ITEM 2 – CODE OF ETHICS
(a) The Registrant has adopted a code of ethics
(the "Code of Ethics") that applies to its principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions.
(c) The Registrant has not amended, as
described in Item 2(c) of Form N-CSR, its Code of Ethics during the period
covered by the shareholder report presented in Item 1 hereto.
(d) The Registrant has not granted a waiver or
an implicit waiver from a provision of its Code of Ethics during the period
covered by the shareholder report presented in Item 1 hereto.
(f) The Registrant's Code of Ethics is attached
as an Exhibit hereto in response to Item 13(a)(1).
ITEM 3 – AUDIT COMMITTEE FINANCIAL EXPERT
The Registrant's Board has determined that Elizabeth
Nickels, a member of the Registrant's Audit Committee, is an "audit
committee financial expert" and "independent," as such terms are
defined in this Item.
ITEM 4 – PRINCIPAL ACCOUNTANT FEES AND SERVICES
(a) Audit Fees.
Ernst & Young is
the principal accountant for the registrant. As such, Ernst & Young has
audited the financial statements of the registrant and reviewed regulatory
filings that include those financial statements. During the last two fiscal
years, Ernst & Young has billed the following amounts for their
professional services.
March 31, 2022 -
$100,000
March 31, 2021 - $129,100
(b) Audit-Related Fees.
Ernst & Young
provided audit-related services to the registrant that are not included in
response to item 4(a). Those services related to the review of Form N-2. During
the last two fiscal years, Ernst & Young has billed the following amounts
for those services.
Ernst & Young billed no fees that
registrant’s audit committee was required to pre-approve pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X.
(c) Tax Fees.
Ernst & Young prepares and reviews
the federal income tax returns and federal excise tax returns of the
registrant. In connection with this service, Ernst & Young prepares and
reviews the calculation of the registrant’s dividend distributions that are
included as deductions on the tax returns. Ernst & Young also provides
services to identify passive foreign investment companies. Ernst & Young
also provides services to understand and comply with tax laws in certain
foreign countries and services to determine the taxability of corporate
actions. During the last two fiscal years, Ernst & Young has billed the
following amounts for their professional tax services.
Ernst & Young billed no
fees that registrant’s audit committee was required to pre-approve pursuant to
paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X.
(d) All Other Fees.
Ernst & Young has
not billed the registrant for other products or services during the last two
fiscal years.
Ernst & Young billed no fees that
registrant’s audit committee was required to pre-approve pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X.
(e) (1) Audit Committee Pre-Approval Policy.
The audit committee
of the registrant has adopted the following pre-approval policy:
Policy
on Auditor Independence
The purpose of this policy is to ensure the
independence of the Principal Funds' primary independent auditor. This policy
is established by the Audit Committee (the "Committee") of the Boards
of Directors of Principal Funds, Inc. and Principal Variable Contracts Funds,
Inc. and the Boards of Trustees of Principal Exchange-Traded Funds and any
registered closed‑end management investment company that is operated as
an interval fund and managed by Principal Global Investors, LLC
(the “Funds”) (the “Boards of the Funds”) effective for all engagements of the
primary independent auditor.
1. The primary
independent auditor, its subsidiaries and affiliates shall not provide
Prohibited Services to the Funds. For the purposes of this policy, Prohibited
Services are:
Services
that are subject to audit procedure during a financial statement audit;
Services
where the auditor would act on behalf of management;
Services
where the auditor is an advocate to the client's position in an adversarial
proceeding;
Bookkeeping
or other services related to the accounting records or financial statements of
the Funds, its subsidiaries and affiliates;
Financial
information systems design and implementation;
Appraisal
or valuation services, fairness opinions, or contribution-in-kind reports;
Internal
audit functions or human resources;
Broker
or dealer, investment advisor, or investment banking services;
Legal
services and expert services unrelated to the audit;
Tax
planning services related to listed, confidential and aggressive transactions;
Personal
tax planning services to individuals in a financial reporting oversight role
with regard to the Funds (other than members of the Boards of the Funds who are
not also officers of the Funds), including the immediate family members of such
individuals;
Any
other service that the Public Company Accounting Oversight Board (PCAOB)
determines, by regulation, is impermissible.
2. (A) All
services the primary independent auditor, its subsidiaries and affiliates
provide to the Funds, and (B) Audit services, including audits of annual financial
statements, audits of acquired or divested businesses or review of regulatory
filings, any independent auditor provides, shall be approved by the Committee
in advance in accordance with the following procedure:
Each quarter, Management will present to
the Committee for pre-approval, a detailed description of each particular
service, excluding tax services, for which pre-approval is sought and a range
of fees for such service. The Committee may delegate pre-approval authority to
one or more of its members provided such delegated member(s) shall present a
report of any services approved to the full Committee at its next regularly
scheduled meeting. The Committee Chairperson shall have pre-approval authority
for changes to any range of fees applicable to services the Committee
previously approved and for new services and the range of fees for such
services that arise between regularly scheduled Committee meetings.
Similarly, the primary
independent auditor will present to the Committee for pre-approval a written
description of the nature and scope of all tax services not expressly
prohibited, including the fee arrangements for such services, and the potential
effects of such services on the audit firm’s independence.
In considering whether
to pre-approve the primary independent auditor’s provision of non-audit
services, the Committee will consider whether the services are compatible with
the maintenance of such auditor's independence. The Committee will also
consider whether the primary independent auditor is best positioned to provide
the most effective and efficient service, for reasons such as its familiarity
with the Funds' business, people, culture, accounting systems, risk profile and
other factors, and whether the service might enhance the Funds' ability to
manage or control risk or improve audit quality.
3. The
provisions of this policy shall apply to all audit and non-audit services
provided directly to the Funds. Additionally, the provisions of this policy
shall apply to non-audit services provided to Principal Global Investors, LLC
(“PGI”) or an affiliate of PGI that provides ongoing services to the Funds if
the engagement relates directly to the operations and financial reporting of
the Funds.
4. Not less
than annually, the primary independent auditor shall report to the Committee in
writing all relationships that may reasonably be thought to bear on
independence between the auditor and the Funds or persons in financial
reporting oversight roles with respect to any services provided by the auditor,
its subsidiaries or affiliates as of the date of the communication, pursuant to
Rule 3526 of the PCAOB. The primary independent auditor shall discuss with the
Committee the potential effects of such relationships on the independence of
the auditor. In addition, the primary independent auditor shall affirm, in
writing, that, as of the date of the communication, it is independent within
the meaning of the federal securities laws and Rule 3520 of the PCAOB.
5. The Committee shall ensure that the lead (or coordinating)
audit partners, as well as the reviewing audit partner, of the Funds' primary
independent auditor are rotated at least every five years and subject upon
rotation to a five year "time out" period. All other audit partners
of the primary independent auditor, excluding partners who simply consult with
others on the audit engagement regarding technical issues, shall rotate after
seven years and be subject upon rotation to a two year "time out"
period.
Neither
the Funds nor PGI may hire or promote any former partner, principal,
shareholder or professional employee (Former Employee) of the primary
independent auditor into a financial reporting oversight role unless the Former
Employee (1) has severed his/her economic interest in the independent audit
firm, and (2) was not a member of the audit engagement team for the Funds
during the one year period preceding the date that the audit procedures began
for the fiscal period in which the Funds or PGI proposes to hire or promote the
Former Employee. Neither the Funds nor PGI shall, without prior written
consent of the primary independent auditor, hire or promote any Former Employee
into a role not prohibited above if the Former Employee had provided any
services to the Funds or PGI during the 12 months preceding the date of filing
of the Funds' most recent annual report with the SEC. Upon termination of the
primary independent auditor, the Funds or PGI shall not, without prior written
consent of the former primary independent auditor, hire or promote any Former
Employee for a period of up to 12 months from termination.
For
persons recently promoted or hired into a financial reporting oversight role
(other than members of the Boards of the Funds who are not also officers of the
Funds), any personal tax planning services pursuant to an engagement that was
in progress before the hiring or promotion and provided by the primary
independent auditor must be completed on or before 180 days after the hiring or
promotion.
The
phrase "financial reporting oversight role" means a role in which a
person is in a position to exercise influence over the contents of the
financial statements or anyone who prepares them, such as a member of the board
of directors or similar management or governing body, chief executive officer,
president, chief operating officer, chief financial officer, counsel,
controller, chief internal auditor, or any equivalent positions.
(Adopted by the Audit
Committee of the Boards of the Funds on March 10, 2020).
(e) (2) Pre-Approval Waivers.
There were no services
provided to the registrant by Ernst & Young that were approved pursuant to
paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f)
Substantially all work
in connection with the audit of the registrant’s financial statements was
performed by full-time employees of Ernst & Young.
(g)
The aggregate
non-audit fees Ernst & Young billed to the registrant, 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 adviser that provides ongoing services to the registrant for
each of registrant's last two fiscal years were as follows.
(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.
ITEM 5 – AUDIT COMMITTEE OF LISTED REGISTRANTS
ITEM 6 – SCHEDULE OF INVESTMENTS
Schedule of Investments is included as part of
the Report to Shareholders filed under Item 1 of this form.
ITEM 7 – DISCLOSURE OF PROXY
VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Below are copies of the Registrant’s proxy
voting policies and procedures, which consist of the proxy voting policies and
procedures of the Registrant’s adviser, Principal Global Investors, LLC (“PGI”),
and its sub-advisers.
Proxy Voting Policies and Procedures For
Principal Variable Contracts
Funds, Inc.
Principal Exchange-Traded Funds
Principal
Diversified Select Real Asset Fund (and other Principal interval funds)
(each a “Fund” and
together “the Funds”)
Revised June 11, 2019
It is each Fund's policy to delegate authority to its
advisor or sub-advisor, as appropriate, to vote proxy ballots relating to the
Fund's portfolio securities in accordance with the adviser's or sub-adviser's
voting policies and procedures.
The
adviser or sub-adviser must provide, on a quarterly basis:
Written affirmation that all proxies
voted during the preceding calendar quarter, other than those specifically
identified by the adviser or sub-adviser, were voted in a manner consistent
with the adviser's or sub-adviser's voting policies and procedures. In order to
monitor the potential effect of conflicts of interest of an adviser or
sub-adviser, the adviser or sub-adviser will identify any proxies the adviser
or sub-adviser voted in a manner inconsistent with its policies and procedures.
The adviser or sub-adviser shall list each vote, explain why the adviser or
sub-adviser voted in a manner contrary to its policies and procedures, state
whether the adviser or sub-adviser’s vote was consistent with the
recommendation to the adviser or sub-adviser of a third-party and, if so,
identify the third-party;
and
Written notification of any material
changes to the adviser's or sub-adviser's proxy voting policies and procedures
made during the preceding calendar
quarter.
The adviser or sub-adviser must provide, no later than
July 31 of each year, the following information regarding each proxy vote cast
during the 12-month period ended June 30 for each Fund portfolio or portion of
Fund portfolio for which it serves as investment adviser, in a format
acceptable to Fund
management:
Identification of the issuer of the
security;
Exchange ticker symbol of the security;
CUSIP number of the security;
The date of the shareholder
meeting;
A brief description of the subject of
the
vote;
Whether the proposal was put forward by the issuer or a
shareholder;
Whether and how the vote was
cast; and
Whether the vote was cast for or against management of
the
issuer.
PRINCIPAL
GLOBAL INVESTORS, LLC
Principal Real Estate
Investors, LLC
|
Proxy
Voting and Class Action Monitoring
|
Principal Global Investors1
(“PGI”) is an investment adviser registered with the U.S. Securities and
Exchange Commission (“SEC”) pursuant to the Investment Advisers Act of 1940
(the “Advisers Act”). As a registered investment adviser, PGI has a fiduciary
duty to act in the best interests of its clients. PGI recognizes that this
duty requires it to vote client securities, for which it has voting power on
the applicable record date, in a timely manner and make voting decisions that
are in the best interests of its clients. This document, Principal Global
Investors’ Proxy Voting Policies and Procedures (the “Policy”) is intended to
comply with the requirements of the Investment Advisers Act of 1940, the
Investment Company Act of 1940 and the Employee Retirement Income Security Act of
1974 applicable to the voting of the proxies of both US and non-US issuers on
behalf of PGI’s clients who have delegated such authority and discretion.
Effective January 1, 2021
Finisterre investment teams adopted the policies and procedures in the Adviser’s
compliance manual except for the following proxy policies and procedures.
Finisterre investment teams will continue to follow previously adopted proxy
policies and procedures until amended. Please see attached Appendix to this
manual for Finisterre specific proxy policies and procedures.
Relationship between
Investment Strategy, ESG and Proxy Voting
PGI has a fiduciary duty to
make investment decisions that are in its clients’ best interests by maximizing
the value of their shares. Proxy voting is an important part of this process
through which PGI can support strong corporate governance structures,
shareholder rights and transparency. PGI also believes a company’s positive
environmental, social and governance (“ESG”) practices may influence the value
of the company, leading to long-term shareholder value. PGI may take these
factors into considerations when voting proxies in its effort to seek the best
outcome for its clients. PGI believes that the integration of consideration of
ESG practices in PGI’s investment process helps identify sources of risk that
could erode the long-term investment results it seeks on behalf of its
clients. From time to time, PGI may work with various ESG-related
organizations to engage issuers or advocate for greater levels of disclosure.
Roles and Responsibilities
Role of the Proxy Voting
Committee
PGI’s Proxy Voting Committee
(the “Proxy Voting Committee”) shall (i) oversee the voting of proxies and the
Proxy Advisory Firm, (ii) where necessary, make determinations as to how to
instruct the vote on certain specific proxies, (iii) verify ongoing compliance
with the Policy, (iv) review the business practices of the Proxy Advisory Firm
and (v) evaluate, maintain, and review the Policy on an annual basis. The Proxy
Voting Committee is comprised of representatives of each investment team and a
representative from PGI Risk, Legal, Operations, and Compliance will be
available to advise the Proxy Voting Committee but are non-voting members. The
Proxy Voting Committee may designate one or more of its members to oversee
specific, ongoing compliance with respect to the Policy and may designate
personnel to instruct the vote on proxies on behalf the PGI’s clients
(collectively, “Authorized Persons”).
The Proxy Voting Committee
shall meet at least four times per year, and as necessary to address special
situations.
Role of Portfolio Management
While the Proxy Voting
Committee establishes the Guidelines and Procedures, the Proxy Voting Committee
does not direct votes for any client except in certain cases where a conflict
of interest exists. Each investment team is responsible for determining how to
vote proxies for those securities held in the portfolios their team manages.
While investment teams generally vote consistently with the Guidelines, there
may be instances where their vote deviates from the Guidelines. In those
circumstances, the investment team will work within the Exception Process. In
some instances, the same security may be held by more than one investment team.
In these cases, PGI may vote differently on the same matter for different
accounts as determined by each investment team.
The Proxy Voting Committee, on
an annual basis, or more frequently as needed, will direct each investment team
to review draft proxy voting guidelines recommended by the Proxy Advisory Firm
(“Draft Guidelines”). The Proxy Voting Committee will collect the reviews of
the Draft Guidelines to determine whether any investment teams have positions
on issues that deviate from the Draft Guidelines. Based on this review, PGI
will adopt proxy voting guidelines. Where an investment team has a position
which deviates from the Draft Guidelines, an alternative set of guidelines for
that investment team may be created. Collectively, these guidelines will
constitute PGI’s current Proxy Voting Guidelines and may change from time to
time (the “Guidelines”). The Proxy Voting Committee has the obligation to
determine that, in general, voting proxies pursuant to the Guidelines is in the
best interests of clients. Exhibit A to the Policy sets forth the current
Guidelines.
There may be instances where
proxy votes will not be in accordance with the Guidelines. Clients may
instruct PGI to utilize a different set of guidelines, request specific
deviations, or directly assume responsibility for the voting of proxies. In
addition, PGI may deviate from the Guidelines on an exception basis if the
investment team or PGI has determined that it is the best interest of clients in
a particular strategy to do so, or where the Guidelines do not direct a
particular response and instead list relevant factors. Any such a deviation
will comply with the Exception Process which shall include a written record
setting out the rationale for the deviation.
The subject of the proxy vote
may not be covered in the Guidelines. In situations where the Guidelines do
not provide a position, PGI will consider the relevant facts and circumstances
of a particular vote and then vote in a manner PGI believes to be in the
clients’ bests interests. In such circumstance, the analysis will be
documented in writing and periodically presented to the Proxy Voting
Committee. To the extent that the Guidelines do not cover potential voting
issues, PGI may consider the spirit of the Guidelines and instruct the vote on
such issues in a manner that PGI believes would be in the best interests of the
client.
Use of Proxy Advisory Firms
PGI has retained one or more
third-party proxy service provider(s) (the “Proxy Advisory Firm”) to provide
recommendations for proxy voting guidelines, information on shareholder meeting
dates and proxy materials, translate proxy materials printed in a foreign
language, provide research on proxy proposals, operationally process votes in
accordance with the Guidelines on behalf of the clients for whom PGI has proxy
voting responsibility, and provide reports concerning the proxies voted (“Proxy
Voting Services”). Although PGI has retained the Proxy Advisory Firm for Proxy
Voting Services, PGI remains responsible for proxy voting decisions. PGI has
designed the Policy to oversee and evaluate the Proxy Advisory Firm, including
with respect to the matters described below, to support the PGI’s voting in
accordance with this Policy.
Oversight of Proxy Advisory
Firms
Prior to the selection of any
new Proxy Advisory Firm and annually thereafter or more frequently if deemed
necessary by PGI, the Proxy Voting Committee will consider whether the Proxy
Advisory Firm: (a) has the capacity and competency to adequately analyze proxy
issues and provide the Proxy Voting Services the Proxy Advisory Firm has been
engaged to provide and (b) can make its recommendations in an impartial manner,
in consideration of the best interests of PGI’s clients, and consistent with
the PGI’s voting policies. Such considerations may include, depending on the
Proxy Voting Services provided, the following: (i) periodic sampling of votes
pre-populated by the Proxy Advisory Firm’s systems as well as votes cast by the
Proxy Advisory Firm to review that the Guidelines adopted by PGI are being
followed; (ii) onsite visits to the Proxy Advisory Firm office and/or
discussions with the Proxy Advisory Firm to determine whether the Proxy
Advisory Firm continues to have the capacity and competency to carry out its
proxy obligations to PGI; (iii) a review of those aspects of the Proxy Advisory
Firm’s policies, procedures, and methodologies for formulating voting
recommendations that PGI consider material to Proxy Voting Services provided to
PGI, including factors considered, with a particular focus on those relating to
identifying, addressing and disclosing potential conflicts of interest
(including potential conflicts related to the provision of Proxy Voting
Services, activities other than Proxy Voting Services, and those presented by
affiliation such as a controlling shareholder of the Proxy Advisory Firm) and
monitoring that materially current, accurate, and complete information is used
in creating recommendations and research; (iv) requiring the Proxy Advisory
Firm to notify PGI if there is a substantive change in the Proxy Advisory
Firm’s policies and procedures or otherwise to business practices, including
with respect to conflicts, information gathering and creating voting
recommendations and research, and reviewing any such change(s); (v) a review of
how and when the Proxy Advisory Firm engages with, and receives and
incorporates input from, issuers, the Proxy Advisory Firm’s clients and other
third-party information sources; (vi) assessing how the Proxy Advisory Firm
considers factors unique to a specific issuer or proposal when evaluating a
matter subject to a shareholder vote; (vii) in case of an error made by the
Proxy Advisory Firm, discussing the error with the Proxy Advisory Firm and
determining whether appropriate corrective and preventive action is being
taken; and (viii) assessing whether the Proxy Advisory Firm appropriately
updates its methodologies, guidelines, and voting recommendations on an ongoing
basis and incorporates input from issuers and Proxy Advisory Firm clients in
the update process. In evaluating the Proxy Advisory Firm, PGI may also
consider the adequacy and quality of the Proxy Advisory Firm’s staffing,
personnel, and/or technology.
Procedures for Voting Proxies
To increase the efficiency of
the voting process, PGI utilizes the Proxy Advisory Firm to act as its voting
agent for its clients’ holdings. Issuers initially send proxy information to
the clients’ custodians. PGI instructs these custodians to direct proxy related
materials to the Proxy Advisory Firm. The Proxy Advisory Firm provides PGI with
research related to each resolution.
PGI analyzes relevant proxy
materials on behalf of their clients and seek to instruct the vote (or refrain
from voting) proxies in accordance with the Guidelines. A client may direct
PGI to vote for such client’s account differently than what would occur in
applying the Policy and the Guidelines. PGI may also agree to follow a
client’s individualized proxy voting guidelines or otherwise agree with a
client on particular voting considerations.
PGI seeks to vote (or refrain
from voting) proxies for its clients in a manner that PGI determines is in the
best interests of its clients, which may include both considering both the
effect on the value of the client’s investments and ESG factors. In some
cases, PGI may determine that it is in the best interests of clients to refrain
from exercising the clients’ proxy voting rights. PGI may determine that
voting is not in the best interests of a client and refrain from voting if the
costs, including the opportunity costs, of voting would, in the view of PGI,
exceed the expected benefits of voting to the client.
Procedures for Proxy Issues
within the Guidelines
Where the Guidelines address
the proxy matter being voted on, the Proxy Advisor Firm will generally process
all proxy votes in accordance with the Guidelines. The applicable investment
team may provide instructions to vote contrary to the Guidelines in their
discretion and with sufficient rationale documented in writing to seek to
maximize the value of the client’s investments or is otherwise in the client’s
best interest. This rationale will be submitted to PGI Compliance to approve
and once approved administered by PGI Operations. This process will follow
the Exception Process. The Proxy Voting Committee will receive and review a
quarterly report summarizing all proxy votes for securities for which PGI
exercises voting authority. In certain cases, a client may have elected to have
PGI administer a custom policy which is unique to the Client. If PGI is also
responsible for the administration of such a policy, in general, except for the
specific policy differences, the procedures documented here will also be
applicable, excluding reporting and disclosure procedures.
Procedures for Proxy Issues
Outside the Guidelines
To the extent that the
Guidelines do not cover potential voting issues, the Proxy Advisory Firm will
seek direction from PGI. PGI may consider the spirit of the Guidelines and
instruct the vote on such issues in a manner that PGI believes would be in the
best interests of the client. Although this not an exception to the Guidelines,
this process will also follow the Exception Process. The Proxy Voting Committee
will receive and review a quarterly report summarizing all proxy votes for
securities for which PGI exercises voting discretion, which shall include
instances where issues fall outside the Guidelines.
Some clients may have entered
into securities lending arrangements with agent lenders to generate additional
revenue. If a client participates in such lending, the client will need to
inform PGI as part of their contract with PGI if they require PGI to take
actions in regard to voting securities that have been lent. If not commemorated
in such agreement, PGI will not recall securities and as such, they will not
have an obligation to direct the proxy voting of lent securities.
In the case of lending, PGI maintains
one share for each company security out on loan by the client. PGI will vote
the remaining share in these circumstances.
In cases where PGI does not
receive a solicitation or enough information within a sufficient time (as
reasonably determined by PGI) prior to the proxy-voting deadline, PGI or the
Proxy Advisory Firm may be unable to vote.
Regional Variances in Proxy
Voting
PGI utilizes the Policy and
Guidelines for both US and non-US clients, and there are some significant
differences between voting U.S. company proxies and voting non-U.S. company
proxies. For U.S. companies, it is usually relatively easy to vote proxies, as
the proxies are typically received automatically and may be voted by mail or
electronically. In most cases, the officers of a U.S. company soliciting a
proxy act as proxies for the company’s shareholders.
With respect to non-U.S.
companies, we make reasonable efforts to vote most proxies and follow a similar
process to those in the U.S. However, in some cases it may be both difficult
and costly to vote proxies due to local regulations, customs or other
requirements or restrictions, and such circumstances and expected costs may
outweigh any anticipated economic benefit of voting. The major difficulties
and costs may include: (i) appointing a proxy; (ii) obtaining reliable
information about the time and location of a meeting; (iii) obtaining relevant
information about voting procedures for foreign shareholders; (iv) restrictions
on trading securities that are subject to proxy votes (share-blocking periods);
(v) arranging for a proxy to vote locally in person; (vi) fees charged by
custody banks for providing certain services with regard to voting proxies; and
(vii) foregone income from securities lending programs. In certain instances,
it may be determined by PGI that the anticipated economic benefit outweighs the
expected cost of voting. PGI intends to make their determination on whether to
vote proxies of non-U.S. companies on a case-by-case basis. In doing so, PGI shall
evaluate market requirements and impediments, including the difficulties set
forth above, for voting proxies of companies in each country. PGI periodically
reviews voting logistics, including costs and other voting difficulties, on a
client by client and country by country basis, in order to determine if there
have been any material changes that would affect PGI’s determinations and
procedures.
PGI recognizes that, from time
to time, potential conflicts of interest may exist. In order to avoid any
perceived or actual conflict of interest, the procedures set forth below have
been established for use when PGI encounters a potential conflict to ensure
that PGI’s voting decisions are based on maximizing shareholder value and are not
the product of a conflict.
Addressing Conflicts of
Interest – Exception Process
Prior
to voting contrary to the Guidelines, the relevant investment team must
complete and submit a report to PGI Compliance setting out the name of the
security, the issue up for vote, a summary of the Guidelines’ recommendation,
the vote changes requested and the rational for voting against the Guidelines’
recommendation. The member of the investment team requesting the exception
must attest to compliance with Principal’s Code of Conduct and the has an
affirmative obligation to disclose any known personal or business relationship
that could affect the voting of the applicable proxy. PGI Compliance will
approve or deny the exception in consultation, if deemed necessary, with the
Legal.
If PGI
Compliance determines that there is no potential material conflict exists, the
Guidelines may be overridden. If PGI Compliance determines that there exists
or may exist a material conflict, it will refer the issue to the Proxy Voting Committee.
The Proxy Voting Committee will consider the facts and circumstances of the
pending proxy vote and the potential or actual material conflict and decide by
a majority vote as to how to vote the proxy – i.e., whether to permit or deny
the exception.
In
considering the proxy vote and potential material conflict of interest, the
Proxy Voting Committee may review the following factors:
The
percentage of outstanding securities of the issuer held on behalf of clients by
PGI;
The
nature of the relationship of the issuer with the PGI, its affiliates or its
executive officers;
Whether
there has been any attempt to directly or indirectly influence the investment
team’s decision;
Whether
the direction of the proposed vote would appear to benefit PGI or a related
party; and/or
Whether
an objective decision to vote in a certain way will still create a strong
appearance of a conflict.
In the
event that the Proxy Advisor Firm itself has a conflict and thus is unable to
provide a recommendation, the investment team may vote in accordance with the
recommendation of another independent service provider, if available. If a
recommendation from an independent service provider other than the Proxy
Advisor Firm is not available, the investment team will follow the Exception
Process. PGI Compliance will review the form and if it determines that there is
no potential material conflict mandating a voting recommendation from the Proxy
Voting Committee, the investment team may instruct the Proxy Advisory Firm to
vote the proxy issue as it determines is in the best interest of clients. If
PGI Compliance determines that there exists or may exist a material conflict,
it will refer the issue to the Proxy Voting Committee for consideration as
outlined above.
Availability of Proxy Voting
Information and Recordkeeping
On a quarterly basis, PGI
publicly discloses on our website
https://www.principalglobal.com/eu/about-us/responsible-investing a voting
report setting forth the manner in which votes were cast, including details
related to (i) votes against management, and (ii) abstentions. Form more
information, Clients may contact PGI for more information related to how PGI
has voted with respect to securities held in the Client’s account. On request,
PGI will provide clients with a summary of PGI’s proxy voting guidelines,
process and policies and will inform the clients how they can obtain a copy of
the complete Proxy Voting Policies and Procedures upon request. PGI will also
include such information described in the preceding two sentences in Part 2A of
its Form ADV.
PGI will keep records of the
following items: (i) the Guidelines, (ii) the Proxy Voting Policies and
Procedures; (iii) proxy statements received regarding client securities (unless
such statements are available on the SEC’s Electronic Data Gathering, Analysis,
and Retrieval (EDGAR) system); (iv) records of votes they cast on behalf of
clients, which may be maintained by a Proxy Advisory Firm if it undertakes to
provide copies of those records promptly upon request; (v) records of written
client requests for proxy voting information and PGI’s responses (whether a
client’s request was oral or in writing); (vi) any documents prepared by PGI
that were material to making a decision how to vote, or that memorialized the
basis for the decision; (vii) a record of any testing conducted on any Proxy
Advisory Firm’s votes; (viii) materials collected and reviewed by PGI as part
of its due diligence of the Proxy Advisory Firm; (ix) a copy of each version of
the Proxy Advisory Firm’s policies and procedures provided to PGI; and (x) the
minutes of the Proxy Voting Committee meetings. All of the records referenced
above will be kept in an easily accessible place for at least the length of time
required by local regulation and custom, and, if such local regulation requires
that records are kept for less than six years from the end of the fiscal year
during which the last entry was made on such record, we will follow the US rule
of six years. If the local regulation requires that records are kept for more
than six years, we will comply with the local regulation. We maintain the vast
majority of these records electronically.
(1) These policies
and procedures apply to Principal Global Investors, LLC, Principal Real Estate
Investors, LLC, Principal Global Investors (Hong Kong) Limited and any
affiliates which have entered into participating affiliate agreements with the
aforementioned managers.
Appendix:
Finisterre Proxy Voting Policy and Procedures
Proxy voting is an important
right of investors and reasonable care and diligence must be undertaken to
ensure that such rights are properly and timely exercised. The Firm generally
retains proxy-voting authority with respect to securities purchased for its
clients. Under such circumstances, the Firm votes proxies in the best interest
of its clients and in accordance with these policies and procedures.
Use of Third-Party Proxy
Voting Service
The Firm has entered into an
agreement with Broadridge Investor Communication Solutions, Inc. (referred to
as “Broadridge” and the “Proxy Voting Service”) acting with Glass Lewis &
Co, to enable it to fulfill its proxy voting obligations.
Broadridge executes, monitors
and records the proxies according to the instructions of the Firm. The Firm
relies on the recommendations of Glass Lewis & Co, LLC to provide
recommendations as to how any proxy should be voted in the best interests of
the Clients. These recommendations are integrated into the voting platform set
up by the Proxy Voting Service, and the Firm has instructed the Proxy Voting
Service to execute all proxies in accordance with such recommendation unless
instructed otherwise by the Firm.
The SEC has expressed its view
that although the voting of proxies remains the duty of a registered adviser,
an adviser may contract with service providers to perform certain functions
with respect to proxy voting so long as the adviser is comfortable that the
proxy voting service is independent from the issuer companies on which it
completes its proxy research. In assessing whether a proxy voting service is
independent (as defined by the SEC), the SEC counsels investment advisers that
they should not follow the recommendations of an independent proxy voting
service without first determining, among other things, that the proxy voting
service (a) has the capacity and competence to analyze proxy issues and (b) is
in fact independent and can make recommendations in an impartial manner in the
best interests of the adviser's clients.
At a minimum annually, or more
frequently as deemed necessary, Compliance will ensure that a review of the
independence and impartiality of the Proxy Voting Service is carried out,
including obtaining certification or other information from the Proxy Voting
Service to enable the Firm to make such an assessment. Compliance will also
monitor any new SEC interpretations regarding the voting of proxies and the
uses of third-party proxy voting services and revise the Firm’s policies and
procedures as necessary.
Proxies relating to securities
held in client accounts will be sent directly to the Proxy Voting Service. If a
proxy is received by anyone in the Firm, they must immediately inform the
Compliance and work with Compliance to ensure that it is promptly forwarded to
the Proxy Voting Service. In the event that the Proxy Voting Service is unable
to complete/provide its research regarding a security on a timely basis or the
Firm has made a determination that it is in the best interests of the Firm’s
clients for the Firm to vote the proxy, the Firm’s general proxy-voting
procedures are required to be followed, as follows.
Compliance will require that:
1.
the recipient of the proxy will forward a copy to Compliance, who will keep a
copy of each proxy received;
2.
if the recipient is not the Portfolio Manager responsible for voting the proxy
on behalf of the Firm, s/he will forward a copy to such Portfolio manager;
3.
the Portfolio Manager will determine how to vote the proxy promptly in order to
allow enough time for the completed proxy to be returned to the issuer prior to
the vote taking place; and provide evidence of such to Compliance;
4.
Absent material conflicts (see Section V), the Portfolio Manager will determine
whether the Firm will follow the Proxy Voting Service’s recommendation or vote
the proxy directly. The Portfolio Manager will send his/her decision on how the
Firm should vote a proxy to the Proxy Voting Service, in a timely and
appropriate manner. It is desirable to have the Proxy Voting Service complete
the actual voting so there exists one central source for the documentation of
the Firm’s proxy voting records.
To the extent that the Firm is
voting a proxy itself and not utilizing the Proxy Voting Service, the Firm will
consider the proxy on a case by case basis and require that the relevant
investment professional vote the proxy in a manner consistent with the Firm’s
duty. Investment professionals of the Firm each have the duty to vote proxies
in a way that, in their best judgment, is in the best interest of the Firm’s
clients.
A.
The Firm will disclose in its Form ADV Part 2 that clients may contact the
Chief Compliance Officer via e-mail or telephone in order to obtain information
on how the Firm voted such client’s proxies, and to request a copy of these
policies and procedures. If a client requests this information, the Chief
Compliance Officer will prepare a written response to the client that lists,
with respect to each voted proxy that the client has inquired about, (1) the
name of the issuer; (2) the proposal voted upon and (3) how the Firm voted the
client’s proxy.
B.
A concise summary of these Proxy Voting Policies and Procedures will be included
in the Firm’s Form ADV Part 2 and will be updated whenever these policies and
procedures are updated. Compliance will arrange for a copy of this summary to
be sent to all existing clients.
Potential Conflicts of
Interest
In the
event that the Firm is directly voting a proxy, Compliance will examine
conflicts that exist between the interests of the Firm and its clients. This
examination will include a review of the relationship of the Firm, its
personnel and its affiliates with the issuer of each security and any of the
issuer’s affiliates to determine if the issuer is a client of the Firm or an
affiliate of the Firm or has some other relationship with the Firm, its
personnel or a client of the Firm.
If, as
a result of Compliance’s examination, a determination is made that a material
conflict of interest exists, the Firm will determine whether voting in
accordance with the voting guidelines and factors described above is in the
best interests of the client. If the proxy involves a matter covered by the
voting guidelines and factors described above, the Firm will generally vote the
proxy as specified above. Alternatively, the Firm may vote the proxy in
accordance with the recommendation of the Proxy Voting Service.
The
Firm may disclose the conflict to the affected clients and, except in the case
of clients that are subject to the Employee Retirement Income Security Act of
1974, as amended (“ERISA”), give the clients the opportunity to vote their
proxies themselves In the case of ERISA clients, if the Investment Management
Agreement reserves to the ERISA client the authority to vote proxies when the
Firm determines it has a material conflict that affects its best judgment as an
ERISA fiduciary, the Firm will give the ERISA client the opportunity to vote
the proxies themselves.
Absent
the client reserving voting rights, the Firm will either vote the proxies in
accordance with the policies outlined in Section III “Voting Guidelines” above
or vote the proxies in accordance with the recommendation of the Proxy Voting
Service.
Compliance will maintain files
relating to the Firm’s proxy voting procedures in an easily accessible place.
(Under the services contract between the Firm and its Proxy Voting Service, the
Proxy Voting Service will maintain the Firm’s proxy-voting records). Records
will be maintained and preserved for five years from the end of the fiscal year
during which the last entry was made on a record, with records for the most
recent two years kept in the offices of the Firm. Records of the following will
be included in the files:
Copies
of these proxy voting policies and procedures, and any amendments thereto;
A copy
of each proxy statement that the Firm receives regarding client securities (the
Firm may rely on third parties or EDGAR);
A
record of each vote that the Firm casts;
A copy
of any document the Firm created that was material to making a decision how to
vote proxies, or that memorializes that decision. (For votes that are
inconsistent with the Firm’s general proxy voting polices, the reason/rationale
for such an inconsistent vote is required to be briefly documented and
maintained); and
A copy
of each written client request for information on how the Firm voted such
client’s proxies, and a copy of any written response to any (written or oral)
client request for information on how the Firm voted its proxies.
ClearBridge
Investments Limited (CIL)
ClearBridge RARE
Infrastructure International Pty Limited (CBI RIIPL)
ClearBridge RARE
Infrastructure (North America) Pty Limited (CBI RINA)
(the above entities are
referred to as “ClearBridge” for the purposes of this policy.
ClearBridge and ClearBridge
Investments, LLC. are collectively referred to as
“ClearBridge
Investments”.)
Document
Owner: Head of Legal, Risk & Compliance
This document is confidential and is only intended for the purposes
of the above entities. This document may only be provided to third parties with
the express prior written approval of the Head of Legal, Risk & Compliance.
No recipient is authorised to pass this document or its contents on to any
other person whatsoever or reproduce it by any means. All intellectual property
contained in this document remains the property of the above entities and any
rights in relation to this intellectual property are not intended to be diluted
by the distribution of this document.
PROXY
VOTING POLICIES AND PROCEDURES
Types
of Accounts for Which ClearBridge Votes Proxies
Procedures
for Identifying Conflicts of Interest
Procedures
for Assessing Materiality of Conflicts of Interest and for Addressing Material
Conflicts of Interest
Third
Party Proxy Voting Firm – Conflicts of Interest
Miscellaneous
Governance Provisions
Executive
and Director Compensation
State/Country
of Incorporation
Mergers
and Corporate Restructuring
Social
and Environmental Issues
Disclosure
of Proxy Voting
Recordkeeping
and Oversight
Proxy Voting Policies and Procedures
TYPES OF ACCOUNTS FOR WHICH CLEARBRIDGE VOTES PROXIES
ClearBridge
votes proxies for each client for which it has investment discretion unless the
investment management agreement provides that the client or other authorized
party (e.g., a trustee or named fiduciary of a plan) is responsible for
voting proxies.
In
voting proxies, we are guided by general fiduciary principles. Our goal is to
act prudently, solely in the best interest of the beneficial owners of the
accounts we manage. We attempt to provide for the consideration of all factors
that could affect the value of the investment and will vote proxies in the
manner that we believe will be consistent with efforts to maximize shareholder
values.
Section
V of these policies and procedures sets forth certain stated positions. In the
case of a proxy issue for which there is a stated position, we generally vote
in accordance with the stated position. In the case of a proxy issue for which
there is a list of factors set forth in Section V that we consider in voting on
such issue, we consider those factors and vote on a case-by-case basis in
accordance with the general principles set forth above. In the case of a proxy
issue for which there is no stated position or list of factors that we consider
in voting on such issue, we vote on a case-by-case basis in accordance with the
general principles set forth above. We may utilize an external service provider
to provide us with information and/or a recommendation with regard to proxy
votes but we are not required to follow any such recommendations. The use of
an external service provider does not relieve us of our responsibility for the
proxy vote.
For
routine matters, we usually vote according to our policy or the external
service provider’s recommendation, although we are not obligated to do so and
each individual portfolio management team may vote contrary to our policy or
the recommendation of the external service provider. If a matter is
non-routine, e.g., management’s recommendation is different than that of the
external service provider and ClearBridge is a significant holder or it is a
significant holding for ClearBridge, the issues will be highlighted to the
appropriate investment teams. Different investment teams may vote differently
on the same issue, depending upon their assessment of clients’ best interests.
ClearBridge’s
policies are reviewed annually and its proxy voting process is overseen and
coordinated by its Proxy Committee.
In furtherance of ClearBridge’s goal to vote
proxies in the best interests of clients, ClearBridge follows procedures
designed to identify and address material conflicts that may arise between ClearBridge’s
interests and those of its clients before voting proxies on behalf of such
clients.
Procedures
for Identifying Conflicts of Interest
ClearBridge
relies on the following to seek to identify conflicts of interest with respect
to proxy voting:
ClearBridge’s
employees are periodically reminded of their obligation (i) to be aware of the
potential for conflicts of interest on the part of ClearBridge with respect to
voting proxies on behalf of client accounts both as a result of their personal
relationships or personal or business relationships relating to another
Franklin Resources, Inc. ("Franklin") business unit, and (ii) to
bring conflicts of interest of which they become aware to the attention of
ClearBridge’s General Counsel/Chief Compliance Officer.
ClearBridge’s
finance area maintains and provides to ClearBridge Compliance and proxy voting
personnel an up- to-date list of all client relationships that have
historically accounted for or are projected to account for greater than 1% of
ClearBridge’s net revenues.
As a
general matter, ClearBridge takes the position that relationships between a
non- ClearBridge Franklin unit and an issuer (e.g., investment
management relationship between an issuer and a non- ClearBridge Franklin
affiliate) do not present a conflict of interest for ClearBridge in voting
proxies with respect to such issuer because ClearBridge operates as an
independent business unit from other Franklin business units and because of the
existence of informational barriers between ClearBridge and certain other
Franklin business units. As noted above, ClearBridge employees are under an
obligation to bring such conflicts of interest, including conflicts of interest
which may arise because of an attempt by another Franklin business unit or non-
ClearBridge Franklin officer or employee to influence proxy voting by
ClearBridge to the attention of ClearBridge Compliance.
A list
of issuers with respect to which ClearBridge has a potential conflict of
interest in voting proxies on behalf of client accounts will be maintained by
ClearBridge proxy voting personnel. ClearBridge will not vote proxies relating
to such issuers until it has been determined that the conflict of interest is
not material or a method for resolving the conflict of interest has been agreed
upon and implemented, as described in Section IV below.
Procedures
for Assessing Materiality of Conflicts of Interest and for Addressing Material
Conflicts of Interest
ClearBridge
maintains a Proxy Committee which, among other things, reviews and addresses
conflicts of interest brought to its attention. The Proxy Committee is
comprised of such ClearBridge personnel (and others, at ClearBridge’s request),
as are designated from time to time. The current members of the Proxy Committee
are set forth in the Proxy Committee’s Terms of Reference.
All
conflicts of interest identified pursuant to the procedures outlined in Section
IV.A. must be brought to the attention of the Proxy Committee for resolution. A
proxy issue that will be voted in accordance with a stated ClearBridge position
on such issue or in accordance with the recommendation of an independent third
party generally is not brought to the attention of the Proxy Committee for a conflict
of interest review because ClearBridge’s position is that any conflict of
interest issues are resolved by voting in accordance with a pre-determined
policy or in accordance with the recommendation of an independent third party.
The
Proxy Committee will determine whether a conflict of interest is material. A
conflict of interest will be considered material to the extent that it is
determined that such conflict is likely to influence, or appear to influence,
ClearBridge’s decision-making in voting the proxy. All materiality
determinations will be based on an assessment of the particular facts and
circumstances. A written record of all materiality determinations made by the
Proxy Committee will be maintained.
If it
is determined by the Proxy Committee that a conflict of interest is not
material, ClearBridge may vote proxies notwithstanding the existence of the
conflict.
If it
is determined by the Proxy Committee that a conflict of interest is material,
the Proxy Committee will determine an appropriate method to resolve such
conflict of interest before the proxy affected by the conflict of interest is
voted. Such determination shall be based on the particular facts and
circumstances, including the importance of the proxy issue, the nature of the
conflict of interest, etc. Such methods may include:
disclosing
the conflict to clients and obtaining their consent before voting;
suggesting
to clients that they engage another party to vote the proxy on their behalf;
in the
case of a conflict of interest resulting from a particular employee’s personal
relationships, removing such employee from the decision-making process with
respect to such proxy vote; or
such
other method as is deemed appropriate given the particular facts and
circumstances, including the importance of the proxy issue, the nature of the
conflict of interest, etc.
A written record of the
method used to resolve a material conflict of interest shall be maintained.
Third
Party Proxy Voting Firm - Conflicts of Interest
With
respect to a third-party proxy voting firm described herein, the Proxy
Committee will periodically review and assess such firm’s policies, procedures
and practices with respect to the disclosure and handling of conflicts of
interest.
These
are policy guidelines that can always be superseded, subject to the duty to act
solely in the best interest of the beneficial owners of accounts, by the
investment management professionals responsible for the account holding the
shares being voted. There may be occasions when different investment teams vote
differently on the same issue. In addition, in the case of Taft-Hartley
clients, ClearBridge will comply with a client direction to vote proxies in
accordance with Institutional Shareholder Services’ (ISS) PVS Proxy Voting Guidelines,
which ISS represents to be fully consistent with AFL-CIO guidelines.
Voting
on Director Nominees in Uncontested Elections.
We
withhold our vote from a director nominee who:
attended
less than 75 percent of the company’s board and committee meetings without a
valid excuse (illness, service to the nation/local government, work on behalf
of the company);
received
more than 50 percent withheld votes of the shares cast at the previous board
election, and the company has failed to address the issue as to why;
is a
member of the company’s audit committee, when excessive non-audit fees were
paid to the auditor, or there are chronic control issues and an absence of
established effective control mechanisms;
is
a member of the company’s compensation committee if the compensation committee
ignore a say on pay proposal that a majority of shareholders opposed;
is a
member of the company’s nominating committee and there are no women on the
board (or currently proposed for election to the board)
We
vote for all other director nominees.
Chairman
and CEO is the Same Person.
We vote on a
case-by-case basis on shareholder proposals that would require the positions of
the Chairman and CEO to be held by different persons. We would generally vote FOR
such a proposal unless there are compelling reasons to vote against the
proposal, including:
Designation
of a lead director
Majority
of independent directors (supermajority)
All
independent key committees
Size
of the company (based on market capitalization)
Established
governance guidelines
Majority
of Independent Directors
We
vote for shareholder proposals that request that the board be comprised of a
majority of independent directors. Generally that would require that the
director have no connection to the company other than the board seat. In
determining whether an independent director is truly independent (e.g. when
voting on a slate of director candidates), we consider certain factors
including, but not necessarily limited to, the following: whether the director
or his/her company provided professional services to the company or its
affiliates either currently or in the past year; whether the director has any
transactional relationship with the company; whether the director is a significant
customer or supplier of the company; whether the director is employed by a
foundation or university that received significant grants or endowments from
the company or its affiliates; and whether there are interlocking
directorships.
We
vote for shareholder proposals that request that the board audit, compensation
and/or nominating committees include independent directors exclusively.
Stock
Ownership Requirements
We vote against
shareholder proposals requiring directors to own a minimum amount of company
stock in order to qualify as a director, or to remain on the board.
We vote against
shareholder proposals to limit the tenure of independent directors.
Director
and Officer Indemnification and Liability Protection
Subject
to subparagraphs 2, 3, and 4 below, we vote for proposals concerning director
and officer indemnification and liability protection.
We
vote for proposals to limit and against proposals to eliminate entirely
director and officer liability for monetary damages for violating the duty of
care.
We
vote against indemnification proposals that would expand coverage beyond just
legal expenses to acts, such as negligence, that are more serious violations of
fiduciary obligations than mere carelessness.
We
vote for only those proposals that provide such expanded coverage noted in
subparagraph 3 above in cases when a director's or officer's legal defense was
unsuccessful if: (1) the director was found to have acted in good faith and in
a manner that he reasonably believed was in the best interests of the company, and
(2) if only the director's legal expenses would be covered.
We
vote case-by-case on proposals that establish or amend director qualifications.
Considerations include how reasonable the criteria are and to what degree they
may preclude dissident nominees from joining the board.
We
vote against shareholder proposals requiring two candidates per board seat.
Voting
for Director Nominees in Contested Elections
We vote on a
case-by-case basis in contested elections of directors. Considerations include:
chronology of events leading up to the proxy contest; qualifications of
director nominees (incumbents and dissidents); for incumbents, whether the
board is comprised of a majority of outside directors; whether key committees
(i.e.: nominating, audit, compensation) comprise solely of independent
outsiders; discussion with the respective portfolio manager(s).
Reimburse
Proxy Solicitation Expenses
We vote on a case-by-case
basis on proposals to provide full reimbursement for dissidents waging a proxy
contest. Considerations include: identity of persons who will pay solicitation
expenses; cost of solicitation; percentage that will be paid to proxy
solicitation firms.
We vote for proposals
to ratify auditors, unless an auditor has a financial interest in or
association with the company, and is therefore not independent; or there is
reason to believe that the independent auditor has rendered an opinion that is
neither accurate nor indicative of the company's financial position or there is
reason to believe the independent auditor has not followed the highest level of
ethical conduct. Specifically, we will vote to ratify auditors if the auditors
only provide the company audit services and such other audit-related and
non-audit services the provision of which will not cause such auditors to lose
their independence under applicable laws, rules and regulations.
Financial
Statements and Director and Auditor Reports
We generally vote for
management proposals seeking approval of financial accounts and reports and the
discharge of management and supervisory board members, unless there is concern
about the past actions of the company’s auditors or directors.
We vote for proposals
to authorize the board or an audit committee of the board to determine the
remuneration of auditors, unless there is evidence of excessive compensation
relative to the size and nature of the company.
Indemnification
of Auditors
We vote against
proposals to indemnify auditors.
Board
Structure: Staggered vs. Annual Elections
We
vote against proposals to classify the board.
We
vote for proposals to repeal classified boards and to elect all directors
annually.
Shareholder
Ability to Remove Directors
We
vote against proposals that provide that directors may be removed only for
cause.
We
vote for proposals to restore shareholder ability to remove directors with or
without cause.
We vote
against proposals that provide that only continuing directors may elect
replacements to fill board vacancies.
We
vote for proposals that permit shareholders to elect directors to fill board
vacancies.
If
plurality voting is in place for uncontested director elections, we vote for
proposals to permit or restore cumulative voting.
If
majority voting is in place for uncontested director elections, we vote against
cumulative voting.
If
plurality voting is in place for uncontested director elections, and proposals
to adopt both cumulative voting and majority voting are on the same slate, we
vote for majority voting and against cumulative voting.
We vote for non-binding
and/or binding resolutions requesting that the board amend a company’s by-laws
to stipulate that directors need to be elected with an affirmative majority of
the votes cast, provided that it does not conflict with the state law where the
company is incorporated. In addition, all resolutions need to provide for a
carve-out for a plurality vote standard when there are more nominees than board
seats (i.e. contested election). In addition, ClearBridge strongly encourages
companies to adopt a post-election director resignation policy setting
guidelines for the company to follow to promptly address situations involving
holdover directors.
Shareholder
Ability to Call Special Meetings
We
vote against proposals to restrict or prohibit shareholder ability to call
special meetings.
We
vote for proposals that provide shareholders with the ability to call special
meetings, taking into account a minimum ownership threshold of 10 percent (and
investor ownership structure, depending on bylaws).
Shareholder
Ability to Act by Written Consent
We
vote against proposals to restrict or prohibit shareholder ability to take
action by written consent.
We
vote for proposals to allow or make easier shareholder action by written
consent.
Shareholder
Ability to Alter the Size of the Board
We
vote for proposals that seek to fix the size of the board.
We
vote against proposals that give management the ability to alter the size of
the board without shareholder approval.
We vote on advance
notice proposals on a case-by-case basis, giving support to those proposals which
allow shareholders to submit proposals as close to the meeting date as
reasonably possible and within the broadest window possible.
We
vote against proposals giving the board exclusive authority to amend the
by-laws.
We
vote for proposals giving the board the ability to amend the by-laws in
addition to shareholders.
Article
Amendments (not otherwise covered by ClearBridge Proxy Voting Policies and
Procedures).
We review on a
case-by-case basis all proposals seeking amendments to the articles of
association.
We vote for article
amendments if:
shareholder
rights are protected;
there
is negligible or positive impact on shareholder value;
management
provides adequate reasons for the amendments; and
the
company is required to do so by law (if applicable).
We
vote for shareholder proposals that ask a company to submit its poison pill for
shareholder ratification.
We
vote on a case-by-case basis on shareholder proposals to redeem a company's
poison pill. Considerations include: when the plan was originally adopted;
financial condition of the company; terms of the poison pill.
We
vote on a case-by-case basis on management proposals to ratify a poison pill.
Considerations include: sunset provision - poison pill is submitted to
shareholders for ratification or rejection every 2 to 3 years; shareholder
redemption feature -10% of the shares may call a special meeting or seek a
written consent to vote on rescinding the rights plan.
We
vote for fair price proposals, as long as the shareholder vote requirement
embedded in the provision is no more than a majority of disinterested shares.
We
vote for shareholder proposals to lower the shareholder vote requirement in
existing fair price provisions.
We
vote for proposals to adopt anti-greenmail charter or bylaw amendments or
otherwise restrict a company's ability to make greenmail payments.
We
vote on a case-by-case basis on anti-greenmail proposals when they are bundled
with other charter or bylaw amendments.
We
vote against dual class exchange offers.
We
vote against dual class re-capitalization.
Supermajority
Shareholder Vote Requirement to Amend the Charter or Bylaws
We
vote against management proposals to require a supermajority shareholder vote
to approve charter and bylaw amendments.
We
vote for shareholder proposals to lower supermajority shareholder vote
requirements for charter and bylaw amendments.
Supermajority
Shareholder Vote Requirement to Approve Mergers
We
vote against management proposals to require a supermajority shareholder vote
to approve mergers and other significant business combinations.
We
vote for shareholder proposals to lower supermajority shareholder vote
requirements for mergers and other significant business combinations.
White
Knight/Squire Placements
We vote for shareholder
proposals to require approval of blank check preferred stock issues.
Miscellaneous
Governance Provisions
We
vote for shareholder proposals that request corporations to adopt confidential
voting, use independent tabulators and use independent inspectors of election
as long as the proposals include clauses for proxy contests as follows: in the
case of a contested election, management is permitted to request that the
dissident group honor its confidential voting policy. If the dissidents agree,
the policy remains in place. If the dissidents do not agree, the confidential
voting policy is waived.
We
vote for management proposals to adopt confidential voting subject to the
proviso for contested elections set forth in sub-paragraph A.1. above.
We vote for shareholder
proposals that would allow significant company shareholders equal access to
management's proxy material in order to evaluate and propose voting
recommendations on proxy proposals and director nominees, and in order to
nominate their own candidates to the board.
We vote on a
case-by-case basis on bundled or "conditioned" proxy proposals. In
the case of items that are conditioned upon each other, we examine the benefits
and costs of the packaged items. In instances when the joint effect of the
conditioned items is not in shareholders' best interests and therefore not in
the best interests of the beneficial owners of accounts, we vote against the
proposals. If the combined effect is positive, we support such proposals.
Shareholder
Advisory Committees
We vote on a
case-by-case basis on proposals to establish a shareholder advisory committee.
Considerations include: rationale and cost to the firm to form such a
committee. We generally vote against such proposals if the board and key
nominating committees are comprised solely of independent/outside directors.
We vote for proposals
that seek to bring forth other business matters.
We vote on a
case-by-case basis on proposals that seek to adjourn a shareholder meeting in
order to solicit additional votes.
We vote against
proposals if a company fails to provide shareholders with adequate information
upon which to base their voting decision.
Common
Stock Authorization
We
vote on a case-by-case basis on proposals to increase the number of shares of
common stock authorized for issue, except as described in paragraph 2 below.
Subject
to paragraph 3, below we vote for the approval requesting increases in
authorized shares if the company meets certain criteria:
Company
has already issued a certain percentage (i.e. greater than 50%) of the
company's allotment.
The
proposed increase is reasonable (i.e. less than 150% of current inventory)
based on an analysis of the company's historical stock management or future
growth outlook of the company.
We
vote on a case-by-case basis, based on the input of affected portfolio
managers, if holding is greater than 1% of an account.
Stock
Distributions: Splits and Dividends
We vote on a
case-by-case basis on management proposals to increase common share
authorization for a stock split, provided that the split does not result in an
increase of authorized but unissued shares of more than 100% after giving
effect to the shares needed for the split.
We vote for management
proposals to implement a reverse stock split, provided that the reverse split
does not result in an increase of authorized but unissued shares of more than
100% after giving effect to the shares needed for the reverse split.
Blank
Check Preferred Stock
We
vote against proposals to create, authorize or increase the number of shares
with regard to blank check preferred stock with unspecified voting, conversion,
dividend distribution and other rights.
We
vote for proposals to create “declawed” blank check preferred stock (stock that
cannot be used as a takeover defense).
We
vote for proposals to authorize 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 appear reasonable.
We
vote for proposals requiring a shareholder vote for blank check preferred stock
issues.
Adjust
Par Value of Common Stock
We vote for management
proposals to reduce the par value of common stock.
We
vote on a case-by-case basis for shareholder proposals seeking to establish
them and consider the following factors:
Characteristics
of the size of the holding (holder owning more than 1% of the outstanding
shares).
Percentage
of the rights offering (rule of thumb less than 5%).
We
vote on a case-by-case basis for shareholder proposals seeking the elimination
of pre-emptive rights.
We vote on a
case-by-case basis for proposals to increase common and/or preferred shares and
to issue shares as part of a debt-restructuring plan. Generally, we approve
proposals that facilitate debt restructuring.
Share
Repurchase Programs
We vote for management
proposals to institute open-market share repurchase plans in which all
shareholders may participate on equal terms.
We vote for proposals
to create a new class of nonvoting or sub voting common stock if:
It is
intended for financing purposes with minimal or no dilution to current
shareholders
It is
not designed to preserve the voting power of an insider or significant
shareholder
Issue
Stock for Use with Rights Plan
We vote against
proposals that increase authorized common stock for the explicit purpose of
implementing a shareholder rights plan (poison pill).
When evaluating a debt
issuance request, the issuing company’s present financial situation is
examined. The main factor for analysis is the company’s current debt-to-equity
ratio, or gearing level. A high gearing level may incline markets and financial
analysts to downgrade the company’s bond rating, increasing its investment risk
factor in the process. A gearing level up to 100 percent is considered
acceptable.
We vote for debt
issuances for companies when the gearing level is between zero and 100 percent.
We view on a
case-by-case basis proposals where the issuance of debt will result in the
gearing level being greater than 100 percent. Any proposed debt issuance is
compared to industry and market standards.
We generally vote for
the adopting of financing plans if we believe they are in the best economic
interests of shareholders.
Executive
and Director Compensation
In
general, we vote for executive and director compensation plans, with the view
that viable compensation programs reward the creation of stockholder wealth by
having high payout sensitivity to increases in shareholder value. Certain
factors, however, such as repricing underwater stock options without
shareholder approval, would cause us to vote against a plan. Additionally, in
some cases we would vote against a plan deemed unnecessary.
OBRA-Related
Compensation Proposals
Amendments
that Place a Cap on Annual Grant or Amend Administrative Features
We vote for plans that
simply amend shareholder-approved plans to include administrative features or
place a cap on the annual grants any one participant may receive to comply with
the provisions of Section 162(m) of the Internal Revenue Code.
Amendments
to Added Performance-Based Goals
We vote for amendments
to add performance goals to existing compensation plans to comply with the
provisions of Section 162(m) of the Internal Revenue Code.
Amendments
to Increase Shares and Retain Tax Deductions Under OBRA
We vote for amendments
to existing plans to increase shares reserved and to qualify the plan for
favorable tax treatment under the provisions of Section 162(m) the Internal
Revenue Code.
Approval
of Cash or Cash-and-Stock Bonus Plans
We vote for cash or
cash-and-stock bonus plans to exempt the compensation from taxes under the
provisions of Section 162(m) of the Internal Revenue Code.
We vote for proposals
to expense stock options on financial statements.
Shareholder
Proposals to Limit Executive and Director Pay
We
vote on a case-by-case basis on all shareholder proposals that seek additional
disclosure of executive and director pay information. Considerations include:
cost and form of disclosure. We vote for such proposals if additional
disclosure is relevant to shareholder’s needs and would not put the company at
a competitive disadvantage relative to its industry.
We
vote on a case-by-case basis on all other shareholder proposals that seek to
limit executive and director pay.
Reports
to Assess the Feasibility of Including Sustainability as a Performance Metric
We vote in favor of
non-binding proposals for reports on the feasibility of including
sustainability as a performance metric for senior executive compensation.
We
have a policy of voting to reasonably limit the level of options and other
equity- based compensation arrangements available to management to reasonably
limit shareholder dilution and management compensation. For options and
equity-based compensation arrangements, we vote FOR proposals or amendments
that would result in the available awards being less than 10% of fully diluted
outstanding shares (i.e. if the combined total of shares, common share
equivalents and options available to be awarded under all current and proposed
compensation plans is less than 10% of fully diluted shares). In the event the
available awards exceed the 10% threshold, we would also consider the %
relative to the common practice of its specific industry (e.g. technology
firms). Other considerations would include, without limitation, the following:
Compensation
committee comprised of independent outside directors
Repricing
without shareholder approval prohibited
3-year
average burn rate for company
Plan
administrator has authority to accelerate the vesting of awards
Shares
under the plan subject to performance criteria
We
vote for shareholder proposals to have golden parachutes submitted for
shareholder ratification.
We
vote on a case-by-case basis on all proposals to ratify or cancel golden
parachutes. Considerations include: the amount should not exceed 3 times
average base salary plus guaranteed benefits; golden parachute should be less
attractive than an ongoing employment opportunity with the firm.
We
vote for shareholder proposals that request a company not to make any death
benefit payments to senior executives’ estates or beneficiaries, or pay
premiums in respect to any life insurance policy covering a senior executive’s
life (“golden coffin”). We carve out benefits provided under a plan, policy or
arrangement applicable to a broader group of employees, such as offering group
universal life insurance.
We
vote for shareholder proposals that request shareholder approval of survivor
benefits for future agreements that, following the death of a senior executive,
would obligate the company to make payments or awards not earned.
We
vote for proposals that ask a company to adopt a policy whereby it will not
make, or promise to make, any tax gross-up payment to its senior executives,
except for tax gross-ups provided pursuant to a plan, policy, or arrangement
applicable to management employees of the company generally, such as relocation
or expatriate tax equalization policy; we also vote for proposals that ask
management to put gross-up payments to a shareholder vote.
We
vote against proposals where a company will make, or promise to make, any tax
gross-up payment to its senior executives without a shareholder vote, except
for tax gross-ups provided pursuant to a plan, policy, or arrangement applicable
to management employees of the company generally, such as relocation or
expatriate tax equalization policy.
Employee
Stock Ownership Plans (ESOPs)
We vote for proposals
that request shareholder approval in order to implement an ESOP or to increase
authorized shares for existing ESOPs, except in cases when the number of shares
allocated to the ESOP is "excessive" (i.e., generally greater than
five percent of outstanding shares).
Employee
Stock Purchase Plans
We
vote for qualified plans where all of the following apply:
The
purchase price is at least 85 percent of fair market value
The
offering period is 27 months or less
The
number of shares allocated to the plan is five percent or less of outstanding
shares
If the above do not
apply, we vote on a case-by-case basis.
We
vote for non-qualified plans where all of the following apply:
All
employees of the company are eligible to participate (excluding 5 percent or
more beneficial owners)
There
are limits on employee contribution (ex: fixed dollar amount)
There
is a company matching contribution with a maximum of 25 percent of an
employee’s contribution
There
is no discount on the stock price on purchase date (since there is a company
match)
If the above do not
apply, we vote against the non-qualified employee stock purchase plan.
401(k)
Employee Benefit Plans
We vote for proposals
to implement a 401(k) savings plan for employees.
We
vote for stock compensation plans which provide a dollar-for-dollar cash for
stock exchange.
We vote
on a case-by-case basis for stock compensation plans which do not provide a
dollar-for-dollar cash for stock exchange using a quantitative model.
Directors
Retirement Plans
We
vote against retirement plans for non-employee directors.
We
vote for shareholder proposals to eliminate retirement plans for non-employee
directors.
Management
Proposals to Reprice Options
We vote against
management proposals seeking approval to reprice options.
Shareholder
Proposals Regarding Executive and Director Pay
We
vote against shareholder proposals seeking to set absolute levels on
compensation or otherwise dictate the amount or form of compensation.
We
vote against shareholder proposals requiring director fees be paid in stock
only.
We
vote against shareholder proposals to eliminate vesting of options and
restricted stock on change of control.
We
vote for shareholder proposals to put option repricing to a shareholder vote.
We
vote for shareholder proposals that call for a non-binding advisory vote on
executive pay (“say-on-pay”). Company boards would adopt a policy giving
shareholders the opportunity at each annual meeting to vote on an advisory
resolution to ratify the compensation of the named executive officers set forth
in the proxy statement’s summary compensation table.
We
vote “annual” for the frequency of say-on-pay proposals rather than once every
two or three years.
We
vote on a case-by-case basis for all other shareholder proposals regarding
executive and director pay, taking into account company performance, pay level
versus peers, pay level versus industry, and long term corporate outlook.
Management
Proposals on Executive Compensation
For non-binding
advisory votes on executive officer compensation, when management and the
external service provider agree, we vote for the proposal. When management and
the external service provider disagree, the proposal becomes a refer item. In
the case of a Refer item, the factors under consideration will include the
following:
Company
performance over the last 1, 3, and 5-year periods on a total shareholder
return basis
Performance
metrics for short- and long-term incentive programs
CEO
pay relative to company performance (is there a misalignment)
Tax
gross ups to senior executives
Change-in-control
arrangements
Presence
of a clawback provision, ownership guidelines, or stock holding requirements
for senior executives
Stock
Retention / Holding Period of Equity Awards
We
vote on a case-by-case basis on shareholder proposals asking companies to adopt
policies requiring senior executives to retain all or a significant (>50
percent) portion of their shares acquired through equity compensation plans,
either:
While
employed and/or for one to two years following the termination of their
employment; or
For a
substantial period following the lapse of all other vesting requirements for
the award, with ratable release of a portion of the shares annually during the
lock-up period
The following factors
will be taken into consideration:
Whether
the company has any holding period, retention ratio, or named executive officer
ownership requirements currently in place
Actual
stock ownership of the company’s named executive officers
Policies
aimed at mitigating risk taking by senior executives
Pay
practices at the company that we deem problematic
State/Country
of Incorporation
Voting
on State Takeover Statutes
We
vote for proposals to opt out of state freeze-out provisions.
We
vote for proposals to opt out of state disgorgement provisions.
Voting
on Re-incorporation Proposals
We vote on a case-by-case
basis on proposals to change a company's state or country of incorporation.
Considerations include: reasons for re-incorporation (i.e. financial,
restructuring, etc); advantages/benefits for change (i.e. lower taxes); compare
the differences in state/country laws governing the corporation.
Control
Share Acquisition Provisions
We
vote against proposals to amend the charter to include control share
acquisition provisions.
We
vote for proposals to opt out of control share acquisition statutes unless
doing so would enable the completion of a takeover that would be detrimental to
shareholders.
We
vote for proposals to restore voting rights to the control shares.
We
vote for proposals to opt out of control share cashout statutes.
Mergers
and Corporate Restructuring
We
vote on a case-by-case basis on mergers and acquisitions. Considerations
include: benefits/advantages of the combined companies (i.e. economies of
scale, operating synergies, increase in market power/share, etc.); offer price
(premium or discount); change in the capital structure; impact on shareholder
rights.
We
vote on a case-by-case basis on corporate restructuring proposals involving
minority squeeze outs and leveraged buyouts. Considerations include: offer
price, other alternatives/offers considered and review of fairness opinions.
We
vote on a case-by-case basis on spin-offs. Considerations include the tax and
regulatory advantages, planned use of sale proceeds, market focus, and managerial
incentives.
We
vote on a case-by-case basis on asset sales. Considerations include the impact
on the balance sheet/working capital, value received for the asset, and
potential elimination of diseconomies.
We
vote on a case-by-case basis on liquidations after reviewing management's
efforts to pursue other alternatives, appraisal value of assets, and the
compensation plan for executives managing the liquidation.
We
vote for proposals to restore, or provide shareholders with, rights of
appraisal.
We
vote for proposals to change the “corporate name”, unless the proposed name
change bears a negative connotation.
We
vote on a case-by-case basis on proposals regarding conversion of securities.
Considerations include the dilution to existing shareholders, the conversion
price relative to market value, financial issues, control issues, termination
penalties, and conflicts of interest.
We
vote against proposals that ask the board to consider non-shareholder
constituencies or other non-financial effects when evaluating a merger or
business combination.
Social
and Environmental Issues
When
considering environmental and social (E&S) proposals, we have an obligation
to vote proxies in the best interest of our clients, considering both
shareholder value as well as societal impact.
We
vote for proposals seeking greater disclosure on the company’s environmental,
social & governance policies and practices;
We
vote for proposals that would require companies whose annual revenues are at
least $5 billion to prepare a sustainability report. All others will be
decided on a case-by-case basis.
We
vote for proposals supporting nomination of most qualified candidates,
inclusive of a diverse pool of women and people of color, to the Board of
Directors and senior management levels;
We
vote for proposals requesting comprehensive disclosure on board diversity;
We
vote for proposals requesting comprehensive disclosure on employee diversity;
We
vote for proposals requesting comprehensive reports on gender pay disparity;
We
vote for proposals seeking to amend a company’s EEO statement or diversity
policies to prohibit discrimination based on sexual orientation and/or gender
identity.
We
vote for climate proposals seeking more disclosure on financial, physical or
regulatory risks related to climate change and/or how the company measures and
manages such risks;
We
vote for climate proposals requesting a report/disclosure of goals on GHG
emissions from company operations and/or products;
Case-by-case
E&S proposals (examples)
Climate
proposals seeking company disclosure on GHG reduction targets and/or goals
Human
rights and company policies;
Operations
in high-risk or sensitive areas;
Product
integrity and marketing.
We vote against
proposals to eliminate, direct or otherwise restrict charitable contributions.
We will vote in favor
of non-binding proposals for reports on corporate lobbying and political
contributions.
In
general, we vote on a case-by-case basis on other shareholder proposals
pertaining to political contributions. In determining our vote on political
contribution proposals we consider, among other things, the following:
Does
the company have a political contributions policy publicly available
How
extensive is the disclosure on these documents
What
oversight mechanisms the company has in place for approving/reviewing political
contributions and expenditures
Does
the company provide information on its trade association expenditures
Total
amount of political expenditure by the company in recent history
We
vote against proposals to provide management with the authority to adjourn an
annual or special meeting absent compelling reasons to support the proposal.
We
vote against proposals to reduce quorum requirements for shareholder meetings
below a majority of the shares outstanding unless there are compelling reasons
to support the proposal.
We
vote for by-law or charter changes that are of a housekeeping nature (updates
or corrections).
We
vote for management proposals to change the date/time/location of the annual
meeting unless the proposed change is unreasonable.
We
vote against shareholder proposals to change the date/time/location of the
annual meeting unless the current scheduling or location is unreasonable.
We
vote against proposals to approve other business when it appears as voting
item.
In
some markets, shareholders are routinely asked to approve:
the
opening of the shareholder meeting
that
the meeting has been convened under local regulatory requirements
the
agenda for the shareholder meeting
the
election of the chair of the meeting
the
allowance of questions
the
publication of minutes
the
closing of the shareholder meeting
We generally vote for these
and similar routine management proposals.
Allocation
of Income and Dividends
We generally vote for
management proposals concerning allocation of income and the distribution of
dividends, unless the amount of the distribution is consistently and unusually
small or large.
Stock
(Scrip) Dividend Alternatives
We
vote for most stock (scrip) dividend proposals.
We
vote against proposals that do not allow for a cash option unless management
demonstrates that the cash option is harmful to shareholder value.
ClearBridge
has determined that registered investment companies, particularly closed end
investment companies, raise special policy issues making specific voting
guidelines frequently inapplicable. To the extent that ClearBridge has proxy
voting authority with respect to shares of registered investment companies,
ClearBridge shall vote such shares in the best interest of client accounts and
subject to the general fiduciary principles set forth herein without regard to
the specific voting guidelines set forth in Section V. A. through L.
The voting policy
guidelines set forth herein will be reviewed annually and may be changed by
ClearBridge in its sole discretion.
In certain situations, ClearBridge may
determine not to vote proxies on behalf of a client because ClearBridge
believes that the expected benefit to the client of voting shares is outweighed
by countervailing considerations. Examples of situations in which ClearBridge
may determine not to vote proxies on behalf of a client include:
Proxy
voting in certain countries requires “share blocking.” This means that
shareholders wishing to vote their proxies must deposit their shares shortly
before the date of the meeting (e.g. one week) with a designated depositary.
During the blocking period, shares that will be voted at the meeting cannot be
sold until the meeting has taken place and the shares have been returned to
client accounts by the designated depositary. In deciding whether to vote
shares subject to share blocking, ClearBridge will consider and weigh, based on
the particular facts and circumstances, the expected benefit to clients of
voting in relation to the detriment to clients of not being able to sell such
shares during the applicable period.
Certain clients of ClearBridge,
such as an institutional client or a mutual fund for which ClearBridge acts as
a sub-adviser, may engage in securities lending with respect to the securities
in their accounts. ClearBridge typically does not direct or oversee such
securities lending activities. To the extent feasible and practical under the
circumstances, ClearBridge will request that the client recall shares that are
on loan so that such shares can be voted if ClearBridge believes that the
expected benefit to the client of voting such shares outweighs the detriment to
the client of recalling such shares (e.g., foregone income). The ability to
timely recall shares for proxy voting purposes typically is not entirely within
the control of ClearBridge and requires the cooperation of the client and its
other service providers. 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 and administrative considerations.
DISCLOSURE OF PROXY VOTING
ClearBridge
employees may not disclose to others outside of ClearBridge (including
employees of other Franklin business units) how ClearBridge intends to vote a
proxy absent prior approval from ClearBridge’s General Counsel/Chief Compliance
Officer, except that a ClearBridge investment professional may disclose to a
third party (other than an employee of another Franklin business unit) how s/he
intends to vote without obtaining prior approval from ClearBridge’s General
Counsel/Chief Compliance Officer if (1) the disclosure is intended to
facilitate a discussion of publicly available information by ClearBridge
personnel with a representative of a company whose securities are the subject
of the proxy, (2) the company’s market capitalization exceeds $1 billion and
(3) ClearBridge has voting power with respect to less than 5% of the
outstanding common stock of the company.
If
a ClearBridge employee receives a request to disclose ClearBridge’s proxy
voting intentions to, or is otherwise contacted by, another person outside of
ClearBridge (including an employee of another Franklin business unit) in
connection with an upcoming proxy voting matter, he/she should immediately
notify ClearBridge’s General Counsel/Chief Compliance Officer.
If a
portfolio manager wants to take a public stance with regards to a proxy, s/he
must consult with ClearBridge’s General Counsel/Chief Compliance Officer before
making or issuing a public statement.
RECORDKEEPING AND OVERSIGHT
ClearBridge
shall maintain the following records relating to proxy voting:
a
copy of these policies and procedures;
a
copy of each proxy form (as voted);
a
copy of each proxy solicitation (including proxy statements) and related
materials with regard to each vote;
documentation
relating to the identification and resolution of conflicts of interest;
any
documents created by ClearBridge that were material to a proxy voting decision
or that memorialized the basis for that decision; and
a copy
of each written client request for information on how ClearBridge voted proxies
on behalf of the client, and a copy of any written response by ClearBridge to
any (written or oral) client request for information on how ClearBridge voted
proxies on behalf of the requesting client.
Such
records shall be maintained and preserved in an easily accessible place for a
period of not less than six years from the end of the fiscal year during which
the last entry was made on such record, the first two years in an appropriate
office of the ClearBridge adviser.
To
the extent that ClearBridge is authorized to vote proxies for a United States
Registered Investment Company, ClearBridge shall maintain such records as are
necessary to allow such fund to comply with its recordkeeping, reporting and
disclosure obligations under applicable laws, rules and regulations.
In
lieu of keeping copies of proxy statements, ClearBridge may rely on proxy
statements filed on the EDGAR system as well as on third party records of proxy
statements and votes cast if the third party provides an undertaking to provide
the documents promptly upon request.
ClearBridge
Investments Limited (CIL)
ClearBridge RARE
Infrastructure International Pty Limited (CBI RIIPL)
ClearBridge RARE
Infrastructure (North America) Pty Limited (CBI RINA)
(the above entities are
referred to as “ClearBridge” for the purposes of this policy.
ClearBridge and ClearBridge
Investments, LLC. are collectively referred to as
“ClearBridge
Investments”.)
Document
Owner: Head of Legal, Risk & Compliance
This document is confidential and is only intended for the purposes
of the above entities. This document may only be provided to third parties with
the express prior written approval of the Head of Legal, Risk & Compliance.
No recipient is authorised to pass this document or its contents on to any
other person whatsoever or reproduce it by any means. All intellectual property
contained in this document remains the property of the above entities and any
rights in relation to this intellectual property are not intended to be diluted
by the distribution of this document.
Proxy Committee Terms of Reference
Establishment
of The Proxy Committee
The
Proxy Committee (the “Proxy Committee” or the “Committee”) has been established
for the purpose of monitoring to ensure that proxies are voted in the best
interests of ClearBridge's clients and in accordance with the Proxy Voting
Policy (the “Policy”).
Meetings
of The Committee
The
Committee shall meet on a regular basis, but not less frequently than
semi-annually. Special meetings may also be held upon reasonable notice to the
members of the Committee. An agenda shall be established for each meeting and
minutes shall be kept. A minimum quorum of two voting members is required for
each Proxy Committee meeting. The Committee may request any ClearBridge officer
or employee or other interested persons to attend a meeting of the Committee or
to meet with any members of, or consultants to, the Committee. Meetings of the
Committee may be held in person, by telephone or by other appropriate means.
The
Chairperson shall regularly report the results of the Committee’s reviews and
deliberations to ClearBridge’s Management Committee and make such recommendations
as the Committee deems appropriate.
Responsibilities
of the Proxy Committee
The
Proxy Committee is responsible for:
Approving
any changes to the Policy.
Reviewing
the timeliness and accuracy of the proxies voted.
Monitoring
votes cast to ensure that they were voted in accordance with the Proxy Voting
Policy. In furtherance of this responsibility, the Committee shall specifically
review the following to assure that appropriate documentation exists to support
the positions taken:
Instances
where a vote was contrary to a position taken in the Policy;
Instances
where a vote was against management recommendation;
Instances
were two or more portfolio managers voted opposite to each other, except in
instances where conflicting votes were cast by the managers of the social
awareness products.
Resolving
conflicts of interest in accord with the procedures set forth in the Proxy
Voting Policy. At least one representative from each of Investment Management,
Legal and Compliance must participate in any deliberations and decisions of the
Proxy Committee relating to potential conflicts of interest.
On an
annual basis, reviewing the performance of the third-party vendor to assure
that proxies are being voted and such votes are in accordance with
ClearBridge’s directives. The Committee is also responsible for conducting a
due diligence review of the third-party vendor organization, including such
organization’s policies and procedures for addressing conflicts of interest.
Approving
any proposal to terminate/replace the third-party vendor.
In
fulfilling its responsibilities, the Committee may rely on such reports as may
be provided to the Committee by ClearBridge’s proxy administration personnel.
Minutes
of the meetings shall be maintained for a period of six years from the end of
the fiscal year in which they were created.
Proxy
Committee Members
a/o March 2021
William
Harnett, Secretary
tortoise
Capital Advisors, L.L.C.
(THE
“adviser”)
PROXY VOTING POLICIES AND PROCEDURES
Unless a client is a registered investment company under
the Investment Company Act of 1940 or a client requests the Adviser to do so in
writing, the Adviser does not vote proxy materials for its clients. In the
event the Adviser receives any proxies intended for clients who have not
delegated proxy voting responsibilities to the Adviser, the Adviser will
promptly forward such proxies to the client for the client to vote. When
requested by the client, the Adviser may provide advice to the client regarding
proposals submitted to the client for voting. In the event an employee
determines that the Adviser has a conflict of interest due to, for example, a
relationship with a company or an affiliate of a company, or for any other
reason which could influence the advice given, the employee will advise the
Chief Compliance Officer who will advise the applicable Investment Committee,
and the Investment Committee will decide which of the procedures set forth in
Section 3 below the Adviser will use.
In cases in which the client is a registered investment
company under the Investment Company Act of 1940 or in cases where the client
has delegated proxy voting responsibility and authority to the Adviser, the
Adviser has adopted and implemented the following policies and procedures,
which it believes are reasonably designed to ensure that proxies are voted in
the best interests of its clients. In pursuing this policy, proxies should be
voted in a manner that is intended to maximize value to the client. In
situations where Adviser accepts such delegation and agrees to vote proxies,
Adviser will do so in accordance with these Policies and Procedures. The
Adviser may delegate its responsibilities under these Policies and Procedures
to a third party, provided that no such delegation shall relieve the Adviser of
its responsibilities hereunder and the Adviser shall retain final authority and
fiduciary responsibility for such proxy voting. If there are any differences
between these policies and procedures and the proxy voting policies and
procedures adopted by a registered investment company client, the policies and
procedures of the registered investment company client will supersede these
policies and procedures.
a.
Because of the unique nature of the Master Limited Partnerships
(“MLPs”), the Adviser shall evaluate each proxy of an MLP on a case-by-case
basis. Because proxies of MLPs are expected to relate only to extraordinary
measures, the Adviser does not believe it is prudent to adopt pre-established
voting guidelines.
b.
In the event requests for proxies are received with respect to the
voting of equity securities other than MLP equity units, on routine matters,
such as election of directors or approval of auditors, the proxies usually will
be voted with management unless the Adviser determines it has a conflict or the
Adviser determines there are other reasons not to vote with management. On
non-routine matters, such as amendments to governing instruments, proposals
relating to compensation and stock option and equity compensation plans,
corporate governance proposals and shareholder proposals, the Adviser will
vote, or abstain from voting if deemed appropriate, on a case by case basis in
a manner it believes to be in the best economic interest of its clients, and
registered investment company clients’ shareholders. In the event requests for
proxies are received with respect to debt securities, the Adviser will vote on
a case by case basis in a manner it believes to be in the best economic
interest of its clients, and registered investment company clients’
shareholders.
c.
The applicable Investment Committee of the Adviser, or a Managing
Director of the Adviser designated by the Investment Committee as listed on
Exhibit A hereto (the “Designated Managing Director”), is responsible for
monitoring Adviser’s proxy voting actions and ensuring that (i) proxies
are received and forwarded to the appropriate decision makers; and
(ii) proxies are voted in a timely manner upon receipt of voting
instructions. The Adviser is not responsible for voting proxies it does not
receive, but will make reasonable efforts to obtain missing proxies.
d.
The applicable Investment Committee of the Adviser, or the Designated
Managing Director, shall implement procedures to identify and monitor potential
conflicts of interest that could affect the proxy voting process, including (i)
significant client relationships; (ii) other potential material business
relationships; and (iii) material personal and family relationships.
e.
All decisions regarding proxy voting shall be determined by the
applicable Investment Committee of the Adviser, or the Designated Managing
Director, and shall be executed by a the Designated Managing Director or
another portfolio team Managing Director of the Adviser or, if the proxy may be
voted electronically, electronically voted by any such Managing Director of the
Adviser or his designee, including any of the individuals listed on Exhibit A
hereto. Every effort shall be made to consult with the portfolio manager and/or
analyst covering the security.
f.
The Adviser may determine not to vote a particular proxy, if the costs
and burdens exceed the benefits of voting (e.g., when securities are subject to
loan or to share blocking restrictions).
The Adviser shall use commercially reasonable efforts to
determine whether a potential conflict may exist, and a potential conflict
shall be deemed to exist only if one or more of the members of the applicable
Investment Committee of the Adviser actually knew or should have known of the
conflict. The Adviser is sensitive to conflicts of interest that may arise in
the proxy decision-making process and has identified the following potential
conflicts of interest:
A principal of the Adviser or any person involved in the proxy
decision-making process currently serves on the Board of the portfolio company.
An immediate family member of a principal of the Adviser or any
person involved in the proxy decision-making process currently serves as a
director or executive officer of the portfolio company.
The Adviser, any venture capital fund managed by the Adviser, or
any affiliate holds a significant ownership interest in the portfolio company.
This list is not intended to be exclusive. All employees
are obligated to disclose any potential conflict to the Adviser’s Chief
Compliance Officer.
If a material conflict is identified, Adviser management
may (i) disclose the potential conflict to the client and obtain consent; (ii)
establish an ethical wall or other informational barriers between the person(s)
that are involved in the conflict and the persons making the voting decisions,
(iii) abstain from voting the proxies; or (iv) forward the proxies to clients
so the clients may vote the proxies themselves.
The applicable Investment Committee of the Adviser, or
personnel of the Adviser designated by the Investment Committee as listed on
Exhibit A hereto, are responsible for maintaining the following records:
proxy voting policies and procedures;
proxy statements (provided, however, that the Adviser may rely on
the Securities and Exchange Commission’s EDGAR system if the issuer filed its
proxy statements via EDGAR or may rely on a third party as long as the third
party has provided the Adviser with an undertaking to provide a copy of the
proxy statement promptly upon request);
records of votes cast and abstentions; and
any records prepared by the Adviser that were material to a proxy
voting decision or that memorialized a decision.
Please see the separate proxy voting policies and
procedures for the Tortoise St. Louis team which makes separate and independent
decisions from the other Adviser investment teams.
Revised effective
as of August 25, 2020
Exhibit A
Managing Director of the Adviser Designated by Investment
Committee (“Designated Managing Director”)
Each of the following is a “Designated Managing Director” and
may act individually as such for purposes of these Proxy Voting Policies and
Procedures
Brian Kessens
James Mick
Matt Sallee
Rob Thummel
Nick Holmes
Stephen Pang
Designees for
Electronic Voting of Proxies
Rob Thummel
Matt Sallee
James Mick
Brian Kessens
Braden Cielocha
Nick Holmes
Brett Castelli
Any other individual
designated by one or more of the Designated Managing Directors
Designated Personnel
for Record Keeping
Chief Compliance
Officer, or his or her designee
SMA Operations team
Exhibit A amended
effective as of August 25, 2020
ITEM 8 – PORTFOLIO MANAGERS OF
CLOSED-END MANAGEMENT INVESTMENT COMPANIES
This section contains information about the
Registrant’s portfolio managers and the other accounts they manage, their
compensation, and their ownership of securities of the Registrant.
"Ownership of Securities" information reflects a portfolio manager’s
beneficial ownership, which means a direct or indirect pecuniary interest.
Information in this section is as of March 31, 2022,
unless otherwise noted.
Jessica S. Bush has been with Principal® since
2006. Ms. Bush is responsible for the asset allocation and manager selection
for Principal® Global Asset Allocation. Ms. Bush earned a bachelor’s degree in
Business Administration from the University of Michigan. She has earned the
right to use the Chartered Financial Analyst designation.
Marcus W. Dummer has been with Principal® since
2003. Mr. Dummer is responsible for the asset allocation and manager selection
for Principal® Global Asset Allocation. Mr. Dummer earned a bachelor’s degree
in Finance and an M.B.A. from the University of Utah. He has earned the right
to use the Chartered Alternative Investment Analyst designation.
Benjamin E. Rotenberg has been with Principal®
since 2014. Mr. Rotenberg is responsible for the asset allocation and manager
selection for Principal® Global Asset Allocation. Mr. Rotenberg earned a
bachelor’s degree in International Relations and Russian from Pomona College.
He has earned the right to use the Chartered Financial Analyst and the
Chartered Alternative Investment Analyst designations.
May Tong has been with Principal® since 2021.
Prior to that, Ms. Tong was a Senior Vice President, Portfolio Manager for
Franklin Templeton Multi-Asset Solutions since 2018. Prior to that, Ms. Tong
was a Portfolio Manager and Head of Portfolio Implementation and Management for
Voya Investment Management’s Multi-Asset Strategies and Solutions Team since
2011. Ms. Tong is responsible for the asset allocation and manager selection
for Principal Global Asset Allocation. She earned a bachelor’s degree in
Accounting and Finance from Boston College and an M.B.A. from Columbia
University. She has earned the right to use the Chartered Financial Analyst
designation.
The following table provides information
relating to other accounts managed by the Registrant’s portfolio managers disclosed
in (a)(1) above.
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Principal
Diversified Select Real Asset Fund
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Accounts that Base the
Advisory Fee on
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Registered
investment companies
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Other
pooled investment vehicles
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Registered
investment companies
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Other
pooled investment vehicles
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Registered
investment companies
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Other
pooled investment vehicles
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Registered
investment companies
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Other
pooled investment vehicles
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Portfolio managers at PGI and the sub‑advisers
typically manage multiple accounts. These accounts may include, among others,
mutual funds, proprietary accounts, and separate accounts (assets managed on
behalf of pension funds, foundations, and other investment accounts). The
management of multiple funds and accounts may give rise to potential conflicts
of interest if the funds and accounts have different objectives, benchmarks,
time horizons, and fees. In addition, the side-by-side management of these
funds and accounts may raise potential conflicts of interest relating to cross
trading, the allocation of investment opportunities, and the aggregation and
allocation of trades. PGI seeks to provide best execution of all securities
transactions and aggregate and then allocate securities to client accounts in a
fair and timely manner. To this end, PGI has developed policies and procedures
designed to mitigate and manage the potential conflicts of interest that may
arise from side-by-side management.
PGI offers investment professionals a
competitive compensation structure that is evaluated annually relative to other
global asset management firms to ensure its continued competitiveness and
alignment with industry best practices. The objective of the structure is to
offer market competitive compensation that aligns individual and team
contributions with firm and client performance objectives in a manner that is
consistent with industry standards and business results.
Compensation for investment professionals at
all levels is comprised of base salary and variable incentive components. As
team members advance in their careers, the variable component increases in its
proportion commensurate with responsibility levels. The variable component is
designed to reinforce delivery of investment performance, firm performance,
team collaboration, regulatory compliance, operational excellence, client
retention and client satisfaction. Investment performance is measured on a
pretax basis against relative client benchmarks and peer groups over one year,
three-year and five-year periods, calculated quarterly, reinforcing a longer‑term
orientation.
Payments under the variable incentive plan are
delivered in the form of cash or a combination of cash and deferred
compensation. The amount of incentive delivered in the form of deferred compensation
depends on the size of an individual’s incentive award as it relates to a
tiered deferral scale. Deferred compensation is required to be invested into
Principal Financial Group (“PFG”) restricted stock units and funds managed by
the team, via a co-investment program. Both payment vehicles are subject to a
three‑year vesting schedule. The overall measurement framework and the
deferred component are well aligned with our desired focus on clients’
objectives (e.g., co-investment), alignment with Principal stakeholders, and
talent retention.
In addition to deferred compensation obtained
through their compensation programming, team members have investments acquired
through their participation in PFG’s employee stock purchase plan, retirement
plans offered by the Principal (e.g., 401(k) plan), and direct personal
investments. It should be noted that the Company’s retirement and deferred
compensation plans generally utilize its non‑registered group separate
accounts or commingled vehicles rather than the traditional mutual funds. In
each instance, however, these vehicles are managed in lockstep alignment with
the mutual funds.
(a)(4) The portfolio
managers disclosed in (a)(1) above own shares of the Registrant as follows:
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Dollar Range of
Securities
Owned by the Portfolio
Manager
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ITEM 9 – PURCHASES OF EQUITY
SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED
PURCHASERS
ITEM 10 – SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
None.
ITEM 11 – CONTROLS AND PROCEDURES
a) The registrant's principal executive officer
and principal financial officer have concluded that the registrant's disclosure
controls and procedures (as defined in Rule 30a-3(c) under the Investment
Company Act of 1940, as amended) are effective (such disclosure controls and
procedures having been evaluated within 90 days of the date of this filing).
(b) There have been no changes in the
registrant’s internal controls over financial reporting (as defined in Rule
30a-3(d) under the Act (17 CFR 270.30a-3(d)) that occurred during the period
covered by this report that have materially affected, or are reasonably likely
to materially affect, the registrant’s internal control over financial
reporting.
ITEM 12 – DISCLOSURE OF SECURITIES LENDING
ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES
(a)(1) Code of Ethics required to be disclosed
under Item 2 of Form N-CSR attached hereto as
Exhibit 99.CODE ETH.
(a)(2) Certifications pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment
Company Act of 1940 are attached hereto as
Exhibit 99.CERT.
(b) Certification pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 and Rule 30a-2(b) under the Investment Company
Act of 1940 is attached hereto as
Exhibit 99.906CERT
.
Pursuant to the requirements of the Securities
Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has
duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
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Principal
Diversified Select Real Asset Fund
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Kamal Bhatia, President and CEO
Pursuant to the requirements of the Securities
Exchange Act of 1934 and the Investment Company Act of 1940, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Kamal Bhatia, President and CEO
Michael Scholten, Chief Financial
Officer