Item
3. Audit Committee Financial Expert.
(a)(1)
The Registrant has an audit committee financial expert serving on its audit
committee.
(2)
The audit committee financial experts are Ann Torre Bates and David W. Niemiec
and they are “independent" as defined under the relevant Securities and
Exchange Commission Rules and Releases.
Principal Accountant Fees and Services.
(a) Audit Fees
The aggregate fees paid to the principal accountant
for professional services rendered by the principal accountant for the audit of
the registrant’s annual financial statements or for services that are normally
provided by the principal accountant in connection with statutory and
regulatory filings or engagements were $50,235 for the fiscal year ended
December 31, 2022 and $50,055 for the fiscal year ended December 31, 2021.
(b) Audit-Related Fees
There were no fees paid to the principal accountant for assurance and related services rendered by the principal accountant to the registrant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of Item 4.
There were no fees paid to the principal accountant for assurance and related services rendered by the principal accountant to the registrant's investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant that are reasonably related to the performance of the audit of their financial statements.
(c) Tax Fees
There were no fees paid to the principal accountant for professional services rendered by the principal accountant to the registrant for tax compliance, tax advice and tax planning.
The aggregate fees paid to the principal accountant for professional services rendered by the principal accountant to the registrant’s investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant for tax compliance, tax advice and tax planning were $70,000 for the fiscal year ended December 31, 2022 and $0 for the fiscal year ended December 31, 2021. The services for which these fees were paid included global access to tax platform International Tax View.
(d) All Other Fees
The aggregate fees paid to the principal accountant for products and services rendered by the principal accountant to the registrant not reported in paragraphs (a)-(c) of Item 4 were $0 for the fiscal year ended December 31, 2022 and $272 for the fiscal year ended December 31, 2021. The services for which these fees were paid included review of materials provided to the fund Board in connection with the investment management contract renewal process.
The aggregate fees paid to the principal accountant for products and services rendered by the principal accountant to the registrant’s investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant not reported in paragraphs (a)-(c) of Item 4 were $171,195 for the fiscal year ended December 31, 2022 and $0 for the fiscal year ended December 31, 2021. The services for which these fees were paid included fees in connection with a license for accounting and business knowledge platform Viewpoint and fees in connection with a license for employee development tool ProEdge.
(e)
(1) The registrant’s audit committee is directly responsible for approving the
services to be provided by the auditors, including:
(i) pre-approval
of all audit and audit related services;
(ii) pre-approval
of all non-audit related services to be provided to the Fund by the auditors;
(iii) pre-approval
of all non-audit related services to be provided to the registrant by the
auditors to the registrant’s investment adviser or to any entity that controls,
is controlled by or is under common control with the registrant’s investment
adviser and that provides ongoing services to the registrant where the
non-audit services relate directly to the operations or financial reporting of
the registrant; and
(iv) establishment
by the audit committee, if deemed necessary or appropriate, as an alternative
to committee pre-approval of services to be provided by the auditors, as required
by paragraphs (ii) and (iii) above, of policies and procedures to permit such
services to be pre-approved by other means, such as through establishment of guidelines
or by action of a designated member or members of the committee; provided the
policies and procedures are detailed as to the particular service and the
committee is informed of each service and such policies and procedures do not
include delegation of audit committee responsibilities, as contemplated under the
Securities Exchange Act of 1934, to management; subject, in the case of (ii)
through (iv), to any waivers, exceptions or exemptions that may be available
under applicable law or rules.
(e) (2) None of the services provided to the registrant described in paragraphs (b)-(d) of Item 4 were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of regulation S-X.
(f) No disclosures are required by this Item 4(f).
(g) The aggregate non-audit fees paid to the principal accountant for services rendered by the principal accountant to the registrant and the registrant’s investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant were $241,195 for the fiscal year ended December 31, 2022 and $272 for the fiscal year ended December 31, 2021.
(h) The registrant’s audit committee of the board has considered whether the provision of non-audit services that were rendered to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence.
Members
of the Audit Committee are: Ann Torre Bates,
Terrence J. Checki, David W. Niemiec, J.
Michael Luttig and Constantine D. Tseretopoulos
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 directors 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, Templeton Asset Management
Ltd.(TAML), in accordance with the Proxy Voting Policies and Procedures (Policies)
adopted by the investment manager.
RESPONSIBILITY OF THE
INVESTMENT MANAGER TO VOTE PROXIES
Franklin Templeton
Emerging Markets Equity Group, a separate investment group within Franklin
Templeton, comprised of investment personnel from the SEC-registered investment
advisers listed on Appendix A (hereinafter individually an “Investment
Manager” and collectively the "Investment Managers") have delegated the
administrative duties with respect to voting proxies for securities to the Franklin
Templeton Proxy Group within Franklin Templeton Companies, LLC (the "Proxy
Group"), a wholly-owned subsidiary of Franklin Resources, Inc. Franklin
Templeton Companies, LLC provides a variety of general corporate services to
its affiliates, including, but not limited to, legal and compliance activities.
Proxy duties consist of disseminating proxy materials and analyses of issuers
whose stock is owned by any client (including both investment companies and any
separate accounts managed by the Investment Managers) that has either delegated
proxy voting administrative responsibility to the Investment Managers or has
asked for information and/or recommendations on the issues to be voted. The
Investment Managers will inform Advisory Clients that have not delegated the
voting responsibility but that have requested voting advice about the
Investment Managers’ views on such proxy votes. The Proxy Group also provides
these services to other advisory affiliates of the Investment Managers.
The Proxy Group will
process proxy votes on behalf of, and the Investment Managers vote proxies
solely in the best interests of, separate account clients, the Investment
Managers’-managed investment company shareholders, or shareholders of funds
that have appointed Franklin Templeton International Services S.à.r.l. (“FTIS
S.à.r.l.”) as the Management Company, provided such funds or clients have
properly delegated such responsibility in writing, or, where employee benefit
plan assets subject to the Employee Retirement Income Security Act of 1974, as
amended, are involved (“ERISA accounts”), in the best interests of the plan
participants and beneficiaries (collectively, "Advisory Clients"),
unless (i) the power to vote has been specifically retained by the named
fiduciary in the documents in which the named fiduciary appointed the
Investment Managers or (ii) the documents otherwise expressly prohibit the
Investment Managers from voting proxies. The Investment Managers recognize that
the exercise of voting rights on securities held by ERISA plans for which the
Investment Managers have voting responsibility is a fiduciary duty that must be
exercised with care, skill, prudence and diligence.
In certain circumstances,
Advisory Clients are permitted to direct their votes in a solicitation pursuant
to the Investment Management Agreement. An Advisory Client that wishes to
direct its vote shall give reasonable prior written notice to the Investment
Managers indicating such intention and provide written instructions directing
the Investment Managers or the Proxy Group to vote regarding the solicitation.
Where such prior written notice is received, the Proxy Group will vote proxies
in accordance with such written notification received from the Advisory Client.
The Investment Managers
have adopted and implemented Proxy Voting Policies and Procedures (“Proxy Policies”)
that they believe are reasonably designed to ensure that proxies are voted in
the best interest of Advisory Clients in accordance with their fiduciary duties
and rule 206(4)-6 under the Investment Advisers Act of 1940. To the extent that
the Investment Managers have a subadvisory agreement with an affiliated
investment manager (the “Affiliated Subadviser”) with respect to a particular
Advisory Client, the Investment Managers may delegate proxy voting
responsibility to the Affiliated Subadviser. The Investment Managers may also
delegate proxy voting responsibility to a subadviser that is not an Affiliated
Subadviser in certain limited situations as disclosed to fund shareholders
(e.g., where an Investment Manager to a pooled investment vehicle has engaged a
subadviser that is not an Affiliated Subadviser to manage all or a portion of
the assets).
HOW THE INVESTMENT
MANAGERs VOTE PROXIES
All proxies received by
the Proxy Group will be voted based upon the Investment Managers’ instructions
and/or policies. To assist it in analyzing proxies of equity securities, the
Investment Managers subscribe to Institutional Shareholder Services Inc.
("ISS"), an unaffiliated third-party corporate governance research
service that provides in-depth analyses of shareholder meeting agendas and vote
recommendations. In addition, the Investment Managers subscribe to ISS’s Proxy
Voting Service and Vote Disclosure Service. These services include receipt of
proxy ballots, custodian bank relations, account maintenance, vote execution,
ballot reconciliation, vote record maintenance, comprehensive reporting
capabilities, and vote disclosure services. Also, the Investment Managers
subscribe 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.
For accounts managed by
the Templeton Global Equity Group (“TGEG”), in making voting decisions, the
Investment Managers may consider Glass Lewis’s Proxy Voting Guidelines, ISS’s
Benchmark Policies, ISS’s Sustainability Policy, and TGEG’s custom
sustainability guidelines, which reflect what TGEG believes to be good
environmental, social, and governance practices. 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 Managers do not consider recommendations
from a Proxy Service or any third-party to be determinative of the Investment
Managers’ ultimate decision. Rather, the Investment Managers exercise their
independent judgment in making voting decisions. As a matter of policy, the
officers, directors and employees of the Investment Managers and the Proxy
Group will not be influenced by outside sources whose interests conflict with
the interests of Advisory Clients.
For ease of reference,
the Proxy Policies often refer to all Advisory Clients. However, our processes
and practices seek to ensure that proxy voting decisions are suitable for
individual Advisory Clients. In some cases, the Investment Managers’ evaluation
may result in an individual Advisory Client or Investment Manager voting
differently, depending upon the nature and objective of the fund or account,
the composition of its portfolio, whether the Investment Manager has adopted a specialty
or custom voting policy, and other factors.
Certain of the Investment
Managers’ separate accounts or funds (or a portion thereof) are included under
Franklin Templeton Investment Solutions (“FTIS”), a separate investment group
within Franklin Templeton, and employ a quantitative strategy.
For such accounts, FTIS’s
proprietary methodologies rely on a combination of quantitative, qualitative,
and behavioral analysis rather than fundamental security research and analyst
coverage that an actively-managed portfolio would ordinarily employ.
Accordingly, absent client direction, in light of the high number of positions
held by such accounts and the considerable time and effort that would be
required to review proxy statements and ISS or Glass Lewis recommendations, the
Investment Manager may review ISS’s non-US Benchmark guidelines, ISS’s
specialty guidelines (in particular, ISS’s Sustainability guidelines), or Glass
Lewis’s US guidelines (the “the ISS and Glass Lewis Proxy Voting Guidelines”)
and determine, consistent with the best interest of its clients, to provide
standing instructions to the Proxy Group to vote proxies according to the
recommendations of ISS or Glass Lewis.
The Investment Manager,
however, retains the ability to vote a proxy differently than ISS or Glass
Lewis recommends if the Investment Manager determines that it would be in the
best interests of Advisory Clients (for example, where an issuer files additional
solicitation materials after a Proxy Service has issued its voting
recommendations but sufficiently before the vote submission deadline and these
materials would reasonably be expected to affect the Investment Manager’s
voting determination).
All conflicts of interest
will be resolved in the best interests of the Advisory Clients. The Investment
Managers are affiliates of a large, diverse financial services firm with many
affiliates and makes its best efforts to mitigate conflicts of interest.
However, as a general matter, the Investment Managers take the position that
relationships between certain affiliates that do not use the “Franklin
Templeton” name (“Independent Affiliates”) and an issuer (e.g., an investment
management relationship between an issuer and an Independent Affiliate) do not
present a conflict of interest for an Investment Manager in voting proxies with
respect to such issuer because: (i) the Investment Managers operate as an
independent business unit from the Independent Affiliate business units, and
(ii) informational barriers exist between the Investment Managers and the Independent
Affiliate business units.
Material conflicts of
interest could arise in a variety of situations, including as a result of the
Investment Managers’ or an affiliate’s (other than an Independent Affiliate as
described above): (i) material business relationship with an issuer or proponent,
(ii) direct or indirect pecuniary interest in an issuer or proponent; or (iii)
significant personal or family relationship with an issuer or proponent. 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. The Proxy Group gathers and analyzes this
information on a best-efforts basis, as much of this information is provided
directly by individuals and groups other than the Proxy Group, and the Proxy
Group relies on the accuracy of the information it receives from such parties.
Nonetheless, even though
a potential conflict of interest between the Investment Managers or an
affiliate (other than an Independent Affiliate as described above) and an
issuer may exist: (1) the Investment Managers may vote in opposition to the
recommendations of an issuer’s management even if contrary to the recommendations
of a third-party proxy voting research provider; (2) if management has made no
recommendations, the Proxy Group may defer to the voting instructions of the
Investment Managers; and (3) with respect to shares held by Franklin Resources,
Inc. or its affiliates for their own corporate accounts, such shares may be
voted without regard to these conflict procedures.
Otherwise, in situations
where a material conflict of interest is identified between the Investment
Managers or one of its affiliates (other than Independent Affiliates) and an
issuer, the Proxy Group may vote consistent with the voting recommendation of a
Proxy Service or send the proxy directly to the relevant Advisory Clients with
the Investment Managers’ recommendation regarding the vote for approval. To
address certain affiliate conflict situations, the Investment Managers will
employ pass-through voting or mirror voting when required pursuant to a fund’s
governing documents or applicable law.
Where the Proxy Group
refers a matter to an Advisory Client, it may rely upon the instructions of a
representative of the Advisory Client, such as the board of directors or
trustees, a committee of the board, or an appointed delegate in the case of a
U.S. registered investment company, a conducting officer in the case of a fund
that has appointed FTIS S.à.r.l as its Management Company, the Independent Review
Committee for Canadian investment funds, or a plan administrator in the case of
an employee benefit plan. A quorum of the board of directors or trustees or of
a committee of the board can be reached by a majority of members, or a majority
of non-recused members. The Proxy Group may determine to vote all shares held
by Advisory Clients of the Investment Managers and affiliated Investment
Managers (other than Independent Affiliates) in accordance with the
instructions of one or more of the Advisory Clients.
The Investment Managers
may also decide whether to vote proxies for securities deemed to present conflicts
of interest that are sold following a record date, but before a shareholder
meeting date. The Investment Managers may consider various factors in deciding
whether to vote such proxies, including the Investment Managers’ long-term view
of the issuer’s securities for investment, or it may defer the decision to vote
to the applicable Advisory Client. The Investment Managers also may be unable
to vote, or choose not to vote, a proxy for securities deemed to present a
conflict of interest for any of the reasons outlined in the first paragraph of the
section of these policies entitled “Proxy Procedures.”
Weight Given
Management Recommendations
One of the primary
factors the Investment Managers consider when determining the desirability of
investing in a particular company is the quality and depth of that company's
management. Accordingly, the recommendation of management on any issue is a
factor that the Investment Managers consider in determining how proxies should
be voted. However, the Investment Managers do not consider recommendations from
management to be determinative of the Investment Managers’ ultimate decision.
Each issue is considered on its own merits, and the Investment Managers will
not support the position of a company's management in any situation where it
determines that the ratification of management's position would adversely
affect the investment merits of owning that company's shares.
The Investment Managers
believe that engagement with issuers is important to good corporate governance
and to assist in making proxy voting decisions. The Investment Managers 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 Managers may also engage with management on a
range of environmental, social or corporate governance issues throughout the
year.
The Proxy Group is part
of the Franklin Templeton Companies, LLC Legal Department and is overseen by
legal counsel. Full-time staff members and support staff (which includes
individuals that are employees of affiliates of Franklin Templeton Companies,
LLC) are devoted to proxy voting administration and oversight and providing
support and assistance where needed. On a daily basis, the Proxy Group will
review each proxy upon receipt as well as any agendas, materials and
recommendations that they receive from a Proxy Service or other sources. The
Proxy Group maintains a record of all shareholder meetings that are scheduled
for companies whose securities are held by the Investment Managers’ managed
funds and accounts. For each shareholder meeting, a member of the Proxy Group
will consult with the research analyst that follows the security and provide
the analyst with the agenda, analyses of one or more Proxy Services,
recommendations and any other information provided to the Proxy Group. Except
in situations identified as presenting material conflicts of interest, the
Investment Managers’ research analyst and relevant portfolio manager(s) are
responsible for making the final voting decision based on their review of the
agenda, analyses of one or more Proxy Services, proxy statements, their
knowledge of the company and any other information publicly available.
In situations where the Investment
Managers have not responded with vote recommendations to the Proxy Group by the
deadline date, the Proxy Group may vote consistent with the vote
recommendations of a Proxy Service. Except in cases where the Proxy Group is
voting consistent with the voting recommendation of a Proxy Service, the Proxy
Group must obtain voting instructions from the Investment Managers’ research
analysts, relevant portfolio manager(s), legal counsel and/or the Advisory
Client prior to submitting the vote. In the event that an account holds a
security that an Investment Manager did not purchase on its behalf, and the
Investment Manager does not normally consider the security as a potential
investment for other accounts, the Proxy Group may vote consistent with the voting
recommendations of a Proxy Service or take no action on the meeting.
The Proxy Group is fully
cognizant of its responsibility to process proxies and maintain proxy records
as may be required by relevant rules and regulations. In addition, the
Investment Managers understand their fiduciary duty to vote proxies and that
proxy voting decisions may affect the value of shareholdings. Therefore, the
Investment Managers will generally attempt to process every proxy it receives
for all domestic and foreign securities. However, there may be situations in
which the Investment Managers 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 an 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 Managers held shares on the record date but has sold them prior
to the meeting date;
(vii) the Advisory Client held
shares on the record date, but the Advisory Client closed the account prior to
the meeting date;
(viii) a proxy voting service is not offered by the
custodian in the market; (ix) due to either system error or human error, the
Investment Managers’ intended vote is not correctly submitted; (x) the
Investment Managers believe it is not in the best interest of the Advisory
Client to vote the proxy for any other reason not enumerated herein; or (xi) a
security is subject to a securities lending or similar program that has
transferred legal title to the security to another person.
Even if the Investment
Managers use reasonable efforts to vote a proxy on behalf of its Advisory
Clients, 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 Managers do not have sufficient
notice; or (c) the exercise by the issuer of its discretion to reject the vote
of the Investment Managers. In addition, despite the best efforts of the Proxy
Group and its agents, there may be situations where the Investment Managers’
votes are not received, or properly tabulated, by an issuer or the issuer’s
agent.
The Investment Managers
or their affiliates may, on behalf of one or more of the proprietary registered
investment companies advised by the Investment Managers or their affiliates, make
efforts to recall any security on loan where the Investment Manager or its
affiliates (a) learn of a vote on an event that may materially 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. The ability to timely recall shares is not entirely within the
control of the Investment Managers. Under certain circumstances, the recall of
shares in time for such shares to be voted may not be possible due to
applicable proxy voting record dates or other administrative considerations.
There may be instances in
certain non-U.S. markets where split voting is not allowed. Split voting occurs
when a position held within an account is voted in accordance with two
differing instructions. Some markets and/or issuers only allow voting on an
entire position and do not accept split voting. In certain cases, when more
than one Franklin Templeton investment manager has accounts holding shares of
an issuer that are held in an omnibus structure, the Proxy Group will seek direction
from an appropriate representative of the Advisory Client with multiple
Investment Managers (such as a conducting officer of the Management Company in
the case of a SICAV), or the Proxy Group will submit the vote based on the
voting instructions provided by the Investment Manager with accounts holding
the greatest number of shares of the security within the omnibus structure.
If several issues are
bundled together in a single voting item, the Investment Managers will assess
the total benefit to shareholders and the extent that such issues should be
subject to separate voting proposals.
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 Managers for each account or fund involved. If the Proxy
Group does not receive voting instructions from the Investment Managers, the
Proxy Group will take no action on the event. The Investment Managers may be
unable to vote a proxy for a fixed income security, or may choose not to vote a
proxy, for the reasons described under the section entitled “Proxy Procedures.”
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 Managers may nonetheless vote as it deems in the best
interests of its Advisory Clients. The Investment Managers will report such
decisions on an annual basis to Advisory Clients as may be required.
These
Proxy Policies apply to accounts managed by personnel within
Franklin Templeton Emerging Markets Equity
Group, which includes the following investment managers:
Franklin Templeton Investment Management
Limited
Templeton Asset Management Ltd.
Item
8. Portfolio Managers of Closed-End Management Investment Companies
.
(a)(1)
As of February 27, 2023, the portfolio managers of the Fund are as follows:
Michael
Lai, CFA,
has
been a lead portfolio manager of the Fund since 2019. He joined Franklin Templeton
in 2019.
Erik
Mok, CFA,
has
been a portfolio manager of the Fund since 2020. He joined Franklin Templeton in
1998.
(a)(2)
This section reflects information about the portfolio managers as of the fiscal
year ended December 31, 2022.
The
following table shows the number of other accounts managed by each portfolio
manager and the total assets in the accounts managed within each category:
|
|
Number
of Other Registered Investment Companies Managed |
Assets
of Other Registered Investment Companies Managed |
Number
of Other Pooled Investment Vehicles Managed1 |
Assets
of Other Pooled Investment Vehicles Managed |
Number
of Other Accounts Managed1 |
Assets
of Other Accounts Managed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The various
pooled investment vehicles and accounts listed are managed by a team of investment
professionals. Accordingly, the individual 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 but does not 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 investment 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 investment 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 investment manager have adopted a code of ethics which they
believe contains provisions designed 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 investment 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 investment
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 Resources stock (17.5% to 25%) and 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 investment 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 investment manager and/or
other officers of the investment 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 the portfolio manager to the investment manager’s
business and the investment management team, including professional knowledge,
productivity, responsiveness to client needs and communication, are evaluated
in determining the amount of any bonus award.
•
Responsibilities.
The
characteristics and complexity of funds managed by the portfolio manager are
factored in the investment manager’s appraisal.
Additional long-term
equity-based compensation
Portfolio managers may also be awarded restricted
shares or units of Resources stock or restricted shares or units of one or more
mutual funds. Awards of such deferred equity-based compensation typically vest
over time, so as to create incentives to retain key talent.
Benefits
Portfolio
managers also participate in benefit plans and programs available generally to
all employees of the investment manager.
Ownership
of Fund shares.
The
investment 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 managers
(such amounts may change from time to time):
|
|
Dollar Range of Fund Shares
Beneficially Owned |
|
|
|
|
|
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Note:
Because the portfolio manager is a foreign national, 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.
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 Directors that
would require disclosure herein.