B-1 STATEMENT OF ADDITIONAL INFORMATION Dated May 1 ...

have discretion in the granting of annual bonuses to portfolio managers in accordance withFranklin Templeton guidelines. The following factors are generally used in determining bonusesunder the plan:• Investment performance. Primary consideration is given to the historic investmentperformance over the 1, 3 and 5 preceding years of all accounts managed by the portfoliomanager. The pre-tax performance of each fund managed is measured relative to a relevantpeer group and/or applicable benchmark as appropriate.• Research. Where the portfolio management team also has research responsibilities, eachportfolio manager is evaluated on the number and performance of recommendations overtime, productivity and quality of recommendations, and peer evaluation.• Non-investment performance. For senior portfolio managers, there is a qualitative evaluationbased on leadership and the mentoring of staff.• Responsibilities. The characteristics and complexity of funds managed by the portfoliomanager are factored in the manager’s appraisal.Additional long-term equity based compensation Portfolio managers may also be awardedrestricted shares or units of Franklin Resources stock or restricted shares or units of one or moremutual funds and options to purchase common shares of Franklin Resources stock. Awards ofsuch deferred equity based compensation typically vest over time, so as to create incentives toretain key talent.Portfolio managers also participate in benefit plans and programs available generally to all employees ofthe manager.Capital Guardian. At Capital Guardian, portfolio managers and investment analysts are paid competitivesalaries. In addition, they may receive bonuses based on their individual portfolio results and also mayparticipate in profit-sharing plans. The relative mix of compensation represented by bonuses, salary andprofit sharing will vary depending on the individual’s portfolio results, contributions to the organizationand other factors. In order to encourage a long-term focus, bonuses based on investment results arecalculated by comparing pretax total returns to relevant benchmarks over both the most recent year, afour-year rolling average and an eight-year rolling average with much greater weight placed on the fouryearand eight-year rolling averages. For portfolio managers, benchmarks may include both measures ofthe marketplaces in which the relevant fund invests and measures of the results of comparable mutualfunds or consultant universe measures of comparable institutional accounts. For investment analysts,benchmarks include both relevant market measures and appropriate industry indexes reflecting their areasof expertise. Analysts are also subjectively compensated for their contributions to the research process.The benchmarks used to measure performance of the portfolio managers for the Domestic EquityPortfolio include the Russell 1000 ® Value Index and a customized Growth and Income index based on theLipper Growth and Income Index.T. Rowe Price. Portfolio manager compensation consists primarily of a base salary, a cash bonus, and anequity incentive that usually comes in the form of a stock option grant. Occasionally, portfolio managerswill also have the opportunity to participate in other investment partnerships. Compensation is variableand is determined based on the following factors:Investment performance over one-, three-, five-, and 10-year periods is the most important input. T. RowePrice evaluates performance in absolute, relative, and risk adjusted terms. Relative performance and riskadjusted performance are determined with reference to the broad based index (ex. S&P 500 ® ) and anapplicable Lipper index (ex. Large-Cap Growth), though other benchmarks may be used as well.Investment results are also measured against comparably managed funds of competitive investmentB-87