business concerning the Funds from time to time (referred to collectively as the “Sites”);

      5) ‑place orders for the purchase of Fund shares by Bank only for Customers for whom Bank has appropriate identification as required by applicable anti-money laundering laws or policies in Bank’s jurisdiction; and

      6) ‑to the extent Bank is a “financial intermediary” with respect to the Funds, as that term is defined in Appendix A and Rule 22c-2 under the Investment Company Act of 1940 (the “1940 Act”), comply with the additional terms and conditions set forth in Appendix A.

5. Terms and Conditions for Transactions.

   (a)      ‑Price Purchase orders for Fund shares received from Bank will be accepted only at the public offering price and in compliance with procedures applicable to each purchase order as set forth in the then current prospectus and statement of additional information (hereinafter, collectively, “Prospectus”) for the applicable Fund. All purchase orders must be accompanied by payment in U.S. Dollars. Orders payable by check must be drawn payable in U.S. Dollars on a U.S. bank, for the full amount of the investment. All sales are made subject to receipt of shares by FTDI from the Funds. FTDI reserves the right in its discretion, without notice, to suspend the sale of shares or withdraw the offering of shares entirely.

   (b)      ‑Orders and Confirmations Except as otherwise provided, Bank shall not have any authority to act as agent for the Funds, FTDI, or any other dealer in any respect, nor will Bank represent to any third party that it has such authority or is acting in such capacity. All orders are subject to acceptance or rejection by FTDI and by the Fund or its transfer agent at their sole discretion, and become effective only upon confirmation by one of them. Transaction orders shall be made using the procedures and forms provided by FTDI from time to time. Orders will be effected at the price(s) next computed on the day they are received if, as set forth in the applicable Fund’s current Prospectus, the orders are received by FTDI or an agent appointed by FTDI or the Funds prior to the close of trading on the New York Stock Exchange, generally 4:00 p.m. eastern time (“Close of Trading”). Orders received after that time will be effected at the price determined on the next business day. No order will be accepted unless Bank or Customer shall have provided FTDI with Customer’s full name, address and other information normally required by FTDI to open a customer account, and FTDI shall be entitled to rely on the accuracy of the information provided by Bank. A written confirming statement will be sent to the shareholder of record upon settlement of each Transaction.

      ‑If Bank has entered into a FundSERV Agreement with FTDI to effect Transactions in Fund shares through FundSERV, Bank is hereby authorized to act on FTDI’s behalf for the limited purpose of receiving purchase, exchange and redemption orders for Fund shares executed through FundSERV. Bank represents and warrants that all orders for the purchase, exchange or redemption of Fund shares transmitted to FundSERV for processing on or as of a given business day (Day 1) shall have been received by Bank prior to the Close of Trading on Day 1. Such orders shall receive the share price next calculated following the Close of Trading on Day 1. Bank represents and warrants that orders received by Bank after the Close of Trading on Day 1 shall be treated by Bank and transmitted to FundSERV as if received on the next business day (Day 2). Such orders shall receive the share price next calculated following the Close of Trading on Day 2. Bank represents that it has systems in place reasonably designed to prevent orders received after the Close of Trading on Day 1 from being executed with orders received before the Close of Trading on Day 1.

   (c)      ‑Multiple Class Guidelines FTDI may from time to time provide to Bank written compliance guidelines or standards relating to the sale or distribution of Funds offering multiple classes of shares (each, a “Class”) with different sales charges and distribution related operating expenses. Bank will comply with FTDI’s written compliance guidelines and standards, as well as with any applicable rules or regulations of government agencies or self regulatory organizations generally affecting the sale or distribution of investment companies offering multiple classes of shares, whether or not Bank deems itself otherwise subject to such rules or regulations.

   (d)      ‑Payments by Bank for Purchases On the settlement date for each purchase, Bank shall either (i) remit the full purchase price by wire transfer to an account designated by FTDI, or (ii) following FTDI’s procedures, wire the purchase price less the Fee allowed by Paragraph 5(e) of this Agreement. Twice monthly, FTDI will pay Bank Fees not previously paid to or withheld
by Bank. Each calendar month, FTDI, as applicable, will prepare and mail an activity statement summarizing all Transactions.

   (e)      ‑Fees and Payments Where permitted by the Prospectus for a Fund, a charge, concession, or fee (each of the foregoing forms of compensation, a “Fee”) may be paid to Bank, related to services provided by Bank in connection with Transactions in shares of such Fund. The amount of the Fee, if any, is set by the relevant Prospectus. Adjustments in the Fee are available for certain purchases, and Bank is solely responsible for notifying FTDI when any purchase or redemption order is qualified for such an adjustment. If Bank fails to notify FTDI of the applicability of a reduction in the sales charge at the time the trade is placed, neither FTDI nor any of the Funds will be liable for amounts necessary to reimburse any Customer for the reduction which should have been effected.

      ‑In accordance with the Funds’ Prospectuses, FTDI or its affiliates may, but are not obligated to, make payments from their own resources to Bank as compensation for certain sales that are made at net asset value (“Qualifying Sales”). If Bank notifies FTDI of a Qualifying Sale, FTDI may make a contingent advance payment up to the maximum amount available for payment on the sale. If any of the shares purchased in a Qualifying Sale are redeemed or repurchased within twelve (12) months of the month of purchase, FTDI shall be entitled to recover any advance payment attributable to the redeemed or repurchased shares by reducing any account payable or other monetary obligation FTDI may owe to Bank or by making demand upon Bank for repayment in cash. FTDI reserves the right to withhold any one or more advances, if for any reason FTDI believes that FTDI may not be able to recover unearned advances. Termination or suspension of this Agreement does not relieve Bank from the requirements of this paragraph. Bank agrees to waive payment of any amounts of dealer concessions payable to Bank by FTDI until such time as FTDI is in receipt of such dealer concessions.

   (f)      ‑Rule 12b-1 Plans Bank is also invited to participate in all distribution plans (each, a “Plan”) adopted for a Class of a Fund or for a Fund that has only a single Class (each, a “Plan Class”) pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the “1940 Act”).

      ‑To the extent Bank provides administrative and other services, including, but not limited to, furnishing personal and other services and assistance to Customers who own shares of a Plan Class, answering routine inquiries regarding a Fund or Class, assisting in changing account designations and addresses, maintaining such accounts or such other services as a Fund may require, to the extent permitted by applicable statutes, rules, or regulations, FTDI shall pay Bank a Rule 12b-1 servicing fee. To the extent that Bank participates in the distribution of Fund shares that are eligible for a Rule 12b-1 distribution fee, FTDI shall also pay Bank a Rule 12b-1 distribution fee. All Rule 12b-1 servicing and distribution fees shall be based on the value of shares attributable to Customers and eligible for such payment, and shall be calculated on the basis and at the rates set forth in the compensation schedule then in effect for the applicable Plan (the “Schedule”). Without prior approval by a majority of the outstanding shares of a particular Class of a Fund, the aggregate annual fees paid to Bank pursuant to such Plan shall not exceed the amounts stated as the “annual maximums” in such Plan Class’ Prospectus, which amount shall be a specified percent of the value of such Plan Class’ net assets held in Customers’ accounts which are eligible for payment pursuant to this Agreement (determined in the same manner as such Plan Class uses to compute its net assets, as set forth in its effective Prospectus).

      ‑Bank shall furnish FTDI and each Fund that has a Plan Class (each, a “Plan Fund”) with such information as shall reasonably be requested by the Board of Directors, Trustees or Managing General Partners (hereinafter referred to as “Directors”) of such Plan Fund with respect to the fees paid to Bank pursuant to the Schedule of such Plan Fund. FTDI shall furnish to the Directors of the Plan Funds, for their review on a quarterly basis, a written report of the amounts expended under the Plans and the purposes for which such expenditures were made.

      ‑Each Plan and the provisions of any agreement relating to such Plan must be approved annually by a vote of the Directors of the Fund that has such Plan, including such persons who are not interested persons of such Plan Fund and who have no financial interest in such Plan or any related agreement (“Rule 12b-1 Directors”). Each Plan or the provisions of this Agreement relating to such Plan may be terminated at any time by the vote of a majority of Rule 12b-1 Directors of the Fund that has such Plan, or by a vote of a majority of the outstanding shares of the Class that has such Plan on sixty (60) days’ written notice, without payment of any penalty. A Plan or the provisions of this Agreement may also be terminated by any act that terminates the underwriting agreement between FTDI and the Fund that has such Plan, and/or the management or administration agreement between Franklin Advisers, Inc. or Templeton Investment Counsel, LLC or their affiliates and such Plan Fund. In the event of the termination of a Plan for any reason, the provisions of this Agreement relating to such Plan will also terminate.

      ‑Continuation of a Plan and the provisions of this Agreement relating to such Plan are conditioned on Rule 12b-1 Directors being ultimately responsible for selecting and nominating any new Rule 12b-1 Directors. Under Rule 12b-1, Directors of any of the Plan Funds have a duty to request and evaluate, and persons who are party to any agreement related to a Plan have a duty to furnish, such information as may reasonably be necessary to an informed determination of whether the Plan or any agreement should be implemented or continued. Under Rule 12b-1, a Plan Fund is permitted to implement or continue a Plan or the provisions of this Agreement relating to such Plan from year to year only if, based on certain legal considerations, the Board of Directors of such Plan Fund is able to conclude that the Plan will benefit the Plan Class. Absent such yearly determination, a Plan and the provisions of this Agreement relating to such Plan must be terminated as set forth above. In addition, any obligation assumed by a Fund pursuant to this Agreement shall be limited in all cases to the assets of such Fund and no person shall seek satisfaction thereof from shareholders of a Fund. Bank agrees to waive payment of any amounts payable to Bank by FTDI under a Fund’s Plan until such time as FTDI is in receipt of such fee from the Fund.

      ‑In the event of any inconsistency, the provisions of the Plans between the Plan Funds and FTDI shall control over the provisions of this Agreement.

   (g)      ‑Other Distribution Services From time to time, FTDI may offer telephone and other augmented services in connection with Transactions under this Agreement. If Bank uses any such service, Bank will be subject to the procedures applicable to the service, whether or not Bank has executed any agreement required for the service.

   (h)      ‑Conditional Orders; Certificates FTDI will not accept any conditional Transaction orders. Delivery of certificates or confirmations for shares purchased shall be made by a Fund only against constructive receipt of the purchase price, subject to deduction of any Fee and FTDI’s portion of the sales charge, if any, on such sale. No certificates for shares of the Funds will be issued unless specifically requested.

   (i)      ‑Cancellation of Orders If payment for shares purchased is not received within the time customary or the time required by law for such payment, the sale may be canceled without notice or demand, and neither FTDI nor the Fund(s) shall have any responsibility or liability for such a cancellation; alternatively, at FTDI’s option, the unpaid shares may be sold back to the Fund, and Bank shall be liable for any resulting loss to FTDI or to the Fund(s). FTDI shall have no liability for any check or other item returned unpaid to Bank after Bank has paid FTDI on behalf of a purchaser. FTDI may refuse to liquidate the investment unless FTDI receives the purchaser’s signed authorization for the liquidation.

   (j)      ‑Order Corrections Bank shall assume responsibility for any loss to a Fund(s) caused by a correction made subsequent to the trade date, provided such correction was not based on any error, omission or negligence on FTDI’s part, and Bank will immediately pay such loss to the Fund(s) upon notification.

   (k)      ‑Redemptions; Cancellation Redemptions or repurchases of shares will be made at the net asset value of such shares, less any applicable deferred sales or redemption charges, in accordance with the applicable Fund Prospectuses. If Bank sells shares for the account of the record owner to the Fund(s), Bank shall be deemed to represent to FTDI that Bank is doing so as agent for Customer and that Bank is authorized to do so in such capacity. Such sales to the Fund(s) shall be at the redemption or repurchase price then currently in effect for such shares. If on a redemption which Bank has ordered, instructions in proper form, including outstanding certificates, are not received within the time customary or the time required by law, the redemption may be canceled forthwith without any responsibility or liability on the part of FTDI or any Fund, or at the option of FTDI, FTDI may buy the shares redeemed on behalf of the Fund(s), in which latter case, FTDI may hold Bank responsible for any loss to the Fund(s) or loss of profit suffered by FTDI resulting from Bank’s failure to settle the redemption.

   (l)      ‑Exchanges Exchange orders will be effective only for uncertificated shares or for which share certificates have been previously deposited and may be subject to any fees or other restrictions set forth in the applicable Prospectuses. Exchanges from a Fund sold with no sales charge to a Fund which carries a sales charge, and exchanges from a Fund sold with a sales charge to a Fund which carries a higher sales charge may be subject to a sales charge in accordance with the terms of the applicable Fund’s Prospectus. Bank will be obligated to comply with any additional exchange policies described in the applicable Fund’s Prospectus, including without limitation any policy restricting or prohibiting excessive and/or short term trading activity, the collection of redemption fees associated with such trading activity and the prohibition of “market timing,” as defined in the Prospectus.

   (m)      ‑Qualification of Shares Upon request, FTDI shall notify Bank of the states or other jurisdictions in which each Fund’s shares are currently noticed, registered or qualified for offer or sale to the public. FTDI shall have no obligation to make notice filings of, register or qualify, or to maintain notice filings of, registration of or qualification of, Fund shares in any particular state or other jurisdiction. FTDI shall have no responsibility, under the laws regulating the sale of securities in any U.S. or foreign jurisdiction, for the registration, qualification or licensed status of Bank or any of its agents or sub agents in connection with the purchase or sale of Fund shares or for the manner of offering, sale or purchase of Fund shares. Except as stated in this paragraph, FTDI shall not, in any event, be liable or responsible for the issue, form, validity, enforceability and value of such shares or for any matter in connection therewith, and no obligation not expressly assumed by FTDI in this Agreement shall be implied. If it is necessary to file notice, register or qualify shares of any Fund in any country, state or other jurisdiction having authority over the purchase or sale of Fund shares that are purchased by a Customer, it will be Bank’s responsibility to arrange for and to pay the costs of such notice filing, registration or qualification; prior to any such notice filing, registration or qualification, Bank will notify FTDI of its intent and of any limitations that might be imposed on the Funds, and Bank agrees not to proceed with such notice filing, registration or qualification without the written consent of the applicable Fund(s) and of FTDI. Nothing in this Agreement shall be deemed to be a condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision of the Securities Act of 1933, as amended (the “1933 Act”), the 1934 Act, the 1940 Act, the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”), or any applicable laws or regulations of any government or authorized agency in the U.S. or any other country having jurisdiction over the offer or sale of shares of the Funds, or to relieve the parties hereto from any liability arising under such laws, rules or regulations.

   (n)      ‑Indemnification Bank agrees to indemnify, and hold harmless FTDI, and the Funds, as well as FTDI’s and the Funds’ respective officers, directors and employees (collectively “Indemnitees”), from any and all actual or alleged losses, claims, liabilities and expenses (including reasonable attorneys’ fees and expenses) (collectively, “Losses”) arising from or as the result of (1) any actual or alleged violation of any statute or regulation (including without limitation U.S. and state securities laws and regulations and consumer protection laws, as well as the laws of any foreign country where Bank offers or sells shares of the Funds) and/or any actual and/or alleged violation of common law (including without limitation all tort and/or contract claims), which in any way relate to any offer, sale, redemption, transfer or exchange of shares of the Funds (including any actual and/or alleged mishandling of the Transaction and/or misappropriation of the proceeds in connection therewith) by Bank and/or by or through any of Bank’s registered representatives, agents, independent contractors and/or employees; (2) the breach by Bank or any of Bank’s registered representatives, agents, independent contractors and/or employees of any of the terms and conditions of this Agreement; and/or (3) any use of, including unauthorized access obtained through Bank, of the Sites by Bank or Bank’s officers, directors, employees or agents; provided, however, that an Indemnitee shall not be entitled to indemnification hereunder to the extent the actual and proximate cause of any such Losses is attributed to such Indemnitee’s own negligence, willful misconduct or breach of this Agreement.

      ‑In addition, Bank agrees that in the event that Indemnitees are named in any legal proceedings (including, but not limited to, lawsuits filed in court and statements of claim filed in an arbitration forum) which involve claims and/or liabilities that are the subject of this indemnification agreement, FTDI and the Funds may, following notice to Bank, retain attorneys of FTDI’s choice to represent FTDI and/or the Funds in such legal proceedings at Bank’s expense, and Bank will promptly reimburse FTDI and/or the Funds for the attorneys’ fees and expenses incurred in connection with the defense of any such legal proceedings. This Paragraph 5(n) shall survive the termination of this Agreement.

   (o)      ‑Prospectus and Sales Materials; Limit on Advertising Bank is not authorized to give any information or make any representations concerning shares of a Fund except those contained in the Fund’s then current Prospectus, Summary Prospectus, Statement of Additional Information or in other materials produced by FTDI or by the Fund nor may Bank present or create any information or materials that are contrary to or inconsistent with the materials so provided to Bank. FTDI will supply reasonable quantities of, and/or reasonable electronic access to, Prospectuses (and/or any applicable Summary Prospectuses), sales or other marketing materials, and additional information as issued by the Fund or by FTDI. FTDI will not be responsible for reimbursing Bank for any costs or expenses Bank may incur for accessing or printing such materials. Bank is not authorized to modify or translate any materials FTDI has provided to Bank.

      ‑Bank agrees, represents and warrants that it is solely responsible for any materials prepared by Bank that are based upon information concerning shares of a Fund produced by FTDI or the Fund and that such materials will (a) conform to all requirements of any applicable laws or regulations of any government or authorized agency in the U.S. or any other country having jurisdiction over the offering or sale of shares of the Funds, (b) not be contrary to or inconsistent with the information or materials provided to Bank by FTDI or a Fund, and (c) be made available to FTDI upon request. Bank agrees to file any advertising or sales material relating to the Funds prepared by Bank with any applicable legal or regulatory authority, within the timeframes that may be required from time to time by such legal or regulatory authority. Unless otherwise expressly agreed to in writing, it is understood that FTDI will neither review nor approve for use any materials prepared by Bank and will have no involvement in the preparation of, or responsibility for, any such materials prepared by Bank. Notwithstanding the above, Bank may not use the Franklin Templeton Investments name or logo in materials prepared by Bank without FTDI’s prior written consent.

   (p)      ‑Customer Information Each party to this Agreement agrees to limit the disclosure of non-public personal information of shareholders and customers consistent with its policies on privacy with respect to such information and Regulation S-P of the SEC. Each party hereby agrees that it will comply with all applicable requirements under the regulations implementing Title V of the Gramm-Leach-Bliley Act and any other applicable federal and state consumer privacy acts, rules and regulations. Each party further represents that it has in place, and agrees that it will maintain, information security policies and procedures for protecting nonpublic personal customer information adequate to conform to applicable legal requirements.

   (q)      ‑Use of Site Each of Bank’s representatives, agents, independent contractors and employees will have access to the Sites as provided herein, (a) upon registration by such individual on a Site (including providing certain data and codes identifying Bank), (b) if Bank causes an MOS Site Access Request Form (an “Access Form”) to be signed by Bank’s authorized supervisory personnel and submitted to FTDI, as a Schedule to, and legally a part of, this Agreement, or (c) if Bank provides such individual with the necessary access codes or other information necessary to access the Sites through any generic or firm-wide authorization FTDI may grant Bank from time to time. Upon receipt by FTDI of a completed registration submitted by an individual through the Sites or a signed Access Form referencing such individual, FTDI shall be entitled to rely upon the representations contained therein as if Bank had made them directly hereunder and FTDI will issue a user identification, express number and/or password (collectively, “Access Code”). Any person to whom FTDI issues an Access Code or to whom Bank provides the necessary Access Codes or other information necessary to access the Sites through any generic or firm-wide authorization FTDI may grant Bank from time to time shall be an “Authorized User.” FTDI shall be entitled to assume that such person validly represents Bank and that all instructions received from such person are authorized, in which case such person will have access to the Site, including all services and information to which Bank is authorized to access on the Site. All inquiries and Transactions initiated by Bank (including Bank’s Authorized Users) are Bank’s responsibility, are at Bank’s risk and are subject to FTDI’s review and approval (which could cause a delay in processing). Bank agrees that FTDI does not have a duty to question information or instructions Bank (including Authorized Users) gives to FTDI under this Agreement, and that FTDI is entitled to treat as authorized, and act upon, any such instructions and information Bank submits to FTDI. Bank agrees to take all reasonable measures to prevent any individual other than an Authorized User from obtaining access to the Site. Bank agrees to inform FTDI if Bank wishes to restrict or revoke the access of any individual Access Code. If Bank becomes aware of any loss or theft or unauthorized use of any Access Code, Bank agrees to contact FTDI immediately. Bank also agrees to monitor its (including Authorized Users’) use of the Site to ensure the terms of this Agreement are followed. Bank acknowledges that the Sites are transmitted over the Internet on a reasonable efforts basis and FTDI does not warrant or guarantee their accuracy, timeliness, completeness, reliability or non-infringement. Moreover, Bank acknowledges that the Sites are provided for informational purposes only, and are not intended to comply with any requirements established by any regulatory or governmental agency.

   (r)      ‑Anti-Money Laundering Each party to this Agreement acknowledges that it is a financial institution subject to the USA PATRIOT Act of 2001, the Bank Secrecy Act and their corresponding implementing regulations (collectively, the “AML Laws”), which require, among other things, that financial institutions adopt compliance programs to guard against money laundering. Each party represents and warrants that it has established policies and procedures reasonably designed to detect and prevent money laundering and to comply with the AML Laws, in all relevant aspects. Each party agrees that it will take such further steps and cooperate with the other party as may be reasonably necessary to facilitate compliance with the AML Laws. Each party also certifies that it complies with the economic sanction programs administered by the U.S. Treasury’s Office of Foreign Assets Control.

6. Continuously Offered Closed-End Funds. This Paragraph 6 relates solely to shares of Funds that represent a beneficial interest in shares that are issued by a Fund that is a closed end investment company registered under the 1940 Act that makes a continuous offering of it shares, for which FTDI or an affiliate of FTDI serves as principal underwriter and that periodically repurchases its shares (each, a “Trust”). Shares of a Trust being offered to the public will be registered under the 1933 Act and are expected to be offered during an offering period that may continue indefinitely (“Continuous Offering Period”). There is no guarantee that such a continuous offering will be maintained by the Trust. The Continuous Offering Period, shares of a Trust and certain of the terms on which such shares are being offered are more fully described in the Prospectus of the Trust.

As set forth in a Trust’s then current Prospectus, FTDI shall provide Bank with appropriate compensation for purchases of shares of the Trust made by Bank for the account of Customers or by Customers. In addition, Bank may be entitled to a fee for servicing Customers who are shareholders in a Trust, subject to applicable law. Bank agrees that any repurchases of shares of a Trust that were originally purchased as Qualifying Sales shall be subject to Paragraph 5(e) hereof.

Bank expressly acknowledges and understands that, notwithstanding anything to the contrary in this Agreement:

   (a)      ‑No Trust has a Rule-12b 1 Plan and in no event will a Trust pay, or have any obligation to pay, any compensation directly or indirectly to Bank.

   (b)      ‑Shares of a Trust will not be repurchased by either the Trust (other than through repurchase offers by the Trust from time to time, if any) or by FTDI and no secondary market for such shares exists currently, or is expected to develop. Any representation as to a repurchase or tender offer by the Trust, other than that set forth in the Trust’s then current Prospectus, notification letters, reports or other related material provided by the Trust, is expressly prohibited.

   (c)      ‑An early withdrawal charge payable by shareholders of a Trust to FTDI may be imposed on shares accepted for repurchase by the Trust that have been held for less than a stated period, as set forth in the Trust’s then current Prospectus.

   (d)      ‑In the event a Customer cancels his or her order for shares of a Trust after confirmation, such shares will not be repurchased, remarketed or otherwise disposed of by or through FTDI.

7. General.

   (a)      ‑Successors and Assignments This Agreement shall extend to and be binding upon the parties hereto and their respective successors and assigns; provided that this Agreement will terminate automatically in the event of its assignment by FTDI. For purposes of the preceding sentence, the word “assignment” shall have the meaning given to it in the 1940 Act. Bank may not assign this Agreement without the advance written consent of FTDI.

   (b)      ‑Paragraph Headings The paragraph headings of this Agreement are for convenience only, and shall not be deemed to define, limit, or describe the scope or intent of this Agreement.

   (c)      ‑Severability Should any provision of this Agreement be determined to be invalid or unenforceable under any law, rule, or regulation, that determination shall not affect the validity or enforceability of any other provision of this Agreement.

   (d)      ‑Waivers There shall be no waiver of any provision of this Agreement except a written waiver signed by Bank and FTDI. No written waiver shall be deemed a continuing waiver or a waiver of any other provision, unless such written waiver expresses such intention.

   (e)      ‑Sole Agreement This Agreement is the entire agreement of Bank and FTDI and supersedes all oral negotiations and prior writings, including any prior bank selling agreements.

   (f)      ‑Governing Law This Agreement shall be construed in accordance with the laws of the State of California, not including any provision which would require the general application of the law of another jurisdiction, and shall be binding upon the parties hereto when signed by FTDI and accepted by Bank, either by Bank’s signature in the space provided below or by Bank’s first trade entered after receipt of this Agreement.

   (g)      ‑Setoff; Arbitration Should Bank owe any sum of money to FTDI under or in relation to this Agreement for the purchase, sale, redemption or repurchase of any Fund shares, FTDI may offset and recover the amount owed by Bank to FTDI or the Funds from any amount owed by FTDI to Bank or from any other account Bank has with FTDI, without notice or demand to Bank. Either party may submit any dispute under this Agreement to binding arbitration under the commercial arbitration rules of the American Arbitration Association. Judgment upon any arbitration award may be entered by any court having jurisdiction.

   (h)      ‑Amendments FTDI may amend this Agreement at any time by depositing a written notice of the amendment in the U.S. mail, first class postage pre paid, addressed to Bank’s address given below (or such other address as specified in writing by Bank). Bank’s placement of any Transaction order for shares of a Fund or acceptance of any payments after the effective date and receipt of notice of any such amendment shall constitute Bank’s acceptance of the amendment. Notwithstanding the foregoing, the Site Terms may be separately amended as provided therein and as so amended and in effect from time to time shall be a part of this Agreement.

   (i)      ‑Term and Termination This Agreement shall continue in effect until terminated and shall terminate automatically in the event that Bank ceases to be a “bank” as set forth in paragraph 2(a) of this Agreement. FTDI or Bank may terminate this Agreement at any time by written notice to the other, but such termination shall not affect the payment or repayment of Fees on Transactions prior to the termination date. Termination also will not affect the indemnities given under this Agreement.

   (j)      ‑Acceptance; Cumulative Effect This Agreement is cumulative and supersedes any similar agreement previously in effect. It shall be binding upon the parties hereto when signed by FTDI and accepted by Bank. If Bank has a current selling agreement with FTDI, Bank’s first trade or acceptance of payments from FTDI after receipt of this Agreement, as it may be amended pursuant to paragraph 7(h), above, shall constitute Bank’s acceptance of the terms of this Agreement.

Otherwise, Bank’s signature below shall constitute Bank’s acceptance of these terms.

FRANKLIN TEMPLETON DISTRIBUTORS, INC.

By _______________________________________

   Peter D. Jones, President

One Franklin Parkway
San Mateo, CA 94403-1906
Attention: Chief Legal Officer (for legal notices only)
(650) 312-2000

100 Fountain Parkway
St. Petersburg, Florida 33716-1205
(727) 299-8712

To the Bank or Trust Company: If you have not previously signed an agreement with FTDI for the sale of mutual fund shares to your
customers, please complete and sign this section and return the original to us.

BANK or TRUST COMPANY:

Bank’s Name

                                                 Date

By:

   (Signature)

Name                                             Title

Appendix A - Additional Terms and Conditions Regarding Rule 22c-2

To the extent Bank is a “financial intermediary” with respect to the Funds, Bank agrees as follows:

1.1 Agreement to Provide Information. Bank agrees to provide Distributors, upon written request, the taxpayer identification number (“TIN”) of any or all Shareholder(s) of the account and the amount, date, name or other identifier of any investment professional(s) associated with the Shareholder(s) or account (if known), and transaction type (purchase, redemption, transfer, or exchange) of every purchase, redemption, transfer, or exchange of Fund Shares held through an account maintained by Bank during the period covered by the request.

‑1.1.1 Period Covered by Request. Requests must set forth a specific period, not to exceed ninety (90) days from the date of the request, for which transaction information is sought. Distributors may request transaction information older than ninety (90) days from the date of the request as it deems necessary to investigate compliance with policies established by it for the purpose of eliminating or reducing any dilution of the value of the outstanding Shares issued by the Funds.

‑1.1.2 Form and timing of Response. Bank agrees to transmit the requested information that is on Bank’s books and records to Distributors or its designee promptly, but in any event not later than five (5) business days, after receipt of a request. If the requested information is not on Bank’s books and records, Bank agrees to: (i) provide or arrange to provide Distributors or its designee the requested information regarding Shareholders who hold an account with an indirect intermediary; or (ii) prohibit further purchases of Fund Shares by such indirect intermediary on behalf of itself or other persons. Responses required by this paragraph must be communicated in writing and in a format mutually agreed upon by the parties. To the extent practicable, the format for any transaction information provided to Distributors should be consistent with the NSCC Standardized Data Reporting Format.

‑1.1.3 Limitations on Use of Information. Distributors agrees not to use the information received for marketing or any other similar purpose without Bank’s prior written consent.

1.2 Agreement to Restrict Trading. Bank agrees to execute written instructions from Distributors or its designee to restrict or prohibit further purchases or exchanges of Shares by a Shareholder who has been identified by Distributors or its designee as having engaged in transactions in Shares (directly or indirectly through an account established by Bank) that violate policies established by the Funds for the purpose of eliminating
or reducing any dilution of the value of the outstanding Shares issued by the Funds.

‑1.2.1 Form of Instructions. Instructions must include the TIN and the specific restriction(s) to be executed. If the TIN is not known, the instructions must include an equivalent identifying number of the Shareholder(s) or account(s) or other agreed upon information to which the instruction relates.

‑1.2.2 Timing of Response. Bank agrees to execute instructions as soon as reasonably practicable, but not later than five (5) business days after Bank’s receipt of the instructions.

‑1.2.3 Confirmation. Bank must provide written confirmation to Distributors or its designee that instructions have been executed. Bank agrees to provide confirmation as soon as reasonably practicable, but not later than ten (10) business days after the instructions have been executed.

1.3 Excepted Funds. These terms and conditions shall not apply to any “Excepted Fund” as defined in Section 1.4.

1.4 Definitions.

“Distributors” means Franklin Templeton Distributors, Inc.

“Funds” or a “Fund” means certain registered investment companies, and separate series of such companies, for which Distributors serves as the principal underwriter.

“Financial Intermediary” means:

   (i)‑any broker, dealer, bank, or other person that holds securities issued by a Fund, in nominee name;

‑(ii)‑a unit investment trust or fund that invests in a Fund in reliance on section 12(d)(l)(E) of the 1940 Act (15 U.S.C. 80a-12(d)(l)(E)); and

‑(iii)‑in the case of a participant-directed employee benefit plan that owns the securities issued by a Fund, a retirement plan’s administrator under section 3(16)(A) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002 (16)(A)) or any person that maintains the plan’s participant records.

‑Notwithstanding the above, “financial intermediary” does not include any person that the Fund treats as an individual investor with respect to the Fund’s policies established for the purpose of eliminating or reducing any dilution of the value of the outstanding securities issued by the Fund.

“Excepted Fund” means:

‑(i)‑any Fund that is regulated as a money market fund under Rule 2a-7 under the 1940 Act;

‑(ii)‑any Fund that issues securities that are listed on a national securities exchange; and

‑(iii)‑any Fund that affirmatively permits short-term trading of its securities, if its prospectus clearly and prominently discloses that the Fund permits short-term trading of its securities and that such trading may result in additional costs for the Fund.

“Shareholder” means:

‑(i)‑a beneficial owner of securities held in nominee name;

‑(ii)‑a participant in a participant-directed employee benefit plan;

‑(iii)‑a holder of interests in a fund or unit investment trust that has invested in a Fund in reliance on section 12(d)(l)(E) of the 1940 Act; and

‑(iv)‑a holder of interests in a variable annuity or variable life insurance contract issued by a financial intermediary and for which one or more Funds serve as underlying investments.

‑“Shareholder” does not include a fund investing pursuant to section 12(d)(l)(G) of the 1940 Act, a trust established pursuant to section 529 of the Internal Revenue Code (26 U.S.C. 529), or a holder of an interest in such a trust.

“Shares” means the interests of Fund Shareholders corresponding to the redeemable securities of record issued by the Fund under the 1940 Act that are held by a financial intermediary.

EX-99.H OTH MAT CONT

Special Servicing Agreement

THIS AGREEMENT is dated and effective as of May 1, 2009, and is between and among the “Underlying Funds,” the “Top-Tier Funds” and the “Service Providers,” as each is defined below.  This Agreement sets forth the principles and arrangements whereby the Underlying Funds will bear some or all of the Operating Expenses, as defined below, of the Top-Tier Funds.

Section 1.The Funds.  The term “Funds” refers collectively to the Top-Tier Funds and the Underlying Funds, each of which is an open-end management investment company registered under the Investment Company Act of 1940 (the “1940 Act”) or a separate series thereof.

A.The term “Top-Tier Fund” refers to each “fund of funds” listed on Annex I, as it may be amended from time to time.  Each “Top-Tier Fund” invests its assets in two or more Underlying Funds, as well as such other assets as may be permitted by Section 12(d)(1)(G) of the 1940 Act, the rules thereunder or any exemptive orders relating thereto.

B.Underlying Funds.  The term “Underlying Fund” refers to each of the Funds in which the Top-Tier Funds may invest and listed on Annex II, as it may be amended from time to time.  Each “Underlying Fund” invests its assets in individual portfolio securities in accordance with specified investment objectives, policies and restrictions.

C.Additional Top-Tier Funds and Underlying Funds may be added as parties to this Agreement by adding their names to Annex I or Annex II, as applicable, and subject to their execution and delivery of a counterpart copy of this Agreement to reflect agreement to the terms hereof.

D.Each Top-Tier Fund and certain Underlying Funds currently offer multiple classes of shares which are issued and bear expenses in accordance with Rule 18f-3 under the 1940 Act.

Section 2.The Service Providers.  The term “Service Providers” refers to the distributor of shares of the Funds, Frankin/Templeton Distributors, Inc., to the fund administrator to the Funds, Franklin Templeton Services LLC, for a Fund that has no investment adviser, and to each investment adviser to the other Funds, namely: Franklin Advisers, Inc., Franklin Templeton Institutional, LLC, Franklin Templeton Investments Corp,. Franklin Investment Advisory Services, LLC, Franklin Advisory Services, LLC, Franklin Mutual Advisers, LLC, Templeton Asset Management Ltd., Templeton Global Advisors Limited, Templeton Investment Counsel, LLC and Franklin Templeton Investment Management Limited.  Any additional Service Provider may be added to this Agreement upon the execution and delivery of a counterparty copy of this Agreement by such Service Provider to reflect its agreement to the terms hereof.

Section 3.Principal Purposes and Anticipated Benefits of Top-Tier Funds

A.The Top-Tier Funds have been designed to satisfy the demand of investors for a simple and cost-effective means of obtaining professional investment allocation of their assets among a diversified group of Funds.

B.The amount of the benefits realized or expected to be realized by an Underlying Fund from the investment in the Underlying Fund by a Top-Tier Fund (“Underlying Fund Benefits”) are expected to result primarily from the incremental increase in assets resulting from investments in the Underlying Fund by the Top-Tier Fund, and the large asset size of each shareholder account that represents an investment by a Top-Tier Fund relative to other shareholder accounts.  A shareholder account that represents a Top-Tier Fund should experience fewer shareholder transactions and greater predictability of transaction activity than other shareholder accounts.  As a result, the shareholder servicing costs to any Underlying Fund for servicing one account registered to a Top-Tier Fund will be significantly less than the cost to that same Underlying Fund of servicing the same pool of assets contributed by a large group of shareholders owning relatively small accounts in one or more Underlying Funds.  In addition, by reducing Top-Tier Fund expenses, the arrangement effected by this Agreement may lead to increased assets being invested in the Top-Tier Funds, which in turn would lead to increased assets being invested in the Underlying Funds, which could enable the Underlying Funds to control and reduce their expense ratios because their operating expenses will be spread over a larger asset base.

Section 4.Expenses of Top-Tier Funds.

The Top-Tier Funds incur, or may incur, four types of expenses:

i.“Operating Expenses,” which are defined for purposes of this Agreement as all Top-Tier Fund expenses, except those described in (ii), (iii) and (iv) below, and include Securities and Exchange Commission (“SEC”) and state securities registration fees; fund accounting fees and expenses; printing and postage costs for prospectuses to existing shareholders and periodic reports; costs of legal, audit and custody services; insurance; directors’/trustees’ fees; and other miscellaneous expenses.

ii.Management, advisory or asset allocation fees.

iii.Extraordinary Expenses which include: the fees and costs of actions, suits or proceedings and any penalties, damages or payments in settlement in connection therewith, which a Top-Tier Fund may incur directly, or may incur as a result of its legal obligation to provide indemnification to its officers, directors/trustees and agents; the fees and costs of any governmental investigation and any fines or penalties in connection therewith; and any federal, state or local tax, or related interest penalties or additions to tax, incurred, for example, as a result of a Top-Tier Fund’s failure to distribute all of its earnings, failure to qualify under subchapter M of the Internal Revenue

Code of 1986, as amended, or failure to file in a timely manner any required tax returns or other filings. 

iv.Distribution or shareholder services (Rule 12b-1) fees and/or class-specific administrative services fees.

Section 5.Agreement by Underlying Funds to Bear Operating Expenses of Top-Tier Funds.

A.Subject to the conditions and limitations set forth in Paragraphs B, C, D and E of this Section 5, each Underlying Fund agrees to bear the Operating Expenses of its respective Top-Tier Funds in proportion to the average daily value of shares of such Underlying Fund owned by each respective Top-Tier Fund.  To the extent that Underlying Fund Payments (as described below) are treated, in whole or in part, as a class-based expense of an Underlying Fund, or are used to pay a class-based expense of a Top-Tier Fund, the conditions and limitations in Paragraphs B, C, D and E must be met with respect to each class of a Fund as well as the Fund as a whole.

B.No Underlying Fund will, under this Agreement, reimburse transfer agent expenses of a Top-Tier Fund, including sub-accounting expenses and other out-of-pocket expenses, at a rate in excess of the average per account transfer agent expenses of the Underlying Fund, including sub-accounting expenses and other out-of-pocket expenses, expressed as a basis point charge (for purposes of calculating the Underlying Fund’s average per account transfer agent expense, the Top-Tier Funds’ investments in the Underlying Fund will be excluded).

C.The total amount of Operating Expenses of a Top-Tier Fund that may be paid by an Underlying Fund (“Underlying Fund Payments”) cannot exceed the amount of the respective Underlying Fund’s Underlying Fund Benefits.

D.The total amount of Underlying Fund Payments to a Top-Tier Fund may not exceed the amount of actual Operating Expenses incurred by the Top-Tier Fund.

E.No affiliated person of a Top-Tier Fund, or affiliated person of such affiliated person, will receive, directly or indirectly, any portion of the Underlying Fund Payments, except for bona fide transfer agent services approved by the board of directors/trustees (the “Board”) of the Underlying Fund, including a majority of directors/trustees of the Fund who are not “interested persons,” as defined in section 2(a)(19) of the 1940 Act (the “Independent Directors”).

Section 6.Board Approval.

A.Prior to a Fund’s entering into this Agreement, the Board, including a majority of the Independent Directors, must determine that the Agreement is in the best interests of the Fund and its shareholders and does not involving overreaching on the part of any person concerned.

B.In approving the Agreement, the Board of an Underlying Fund must consider, without limitation:

i.The reasons for the Underlying Fund’s entering into the Agreement;

ii.Information quantifying the Underlying Fund Benefits;

iii.The extent to which investors in the Top-Tier Fund could have purchased shares of the Underlying Fund;

iv.The extent to which an investment in the Top-Tier Fund represents or would represent a consolidation of accounts in the Underlying Funds, through exchanges or otherwise, or a reduction in the rate of increase in the number of accounts in the Underlying Funds;

v.The extent to which the expense ratio of the Underlying Fund was reduced following investment in the Underlying Fund by the Top-Tier Fund and the reasonably foreseeable effects of the investment by the Top-Tier Fund on the Underlying Fund’s expense ratio;

vi.The reasonably foreseeable effects of participation in this Agreement on the Underlying Fund’s expense ratio; and

vii.Any conflicts of interest that the Service Providers, any affiliated person of the Service Providers, or any other affiliated person of the Underlying Fund may have relating to the Underlying Fund’s participation in this Agreement.

C.Prior to approving this Agreement on behalf of an Underlying Fund, the Board of the Underlying Fund, including a majority of the Independent Directors, must determine that:

i.the Underlying Fund Payments under this Agreement are expenses that the Underlying Fund would have incurred if the shareholders of the Top-Tier Fund had instead purchased shares of the Underlying Fund through the same broker-dealer or other financial intermediary;

ii.the amount of the Underlying Fund Payments is less than the amount of Underlying Fund Benefits; and

iii.by entering into this Agreement, the Underlying Fund is not engaging, directly or indirectly, in financing any activity which is primarily intended to result in the sale of shares issued by the Underlying Fund.

D.To the extent Underlying Fund Payments are treated, in whole or in part, as a class expense of an Underlying Fund, or are used to pay a class-based expense of a Top-Tier Fund, the requirements of this Section 6 must be met with respect to each class of a Fund as well as the Fund as a whole.

E.In approving this Agreement, the Board of a Fund must request and evaluate, and the Service Providers agree to furnish, such information as may reasonably be necessary

to evaluate the terms of this Agreement and make the determinations set forth above in this Section 6.

F.Approval by a Fund’s Board, including a majority of the Independent Directors, in accordance with this Section 6, will be required at least annually after the Fund’s entering into this Agreement and prior to any material amendment of this Agreement.

G.Each Fund will maintain and preserve the Board’s findings and determinations set forth in paragraphs (A) and (C) above, and the information and considerations on which they were based, for the duration of this Agreement, and for a period not less than six years thereafter, the first two years in an easily accessible place.

Section 7.Termination.  This Agreement may be terminated as to any Fund by the vote by a majority of the Board of that Fund, or by a majority of the Independent Directors of that Fund.  Any such termination shall become effective 90 days after the relevant vote to terminate.

Section 8.Entire Agreement.  This Agreement constitutes the entire agreement of the parties and supersedes all prior agreements, arrangements and understandings, whether written or oral, with respect to the subject matter hereof; provided that in the event of any inconsistency between the terms of this Agreement and the order received by the Funds from the SEC pursuant to section 17(d) of the 1940 Act and Rule 17d-1 to permit the arrangements described in this Agreement, as such order may be amended or supplemented (the “Order”), the terms of the Order shall control.

Section 9.Severability.  The obligations of each of the Funds hereunder is severable from that of the other Funds, and no Underlying Fund shall be responsible for any Underlying Fund Payments of any other Underlying Fund.

Section 10.Governing Law.  This Agreement shall be governed by the laws of the State of California without giving effect to any choice of law principles; provided, that to the extent that California law conflicts with the 1940 Act, the provisions of the 1940 Act shall control.

Section 11.Limitation of Liability.  Notwithstanding anything to the contrary contained in this Agreement, the parties hereto acknowledge and agree that, as provided in the Declaration of Trust of a Fund that is organized as a Massachusetts business trust, this Agreement is executed by the trustees and/or officers of the Fund, not individually but as such trustees and/or officers of the Fund, and the obligations hereunder are not binding upon any of the trustees or shareholders individually but bind only the estate of the Fund.

Franklin Templeton Fund Allocator Series

By:/s/STEVEN J. GRAY
Steven J. Gray, Vice President

Franklin Capital Growth Fund

By:/s/STEVEN J. GRAY
Steven J. Gray, Vice President

Franklin Gold and Precious Metals Fund

By:/s/STEVEN J. GRAY
Steven J. Gray, Vice President

Franklin Custodian Funds

By:/s/STEVEN J. GRAY
Steven J. Gray, Vice President

Franklin Value Investors Trust

By:/s/STEVEN J. GRAY
Steven J. Gray, Vice President

Franklin Mutual Series Funds

By:/s/STEVEN J. GRAY
Steven J. Gray, Vice President

Templeton China World Fund

By:/s/STEVEN J. GRAY
Steven J. Gray, Vice President

Templeton Developing Markets Trust

By:/s/STEVEN J. GRAY
Steven J. Gray, Vice President

Templeton Funds

By:/s/STEVEN J. GRAY
Steven J. Gray, Vice President

Franklin Templeton International Trust

By:/s/STEVEN J. GRAY
Steven J. Gray, Vice President

Templeton Global Smaller Companies Fund

By:/s/STEVEN J. GRAY
Steven J. Gray, Vice President

Franklin High Income Trust

By:/s/STEVEN J. GRAY
Steven J. Gray, Vice President

Franklin Investors Securities Trust

By:/s/STEVEN J. GRAY
Steven J. Gray, Vice President

Franklin Real Estate Securities Trust

By:/s/STEVEN J. GRAY
Steven J. Gray, Vice President

Franklin Strategic Series

By:/s/STEVEN J. GRAY
Steven J. Gray, Vice President

Franklin Strategic Mortgage Portfolio

By:/s/STEVEN J. GRAY
Steven J. Gray, Vice President

Franklin Templeton Global Trust

By:/s/STEVEN J. GRAY
Steven J. Gray, Vice President

Templeton Income Trust

By:/s/STEVEN J. GRAY
Steven J. Gray, Vice President

Franklin Global Trust

By:/s/STEVEN J. GRAY
Steven J. Gray, Vice President

Templeton Growth Fund, Inc.

By:/s/STEVEN J. GRAY
Steven J. Gray, Vice President

Institutional Fiduciary Trust

By:/s/STEVEN J. GRAY
Steven J. Gray, Vice President

Franklin Advisers, Inc.

By:/s/MARIA GRAY
Maria Gray, Secretary

Franklin Templeton Institutional, LLC

By:/s/MARIA GRAY
Maria Gray, Secretary

Franklin Templeton Investments Corp.

By:/s/BRAD G. BEUTTENMILLER
Brad G. Beuttenmiller, Corporate Secretary

By:/s/DENNIES TEW
Dennies Tew, Senior Vice President &

Chief Financial Investors

Franklin Investment Advisory Services, LLC

By:/s/MARIA GRAY
Maria Gray, Secretary

Franklin Advisory Services, LLC

By:/s/MARIA GRAY
Maria Gray, Secretary

Franklin Mutual Advisers, LLC

By:/s/MARIA GRAY
Maria Gray, Secretary

Templeton Asset Management Ltd.

By:/s/GREGORY E. MCGOWAN
Gregory E. McGowan, Director

Templeton Global Advisors Limited

By:/s/GREGORY E. MCGOWAN
Gregory E. McGowan, Executive Vice President

Templeton Investment Counsel, LLC

By:/s/ROBERT C. ROSSELOT
Robert C. Rosselot, Vice President & Secretary

Franklin Templeton Investment Management Limited

By:/s/SARA A. MACINTOSH
Sara A. MacIntosh, Company Secretary

Franklin Templeton Services LLC

By:/s/MARIA GRAY
Maria Gray, Secretary

Franklin/Templeton Distributors, Inc.

By:/s/MARIA GRAY
Maria Gray, Secretary

ANNEX I

Top-Tier Funds

Registrant	Series
Franklin Templeton Fund Allocator Series	Franklin Templeton Conservative Target Fund
	Franklin Templeton Corefolio Allocation Fund
	Franklin Templeton Founding Funds Allocation Fund
	Franklin Templeton Growth Target Fund
	Franklin Templeton Moderate Target Fund
	Franklin Templeton Perspectives Allocation Fund
	Franklin Templeton 2015 Retirement Target Fund
	Franklin Templeton 2025 Retirement Target Fund
	Franklin Templeton 2035 Retirement Target Fund
	Franklin Templeton 2045 Retirement Target Fund

ANNEX II

Underlying Funds

Registrant	Series
Franklin Capital Growth Fund	N/A
Franklin Gold and Precious Metals Fund	N/A
Franklin Custodian Funds	Franklin Growth Fund
	Franklin Income Fund
	Franklin U.S. Government Securities Fund
Franklin Value Investors Trust	Franklin MicroCap Value Fund
	Franklin Small Cap Value Fund
Franklin Mutual Series Funds	Mutual Global Discovery Fund
	Mutual European Fund
	Mutual Financial Services Fund
	Mutual Shares Fund
Templeton China World Fund	N/A
Templeton Developing Markets Trust	N/A
Templeton Funds	Templeton Foreign Fund
Franklin Templeton International Trust	Templeton Foreign Smaller Companies Fund
	Templeton Global Long-Short Fund
Templeton Global Smaller Companies Fund	N/A
Franklin High Income Trust	Franklin High Income Fund
Franklin Investors Securities Trust	Franklin Floating Rate Daily Access Fund
	Franklin Limited Maturity U.S. Government Securities Fund
	Franklin Total Return Fund
Franklin Real Estate Securities Trust	Franklin Real Estate Securities Fund
Franklin Strategic Series	Franklin Growth Opportunities Fund
	Franklin Flex Cap Growth Fund
	Franklin Natural Resources Fund
	Franklin Small Cap Growth Fund
	Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio	N/A
Franklin Templeton Global Trust	Franklin Templeton Hard Currency Fund
Templeton Income Trust	Templeton Global Bond Fund
Franklin Global Trust	Franklin Global Real Estate Fund
Templeton Growth Fund, Inc.	N/A
Institutional Fiduciary Trust	Money Market Portfolio

EX-99.H OTH MAT CONT

ANNEX I

Top-Tier Funds

Registrant	Series
Franklin Templeton Fund Allocator Series	Franklin Templeton Conservative Allocation Fund
	Franklin Templeton Corefolio Allocation Fund
	Franklin Templeton Founding Funds Allocation Fund
	Franklin Templeton Growth Allocation Fund
	Franklin Templeton Moderate Allocation Fund
	Franklin Templeton 2015 Retirement Target Fund
	Franklin Templeton 2025 Retirement Target Fund
	Franklin Templeton 2035 Retirement Target Fund
	Franklin Templeton 2045 Retirement Target Fund

Revised as of September15, 2010

EX-99.H OTH MAT CONT

ANNEX II

Underlying Funds

Registrant	Series
Franklin Gold and Precious Metals Fund	N/A
Franklin Custodian Funds	Franklin Dynatech Fund
	Franklin Growth Fund
	Franklin Income Fund
	Franklin U.S. Government Securities Fund
	Franklin Utilities Fund
Franklin Value Investors Trust	Franklin Balance Sheet Investment Fund
	Franklin MicroCap Value Fund
	Franklin Small Cap Value Fund
Franklin Mutual Series Funds	Mutual Global Discovery Fund
	Mutual European Fund
	Mutual Financial Services Fund
	Mutual Shares Fund
Templeton China World Fund	N/A
Templeton Developing Markets Trust	N/A
Templeton Funds	Templeton Foreign Fund
Templeton Global Smaller Companies Fund	N/A
Franklin High Income Trust	Franklin High Income Fund
Franklin Investors Securities Trust	Franklin Floating Rate Daily Access Fund
	Franklin Limited Maturity U.S. Government Securities Fund
	Franklin Total Return Fund
Franklin Real Estate Securities Trust	Franklin Real Estate Securities Fund
Franklin Strategic Series	Franklin Growth Opportunities Fund
	Franklin Flex Cap Growth Fund
	Franklin Natural Resources Fund
	Franklin Small Cap Growth Fund
	Franklin Small-Mid Cap Growth Fund
	Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio	N/A
Franklin Templeton Global Trust	Franklin Templeton Hard Currency Fund
Templeton Income Trust	Templeton Global Bond Fund
Franklin Global Trust	Franklin Templeton Emerging Market Debt Opportunities Fund
	Franklin Global Real Estate Fund
	Franklin International Small Cap Growth Fund
Templeton Growth Fund, Inc.	N/A
Institutional Fiduciary Trust	Money Market Portfolio
Franklin Templeton International Trust	Templeton Foreign Smaller Companies Fund

Dated as of May 1, 2010

EX-99.J OTHER OPININ

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in this Registration Statement on Form N-1A of our report dated October 21, 2010, relating to the financial statements and financial highlights which appears in the August 31, 2010 Annual Report to Shareholders of Templeton China World Fund, which is also incorporated by reference into the Registration Statement.  We also consent to the references to us under the headings "Financial Highlights" and "Independent Registered Public Accounting Firm" in such Registration Statement.

/s/PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP

San Francisco, California

October 28, 2010

EX-99.P CODE ETH

FRANKLIN TEMPLETON INVESTMENTS

CODE OF ETHICS

(pursuant to Rule 17j-1 of the Investment Company Act of 1940

and Rule 204A-1 of the Investment Advisers Act of 1940)

AND

INSIDER TRADING COMPLIANCE POLICY AND PROCEDURES

Revised May 2010

TABLE OF CONTENTS

CODE OF ETHICS

The Code of Ethics (the “Code”) and Insider Trading Compliance Policy and Procedures (the "Insider Trading Policy"), including any supplemental memoranda is applicable to all officers, directors, employees and certain designated temporary employees (collectively, “Code of Ethics Persons”) of Franklin Resources, Inc. (“FRI”), all of its subsidiaries, and the funds in the Franklin Templeton Group of Funds (the "Funds") (collectively, "Franklin Templeton Investments").  The subsidiaries listed in Appendix C of the Code, together with Franklin Resources, Inc. have established, maintain and enforce the Code and Insider Trading Policy.  Additionally, the US-registered Funds have adopted the Code and Insider Trading Policy in accordance with Rule 17j-1(c) of the Investment Company Act of 1940 ^[1].

The Code summarizes the values, principles and business practices that guide Franklin Templeton Investments’ business conduct, provides a set of basic principles for Code of Ethics Persons regarding the conduct expected of them and also establishes certain reporting requirements applicable to Supervised and Access Persons (defined below).  It is the responsibility of all Code of Ethics Persons to maintain an environment that fosters fairness, respect and integrity.  Code of Ethics Persons are expected to seek the advice of a supervisor or the Code of Ethics Administration Department with any questions on the Code and/or the Insider Trading Policy.

In addition to this Code, the policies and procedures prescribed under the Code of Ethics and Business Conduct adopted by Franklin Resources, Inc. are additional requirements that apply to certain Code of Ethics Persons.  The current version of the Fair Disclosure Polices and Procedures and the Chinese Wall Policy also apply to certain Code of Ethics Persons.  Executive Officers, Directors and certain other designated employees of FRI will also be subject to additional requirements with respect to the trading of the securities of FRI (i.e. BEN shares).

PART 1 - Statement of Principles

All Code of Ethics Persons are required to conduct themselves in a lawful, honest and ethical manner in their business practices.  Franklin Templeton Investments’ policy is that the interests of its Funds’ shareholders and clients are paramount and come before the interests of any Code Of Ethics Person.

The personal investing activities of Code of Ethics Persons must be conducted in a manner to avoid actual or potential conflicts of interest with Fund shareholders and other clients of any Franklin Templeton Investments adviser.

Code of Ethics Persons shall use their positions with Franklin Templeton Investments and any investment opportunities they learn of because of their positions with Franklin Templeton Investments in a manner consistent with applicable Federal Securities Laws and their fiduciary duties to use such opportunities and information for the benefit of the Funds’ shareholders and clients.

Information concerning the identity of security holdings and financial circumstances of Funds and other clients is confidential and all Code of Ethics Persons must vigilantly safeguard this sensitive information.

Lastly, Code of Ethics Persons shall not, in connection with the purchase or sale of a security, including any option to purchase or sell, and any security convertible into or exchangeable for, any security that is "held or to be acquired" by a Fund:

A.employ any device, scheme or artifice to defraud a Fund;

B.make to a Fund any untrue statement of a material fact or omit to state to a Fund a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading;

C.engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon a Fund; or

D.engage in any manipulative practice with respect to a Fund.

A security is "held or to be acquired" if within the most recent 15 days it (i) is or has been held by a Fund, or (ii) is being or has been considered by a Fund or its investment adviser for purchase by the Fund.

PART 2 - Purpose of the Code and Consequences of Non-compliance

It is important that you read and understand the Code because its purpose is to help all of us comply with the law and to preserve and protect the outstanding reputation of Franklin Templeton Investments.

Any violation of the Code or Insider Trading Policy including engaging in a prohibited transaction or failure to file required reports may result in disciplinary action, up to and including termination of employment and/or referral to appropriate governmental agencies.

All Code of Ethics Persons must report violations of the Code and the Insider Trading Policy whether committed by themselves or by others promptly to their supervisor or the Code of Ethics Administration Department.  If you have any questions or concerns about compliance with the Code or Insider Trading Policy you are encouraged to speak with your supervisor or the Code of Ethics Administration Department.  In addition, you may call the Compliance and Ethics Hotline at 1-800-636-6592.  Calls to Compliance and the Ethics Hotline may be made anonymously.  Franklin Templeton Investments will treat the information set forth in a report of any suspected violation of the Code or Insider Trading Policy in a confidential manner and will conduct a prompt and appropriate evaluation and investigation of any matter reported.  Code of Ethics Persons are expected to cooperate in investigations of reported violations.  To facilitate employee reporting of violations of the Code or Insider Trading Policy, Franklin Templeton Investments will not allow retaliation against anyone who has made a report in good faith.

PART 3 - Compliance Requirements

3.1       Who Is Covered by the Code and How Does It Work?

The Statement of Principles contained in the Code and the policies and procedures prescribed under the Code of Ethics and Business Conduct must be observed by allCode of Ethics Persons.  All officers, directors, employees and certain designated temporary employees of Franklin Templeton Investments are Code of Ethics Persons.  However, depending on which of the categories described below that you are placed, there are different types of restrictions and reporting requirements placed on your personal investing activities.  The category in which you will be placed generally depends on your job function, although unique circumstances may result in your placement in a different category.  If you have any questions regarding which category you are a member of and the attendant responsibilities, please contact the Code of Ethics Administration Department.

(1)Supervised Persons:  Supervised persons are a U.S. registered investment adviser’s partners, officers, directors (or other persons occupying a similar status or performing similar functions), and employees, as well as any other person who provides advice on behalf of the adviser and are subject to the supervision and control of the adviser.

(2)Access Persons: Access Persons are those persons who: have access to nonpublic information regarding Funds’ or clients’ securities transactions; or are involved in making securities recommendations to Funds or clients; or have access to recommendations that are nonpublic; or have access to nonpublic information regarding the portfolio holdings of Reportable Funds. Examples of “access to nonpublic information” include having access to trading systems, portfolio accounting systems, research databases or settlement information. Thus, Access Persons are those people who are in a position to exploit information about Funds’ or clients’ securities transactions or holdings.  Administrative, technical and clerical personnel may be deemed Access Persons if their functions or duties give them access to such nonpublic information.

The following are some of the departments, which would typically (but not exclusively) include Access Persons.  Please note however that whether you are an Access Person is based on an analysis of the types of information that you have access to and the determination will be made on a case-by-case basis:

·fund accounting;

·futures associates;

·global compliance;

·portfolio administration;

·private client group/high net worth; and

·anyone else designated by the Director of Global Compliance and/or the Chief Compliance Officer.

In addition, you are an Access Person if you are any of the following:

·an officer or director of the Funds;

·an officer or director of an investment adviser or broker-dealer subsidiary of  Franklin Templeton Investments; or

·a person that controls those entities.

Note:   Under this definition, an independent director of FRI would not be considered an

      Access Person.

(3)Portfolio Persons: Portfolio Persons are a subset of Access Persons and are those employees of Franklin Templeton Investments, who, in connection with his or her regular functions or duties, makes or participates in the decision to purchase or sell a security by a Fund or any other client or if his or her functions relate to the making of any recommendations about those purchases or sales.  Portfolio Persons include:

·portfolio managers;

·research analysts;

·traders;

·employees serving in equivalent capacities (including Futures Associates);

·employees supervising the activities of Portfolio Persons; and

·anyone else designated by the Director of Global Compliance and/or the Chief Compliance Officer.

(4)Non-Access Persons: If you are an employee or temporary employee of Franklin Templeton Investments AND you do not fit into any of the above categories, you are a Non-Access Person.  Because you do not receive nonpublic information about Fund/Client portfolios, you are subject only to the prohibited transaction provisions described in 3.4 of the Code, the Statement of Principles and the Insider Trading Policy and the policies and procedures prescribed under the FRI Code of Ethics and Business Conduct.  The independent directors of FRI are Non-Access Persons.

You will be notified about which of the category(ies) you are considered to be a member of  at the time you become affiliated with Franklin Templeton Investments and also if you become a member of a different category.

As described further below, the Code prohibits certain types of transactions and requires pre-clearance and reporting of others.  Non-Access Persons and Supervised Persons do not have to pre-clear their security transactions, and, in most cases, do not have to report their transactions.Independent Directors of the Funds also need not pre-clear or report on any securities transactions unless they knew, or should have known that, during the 15-day period before or after the transaction, the security was purchased or sold or considered for purchase or sale by a Fund.  However, personal investing activities of all Code of Ethics Persons are to be conducted in compliance with the prohibited transactions provisions contained in Section 3.4, the Statement of Principles and the Insider Trading Compliance Policy and Procedures.

3.2       What Accounts and Transactions Are Covered?

The Code covers:

1. Securities accounts/transactions in which you have direct or indirect beneficial ownership.

You are considered to have “beneficial ownership” of a security if you, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, have or share a direct or indirect economic interest in a security.  There is a presumption that you have an economic interest in securities held or acquired by members of your immediate family sharing the same household. Thus, a transaction by or for the account of your spouse, or other immediate family member living in your home would be treated as though the transaction were your own. 

2. Transactions for an account in which you have an economic interest (other than the account of an unrelated client for which advisory fees are received) and have or share investment control.

For example, if you invest in a corporation that invests in securities and you have or share control over its investments, that corporation’s securities transactions would generally be treated as though they were your own.

3. Securities in which you do not have an economic interest (that are held by a partnership, corporation, trust or similar entity) however, you either have control of such entity, or have or share control over its investments.

For example, if you were the trustee of a trust or foundation but you did not have an economic interest in the entity (i.e., you are not the trustor (settlor) or beneficiary) the securities transactions would be treated as though they were your own if you had voting or investment control of the trust’s assets or you had or shared control over its investments.

Accordingly, each time the words "you" or "your" are used in this document, they apply not only to your personal transactions and accounts, but to all the types of accounts and transactions described above.  If you have any questions as to whether a particular account or transaction is covered by the Code, please contact the Code of Ethics Administration Department 650-312-3693(ext. 23693) for guidance. 

3.3       What Securities Are Exempt From the Code of Ethics? 

You do not need to pre-clear or report transactions in the following types of securities:

(1)direct obligations of the U.S. government (i.e. securities issued or guaranteed by the U.S. government such as Treasury bills, notes and bonds including U.S. savings bonds and derivatives thereof);

(2)money market instruments – banker’s acceptances, bank certificates of deposits, commercial paper, repurchase agreements and other high quality short-term debt instruments;

(3)shares of money market funds;

(4)shares issued by unit investment trusts that are invested exclusively in one or more open-end funds, none of which are Reportable Funds; and

(5)shares issued by U.S. and Canadian registered open-end funds (I.E. mutual funds) other than Reportable Funds”.

Transactions in the types of securities listed above are also exempt from:  (i) the prohibited transaction provisions contained in Section 3.4; (ii) the additional requirements applicable to Portfolio Persons; and (iii) the applicable reporting requirements contained in Part 4.

3.4       Prohibited Transactions and Transactions Requiring Pre-approval for Code of Ethics      Persons 

            A.         "Intent" Is Important

The transactions described below comprise a non-exclusive listing of those transactions that have been determined by the courts and the SEC to be prohibited by law.  These types of transactions are a violation of the Statement of Principles and are prohibited.  It should be noted that pre-clearance, which is a cornerstone of our compliance efforts, cannot detect inappropriate or illegal transactions, which are by their definition dependent upon intent. Therefore, personnel of the Code of Ethics Administration Department can assist you with compliance with the Code however, they cannot guarantee any particular transaction complies with the Code or any applicable law.  The fact that your proposed transaction receives pre-clearance may not provide a full and complete defense to an accusation of a violation of the Code or of any laws.  For example, if you executed a transaction for which you received pre-clearance, or if the transaction was exempt from pre-clearance (e.g., a transaction for 500 shares or less), that would not preclude a subsequent finding that front-running or scalping occurred because such activity is dependent upon your intent.  In other words, your intent may not be able to be detected or determined when a particular transaction request is analyzed for pre-clearance, but can only be determined after a review of all the facts.

In the final analysis, adherence to the principles of the Code remains the responsibility of each person effecting personal securities transactions.

            B.         Code Of Ethics Persons – Prohibitions and Requirements

1.         Front running:  Trading Ahead of a Fund or Client

You shall not front-run any trade of a Fund or client.  The term "front run" means knowingly trading before a contemplated transaction by a Fund or client of any Franklin Templeton adviser, whether or not your trade and the Fund's or client's trade take place in the same market. Front running is prohibited whether or not you realize a profit from such a transaction.  Thus, you may not:

(a)purchase a security if you intend, or know of Franklin Templeton Investments’ intention, to purchase that security or a related security on behalf of a Fund or client, or

(b)sell a security if you intend, or know of Franklin Templeton Investments’ intention, to sell that security or a related security on behalf of a Fund or client.

2.         Scalping

You shall not purchase a security (or its economic equivalent) with the intention of recommending that the security be purchased for a Fund or client, or sell short a security (or its economic equivalent) with the intention of recommending that the security be sold for a Fund or client.  Scalping is prohibited whether or not you realize a profit from such a transaction.

3.         Trading Parallel to a Fund or Client 

You shall not either buy a security if you know that the same or a related security is being bought contemporaneously by a Fund or client, or sell a security if you know that the same or a related security is being sold contemporaneously by a Fund or client.

Refer to Section I.A., “Pre-clearance Standards,” of Appendix A of the Code for more details regarding the pre-clearance of personal securities transactions.     

4.         Trading Against a Fund or Client 

You shall not:

(a)buy a security if you know that a Fund or client is selling the same or a related security; or has sold the security or

(b)sell a security if you know that a Fund or client is buying the same or a related security, or has bought the security.

Refer to Section I.A., “Pre-clearance Standards,” of Appendix A of the Code for more details regarding the pre-clearance of personal securities transactions.     

5.         Certain Transactions in Securities of Franklin Resources, Inc., and Affiliated Closed-end Funds

You shall not effect a short sale of the securities, including “short sales against the box” of Franklin Resources, Inc., or any of the Franklin Templeton Group of closed-end funds, or any other security issued by Franklin Templeton Investments.  This prohibition would also apply to effecting economically equivalent transactions, including, but not limited to purchasing and selling call or put options and swap transactions or other derivatives.  Officers and directors of Franklin Templeton Investments, who are covered by Section 16 of the Securities Exchange Act of 1934, are reminded that their obligations under Section 16 are in addition to their obligations under this Code and other additional requirements with respect to pre-clearance and Rule 144 affiliate policies and procedures. 

6.         Short Term Trading or “Market Timing” in the Funds.

Franklin Templeton Investments seeks to discourage short-term or excessive trading, often referred to as “market timing.”  Code of Ethics Persons must be familiar with the “Market Timing Trading Policy” described in the prospectus of each Fund in which they invest and must not engage in trading activity that might violate the purpose or intent of that policy.   Accordingly, all directors, officers and employees of Franklin Templeton Investments must comply with the purpose and intent of each fund’s Market Timing Trading Policy and must not engage in any short-term or excessive trading in Funds.  The Trade Control Team of each Fund’s transfer agent will monitor trading activity by directors, officers and employees and will report to the Code of Ethics Administration Department, trading patterns or behaviors that may constitute short-term or excessive trading.  Given the importance of this issue, if the Code of Ethics Administration Department determines that you engaged in this type of activity, you will be subject to discipline, up to and including termination of employment and a permanent suspension of your ability to purchase shares of any Funds.  This policy applies to Franklin Templeton funds including those Funds purchased through a 401(k) plan and to funds that are sub-advised by an investment adviser subsidiary of Franklin Resources, Inc., but does not apply to purchases and sales of Franklin Templeton money fund shares.

7.         Service as a Director

Code of Ethics Persons (excluding Independent Directors of FRI) may not serve as a director, trustee, or in a similar capacity for any public or private company (excluding not-for-profit companies, charitable groups, and eleemosynary organizations) unless you receive approval from the CEO of Franklin Resources, Inc. and it is determined that your service is consistent with the interests of the Funds and clients of Franklin Templeton Investments.  You must notify the Code of Ethics Administration Department, of your interest in serving as a director, including your reasons for electing to take on the directorship by completing Schedule G. The Code of Ethics Administration Department will process the request through the Franklin Resources, Inc. CEO.  If approved by the CEO of Franklin Resources, Inc. procedures applicable to serving as an outside director will be furnished to you by the Code of Ethics Administration Department.   FRI Independent Directors are subject to the FRI Corporate Governance Guidelines with respect to service on another company’s board.

C.         Access Persons (excluding Independent Directors of the Funds) and Portfolio Persons - Additional Prohibitions and Requirements

1.         Securities Sold in a Public Offering

Access Persons shall not buy securities in any initial public offering, or a secondary offering by an issuer except for offerings of securities made by closed-end funds that are either advised or sub-advised by a Franklin Templeton Investments adviser.  Although exceptions are rarely granted, they will be considered on a case-by-case basis and only in accordance with procedures contained in section I.B. of Appendix A.

2.         Interests in Partnerships and Securities Issued in Limited Offering (Private Placements)

Access Persons shall not invest in limited partnerships (including interests in limited liability companies and business trusts) or other securities in a Limited Offering (private placement) without pre-approval from the Code of Ethics Administration Department.  In order to seek consideration for pre-approval you must:

(a)complete the Limited Offering (Private Placement) Checklist (Schedule F);

(b)provide supporting documentation (e.g., a copy of the offering memorandum); 

(c)obtain approval of the appropriate Chief Investment Officer; and

(d)submit all documents to the Code of Ethics Administration Department.

Approvals for such investments will be determined by the Director of Global Compliance or the Chief Compliance Officer. 

D.Portfolio Persons - Additional Prohibitions and Requirements

1.         Short Sales of Securities

Portfolio Persons shall not sell short any security held by Associated Clients, including “short sales against the box.”  This prohibition also applies to effecting economically equivalent transactions, including, but not limited to, sales of uncovered call options, purchases of put options while not owning the underlying security and short sales of bonds that are convertible into equity positions.

2.         Short Swing Trading

Portfolio Persons shall not profit from the purchase and sale or sale and purchase within sixty (60) calendar days of any security in all his/her personal accounts taken in aggregate, including derivatives. Portfolio Persons are responsible for transactions that may occur in margin and option accounts and all such transactions must comply with this restriction.^[2]

This restriction does not apply to:

(a)trading within a sixty (60) calendar day period if you do not realize a profit and you do not violate any other provisions of this Code;

(b)realizing profits from transactions occurring within a sixty (60) calendar day period pursuant to the exercise and/or purchase of shares in a program sponsored by a company employing you or your spouse when no other provision of the code are violated; and

(c)profiting on the purchase and sale or sale and purchase within sixty (60) calendar days of the following securities:

·securities that are direct obligations of the U.S. Government, such as Treasury bills, notes and bonds, and U.S. Savings Bonds and derivatives thereof;

·high quality short-term instruments (“money market instruments”) including but not limited to (i) bankers’ acceptances, (ii) U.S. bank certificates of deposit; (iii) commercial paper; and (iv) repurchase agreements;

·shares of any registered open-end investment companies including Exchange Traded Funds (ETF), Holding Company Depository Receipts (Hldrs) and shares of Franklin Templeton Funds subject to the short term trading (market timing) policies described in each Fund’s prospectus;

·shares of Franklin Resources, Inc.; and

·call or put options on a financial index (“index option”).

Calculation of a profit on any short-swing transaction will be maximum gain realized based on the purchases and sales (or sales and purchases) occurring during the 60 day period.  For example:

·6/1/XX buy 1000 shares of Company ABC @ $10.00/share

·7/1/XX buy 500 shares of Company ABC @ $15.00/share

·7/15/XX sell 500 shares of Company ABC @ $14.00/share

The short swing profit would be calculated as follows:

·7/15/XX sale of 500 shares of Company ABC @ $14.00/share = $7000

·6/1/XX buy of 500 shares of Company ABC @ $10.00/share =   $5000

Short-swing profit:                                                                 $2000

3.         Disclosure of Interest in a Security and Method of Disclosure

As a Portfolio Person, you must promptly disclose your direct or indirect beneficial interest in the security of an issue,  

(a)if you are involved, either directly or as part of a larger research group, in analysis of the issuer;

(b)if you participate in the decision to include the company on “buy” or “sell” lists or model portfolios; or

(c)before you place an initial order for an account you manage.

In such instances, you must initially disclose that beneficial interest to  your Chief Investment Officer and/or Director of Research, with a copy to Code of Ethics Administration, using  Schedule E (or on a form containing substantially similar information) that has been signed by your Chief Investment Officer and/or Director of Research.

Additionally, you must re-disclose to your Chief Investment Officer/Director of Research, if you participate in decisions to change the recommendation of the security (e.g., recommending to increase or decrease portfolio weighting).

PART 4 - Reporting Requirements for Code of Ethics Persons (excluding Independent Directors of the Funds and of Certain Advisory Subsidiaries of FRI)

References to Access Persons in this Part 4 do not apply to the Independent Directors of the Funds and of FRI.  Reporting requirements applicable to Independent Directors of the Funds are separately described in Part 6.

4.1       Reporting of Beneficial Ownership and Securities Transactions

Compliance with the following personal securities transaction reporting procedures is essential to meeting our responsibilities with respect to the Funds and other clients as well as complying with regulatory requirements.  You are expected to comply with both the letter and spirit of these requirements by completing and filing all reports required under the Code in a timely manner.  If you have any questions about which reporting requirements apply to you, please contact the Code of Ethics Administration Department.

4.2       Initial Reports

A.Acknowledgement Form (Supervised Persons, Access Persons and Portfolio Persons)

All Supervised Persons, Access Persons and Portfolio Persons must complete and return an executed Acknowledgement Form to Human Resources or use an equivalent filing method to complete their filing no later than ten (10) calendar days after the date the person is notified by a member of the Human Resources Department. 

B.Schedule C - Initial & Annual Disclosure of Brokerage Accounts, Investment Advisory Accounts, Securities Holdings and Discretionary Authority (Access Persons and Portfolio Persons)

In addition, all Access Persons and Portfolio Persons must also file Schedule C (Initial & Annual Disclosure of Brokerage Accounts, Securities Holdings and Discretionary Authority) by returning the completed form to Human Resources or use an equivalent filing method to complete their filing no later than ten (10) calendar days after becoming an Access or Portfolio Person.  The submitted information must be current as of a date not more than forty-five (45) days prior to becoming an Access or Portfolio Person.

4.3       Quarterly Transaction Reports

A.Access Persons and Portfolio Persons

You must report all securities transactions except for those (1) effected pursuant to an Automatic Investment Plan (however, any transaction that overrides the preset schedule or allocations of the automatic investment plan must be included in a quarterly transaction report); (2) that would duplicate information contained in broker confirmations or statements. 

You must provide the Code of Ethics Administration Department no later than thirty (30) calendar days after the end of each calendar quarter, with either; (i) copies of all broker's confirmations and statements (which may be sent under separate cover by the broker) showing all your securities transactions and holdings in such securities, or (ii) a completed Schedule B (Transactions Report) or equivalent filing method.  Please use Schedule B only when your securities transactions do not generate a statement or do not take place in a brokerage account.  Brokerage statements and confirmations submitted must include all transactions in securities in which you have, or by reason of the transaction acquire any direct or indirect beneficial ownership, including transactions in a discretionary account and transactions for any account in which you have any economic interest and have or share investment control.  Please remember that you must report all securities acquired by gift, inheritance, vesting,^[3] stock splits, merger or reorganization of the issuer of the security.

Failure to timely report transactions is a violation of Rule 17j-1, Rule 204A-1, as well as the Code, and will be reported to the Director of Global Compliance and/or the Fund’s Board of Directors and may also result in disciplinary action, up to and including, termination.

4.4       Annual Reports

A.Securities Accounts, Investment Advisory Accounts and Securities Holdings Reports (Access Persons and Portfolio Persons)

You must file a report of all personal securities accounts and securities holdings on Schedule C (Initial and Annual Disclosure of Brokerage Accounts, Investment Advisory Accounts, Securities Holdings and Discretionary Authority) or equivalent filing method, with the Code of Ethics Administration Department, annually by February 15^th.  You must report the name and description of each securities account in which you have a direct or indirect beneficial interest, including securities accounts of your immediate family residing in the same household.  You must provide information on any account that is covered under Section 3.2 of the Code.

This report should include all of your securities holdings, including any security acquired by a transaction, gift, inheritance, vesting, merger or reorganization of the issuer of the security, in which you have any direct or indirect beneficial ownership, including securities holdings in a discretionary account.  Your securities holding information must be current as of a date no more than forty-five (45) days before the report is submitted. You may attach copies of year-end brokerage statements to Schedule C in lieu of listing each of your security positions on the Schedule.    

B.Acknowledgement Form (Supervised Persons, Access Persons and Portfolio Persons)

Supervised Persons, Access Persons and Portfolio Persons will be asked to certify by February 15^th annually that they have complied with and will comply with the Code and Insider Trading Policy by filing the Acknowledgment Form with the Code of Ethics Administration Department.

4.5       Brokerage Accounts, Investment Advisory Accounts and Confirmations of Securities Transactions (Access Persons and Portfolio Persons)         

Before or at a time contemporaneous with opening a brokerage account or investment advisory account with a registered broker-dealer, or a bank, or placing an initial order for the purchase or sale of securities with that broker-dealer, investment adviser or bank, you must:

(a)notify the Code of Ethics Administration Department, in writing, by completing Schedule D (Notification of Securities Account) or by providing substantially similar information through an equivalent filing method; and

(b)notify the institution with which you open the account, in writing, of your association with Franklin Templeton Investments.

The Code of Ethics Administration Department will request, in writing, that the institution send duplicate copies of confirmations and statements for all transactions effected in the account simultaneously with their mailing of such confirmation and statement to you.

If you have an existing account on the effective date of this Code or upon becoming an Access or Portfolio Person, you must comply within ten (10) days with conditions (a) and (b) above.

 PART 5 - Pre-clearance Requirements Applicable to Access Persons (excluding Independent Directors of the Funds and Certain Investment Advisory Subsidiaries of FRI) and Portfolio Persons

References to Access Persons in this Part 5 do not apply to the Independent Directors of the Funds and Certain Investment Advisory Subsidiaries of FRI.  Pre-clearance requirements applicable to Independent Directors of the Funds are separately described in Part 6.

Prior Approval (Pre-Clearance) of Securities Transactions

A.Length of Approval

You shall not buy or sell any security without first contacting a member of the Code of Ethics Administration Department either electronically or by phone and obtaining his or her approval, unless your proposed transaction is covered by paragraph B below.  Approval for a proposed transaction will remain valid until the close of the business day following the day pre-clearance is granted but may be extended in special circumstances, shortened or rescinded, as explained in the section entitled Pre-clearance Standards in Appendix A.

B.         Securities/Transactions Not Requiring Pre-clearance

You do not need to request pre-clearance for the types of securities or transactions listed below.  However, all other provisions of the Code apply, including, but not limited to: (i) the prohibited transaction provisions contained in Part 3.4 such as front-running; (ii) the additional compliance requirements applicable to Portfolio Persons contained in Part 3.4(D), (iii) the applicable reporting requirements contained in Part 4; and (iv) insider trading prohibitions described in the Insider Trading Policy.

If you have any questions, contact the Code of Ethics Administration Department before engaging in the transaction.  If you have any doubt whether you have or might acquire direct or indirect beneficial ownership or have or share investment control over an account or entity in a particular transaction, or whether a transaction involves a security covered by the Code, you should consult with the Code of Ethics Administration Department before engaging in the transaction.

You need not pre-clear the following types of transactions or securities:

1)Franklin Resources, Inc., and Closed-End Funds of Franklin Templeton Group of Funds.  Purchases and sales of securities of Franklin Resources, Inc. and closed-end funds of Franklin Templeton Group of Funds, as these securities cannot be purchased on behalf of our advisory clients.^[4]

2)Shares of open-end investment companies (including Reportable Funds).

3)Small Quantities (Not applicable to option transactions (except index options) or Corporate Bonds).

·Transactions that in the aggregate do not exceed 500 shares purchased and/or 500 shares sold of any security regardless of where it is traded in any 30-day period including Exchange Traded Funds (ETFs) (including SPDRS), Holding Company Depository Receipts (Holdrs) and index/ETF options (5 contracts); or

· Transactions in municipal bonds with a face value of $100,000 or less in any 30-day period.

·Option Transactions and Corporate Bond Transactions: The small quantities rule is not applicable to transactions in options (except index options) and corporate bonds.  All option and corporate bond transactions must be pre-cleared except for employer stock options as noted in Employer Stock Option Programs below.

Please note that you may not execute any transaction, regardless of quantity, if you learn that the Funds or clients are active in the security.  It will be presumed that you have knowledge of Fund or client activity in the security if, among other things, you are denied approval to go forward with a transaction request. 

“Security”, includes securities of the issuer that are economically equivalent to your proposed transaction.  For example, you may not purchase convertible preferred stock or call options of Company ABC if you learn that the Funds or clients are active in the common stock of Company ABC.

4)Dividend Reinvestment Plans:  Transactions made pursuant to dividend reinvestment plans (“DRIPs”) do not require pre-clearance regardless of quantity or Fund activity.

5)Government Obligations.  Transactions in securities issued or guaranteed by the governments of the United States, Canada, the United Kingdom, France, Germany, Switzerland, Italy and Japan, or their agencies or instrumentalities, or derivatives thereof.

6)Payroll Deduction Plans.  Securities purchased by an Access Person’s spouse pursuant to a payroll deduction program.

7)Employer Stock Option Programs.  Transactions involving the exercise and/or purchase/sale by an Access Person or an Access Person’s spouse of securities pursuant to a program sponsored by a company employing the Access Person or Access Person’s spouse.

8)Pro Rata Distributions.  Purchases effected by the exercise of rights issued pro rata to all holders of a class of securities or the sale of rights so received.

9)Tender Offers.  Transactions in securities pursuant to a bona fide tender offer made for any and all such securities to all similarly situated shareholders in conjunction with mergers, acquisitions, reorganizations and/or similar corporate actions.  However, tenders pursuant to offers for less than all outstanding securities of a class of securities of an issuer must be pre-cleared.

10)Securities Prohibited for Purchase by the Funds and other Clients.  Transactions in any securities that are prohibited investments for all Funds and clients advised by the entity employing the Access Person.

11)Variable Rate Demand Obligation/Note transactions.

12)No Investment Control.  Transactions effected for an account or entity over which you do not have or share investment control (i.e., an account where someone else exercises complete investment control).

13) No Beneficial Ownership.  Transactions in which you do not acquire or dispose of direct or indirect beneficial ownership (i.e., an account where in you have no financial interest).

C.Discretionary Accounts

You need not pre-clear transactions in any discretionary account for which a registered broker-dealer, a registered investment adviser, or other investment manager acting in a similar fiduciary capacity, exercises sole investment discretion, if the following conditions are met:^[5]

(1)The terms of each account relationship ("Agreement") must be in writing and filed with the Code of Ethics Administration Department prior to any transactions.

(2)Any amendment to each Agreement must be filed with the Code of Ethics Administration Department prior to its effective date.

(3)The Access Person certifies to the Code of Ethics Administration Department at the time such account relationship commences, and annually thereafter, as contained in Schedule C of the Code that such Access Person does not have direct or indirect influence or control over the account, other than the right to terminate the account.

(4)Additionally, any discretionary account that you open or maintain with a registered broker-dealer, a registered investment adviser, or other investment manager acting in a similar fiduciary capacity must provide duplicate copies of confirmations and statements for all transactions effected in the account simultaneously with their delivery to you. If your discretionary account acquires securities that are not reported to the Code of Ethics Administration Department by a duplicate confirmation, such transaction must be reported to the Code of Ethics Administration Department on Schedule B (Transactions Report) no later than thirty (30) days after the end of the calendar quarter after you are notified of the acquisition.^[6]

However, if prior to making any request you advised the discretionary account manager to enter into or refrain from a specific transaction or class of transactions, you must first consult with the Code of Ethics Administration Department and obtain approval prior to making such request.

PART 6 – Requirements for Independent Directors of the Funds and Certain Investment Advisory Subsidiaries of FRI.

6.1       Pre-clearance Requirements

Independent Directors of the Funds and certain investment advisory subsidiaries of FRI shall pre-clear or report on any securities transactions if they knew or should have known that during the 15-day period before or after the transaction the security was purchased or sold or considered for purchase or sale by the Fund.  Such pre-clearance and reporting requirements shall not apply to securities transactions conducted in an account where an Independent Director has granted full investment discretion to a brokerage firm, bank or investment adviser or conducted in a trust account in which the trustee has full investment discretion.

6.2       Reporting Requirements

A. Initial Reports

1.   Acknowledgement Form

Independent Directors of the Funds and certain investment advisory subsidiaries of FRI must complete and return an executed Acknowledgement Form to the Code of Ethics Administration Department no later than ten (10) calendar days after the date the person becomes an Independent Director of the Fund. 

2.   Disclosure of Securities Holdings, Brokerage Accounts and Discretionary Authority      

Independent Directors of the Funds and certain investment advisory subsidiaries of FRI are not required to disclose any securities holdings, brokerage accounts, including brokerage accounts where he/she has granted discretionary authority to a brokerage firm, bank or investment adviser.

B. Quarterly Transaction Reports

Independent Directors of the Funds and certain investment advisory subsidiaries of FRI are not required to file any quarterly transaction reports unless he/she knew or should have known that, during the 15-day period before or after a transaction, the security was purchased or sold, or considered for purchase or sale, by a Fund or by Franklin Templeton Investments on behalf of a Fund.

C.  Annual Reports

Independent Directors of the Funds and certain investment advisory subsidiaries of FRI will be asked to certify by February 1st annually that they have complied with and will comply with the Code and Insider Trading Policy by filing the Acknowledgment Form with the Code of Ethics Administration Department.

 PART 7 - Penalties for Violations of the Code

The Code is designed to assure compliance with applicable laws and to maintain shareholder confidence in Franklin Templeton Investments.

In adopting this Code, it is the intention of the Boards of Directors/Trustees of the subsidiaries listed in Appendix C of this Code, together with Franklin Resources, Inc., and the Funds, to attempt to achieve 100% compliance with all requirements of the Code but recognize that this may not be possible.  Certain incidental failures to comply with the Code are not necessarily a violation of the law or the Code. Such violations of the Code not resulting in a violation of law or the Code will be referred to the Director of Global Compliance and/or the Chief Compliance Officer and/or the relevant management personnel, and disciplinary action commensurate with the violation, if warranted, will be imposed.  Additionally, if you violate any of the enumerated prohibited transactions contained in Parts 3.4 of the Code, you will be expected to give up any profits realized from these transactions to Franklin Resources, Inc. for the benefit of the affected Funds or other clients.  If Franklin Resources, Inc. cannot determine which Funds or clients were affected the proceeds will be donated to a charity chosen either by you or by Franklin Resources, Inc.    Please refer to the following page for guidance on the types of sanctions that would likely be imposed for violations of the Code.

Failure to disgorge profits when requested or even a pattern of violations that individually do not violate the law or the Code, but which taken together demonstrate a lack of respect for the Code, may result in more significant disciplinary action, up to and including termination of employment.  A violation of the Code resulting in a violation of the law will be severely sanctioned, with disciplinary action potentially including, but not limited to, referral of the matter to the board of directors of the affected Fund, senior management of the appropriate investment adviser, principal underwriter or other Franklin subsidiary and/or the board of directors of Franklin Resources, Inc., termination of employment and referral of the matter to the appropriate regulatory agency for civil and/or criminal investigation.

Code of Ethics Sanction Guidelines

Please be aware that these guidelines represent only a representative sampling of the possible sanctions that may be taken against you in the event of a violation of the Code.   Repeated violations of the Code, even inadvertent violations that do not harm Funds or Clients, will be viewed as disregarding principals of the Code and sanction will be more severe.

Violation	Sanction Imposed
·Failure to pre-clear but otherwise would have been approved (i.e., no conflict with the fund’s transactions).	Reminder memo
·Failure to pre-clear but otherwise would have been approved (i.e., no conflict with the fund’s transactions) twice within twelve (12) calendar months	30 day personal securities trading suspension
·Failure to pre-clear and the transaction would not have been approved	Immediate sale, disgorgement of profits, and personal securities trading suspension (length based on the review of all facts and circumstances)
·Trading on a denied request	Immediate sale, disgorgement of profits, personal securities trading suspension (length based on review of all facts and circumstances).  Additional disciplinary action will be considered, up to and including termination, based on review of all facts and circumstances
·Profiting from short-swing trades (profiting on purchase & sale or sale & purchase within sixty (60) days)	Immediate disgorgement of profits
·Failure to return initial or annual disclosure forms ·Failure to timely report transactions	Sanction may include but not limited to a reminder memo, suspension of personal trading, monetary sanctions, reporting to the Board of Directors, unpaid administrative leave or termination of employment
·Violation of Insider Trading Compliance Policy and Procedures	Subject to review by the appropriate supervisor in consultation with the Franklin Resources Inc., General Counsel for consideration of appropriate disciplinary action up to and including termination of employment and reporting to appropriate regulatory agency

PART 8 - A Reminder about the Franklin Templeton Investments Insider Trading Policy

The Insider Trading Policy (see the attached Insider Trading Compliance Policy and Procedures) deals with the problem of insider trading in securities that could result in harm to a Fund, a client, or members of the public.   It applies to all Code of Ethics Persons.  The guidelines and requirements described in the Insider Trading Policy go hand-in-hand with the Code.  If you have any questions or concerns about compliance with the Code and the Insider Trading Policy you are encouraged to speak with the Code of Ethics Administration Department.

APPENDIX A:     COMPLIANCE PROCEDURES AND DEFINITIONS

This appendix sets forth the responsibilities and obligations of the Compliance Officers of each entity subject to the Code, the Code of Ethics Administration Department, and the Legal Department, under the Code and Insider Trading Policy.

I.          Responsibilities of Each Designated Compliance Officer

            A.        Pre-clearance Standards

                        1.         General Principles

The Director of Global Compliance, the Chief Compliance Officer and/or the Code of Ethics Administration Department, shall permit an Access Person to go forward with a proposed security^[7] transaction only if he or she determines that, considering all of the facts and circumstances known to them, the transaction does not violate Federal Securities Laws, or this Code and there is no likelihood of harm to a Fund or client.  

2.         Associated Clients

Unless there are special circumstances that make it appropriate to disapprove a personal securities transaction request, the Code of Ethics Administration Department shall consider only those securities transactions of the “Associated Clients” of the Access Person, including open and executed orders and recommendations, in determining whether to approve such a request.  “Associated Clients” are those Funds or clients whose securities holdings and/or trading information would be available to the Access Person during the course of his or her regular functions or duties.  As of November 2004, there are five groups of Associated Clients: (i) the Franklin Mutual Series Funds and clients advised by Franklin Mutual Advisers, LLC (“Mutual Clients”); (ii) the Franklin Group of Funds and the clients advised by the various Franklin investment advisers (“Franklin Clients”);  (iii) the Templeton Group of Funds and the clients advised by the various Templeton investment advisers (“Templeton Clients”); (iv) the Bissett Group of Funds and the clients advised by Franklin Templeton Investments Corp. (“Bissett Clients”); and (v) the Fiduciary Group of funds and the clients advised by the various Fiduciary investment advisers (“Fiduciary Clients”).  Other Associated Clients will be added to this list as they are established.  Thus, for example, persons who have access to the trading information of Mutual Clients generally will be pre-cleared solely against the securities transactions of the Mutual Clients, including open and executed orders and recommendations.  Similarly, persons who have access to the trading information of Franklin Clients, Templeton Clients, Bissett Clients, or Fiduciary Clients, generally will be pre-cleared solely against the securities transactions of Franklin Clients, Templeton Clients, Bissett Clients or Fiduciary Clients respectively.

Certain officers of Franklin Templeton Investments, as well as certain employees in the Legal, Global Compliance, Fund Accounting, Investment Operations and other personnel who generally have access to trading information of the Funds and clients of Franklin Templeton Investments during the course of their regular functions and duties, will have their personal securities transactions pre-cleared against executed transactions, open orders and recommendations of all Associated Clients.

3.         Specific Standards

                                    (a)  Securities Transactions by Funds or clients

No clearance shall be given for any transaction in any security on any day during which an Associated Client of the Access Person has executed a buy or sell order in that security, until seven (7) calendar days after the order has been executed. Notwithstanding a transaction in the previous seven days, clearance may be granted to sell if all Associated Clients have disposed of the security.

                                    (b)  Securities under Consideration

                                                Open Orders

No clearance shall be given for any transaction in any security on any day which an Associated Client of the Access Person has a pending buy or sell order for such security, until seven (7) calendar days after the order has been executed or if the order is immediately withdrawn.

                                                Recommendations

No clearance shall be given for any transaction in any security on any day on which a recommendation for such security was made by a Portfolio Person, until seven (7) calendar days after the recommendation was made and no orders have subsequently been executed or are pending. 

                                    (c)  Limited Offering (Private Placement)

In considering requests by Access Persons for approval of limited partnerships and other limited offering, the Director of Global Compliance or Chief Compliance Officer shall take into account, among other factors, whether the investment opportunity should be reserved for a Fund or other client, and whether the investment opportunity is being offered to the Access Person by virtue of his or her position with Franklin Templeton Investments.  If the Access Person receives clearance for the transaction, an investment in the same issuer may only be made for a Fund or client if an executive officer of Franklin Resources, Inc., who has been informed of the Portfolio Person's pre-existing investment and who has no interest in the issuer, approves the transaction.  Please see Schedule F.           

(d)  Duration of Clearance

If the Code of Ethics Administration Department approves a proposed securities transaction, the order for the transaction must be placed and effected by the close of the next business day following the day approval was granted.  The Director of Global Compliance and/or the Chief Compliance Officer may, in his or her discretion, extend the clearance period up to seven (7) calendar days, beginning on the date of the approval, for a securities transaction of any Access Person who demonstrates that special circumstances make the extended clearance period necessary and appropriate.^[8]The Director of Global Compliance or the Chief Compliance Officer may, in his or her discretion, after consultation with an executive officer of Franklin Resources, Inc., renew the approval for a particular transaction for up to an additional seven (7) calendar days upon a showing of special circumstances by the Access Person.  The Director of Global Compliance or the Chief Compliance Officer may shorten or rescind any approval or renewal of approval under this paragraph if he or she determines it is appropriate to do so.

            B.        Waivers by the Director of Global Compliance and/or the Chief Compliance Officer

The Director of Global Compliance and/or the Chief Compliance Officer may, in his or her discretion, waive compliance by any Access Person with the provisions of the Code, if he or she finds that such a waiver:

(1)is necessary to alleviate undue hardship or in view of unforeseen circumstances or is otherwise appropriate under all the relevant facts and circumstances;

(2)will not be inconsistent with the purposes and objectives of the Code;

(3)will not adversely affect the interests of advisory clients of  Franklin Templeton Investments, the interests of  Franklin Templeton Investments or its affiliates; and

(4)will not result in a transaction or conduct that would violate provisions of applicable laws or regulations. 

Any waiver shall be in writing, shall contain a statement of the basis for it, and the Director of Global Compliance or the Chief Compliance Officer, shall promptly send a copy to the General Counsel of Franklin Resources, Inc.

            C.        Continuing Responsibilities of the Code of Ethics Administration Department

Pre-clearance Recordkeeping

The Code of Ethics Administration Department shall keep a record of all requests for pre-clearance regarding the purchase or sale of a security, including the date of the request, the name of the Access Person, the details of the proposed transaction, and whether the request was approved or denied. The Code of Ethics Administration Department shall keep a record of any waivers given, including the reasons for each exception and a description of any potentially conflicting Fund or client transactions.

Initial, Annual Holdings Reports and Quarterly Transaction Reports  

The Code of Ethics Administration Department shall also collect the signed Acknowledgment Forms from Supervised and Access Persons as well as reports, on Schedules B, C, D, E, F, G of the Code, as applicable.  In addition, the Code of Ethics Administration Department shall keep records of all confirmations, and other information with respect to an account opened and maintained with the broker-dealer by any Access Person of Franklin Templeton Investments.  The Code of Ethics Administration Department shall preserve those acknowledgments and reports, the records of consultations and waivers, and the confirmations, and other information for the period required by the applicable regulation.

The Code of Ethics Administration Department shall review brokerage transaction confirmations, account statements, Schedules B, C, D, E, F and G for compliance with the Code.  The reviews shall include, but are not limited to;

(1)Comparison of brokerage confirmations, Schedule Bs, and/or brokerage statements to pre-clearance requests or, if a private placement, the Private Placement Checklist;

(2)Comparison of brokerage statements and/or Schedule Cs to current securities holding information, securities account information and discretionary authority information; and

(3)Conducting periodic "back-testing" of Access Person transactions, Schedule Cs and/or Schedule Es in comparison to fund and client transactions.

The Code of Ethics Administration Department shall evidence review by initialing and dating the appropriate document or log.  Violations of the Code detected by the Code of Ethics Administration Department during his or her reviews shall be promptly brought to the attention of the Director of Global Compliance and/or the Chief Compliance Officer with periodic reports to each appropriate Chief Compliance Officer.

            D.        Periodic Responsibilities of the Code of Ethics Administration Department

The Code of Ethics Administration Department or designated group shall consult with FRI’s General Counsel and seek the assistance of the Human Resources Department, as the case may be, to assure that:

1.Adequate reviews and audits are conducted to monitor compliance with the reporting, pre-clearance, prohibited transaction and other requirements of the Code.

2.All Code of Ethics Persons are adequately informed and receive appropriate education and training as to their duties and obligations under the Code.

3.All new Supervised and Access Persons of Franklin Templeton Investments are required to complete the Code of Ethics Computer Based Training program.  Onsite training will be conducted on an “as needed” basis.

4.There are adequate educational, informational and monitoring efforts to ensure that reasonable steps are taken to prevent and detect unlawful insider trading by Supervised and Access Persons and to control access to inside information.

5.Written compliance reports are submitted to the Board of Directors of each relevant Fund at least quarterly. Additionally, written compliance reports are submitted to the Board of Directors of Franklin Resources, Inc., and the Board of each relevant Fund at least annually.  Such reports will describe any issues arising under the Code or procedures since the last report, including, but not limited to, information about material violations of the Code or procedures and sanctions imposed in response to the material violations.

6.The Global Compliance Department will certify at least annually to the Fund's board of directors that Franklin Templeton Investments has adopted procedures reasonably necessary to prevent Supervised and Access Persons from violating the Code, and

7.Appropriate records are kept for the periods required by law. Types of records include pre-clearance requests and approvals, brokerage confirmations, brokerage statements, initial and annual Code of Ethics certifications.

            E.         Approval by Fund's Board of Directors

(1)Basis for Approval

The Board of Directors/Trustees must base its approval of the Code on a determination that the Code contains provisions reasonably necessary to prevent Code of Ethics Persons  from engaging in any conduct prohibited by Rule 17j-1 or Rule 204A-1. The Code of Ethics Administration Department maintains a detailed list of violations and will amend the Code of Ethics and procedures in an attempt to reduce such violations.

(2)New Funds

At the time a new fund is organized, the Code Of Ethics Administration Department will provide the Fund's board of directors, a certification that the investment adviser and principal underwriter has adopted procedures reasonably necessary to prevent Code of Ethics Persons from violating the Code.  Such certification will state that the Code contains provisions reasonably necessary to prevent Code of Ethics Persons from violating the Code.

(3)Material Changes to the Code of Ethics

The Global Compliance Department will provide the Fund's board of directors a written description of all material changes to the Code no later than six months after adoption of the material change by Franklin Templeton Investments.

II.         Definitions of Important Terms

For purposes of the Code of Ethics and Insider Trading Policy, the terms below have the following meanings:

1934 Act - The Securities Exchange Act of 1934, as amended.

1940 Act - The Investment Company Act of 1940, as amended.

Access Person – (1)Each director, trustee, general partner or officer of a Fund or investment adviser in Franklin Templeton Investments; (2) any Advisory Representative; and (3) any director, trustee, general partner or officer of a principal underwriter of the Funds, who has access to information concerning recommendations made to a Fund or client with regard to the purchase or sale of a security.

Advisers Act – The Investment Advisers Act of 1940, as amended.    

Advisory Representative- Any director, trustee, general partner, officer or employee of a Fund or investment adviser in Franklin Templeton Investments (or of any company in a control relationship to such Fund or investment adviser) who in connection with his or her regular functions or duties makes any recommendation, who participates in the determination of which recommendation shall be made, whose functions or duties relate to the determination of which recommendation shall be made; or who, obtains any information concerning which securities are being recommended prior to the effective dissemination of such recommendations or of the information concerning such recommendations.

Affiliated Person – it has the same meaning as Section 2(a)(3) of the Investment Company Act of 1940. An “affiliated person” of an investment company includes directors, officers, employees, and the investment adviser.  In addition, it includes any person owning 5% of the company’s voting securities, any person in which the investment company owns 5% or more of the voting securities, and any person directly or indirectly controlling, controlled by, or under common control with the company.

Appropriate Analyst- With respect to any Access Person, any securities analyst or portfolio manager making investment recommendations or investing funds on behalf of an Associated Client and who may be reasonably expected to recommend or consider the purchase or sale of a security.

Associated Client - A Fund or client whose trading information would be available to the Access Person during the course of his or her regular functions or duties.

Automatic Investment Plan - A program in which regular periodic purchases (or withdrawals) are made automatically in (or from) investment accounts in accordance with a predetermined schedule and allocations.  An automatic investment plan includes a dividend reinvestment plan.

Beneficial Ownership - Has the same meaning as in Rule 16a-1(a)(2) under the 1934 Act.  Generally, a person has a beneficial ownership in a security if he or she, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares a direct or indirect pecuniary interest in the security.  There is a presumption of a pecuniary interest in a security held or acquired by a member of a person's immediate family sharing the same household.

Exchange Traded Funds and Holding Company Depository Receipts - An Exchange-Traded Fund or “ETF” is a basket of securities that is designed to generally track an index—broad stock or bond market, stock industry sector, or international stock.  Holding Company Depository Receipts “Holdrs” are securities that represent an investor’s ownership in the common stock or American Depository Receipts of specified companies in a particular industry, sector or group.

Funds – U.S. registered investment companies in the Franklin Templeton Group of Funds.

Held or to be Acquired - A security is "held or to be acquired" if within the most recent 15 days it (i) is or has been held by a Fund, or (ii) is being or has been considered by a Fund or its investment adviser for purchase by the Fund. 

Initial Public Offering – An offering of securities registered under the Securities Act of 1933, the issuer of which immediately before the registration was not subject to the reporting requirements of sections 13 or 15(d) of the Securities Exchange Act of 1934.

Limited Offering- An offering that is exempt from registration under the Securities Act of 1933 pursuant to section 4(2) or Section 4(6) or pursuant to Rule 504, Rule 505, or Rule 506 under the Securities Act of 1933.

Portfolio Person - Any employee of Franklin Templeton Investments, who, in connection with his or her regular functions or duties, makes or participates in the decision to purchase or sell a security by a Fund in the Franklin Templeton Groups of Funds, or any other client or if his or her functions relate to the making of any recommendations about those purchases or sales.  Portfolio Persons include portfolio managers, research analysts, traders, persons serving in equivalent capacities (such as Management Trainees), persons supervising the activities of Portfolio Persons, and anyone else designated by the Director of Global Compliance.

Proprietary Information - Information that is obtained or developed during the ordinary course of employment with Franklin Templeton Investments, whether by you or someone else, and  is not available to persons outside of Franklin Templeton Investments.  Examples of such Proprietary Information include, among other things, internal research reports, research materials supplied to Franklin Templeton Investments by vendors and broker-dealers not generally available to the public, minutes of departmental/research meetings and conference calls, and communications with company officers (including confidentiality agreements).   Examples of non-Proprietary Information include mass media publications (e.g., The Wall Street Journal, Forbes, and Fortune), certain specialized publications available to the public (e.g., Morningstar, Value Line, Standard and Poors), and research reports available to the general public.

Reportable Fund – Any fund for which an Franklin Templeton Investments’ U.S. registered investment adviser (“FTI Adviser”) serves as an investment adviser or a sub-adviser or any fund whose investment adviser or principal underwriter controls a FTI Adviser, is controlled by a FTI adviser or is under common control with a FTI Adviser.

Security  - Any stock, note, bond, evidence of indebtedness, participation or interest in any profit-sharing plan or limited or general partnership, investment contract, certificate of deposit for a security, fractional undivided interest in oil or gas or other mineral rights, any put, call, straddle, option, or privilege on any security (including a certificate of deposit), guarantee of, or warrant or right to subscribe for or purchase any of the foregoing, and in general any interest or instrument commonly known as a security. For purposes of the Code, security does not include:

1.direct obligations of the U.S. government (i.e. securities issued or guaranteed by the U.S. government such as Treasury bills, notes and bonds including U.S. savings bonds and derivatives thereof);

2.money market instruments – banker’s acceptances, bank certificates of deposits, commercial paper, repurchase agreement and other high quality short-term debt instruments;

3.shares of money market funds;

4.shares issued by open-end funds other than Reportable Funds; and

5.Shares issued by unit investment trusts that are invested exclusively in one or more open-end funds, none of which are Reportable Funds.

Supervised Persons- Supervised persons are a U.S. registered investment advisers’ partners, officers, directors (or other persons occupying a similar status or performing similar functions), and employees, as well as any other persons who provide advice on behalf of the adviser and are subject to the supervision and control of the adviser.

APPENDIX B:     Acknowledgement Form and Schedules

 Initial and Annual

Acknowledgment Form

Code of Ethics and Insider Trading Compliance Policy and Procedures

Instructions:  Print form, complete, sign and date.  Submit completed form as indicated below:

ØInitial Disclosure to:  Local Human Resources Dept. Contact Person                         

ØAnnual Disclosure to:  Code of Ethics Administration Dept.

  Inter-office:  Code of Ethics Administration, SM-920/2                      Fax:  (650) 312-5646 

  U.S. Mail:  Franklin Templeton Investments                                       E-mail:  Preclear-Code of Ethics (internal)

  Attn: Code of Ethics Administration Dept.                                                       Lpreclear@frk.com (external)

  P.O. Box 25050

  San Mateo, CA 94402-5050

To:Code of Ethics Administration Department

I hereby acknowledge receipt of a copy of the Franklin Templeton Investment's Code Of Ethics (“Code”) and Insider Trading Compliance Policy and Procedures, as amended, which I have read and understand.   I will comply fully with all provisions of the Code and the Insider Trading Policy to the extent they apply to me during the period of my employment.  If this is an annual certification, I certify that I have complied with all provisions of the Code and the Insider Trading Policy to the extent they applied to me over the past year.  Additionally, I authorize any broker-dealer, bank, or investment adviser with whom I have securities accounts and accounts in which I have direct or indirect beneficial ownership, to provide brokerage confirmations and statements as required for compliance with the Code.  I further understand and acknowledge that any violation of the Code or Insider Trading Policy, including engaging in a prohibited transaction or failure to file reports as required (see Schedules B, C, D, E, F and G), may subject me to disciplinary action up to and including termination of employment.

Name (print)	Signature	Date Submitted	Employee ID
Title	Department Name	Location	Extension

Non Access Person	Access Person	Supervised Person	Portfolio Person
¨	¨	¨	¨

Initial Disclosure (check this box if you’re a new access person)	Annual Disclosure (check this box if annual certification)	Year End (for compliance use only)
¨	¨	¨

SCHEDULE A: Legal and Compliance Officers Code of Ethics Administration Dept. Contact Info^[9]

Legal Officer

Craig Tyle

Executive Vice President & General Counsel

Franklin Templeton Investments

One Franklin Parkway

San Mateo, CA 94403-1906

Tel: (650) 312-4161

Fax: (650) 312-2221

Email: ctyle@frk.com

Compliance Officers

Director of Global Compliance

        Jim Davis

        Franklin Templeton Investments

        One Franklin Parkway

        San Mateo, CA 94403-1906

        Tel: (650) 312-2832

        Fax: (650) 312-5676

        Email: jdavis@frk.com

Chief Compliance Officer

Breda Beckerle

Franklin Templeton Investments

600 5^th Avenue, 5^th Floor
New York, NY 10020

Tel: (212) 632-3025

Fax: (212) 632-4055

Email:bbecker@frk.com

Code of Ethics Administration Department

Maria Abbott, Manager

Darlene James

Simon Li

Tadao Hayashi

Global Compliance Department

Franklin Templeton Investments

One Franklin Parkway

San Mateo, CA 94403-1906

Tel: (650) 312-3693 

Fax: (650) 312-5646 

        Email: Preclear-Code of Ethics (internal)

Lpreclear@frk.com (external) 

SCHEDULE B: Transactions Report

Instructions:  Print form, complete, sign and date.  Submit completed form to the Code of Ethics Administration Department via:

Inter-office:  Code of Ethics Administration, SM-920/2                        Fax:  (650) 312-5646 

U.S. Mail:  Franklin Templeton Investments                                         E-mail:    Preclear-Code of Ethics (internal)

                   Attn: Code of Ethics Administration Dept.                                                        Lpreclear@frk.com (external)

                                   P.O. Box 25050

San Mateo, CA 94402-5050

This report of personal securities transactions not reported by duplicate confirmations and brokerage statements pursuant to Section 4.3 of the Code is required pursuant to Rule 204A-1of the Investment Advisers Act of 1940 and Rule 17j-1(d) of the Investment Company Act of 1940. The report must be completed and submitted to the Code of Ethics Administration Department no later than thirty (30) calendar days after the end of the calendar quarter in which you completed such as transaction. Refer to Section 4.3 of the Code for further instructions.

Trade Date Buy, Sell or Other Security Name Description/Ticker Symbol or CUSIP number/ Type of Security (Interest Rate and Maturity Date, if applicable) Quantity (Number of Shares) Price (& currency type if not in U.S. dollars) Principal Amount (& currency type if not in U.S. dollars) Broker-Dealer/ Bank and Account Number     Pre-Cleared through Compliance Department (Date or N/A)

This report shall not be construed as an admission that I have any director indirect beneficial ownership in the securities described above.

Name (print) Signature Date Submitted Employee ID

SCHEDULE C: Initial & Annual Disclosure of Brokerage Accounts, Investment Advisory Accounts, Securities Holdings and Discretionary Authority

Instructions:  Print form, complete, sign and date.  Submit completed form as indicated below:

ØInitial Disclosure to:  Local Human Resources Dept. Contact Person                         

ØAnnual Disclosure to:  Code of Ethics Administration Dept.

  Inter-office:  Code of Ethics Administration, SM-920/2                      Fax:  (650) 312-5646 

  U.S. Mail:  Franklin Templeton Investments                                       E-mail:  Preclear-Code of Ethics (internal)

  Attn: Code of Ethics Administration Dept.                                                       Lpreclear@frk.com (external)

  P.O. Box 25050

  San Mateo, CA 94402-5050

This report shall set forth the name and/or description of each securities account and holding in which you have a direct or indirect beneficial interest, including securities accounts and holdings of a spouse, minor children or other immediate family member living in your home, trusts, foundations, and any account for which trading authority has been delegated to you, other than authority to trade for a Fund or other client of Franklin Templeton Investments or by you to an unaffiliated registered broker-dealer, registered investment adviser, or other investment manager acting in a similar fiduciary capacity, who exercises sole investment discretion.  In lieu of listing each securities account and holding below, you may attach copies of current brokerage statements, sign below and return the Schedule C along with the brokerage statements to the Code of Ethics Administration Department within 10 days of becoming an Access Person if an initial report or by February 1st of each year, if an annual report.  The information in this Schedule C or any attached brokerage statements must be current as of a date no more than 45 days prior to the date you become an Access Person or the date you submit your annual report.  Refer to Part 4 of the Code for additional filing instructions.

Securities that are EXEMPT from being reported on the Schedule C include: (i) securities that are direct obligations of the U.S. Government, such as Treasury bills, notes and bonds, and U.S. Savings Bonds and derivatives thereof;  (ii) high quality short-term instruments (“money market instruments”) including but not limited to bankers’ acceptances, U.S. bank certificates of deposit; commercial paper; and repurchase agreements; (iii) shares of money market funds; shares issued by open-end funds other than Reportable Funds (any fund for which a Franklin Templeton Investments’ U.S. registered investment adviser (“FTI Adviser”) serves as an investment adviser or a sub-adviser or any fund whose investment adviser or principal underwriter is controlled by an FTI adviser or is under common control with a FTI adviser); and shares issued by unit investment trusts that are invested in one or more open-end funds none of which are Reportable Funds.

¨I do not have any brokerage or investment advisory accounts.

¨I do not have any securities holdings.

¨I have attached statements containing all my brokerage and investment advisory accounts and securities holdings.

¨I have listed my brokerage and investment advisory accounts containing no securities holdings.

¨I have listed my securities holdings not held in a brokerage or investment advisory account.

Account Name(s) (registration shown on statement) Name of Securities Firm, Bank or Investment Adviser Address of Securities Firm, Bank or Investment Adviser (Street/City/State/Zip Code) Account Number (including Fund Number if applicable) Security Description/Title/Ticker Symbol or CUSIP #  (interest rate & maturity if appropriate)   Quantity Number of Shares,  Principal Amount (& currency type if not in U.S. dollars) Check this box if Discretionary Account

To the best of my knowledge, I have disclosed all of my securities and investment advisory accounts and/or holdings in which I have a direct or indirect beneficial interest, including securities and investment advisory accounts and/or holdings of a spouse, minor children or other immediate member living in my home, trusts, foundations, and any account for which trading authority has been delegated to me or by me to an unaffiliated registered broker-dealer, registered investment adviser, or other investment manager acting in a similar fiduciary capacity, who exercises sole investment discretion.

Name (print) Signature Date Submitted Employee ID

Initial Disclosure (check this box if you’re a new access person)	Annual Disclosure (check this box if annual certification)	Year End (for compliance use only)
¨	¨

SCHEDULE D: NOTIFICATION OF SECURITIES ACCOUNT

Instructions:  Print form, complete, sign and date.  Submit completed form to Code of Ethics Administration via:

Inter-office:  Code of Ethics Administration, SM-920/2                        Fax:  (650) 312-5646 

U.S. Mail:  Franklin Templeton Investments                                         E-mail:    Preclear-Code of Ethics (internal)

                                   Attn: Code of Ethics Administration Dept.                                        Lpreclear@frk.com (external)

                                   P.O. Box 25050

                                   San Mateo, CA 94402-5050 

All Access Persons, prior to opening a securities account or placing an initial order in the new account, are required to notify the Code of Ethics Administration Department and the executing broker-dealer in writing.  This includes accounts in which the Access Person has or will have a financial interest in (e.g., a spouse’s account) or discretionary authority (e.g., a trust account for a minor child) and for Reportable Funds.

Upon receipt of the NOTIFICATION OF SECURITIES ACCOUNT form, the Code of Ethics Administration Department will contact the broker-dealer identified below and request that duplicate confirmations and statements of your brokerage account are sent to Franklin Templeton Investments.

ACCOUNT INFORMATION:

Name on the Account (If other than employee, state relationship i.e., spouse)	Account Number including fund number if applicable	Date Established
Name of Securities Firm	Your Representative (optional)	Securities Firm Address (City/State/Zip Code)

EMPLOYEE INFORMATION:

Name (print)	Signature		Date Submitted	Employee ID
Title	Department Name		Interoffice Mail Code	Phone Extension
Code of Ethics Designation		NASD Registered Representative (Series 6, 7, etc.)
¨Non Access Person            ¨Supervised Person ¨Access Person                    ¨ Portfolio Person		¨ Yes          ¨ No

SCHEDULE E: Notification of Direct or Indirect Beneficial Interest

Instructions:  Print form, complete, sign and date. Obtain required signature and submit completed form to the Code of Ethics Administration department via:

Inter-office:  Code of Ethics Administration, SM-920/2                        Fax:  (650) 312-5646 

U.S. Mail:  Franklin Templeton Investments                                         E-mail:    Preclear-Code of Ethics (internal)

Attn: Code of Ethics Administration Dept.                                                           Lpreclear@frk.com (external)

                P.O. Box 2505

San Mateo, CA 94402-5050

If you have any beneficial ownership in a security and  you influence, either directly or via the appropriate analyst that the security be considered for purchase or sale by an Associated Client, or if a purchase or sale of that security for an Associated Client is executed, you must disclose your beneficial ownership to the Chief Investment Officer and/or Director of Research on Schedule E (or an equivalent form containing similar information) before the purchase or sale of the security, or before or simultaneously with the recommendation to purchase or sell a security.  The Chief Investment Officer and/or Director of Research must review and sign Schedule E and send a copy to the Code of Ethics Administration Department.

Security Description Ownership Type: (Direct or Indirect)  Year Acquired Method of Acquisition (Purchase/Gift/ Other) Date and Method Learned that Security’s Under Consideration by Funds   Primary Portfolio Manager or Portfolio Analyst  Name of Person Notified  Date of Verbal Notification

 Employee’s Name (print) Signature Date Submitted Employee ID

Chief Investment Officer or Director of Research’s Name (print) Signature Date

SCHEDULE F: Checklist for Investments in Partnerships and Securities Issued in Limited Offerings (Private Placements)

Instructions:  Print form, complete, sign, date and obtain CIO’s signature.  Submit completed form to the Code of Ethics Administration department via:

Inter-office:  Code of Ethics Administration, SM-920/2                        Fax:  (650) 312-5646

U.S. Mail:  Franklin Templeton Investments                                         E-mail:  Preclear-Code of Ethics (internal)

                Attn: Code of Ethics Administration Dept.                                                         Lpreclear@frk.com (external)

P.O. Box 25050

                San Mateo, CA 94402-5050

In deciding whether to approve a transaction, the Director of Global Compliance or the Chief Compliance Officer shall take into account, among other factors, whether the investment opportunity should be reserved for a Fund or other client, and whether the investment opportunity is being offered to the Access Person by virtue of his or her position with Franklin Templeton Investments.If the Access Person receives clearance for the transaction, no investment in the same issuer may be made for a Fund or client unless an executive officer of Franklin Resources, Inc., with no interest in the issuer, approves the transaction.          

Name/Description of Proposed Investment:

Proposed Investment Amount:

Please respond to the following questions:

a)If you are designated as a portfolio person, was this investment opportunity presented to you in your capacity as a portfolio manager? If no, please explain the relationship, if any, you have to the issuer or principals of the issuer.

b)If you are designated as a portfolio person, is this investment opportunity suitable for any fund/client that you advise?^[10]   If yes, why isn’t the investment being made on behalf of the fund/client?  If no, why isn’t the investment opportunity suitable for the fund/clients?

c)If you are designated as a portfolio person, do any of the fund/clients that you advise presently hold securities of the issuer of this proposed investment (e.g., common stock, preferred stock, corporate debt, loan participations, partnership interests, etc), ?  If yes, please provide the names of the funds/clients and security description.

d)Do you presently have or will you have any managerial role with the company/issuer as a result of your investment?  If yes, please explain in detail your responsibilities, including any compensation you will receive.

e)Will you have any investment control or input to the investment decision making process?

f)Will you receive reports of portfolio holdings?  If yes, when and how frequently will these be provided?

Please attach pages of the offering memorandum (or other documents) summarizing the investment opportunity, including:

i)name of the partnership/hedge fund/issuer;

ii)name of the general partner, location & telephone number;

iii)summary of the offering; including the total amount the offering/issuer;

iv)percentage your investment will represent of the total offering;

v)plan of distribution; and

vi)investment objective and strategy.

Reminder:  Personal securities transactions that do not generate brokerage confirmations (e.g., investments in private placements) must be reported to the Code of Ethics Administration Department on Schedule B no later than 30 calendar days after the end of the calendar quarter the transaction took place.

Employee’s Name (print) Signature Date Submitted Employee ID

"As Chief Investment Officer, I confirm, to the best of my knowledge and belief, that I have reviewed the private placement and do not believe that the proposed personal trade will be contrary to the best interests of any of our funds' or clients' portfolios.  I also understand that because of this clearance, no investment in the same issuer may be made for a Fund or client unless an executive officer of Franklin Resources, Inc., with no interest in the issuer, approves the transaction."

To restrict investments in Fund or client accounts, please add this security to the following restricted lists:

Domestic watchlist   ¨ Yes      ¨ No

Foreign watchlist     ¨ Yes      ¨ No

Chief Investment Officer’s Name (Applicable to Portfolio Persons only) Signature Date

Chief Compliance Officer Approving Signature Date

CODE OF ETHICS ADMINISTRATION DEPARTMENT USE ONLY

  Date Received:            Date Forwarded to FRI Executive Officer: 

SCHEDULE G: Request for Approval to Serve as a Director

Instructions:  Print form, complete, sign and date.  Submit completed form to Code of Ethics Administration Department via:

Inter-office:  Code of Ethics Administration, SM-920/2                        Fax:  (650) 312-5646 

U.S. Mail:  Franklin Templeton Investments                                   E-mail:  Preclear-Code of Ethics (internal)

 Attn: Code of Ethics Administration Dept.                                                Lpreclear@frk.com (external)

 P.O. Box 25050

 San Mateo, CA 94402-5050

EMPLOYEE INFORMATION
Employee:	Employee ID:
Department:	Phone Extension:
Job Title:	Site/Location:
Supervisor:	Sup. Extension:

COMPANY INFORMATION
Company Name:
Nature of company’s business:
Is this a public or private company?
Title/Position:
Justification for serving as a director with the company:
Estimate of hours to be devoted to the company:
Compensation received:	¨ Yes                                        ¨ No
If compensated, how?
Starting date:

Code of Ethics Designation	NASD Registered Representative (Series 6, 7, etc.)
¨Non Access Person             ¨Supervised Person ¨Access Person                     ¨ Portfolio Person	¨ Yes       ¨ No

Signature:                  Date:

FOR APPROVAL USE ONLY

¨ Approved         ¨ Denied

Signatory Name                  Signatory Title: 

Signature:                  Date:

APPENDIX C:  Investment Adviser and Broker-Dealer and Other Subsidiaries of Franklin Resources, Inc. – April 2010

Fiduciary International, Inc.	IA/FIA	Franklin Templeton Investimentos (Brasil) Ltda. (Brazil)	FIA
Fiduciary Investment Management International Inc.	IA	Franklin Templeton Investment Management Limited (UK)	IA/FIA
Fiduciary Trust Company International	Trust	Franklin Templeton Investment Services GmbH (Germany)	FBD
Fiduciary Trust Company of Canada	FIA	Franklin Templeton Investment Trust Management Co., Ltd (Korea)	FIA
Fiduciary Trust International Limited (UK)	FIA	Franklin Templeton Investments (Asia) Limited (Hong Kong)	FBD/FIA/IA
Fiduciary Trust International of California	Trust	Franklin Templeton Investments Australia Limited	FIA
Fiduciary Trust International of Delaware	Trust	Franklin Templeton Investments Corp. (Ontario)	IA/FIA/FBD
Fiduciary Trust International of the South	Trust	Franklin Templeton Investments Japan Ltd.	FIA
Franklin Advisers, Inc.	IA/FIA	Franklin Templeton Investor Services, LLC	TA
Franklin Advisory Services, LLC	IA/FIA	Franklin Templeton Italia Società di Gestione del Risparmio per Azioni  (Italy)	FBD
Franklin Investment Advisory Services, LLC	IA	Franklin Templeton Portfolio Advisors, Inc.	IA
Franklin Mutual Advisers, LLC	IA/FIA	Franklin Templeton Services, LLC	FA/BM
Franklin Templeton Asset Management (India) Private Limited (India)	IA/FIA	Franklin/Templeton Distributors, Inc.	BD
Franklin Templeton Asset Management (Malaysia) Sdn. Bhd.	FIA	FTC Investor Services Inc. (Canada)	FBD
Franklin Templeton Asset Management Mexico, Sociedad Anonima de Capital Variable, Sociedad Operadora de Sociedades de Inversión	FIA	Templeton Asset Management, Ltd.	IA/FIA
Franklin Templeton Financial Services, Corp.	BD	Templeton Global Advisors Ltd. (Bahamas)	IA/FIA
Franklin Templeton Institutional, LLC	IA	Templeton Investment Counsel, LLC	IA
Franklin Templeton International Services S.A. (Luxembourg)	FBD	Templeton/Franklin Investment Services, Inc.	BD

Codes:                    IA:          US registered investment adviser

BD:         US registered broker-dealer

FIA:        Foreign equivalent investment adviser

FBD:       Foreign equivalent broker-dealer

TA:         US registered transfer agent

FA:         Fund Administrator

BM:        Business manager to the funds

REA:       Real estate adviser

Trust:     Trust company

INSIDER TRADING COMPLIANCE POLICY AND PROCEDURES

A.        Legal Requirement

            Pursuant to the Insider Trading and Securities Fraud Enforcement Act of 1988, No officer, director, employee, consultant acting in a similar capacity, or other person associated with Franklin Templeton Investments may trade, either personally or on behalf of clients, including all client assets managed by the entities in Franklin Templeton Investments, on material non-public information or communicating material non-public information to others in violation of the law.  This conduct is frequently referred to as "insider trading."   Franklin Templeton Investment’s Insider Trading Compliance Policy and Procedures applies to every officer, director, employee or other person associated with  Franklin Templeton Investments and extends to activities within and outside their duties with  Franklin Templeton Investments.  Every officer, director and employee must read and retain this policy statement.  Any questions regarding Franklin Templeton Investments Insider Trading Compliance Policy and Procedures or the Compliance Procedures should be referred to the Legal Department.

            The term "insider trading" is not defined in the federal securities laws, but generally is used to refer to the use of material non-public information to trade in securities (whether or not one is an "insider") or to communications of material non-public information to others.

            While the law concerning insider trading is not static, it is generally understood that the law prohibits:

            (1)        trading by an insider, while in possession of material non-public information; or

            (2)        trading by a non-insider, while in possession of material non-public information, where the information either was disclosed to the non-insider in violation of an insider's duty to keep it confidential or was misappropriated; or

            (3)        communicating material non-public information to others.

            The elements of insider trading and the penalties for such unlawful conduct are discussed below.  If, after reviewing this policy statement, you have any questions, you should consult the Legal Department.

B.        Who is an Insider?

            The concept of "insider" is broad.  It includes officers, directors and employees of a company.  In addition, a person can be a "temporary insider" if he or she enters into a special confidential relationship in the conduct of a company's affairs and as a result is given access to information solely for the company's purposes.  A temporary insider can include, among others, a company's outside attorneys, accountants, consultants, bank lending officers, and the employees of such organizations.  In addition, an investment adviser may become a temporary insider of a company it advises or for which it performs other services.  According to the U.S. Supreme Court, the company must expect the outsider to keep the disclosed non-public information confidential and the relationship must at least imply such a duty before the outsider will be considered an insider.

C.        What is Material Information?

            Trading on inside information is not a basis for liability unless the information is material.  "Material information" generally is defined as information for which there is a substantial likelihood that a reasonable investor would consider it important in making his or her investment decisions, or information that is reasonably certain to have a substantial effect on the price of the company's securities.  Information that officers, directors and employees should consider material includes, but is not limited to:  dividend changes, earnings estimates, changes in previously released earnings estimates, significant merger or acquisition proposals or agreements, major litigation, liquidation problems, and extraordinary management developments.

            Material information does not have to relate to a company's business.  For example, in Carpenter v. U.S., 108 U.S. 316 (1987), the Supreme Court considered as material certain information about the contents of a forthcoming newspaper column that was expected to affect the market price of a security.  In that case, a Wall Street Journal reporter was found criminally liable for disclosing to others the dates that reports on various companies would appear in the Wall Street Journal and whether those reports would be favorable or not.

D.        What is Non-Public Information?

            Information is non-public until it has been effectively communicated to the marketplace.  One must be able to point to some fact to show that the information is generally public.  For example, information found in a report filed with the Securities and Exchange Commission ("SEC"), or appearing in Dow Jones, Reuters Economic Services, The Wall Street Journal or other publications of general circulation would be considered public.

E.         Basis for Liability

            1.         Fiduciary Duty Theory

            In 1980, the Supreme Court found that there is no general duty to disclose before trading on material non-public information, but that such a duty arises only where there is a fiduciary relationship.  That is, there must be a relationship between the parties to the transaction such that one party has a right to expect that the other party will not disclose any material non-public information or refrain from trading.  Chiarella v. U.S., 445 U.S. 22 (1980).

            In Dirks v. SEC, 463 U.S. 646 (1983), the Supreme Court stated alternate theories under which non-insiders can acquire the fiduciary duties of insiders.  They can enter into a confidential relationship with the company through which they gain information (e.g., attorneys, accountants), or they can acquire a fiduciary duty to the company's shareholders as "tippees" if they are aware or should have been aware that they have been given confidential information by an insider who has violated his fiduciary duty to the company's shareholders.

            However, in the "tippee" situation, a breach of duty occurs only if the insider personally benefits, directly or indirectly, from the disclosure.  The benefit does not have to be pecuniary but can be a gift, a reputational benefit that will translate into future earnings, or even evidence of a relationship that suggests a quid pro quo.

            2.         Misappropriation Theory

            Another basis for insider trading liability is the "misappropriation" theory, under which liability is established when trading occurs on material non-public information that was stolen or misappropriated from any other person.  In U.S. v. Carpenter, supra, the Court found, in 1987, a columnist defrauded The Wall Street Journal when he stole information from the Wall Street Journal and used it for trading in the securities markets.  It should be noted that the misappropriation theory can be used to reach a variety of individuals not previously thought to be encompassed under the fiduciary duty theory.

F.         Penalties for Insider Trading

            Penalties for trading on or communicating material non-public information are severe, both for individuals involved in such unlawful conduct and their employers.  A violation of the Code resulting in a violation of the law will be severely sanctioned, with disciplinary action including but not limited to termination.  Please refer to Part 7 – Penalties for Violations of the Code.

A person can be subject to some or all of the penalties below even if he or she does not personally benefit from the violation.  Penalties include:

·      civil injunctions;

·      treble damages;

·      disgorgement of profits;

·      jail sentences;

·fines for the person who committed the violation of up to three times the profit gained or

             loss avoided, whether or not the person actually benefited; and

·      fines for the employer or other controlling person of up to the greater of $1,000,000 or

                        three times the amount of the profit gained or loss avoided.

            In addition, any violation of this policy statement can result in serious sanctions by Franklin Templeton Investments, including dismissal of any person involved.

G.        Insider Trading Procedures

            All employees shall comply with the following procedures.

            1.         Identifying Inside Information

Before trading for yourself or others, including investment companies or private accounts managed by Franklin Templeton Investments, in the securities of a company about which you may have potential inside information, ask yourself the following questions:

·Is the information material?

·Is this information that an investor would consider important in making his or her investment decisions?

·Is this information that would substantially affect the market price of the securities if generally disclosed? 

·Is the information non-public?

·To whom has this information been provided?

·Has the information been effectively communicated to the marketplace (e.g., published in Reuters, The Wall Street Journal or other publications of general circulation)?

If, after consideration of these questions, you believe that the information may be material and non-public, or if you have questions as to whether the information is material and non-public, you should take the following steps:

(i)Report the matter immediately to the designated Compliance Officer, or if he or she is not available, to the Legal Department.

(ii)Do not purchase or sell the securities on behalf of yourself or others, including investment companies or private accounts managed by Franklin Templeton Investments.

(iii)Do not communicate the information inside or outside Franklin Templeton Investments, other than to the Compliance Officer or the Legal Department.

(iv)The Compliance Officer shall immediately contact the Legal Department for advice concerning any possible material, non-public information.

(v)After the Legal Department has reviewed the issue and consulted with the Compliance Officer, you will be instructed either to continue the prohibitions against trading and communication noted in (ii) and (iii), or you will be allowed to trade and communicate the information.

(vi)In the event the information in your possession is determined by the Legal Department or the Compliance Officer to be material and non-public, it may not be communicated to anyone, including persons within Franklin Templeton Investments, except as provided in (i) above.  In addition, care should be taken so that the information is secure.  For example, files containing the information should be sealed and access to computer files containing material non-public information should be restricted to the extent practicable. Securities for which there is material, non-public information shall be placed on the personal trading restricted list for a timeframe determined by the Compliance Officer.

            2.         Restricting Access to Other Sensitive Information

            All Franklin Templeton Investments personnel also are reminded of the need to be careful to protect from disclosure other types of sensitive information that they may obtain or have access to as a result of their employment or association with Franklin Templeton Investments.

3.         SEC Rule 10b5-1(c) Plans

We may permit exemptions from the insider trading policies and procedures set forth above for transactions in securities issued by FRI effected pursuant to pre-approved, written trading plans or arrangements complying with Rule 10b5-1(c) under the Securities Exchange Act of 1934, as amended.  Rule 10b5-1(c) plans or arrangements may not be entered into or modified either during FRI’s trading blackout periods or when you are aware of material, non-public information relating to FRI or its securities.  All such plans or arrangements (and any modification of termination thereof) must be pre-approved by FRI’s General Counsel (or such person’s designee).

H.        General Access Control Procedures

Franklin Templeton Investments has established a process by which access to company files that may contain sensitive or non-public information such as the Bargain List and the Source of Funds List is carefully limited.  Since most of Franklin Templeton Investments files, which contain sensitive information, are stored in computers, personal identification numbers, passwords and/or code access numbers are distributed to Franklin Templeton Investments computer Access Persons only.  This activity is monitored on an ongoing basis.  In addition, access to certain areas likely to contain sensitive information is normally restricted by access codes.

CORRESP

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