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seek, among other forms of relief, one or more of: unspecified monetary damages, punitive damages, anorder barring any increase in management fees for a period of two years following judgment, and attorneys’fees and costs. Oral argument on petitioners’ motion for authorization to institute a class action in theHuneault lawsuit concluded on May 5, 2009, and the matter is now under submission with the court. Oralargument on plaintiffs’ motion for class certification in the Fischer lawsuit is currently scheduled to begin inearly December 2009.In addition, Franklin/Templeton Distributors, Inc. (one of Franklin’s subsidiaries and the principalunderwriter to the Funds), as well as the individual trustees to the Franklin Custodian Funds (the “Trust”),have been named in a lawsuit brought derivatively on behalf of the Trust, concerning payment of assetbasedcompensation between July 22, 2005 and the present to broker-dealers that hold Fund shares inbrokerage accounts and that are not registered as investment advisers. The lawsuit is captioned Smith v.Franklin/Templeton Distributors, Inc., et al., Case No. CV 09-4775, and was filed in the U.S. District Courtfor the Northern District of California on October 6, 2009. Specifically, plaintiff is attempting to allegeclaims under Section 47(b) of the Investment Company Act of 1940, and for breach of fiduciary duty,breach of contract, and waste of Trust assets, and is seeking unspecified monetary damages, declaratory andinjunctive relief enjoining further asset-based compensation to such broker-dealers, and attorneys’ fees andcosts.Management strongly believes that the claims made in each of the lawsuits identified above arewithout merit and intends to defend against them vigorously. The Company cannot predict with certainty,however, the eventual outcome of those lawsuits, nor whether they will have a material negative impact onthe Company.The Company is from time to time involved in litigation relating to claims arising in the normal courseof business. Management is of the opinion that the ultimate resolution of such claims will not materiallyaffect the Company’s business, financial position or results of operations. In management’s opinion, anadequate accrual has been made as of September 30, 2009, to provide for any probable losses that may arisefrom these matters for which the Company could reasonably estimate an amount.Variable Interest EntitiesThe Company’s VIEs primarily include certain sponsored investment products and certain otherinvestment products (collectively, “investment products”). The Company’s variable interests generallyinclude its equity ownership interest in the investment products and its investment management and relatedservices fees earned from sponsored investment products. Based on its evaluations, the Company believes itwas not the primary beneficiary of its VIEs and, as a result, did not consolidate these entities as of and forthe years ended September 30, 2009 and 2008.101