EXHIBIT 77E - LEGAL PROCEEDINGS

     RECENT LITIGATION.  On January 29, 2003, the Fund,  together with Templeton
China World Fund, Inc. ("China Fund"),  another closed-end management investment
company in Franklin Templeton  Investments,  and TAML, the investment adviser to
the Fund and China Fund,  filed a complaint in the United States  District Court
for the  District of  Maryland,  Northern  Division,  against  Harvard  College,
Harvard Management Company, Inc. ("Harvard Management"),  which is an investment
advisor to Harvard College, and Steven Alperin, an officer of Harvard Management
(referred to  collectively  as  "Harvard").  The complaint  alleged that Harvard
violated several  provisions of the Federal securities laws and the rules of the
SEC related to Harvard's  ownership of Fund shares and actions as a shareholder.
On February 7, 2003, Harvard counterclaimed, alleging that the Fund, China Fund,
TAML and each  fund's  directors  violated  certain  provisions  of the  Federal
securities laws and SEC rules. Harvard also asserted  counterclaims of breach of
fiduciary duty under Maryland state law against TAML and each fund's  directors.
On March 20, 2003,  the parties  announced a settlement  that resulted in, among
other things,  the dismissal of their  litigation  claims against each other and
the withdrawal of  shareholder  proposals  submitted by Harvard  College for the
Fund's 2003 Annual Shareholders' Meeting (the "Meeting").

     DISMISSAL OF LAWSUIT. Pursuant to the Settlement Agreement between the Fund
and  Harvard,  the  complaint  brought by the Fund,  China Fund and TAML against
Harvard, as well as the counterclaims brought by Harvard against the Fund, China
Fund,  each fund's  directors and TAML were  dismissed  without  prejudice.  The
parties have also entered into  covenants  not to sue each other with respect to
the  claims  that were made or could have been made in the  litigation  absent a
breach of the settlement agreements.

     SHAREHOLDER PROPOSALS. As part of the settlement, Harvard College has
agreed to withdraw all of its shareholder proposals for the Meeting.

      TENDER OFFERS.  The Fund announced that as part of its settlement with
Harvard, it has agreed to take, and the Board approved, the following actions:

     o APRIL 2003 CASH TENDER OFFER--The Fund agreed to commence a cash tender
       offer,  which was  required to be  commenced  on or prior to April 30,
       2003, for 15% of the Fund's  outstanding  shares at 92.5% of net asset
       value  per  share as of the date the offer  expires.  Previously,  the
       Board had  approved an April 2003 cash tender  offer for not less than
       10% of the Fund's outstanding shares at not less than 90% of net asset
       value per share.  On April 24, 2003, the Fund commenced a tender offer
       for up to 6,656,425 shares, or 15%, of the Fund's  outstanding  shares
       at a price per share equal to 92.5% of net asset value per share as of
       May 22, 2003, the expiration  date of the tender offer.  In accordance
       with the terms of the tender offer,  6,656,425 shares were accepted by
       the Fund for a purchase price of $9.97 per share.

     o IN-KIND TENDER OFFERS--The Fund has applied to the SEC for an exemptive
       order  allowing  the  Fund to  make  occasional,  non-periodic  tender
       offers, each for up to 20% of the Fund's outstanding shares at a price
       equal to 95% of net  asset  value  per  share as of the date the offer
       expires,  to be paid entirely in kind through a pro rata  distribution
       of marketable  portfolio  securities  and available  cash.  Subject to
       certain conditions,  the settlement requires the Fund to commence such
       an in-kind  tender  offer for 20% of the Fund's  shares  within  three
       months  after  obtaining  the SEC  exemption.  The  Fund  may  also be
       required under the settlement to conduct,  on substantially  identical
       terms,  up to two  additional  in-kind  tender  offers  under  certain
       circumstances.  There is no  assurance  that the SEC  will  issue  the
       exemptive  order,  nor is it  possible  to  predict  the date  when an
       exemptive order might be granted.

     o ADDITIONAL CASH TENDER OFFERS--If the SEC does not issue the exemptive
       order for in-kind  tender  offers by March 26,  2004,  the  settlement
       provides  that the Fund  may,  but is not  obligated  to,  conduct  an
       additional cash tender offer, and possibly later follow-on cash tender
       offers,  each for 15% of the Fund's  outstanding  shares at a price of
       92.5% of net asset  value per share as of the date the offer  expires.
       Under certain circumstances, if the Fund does not conduct these tender
       offers,  Harvard  will be relieved of its  obligation  to refrain from
       making shareholder  proposals and taking other actions with respect to
       the Fund.

     Harvard announced that it intends to tender all of the shares it then owns
into each tender offer described above that is commenced.

     The Settlement  Agreement  provides that the Fund will not be obligated to
commence  in-kind  tender offers or additional  cash tender offers under certain
circumstances or conditions.  These relate to, among other things, the number of
shares  tendered by  shareholders  into  preceding  tender offers as well as the
beneficial ownership percentages of the Fund's shareholders.

     STANDSTILL. As part of the  settlement,  Harvard  agreed not to submit any
proposals for consideration by shareholders of the Fund, or any other closed-end
fund or similar  investment  vehicle managed by TAML or its  affiliates,  or for
consideration by shareholders of Franklin Resources,  nor to encourage others to
do so, for a period of four  years.  Harvard  also has agreed not at any time to
acquire  additional  shares of the Fund or any other  closed-end fund or similar
investment vehicle managed by TAML or its affiliates.

     FEES, COSTS AND EXPENSES.  The Fund agreed that TAML shall be  responsible
for the legal fees and  expenses  incurred  by the Fund and its  directors  with
respect to the  Settlement  Agreement and the  litigation.  The Fund agreed that
TAML shall also be responsible  for the legal fees and expenses  incurred by the
Fund through March 20, 2003,  with respect to its proxy contest  relating to the
Meeting.