(a) The
Registrant has adopted a code of ethics that applies to its principal executive
officers and principal financial and accounting officer.
(f)
Pursuant to Item 13(a)(1), the Registrant is attaching as an exhibit a copy of
its code of ethics that applies to its principal executive officers and
principal financial and accounting officer.
Members of the Audit Committee are: Terrence J. Checki, Mary C. Choksi, Edith E. Holiday, J.
Michael Luttig and Larry D. Thompson
.
Item
6. Schedule of Investments. N/A
Item
7
. Disclosure of Proxy Voting
Policies and Procedures for Closed-End Management Investment Companies.
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 investment manager, Franklin Advisers,
Inc., in accordance with the Proxy Voting Policies and Procedures (Policies)
adopted by the investment manager.
The investment manager has delegated its administrative duties with
respect to the voting of proxies for securities 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 investment manager’s instructions and/or policies. The
investment manager votes proxies solely in the best interests of the Fund and
its shareholders.
To assist it in analyzing proxies of equity securities, the investment
manager subscribes to Institutional Shareholder Services, Inc. (ISS), an
unaffiliated third-party corporate governance research service that provides
in-depth analyses of shareholder meeting agendas, vote recommendations, vote
execution services, ballot reconciliation services, recordkeeping and vote
disclosure services. In addition, the investment 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, as well as a limited subscription to
its international research. Although analyses provided by ISS, Glass Lewis,
and/or another independent third party proxy service provider (each a
"Proxy Service") are thoroughly reviewed and considered in making a
final voting decision, the investment manager does not consider recommendations
from a Proxy Service or any third party to be determinative of the investment
manager's ultimate decision. Rather, the investment manager exercises its
independent judgment in making voting decisions. For most proxy proposals, the
investment manager’s evaluation will result in the same position being taken for
all Funds. In some cases, however, the evaluation may result in a Fund or
investment manager voting differently, depending upon the nature and objective
of the Fund, the composition of its portfolio, whether the investment manager
has adopted a custom voting policy, and other factors. As a matter of policy,
the officers, directors/trustees and employees of the investment 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 best interests of the investment 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 vote consistent with
the voting recommendation of a Proxy Service; or send the proxy directly to the
Fund's board or a committee of the board with the investment manager's
recommendation regarding the vote for approval.
Where a material conflict of interest has been identified, but the items
on which the investment manager’s vote recommendations differ from a Proxy
Service and relate specifically to (1) shareholder proposals regarding social
or environmental issues, (2) “Other Business” without describing the matters
that might be considered, or (3) items the investment 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 investment manager rather than
sending the proxy directly to the Fund's board or a board committee for
approval.
To avoid certain potential conflicts of interest, the investment manager
will employ echo voting or pass-through 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)(F) or (G) of the 1940 Act, the rules thereunder, or
pursuant to a SEC exemptive order thereunder; (2) when the Fund invests
uninvested cash in affiliated money market funds pursuant to the rules under
the 1940 Act or any exemptive orders thereunder (“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 other holders of the underlying fund's shares.
With respect to instances when a Franklin Templeton U.S. registered investment
company invests in an underlying fund in reliance on any one of Sections
12(d)(1)(F) or (G) of the 1940 Act, the rules thereunder, or pursuant to an SEC
exemptive order thereunder, and there are no other unaffiliated shareholders
also invested in the underlying fund, the investment manager will vote in
accordance with the recommendation of such investment company’s board of
trustees or directors. In addition, to avoid certain potential conflicts of
interest, and where required under a fund’s governing documents or applicable
law, the investment manager will employ pass-through voting when a Franklin
Templeton U.S. registered investment company invests in an underlying fund in
reliance on Section 12(d)(1)(E) of the 1940 Act, the rules thereunder, or
pursuant to an SEC exemptive order thereunder. In “pass-through voting,” a
feeder fund will solicit voting instructions from its shareholders as to how to
vote on the master fund’s proposals. If a Franklin Templeton investment company
becomes a holder of more than 25% of the shares on a non-affiliated fund, as a
result of a decrease in the outstanding shares of the non-affiliated fund, then
the investment manager will vote the shares in the same proportion as the vote
of all other holders of the non-affiliated fund.
The recommendation of management on any issue is a factor that the
investment manager considers in determining how proxies should be voted.
However, the investment manager does not consider recommendations from
management to be determinative of the investment 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 investment 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.
Engagement with issuers
. The investment manager believes that
engagement with issuers is important to good corporate governance and to assist
in making proxy voting decisions. The investment manager may engage with
issuers to discuss specific ballot items to be voted on in advance of an annual
or special meeting to obtain further information or clarification on the proposals.
The investment manager may also engage with management on a range of
environmental, social or corporate governance issues throughout the year.
Investment manager’s proxy voting policies and principles
The
investment 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 investment manager cannot anticipate all future
situations. In all cases, each proxy and proposal (including both management
and shareholder proposals) will be considered based on the relevant facts and
circumstances on a case-by-case basis.
Board of directors
. The investment manager supports an independent,
diverse board of directors, and prefers that key committees such as audit,
nominating, and compensation committees be comprised of independent directors.
The investment manager supports boards with strong risk management oversight.
The investment manager will generally vote against management efforts to
classify a board and will generally support proposals to declassify the board
of directors. The investment 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
investment 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. The investment manager generally will support
non-binding shareholder proposals to require a majority vote standard for the
election of directors; however, if these proposals are binding, the investment
manager will give careful review on a case-by-case basis of the potential ramifications
of such implementation.
In the event of a contested election, the investment manager will review
a number of factors in making a decision including management’s track record,
the company’s financial performance, qualifications of candidates on both
slates, and the strategic plan of the dissidents and/or shareholder nominees.
Ratification of auditors of portfolio companies
. The investment
manager will closely scrutinize the independence, role and performance of
auditors. On a case-by-case basis, the investment manager will examine
proposals relating to non-audit relationships and non-audit fees. The
investment 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 a lack of independence, accounting
irregularities or negligence. The investment manager may also consider whether
the ratification of auditors has been approved by an appropriate audit committee
that meets applicable composition and independence requirements.
Management and director compensation
. A company’s equity-based
compensation plan should be in alignment with the shareholders’ long-term
interests. The investment manager believes that executive compensation should
be directly linked to the performance of the company. The investment manager
evaluates plans on a case-by-case basis by considering several factors to
determine whether the plan is fair and reasonable, including the ISS quantitative
model utilized to assess such plans and/or the Glass Lewis evaluation of the
plans. The investment 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 investment 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 investment manager will generally oppose “golden
parachutes” that are considered to be excessive. The investment 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.
The investment manager will review non-binding say-on-pay proposals on a
case-by-case basis, and will generally vote in favor of such proposals unless
compensation is misaligned with performance and/or shareholders’ interests, the
company has not provided reasonably clear disclosure regarding its compensation
practices, or there are concerns with the company’s remuneration practices.
Anti-takeover mechanisms and related issues
. The investment
manager generally opposes anti-takeover measures since they tend to reduce
shareholder rights. However, as with all proxy issues, the investment manager
conducts an independent review of each anti-takeover proposal. On occasion, the
investment 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 investment manager generally supports proposals
that require shareholder rights’ plans (often referred to as “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 investment manager will generally vote against any proposal to
issue stock that has unequal or subordinate voting rights. The investment
manager generally opposes any supermajority voting requirements as well as the
payment of “greenmail.” The investment manager generally supports “fair price”
provisions and confidential voting. The investment manager will review a
company’s proposal to reincorporate to a different state or country on a case-by-case
basis taking into consideration financial benefits such as tax treatment as
well as comparing corporate governance provisions and general business laws
that may result from the change in domicile.
Changes to capital structure
. The investment 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 investment manager
will review, on a case-by-case basis, proposals by companies to increase
authorized shares and the purpose for the increase. The investment 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 investment 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. The investment manager will
review proposals seeking preemptive rights on a case-by-case basis.
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 investment 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.
Environmental and social issues
. The investment manager considers
environmental and social issues alongside traditional financial measures to
provide a more comprehensive view of the value, risk and return potential of an
investment. Companies may face significant financial, legal and reputational
risks resulting from poor environmental and social practices, or negligent
oversight of environmental or social issues. Franklin Templeton’s “Responsible
Investment Principles and Policies” describes the investment manager’s approach
to consideration of environmental, social and governance issues within the
investment manager’s processes and ownership practices.
Shareholder proposals.
The investment manager will review shareholder
proposals on a case-by-case basis and may support those that serve to enhance
value or mitigate risk, are drafted appropriately, and do not disrupt the
course of business or require a disproportionate or inappropriate use of company
resources.
In the investment manager’s experience, those companies that are managed
well are often effective in dealing with the relevant environmental and social
issues that pertain to their business. As such, the investment manager will
generally give management discretion with regard to environmental and social
issues. However, in cases where management and the board have not demonstrated
adequate efforts to mitigate material environmental or social risks, have
engaged in inappropriate or illegal conduct, or have failed to adequately
address current or emergent risks that threaten shareholder value, the
investment manager may choose to support well-crafted shareholder proposals
that serve to promote or protect shareholder value. This may include seeking
appropriate disclosure regarding material environmental and social issues.
The investment manager will consider supporting a shareholder proposal
seeking disclosure and greater board oversight of lobbying and corporate
political contributions if the investment manager believes that there is
evidence of inadequate oversight by the company’s board, if the company’s
current disclosure is significantly deficient, or if the disclosure is notably
lacking in comparison to the company’s peers.
Governance matters
. The investment manager generally supports the right of
shareholders to call special meetings and act by written consent. However, the
investment manager will review such shareholder proposals on a case-by-case
basis in an effort to ensure that such proposals do not disrupt the course of
business or require a disproportionate or inappropriate use of company
resources.
Proxy access
. In cases where the investment manager is satisfied
with company performance and the responsiveness of management, it will generally
vote against shareholder proxy access proposals not supported by management. In
other instances, the investment manager will consider such proposals on a
case-by-case basis, taking into account factors such as the size of the
company, ownership thresholds and holding periods, nomination limits (e.g.,
number of candidates that can be nominated), the intentions of the shareholder
proponent, and shareholder base.
Global corporate governance
. Many of the tenets discussed above are
applied to the investment manager's proxy voting decisions for international
investments. However, the investment manager must be flexible in these
worldwide markets. Principles of good corporate governance may vary by country,
given the constraints of a country’s laws and acceptable practices in the
markets. As a result, it is on occasion difficult to apply a consistent set of
governance practices to all issuers. As experienced money managers, the
investment manager's analysts are skilled in understanding the complexities of
the regions in which they specialize and are trained to analyze proxy issues
germane to their regions.
The investment manager will generally attempt to process every proxy it
receives for all domestic and foreign securities. However, there may be
situations in which the investment manager may be unable to successfully vote a
proxy, or may choose not to vote a proxy, such as where: (i) a proxy ballot was
not received from the custodian bank; (ii) a meeting notice was received too
late; (iii) there are fees imposed upon the exercise of a vote and it is
determined that such fees outweigh the benefit of voting; (iv) there are legal
encumbrances to voting, including blocking restrictions in certain markets that
preclude the ability to dispose of a security if the investment manager votes a
proxy or where the investment manager is prohibited from voting by applicable
law, economic or other sanctions, or other regulatory or market requirements,
including but not limited to, effective Powers of Attorney; (v) additional documentation
or the disclosure of beneficial owner details is required; (vi) the investment
manager held shares on the record date but has sold them prior to the meeting
date; (vii) a proxy voting service is not offered by the custodian in the
market; (viii) due to either system error or human error, the investment
manager’s intended vote is not correctly submitted; (ix) the investment manager
believes it is not in the best interest of the Fund or its shareholders to vote
the proxy for any other reason not enumerated herein; or (x) a security is
subject to a securities lending or similar program that has transferred legal
title to the security to another person.
In some non-U.S. jurisdictions, even if the investment manager uses
reasonable efforts to vote a proxy on behalf of the Fund, such vote or proxy
may be rejected because of (a) operational or procedural issues experienced by
one or more third parties involved in voting proxies in such jurisdictions; (b)
changes in the process or agenda for the meeting by the issuer for which the
investment manager does not have sufficient notice; or (c) the exercise by the
issuer of its discretion to reject the vote of the investment manager. In
addition, despite the best efforts of the Proxy Group and its agents, there may
be situations where the investment manager's votes are not received, or
properly tabulated, by an issuer or the issuer's agent.
The investment manager or its affiliates may, on behalf of one or more of
the proprietary registered investment companies advised by the investment
manager or its affiliates, determine to use its best efforts to recall any
security on loan where the investment manager or its affiliates (a) learn of a
vote on a material event that may affect a security on loan and (b) determine that
it is in the best interests of such proprietary registered investment companies
to recall the security for voting purposes.
Procedures for meetings involving fixed income securities & privately
held issuers
. From time to time, certain custodians may process events for
fixed income securities through their proxy voting channels rather than
corporate action channels for administrative convenience. In such cases, the
Proxy Group will receive ballots for such events on the ISS voting platform. The
Proxy Group will solicit voting instructions from the investment manager for
each Fund involved. If the Proxy Group does not receive voting instructions
from the investment manager, the Proxy Group will take no action on the event.
The investment manager may be unable to vote a proxy for a fixed income
security, or may choose not to vote a proxy, for the reasons described above.
In the rare instance where there is a vote for a privately held issuer,
the decision will generally be made by the relevant portfolio managers or
research analysts.
The Proxy Group will monitor such meetings involving fixed income
securities or privately held issuers for conflicts of interest in accordance
with these procedures. If a fixed income or privately held issuer is flagged as
a potential conflict of interest, the investment manager may nonetheless vote
as it deems in the best interests of the Fund. The investment manager will
report such decisions on an annual basis to the Fund board as may be required.
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, 300 S.E. 2nd Street, Fort Lauderdale, FL
33301-1923, 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
.
Item 8. Portfolio Managers of Closed-End Management
Investment Companies. N/A
Item 9. Purchases of Equity Securities by Closed-End
Management Investment
Company and
Affiliated
Purchasers. N/A
Item
10
. Submission of Matters to
a Vote of Security Holders.
There have been no changes to the procedures by which
shareholders may recommend nominees to the Registrant's Board of Trustees that
would require disclosure herein.