(a) The
Registrant has adopted a code of ethics that applies to its principal executive
officers and principal financial and accounting officer.
(c) N/A
(d) N/A
(f) Pursuant
to Item 13(a)(1), the Registrant is attaching as an exhibit a copy of its code
of ethics that applies to its principal executive officers and principal
financial and accounting officer.
Item 3. Audit Committee
Financial Expert.
(a)(1) The
Registrant has an audit committee financial expert serving on its audit
committee.
(2) The
audit committee financial experts are Ann Torre Bates and David W. Niemiec and
they are "independent" as defined under the relevant Securities and
Exchange Commission Rules and Releases.
Principal Accountant Fees
and Services.
The aggregate fees paid to
the principal accountant for professional services rendered by the principal
accountant for the audit of the registrant’s annual financial statements or for
services that are normally provided by the principal accountant in connection
with statutory and regulatory filings or engagements were $60,464 for the
fiscal year ended December 31, 2020 and $60,466 for
the fiscal year ended December 31, 2019.
There were no fees paid to
the principal accountant for assurance and related services rendered by the
principal accountant to the registrant that are reasonably related to the
performance of the audit of the registrant's financial statements and are not
reported under paragraph (a) of Item 4.
There were no fees paid to
the principal accountant for assurance and related services rendered by the
principal accountant to the registrant's investment adviser and any entity
controlling, controlled by or under common control with the investment adviser
that provides ongoing services to the registrant that are reasonably related to
the performance of the audit of their financial statements.
There were no fees paid to
the principal accountant for professional services rendered by the principal
accountant to the registrant for tax compliance, tax advice and tax planning.
The aggregate fees paid to
the principal accountant for professional services rendered by the principal
accountant to the registrant’s investment adviser and any entity controlling,
controlled by or under common control with the investment adviser that provides
ongoing services to the registrant for tax compliance, tax advice and tax
planning were $0 for the fiscal year ended December 31, 2020 and $20,000 for
the fiscal year ended December 31, 2019. The services for which these fees
were paid included professional fees in connection with tax treatment of
equipment lease transactions and professional fees in connection with an
Indonesia withholding tax refund claim.
The aggregate fees paid to the principal accountant for products and services rendered by the principal accountant to the registrant not reported in paragraphs (a)-(c) of Item 4 were $0 for the fiscal year ended December 31, 2020 and $366 for the fiscal year ended December 31, 2019. The services for which these fees were paid included review of materials provided to the fund Board in connection with the investment management contract renewal process.
The aggregate fees paid to
the principal accountant for products and services rendered by the principal
accountant to the registrant’s investment adviser and any entity controlling,
controlled by or under common control with the investment adviser that provides
ongoing services to the registrant not reported in paragraphs (a)-(c) of Item 4
were $49,800 for the fiscal year ended December 31, 2020 and $145,644 for the
fiscal year ended December 31, 2019. The services for which these fees were
paid included valuation Services related to Fair Value engagement, issuance of
an Auditors' Certificate for South Korean regulatory shareholder disclosures,
professional fees in connection with determining the feasibility of a U.S.
direct lending structure, and assets under management certification.
(e) (1) The registrant’s
audit committee is directly responsible for approving the services to be
provided by the auditors, including:
(i) pre-approval of
all audit and audit related services;
(ii) pre-approval of
all non-audit related services to be provided to the Fund by the auditors;
(iii) pre-approval of
all non-audit related services to be provided to the registrant by the auditors
to the registrant’s investment adviser or to any entity that controls, is
controlled by or is under common control with the registrant’s investment
adviser and that provides ongoing services to the registrant where the
non-audit services relate directly to the operations or financial reporting of
the registrant; and
(iv) establishment by
the audit committee, if deemed necessary or appropriate, as an alternative to
committee pre-approval of services to be provided by the auditors, as required
by paragraphs (ii) and (iii) above, of policies and procedures to permit such
services to be pre-approved by other means, such as through establishment of
guidelines or by action of a designated member or members of the committee;
provided the policies and procedures are detailed as to the particular service
and the committee is informed of each service and such policies and procedures
do not include delegation of audit committee responsibilities, as contemplated
under the Securities Exchange Act of 1934, to management; subject, in the case
of (ii) through (iv), to any waivers, exceptions or exemptions that may be
available under applicable law or rules.
(e) (2) None of the services
provided to the registrant described in paragraphs (b)-(d) of Item 4 were
approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01
of regulation S-X.
(f) No disclosures are
required by this Item 4(f).
(g) The aggregate non-audit
fees paid to the principal accountant for services rendered by the principal
accountant to the registrant and the registrant’s investment adviser and any
entity controlling, controlled by or under common control with the investment
adviser that provides ongoing services to the registrant were $49,800 for the
fiscal year ended December 31, 2020 and $166,010 for the fiscal year ended
December 31, 2019.
(h) The registrant’s audit
committee of the board has considered whether the provision of non-audit
services that were rendered to the registrant’s investment adviser (not
including any sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the investment adviser
that provides ongoing services to the registrant that were not pre-approved
pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible
with maintaining the principal accountant’s independence.
Members of the Audit Committee are: David W. Niemiec, Ann
Torre Bates and Constantine D. Tseretopoulos.
Item
6. Schedule of Investments.
N/A
Item
7
. Disclosure of Proxy Voting
Policies and Procedures for Closed-End Management Investment Companies.
The board of trustees of the
Fund has delegated the authority to vote proxies related to the portfolio
securities held by the Fund to the Fund’s investment manager Franklin Advisers,
Inc. in accordance with the Proxy Voting Policies and Procedures (Policies)
adopted by the investment manager.
The
investment manager has delegated its administrative duties with respect to the
voting of proxies for securities to the Proxy Group within Franklin Templeton
Companies, LLC (Proxy Group), an affiliate and wholly owned subsidiary of
Franklin Resources, Inc. All proxies received by the Proxy Group will be voted
based upon the investment manager’s instructions and/or policies. The
investment manager votes proxies solely in the best interests of the Fund and
its shareholders.
To
assist it in analyzing proxies of equity securities, the investment manager
subscribes to Institutional Shareholder Services, Inc. (ISS), an unaffiliated
third-party corporate governance research service that provides in-depth
analyses of shareholder meeting agendas, vote recommendations, vote execution
services, ballot reconciliation services, recordkeeping and vote disclosure
services. In addition, the investment manager subscribes to Glass, Lewis &
Co., LLC (Glass Lewis), an unaffiliated third-party analytical research firm,
to receive analyses and vote recommendations on the shareholder meetings of
publicly held U.S. companies, as well as a limited subscription to its
international research. Also, the investment manager has a supplemental
subscription to Egan-Jones Proxy Services (Egan-Jones), an unaffiliated third
party proxy advisory firm, to receive analyses and vote recommendations.
Although analyses provided by ISS, Glass Lewis, Egan-Jones, and/or another
independent third party proxy service provider (each a "Proxy
Service") are thoroughly reviewed and considered in making a final voting
decision, the investment manager does not consider recommendations from a Proxy
Service or any third party to be determinative of the investment manager's
ultimate decision. Rather, the investment manager exercises its independent
judgment in making voting decisions. For most proxy proposals, the investment
manager’s evaluation should result in the same position being taken for all
Funds. In some cases, however, the evaluation may result in a Fund voting
differently, depending upon the nature and objective of the Fund, the composition
of its portfolio and other factors. As a matter of policy, the officers,
directors/trustees and employees of the investment manager and the Proxy Group
will not be influenced by outside sources whose interests conflict with the
interests of the Fund and its shareholders. Efforts are made to resolve all
conflicts in the best interests of the investment manager’s clients. Material
conflicts of interest are identified by the Proxy Group based upon analyses of
client, distributor, broker-dealer and vendor lists, information periodically
gathered from directors and officers, and information derived from other
sources, including public filings. In situations where a material conflict of
interest is identified, the Proxy Group may vote consistent with the voting recommendation
of a Proxy Service; or send the proxy directly to the Fund's board or a
committee of the board with the investment manager's recommendation regarding
the vote for approval.
Where a
material conflict of interest has been identified, but the items on which the
investment manager’s vote recommendations differ from a Proxy Service and
relate specifically to (1) shareholder proposals regarding social or
environmental issues, (2) “Other Business” without describing the matters that
might be considered, or (3) items the investment manager wishes to vote in
opposition to the recommendations of an issuer’s management, the Proxy Group
may defer to the vote recommendations of the investment manager rather than
sending the proxy directly to the Fund's board or a board committee for
approval.
To
avoid certain potential conflicts of interest, the investment manager will
employ echo voting or pass-through voting, if possible, in the following
instances: (1) when the Fund invests in an underlying fund in reliance on any
one of Sections 12(d)(1)(F) or (G) of the 1940 Act, the rules thereunder, or
pursuant to a SEC exemptive order thereunder; (2) when the Fund invests
uninvested cash in affiliated money market funds pursuant to the rules under
the 1940 Act or any exemptive orders thereunder (“cash sweep arrangement”); or
(3) when required pursuant to the Fund’s governing documents or applicable law.
Echo voting means that the investment manager will vote the shares in the same
proportion as the vote of all of the other holders of the underlying fund's
shares. With respect to instances when a Franklin Templeton U.S. registered
investment company invests in an underlying fund in reliance on any one of
Sections 12(d)(1)(F) or (G) of the 1940 Act, the rules thereunder, or pursuant
to an SEC exemptive order thereunder, and there are no other unaffiliated
shareholders also invested in the underlying fund, the investment manager will
vote in accordance with the recommendation of such investment company’s board
of trustees or directors. In addition, to avoid certain potential conflicts of
interest, and where required under a fund’s governing documents or applicable
law, the investment manager will employ pass-through voting when a Franklin
Templeton U.S. registered investment company invests in an underlying fund in
reliance on Section 12(d)(1)(E) of the 1940 Act, the rules thereunder, or
pursuant to an SEC exemptive order thereunder. In “pass-through voting,” a
feeder fund will solicit voting instructions from its shareholders as to how to
vote on the master fund’s proposals.
The
recommendation of management on any issue is a factor that the investment
manager considers in determining how proxies should be voted. However, the
investment manager does not consider recommendations from management to be
determinative of the investment manager’s ultimate decision. As a matter of
practice, the votes with respect to most issues are cast in accordance with the
position of the company's management. Each issue, however, is considered on its
own merits, and the investment manager will not support the position of the
company's management in any situation where it deems that the ratification of
management’s position would adversely affect the investment merits of owning
that company’s shares.
Engagement
with issuers.
The investment manager believes that engagement with issuers is important to
good corporate governance and to assist in making proxy voting decisions. The
investment manager may engage with issuers to discuss specific ballot items to
be voted on in advance of an annual or special meeting to obtain further
information or clarification on the proposals. The investment manager may also
engage with management on a range of environmental, social or corporate
governance issues throughout the year.
Investment
manager’s proxy voting policies and principles
. The investment manager has
adopted general proxy voting guidelines, which are summarized below. These
guidelines are not an exhaustive list of all the issues that may arise and the
investment manager cannot anticipate all future situations. In all cases, each
proxy and proposal (including both management and shareholder proposals) will
be considered based on the relevant facts and circumstances on a case-by-case
basis.
Board
of directors.
The investment manager supports an independent, diverse board of directors, and
prefers that key committees such as audit, nominating, and compensation
committees be comprised of independent directors. The investment manager
supports boards with strong risk management oversight. The investment manager
will generally vote against management efforts to classify a board and will
generally support proposals to declassify the board of directors. The
investment manager will consider withholding votes from directors who have
attended less than 75% of meetings without a valid reason. While generally in
favor of separating Chairman and CEO positions, the investment manager will
review this issue as well as proposals to restore or provide for cumulative
voting on a case-by-case basis, taking into consideration factors such as the
company’s corporate governance guidelines or provisions and performance. The
investment manager generally will support non-binding shareholder proposals to
require a majority vote standard for the election of directors; however, if
these proposals are binding, the investment manager will give careful review on
a case-by-case basis of the potential ramifications of such implementation.
In the
event of a contested election, the investment manager will review a number of
factors in making a decision including management’s track record, the company’s
financial performance, qualifications of candidates on both slates, and the
strategic plan of the dissidents and/or shareholder nominees.
Ratification
of auditors of portfolio companies.
The investment manager will closely scrutinize the
independence, role and performance of auditors. On a case-by-case basis, the
investment manager will examine proposals relating to non-audit relationships
and non-audit fees. The investment manager will also consider, on a
case-by-case basis, proposals to rotate auditors, and will vote against the
ratification of auditors when there is clear and compelling evidence of a lack
of independence, accounting irregularities or negligence. The investment
manager may also consider whether the ratification of auditors has been
approved by an appropriate audit committee that meets applicable composition
and independence requirements.
Management
and director compensation.
A company’s equity-based compensation plan should be in alignment with
the shareholders’ long-term interests. The investment manager believes that
executive compensation should be directly linked to the performance of the
company. The investment manager evaluates plans on a case-by-case basis by
considering several factors to determine whether the plan is fair and
reasonable, including the ISS quantitative model utilized to assess such plans
and/or the Glass Lewis evaluation of the plans. The investment manager will generally
oppose plans that have the potential to be excessively dilutive, and will
almost always oppose plans that are structured to allow the repricing of
underwater options, or plans that have an automatic share replenishment
“evergreen” feature. The investment manager will generally support employee
stock option plans in which the purchase price is at least 85% of fair market
value, and when potential dilution is 10% or less.
Severance
compensation arrangements will be reviewed on a case-by-case basis, although
the investment manager will generally oppose “golden parachutes” that are
considered to be excessive. The investment manager will normally support
proposals that require a percentage of directors’ compensation to be in the
form of common stock, as it aligns their interests with those of shareholders.
The
investment manager will review non-binding say-on-pay proposals on a
case-by-case basis, and will generally vote in favor of such proposals unless
compensation is misaligned with performance and/or shareholders’ interests, the
company has not provided reasonably clear disclosure regarding its compensation
practices, or there are concerns with the company’s remuneration practices.
Anti-takeover
mechanisms and related issues.
The investment manager generally opposes anti-takeover
measures since they tend to reduce shareholder rights. However, as with all
proxy issues, the investment manager conducts an independent review of each
anti-takeover proposal. On occasion, the investment manager may vote with management
when the research analyst has concluded that the proposal is not onerous and
would not harm the Fund or its shareholders’ interests. The investment manager
generally supports proposals that require shareholder rights’ plans (“poison
pills”) to be subject to a shareholder vote and will closely evaluate such
plans on a case-by-case basis to determine whether or not they warrant support.
In addition, the investment manager will generally vote against any proposal to
issue stock that has unequal or subordinate voting rights. The investment
manager generally opposes any supermajority voting requirements as well as the
payment of “greenmail.” The investment manager generally supports “fair price”
provisions and confidential voting. The investment manager will review a
company’s proposal to reincorporate to a different state or country on a
case-by-case basis taking into consideration financial benefits such as tax
treatment as well as comparing corporate governance provisions and general
business laws that may result from the change in domicile.
Changes
to capital structure.
The investment manager realizes that a company's financing decisions
have a significant impact on its shareholders, particularly when they involve
the issuance of additional shares of common or preferred stock or the
assumption of additional debt. The investment manager will review, on a
case-by-case basis, proposals by companies to increase authorized shares and
the purpose for the increase. The investment manager will generally not vote in
favor of dual-class capital structures to increase the number of authorized
shares where that class of stock would have superior voting rights. The
investment manager will generally vote in favor of the issuance of preferred
stock in cases where the company specifies the voting, dividend, conversion and
other rights of such stock and the terms of the preferred stock issuance are
deemed reasonable. The investment manager will review proposals seeking
preemptive rights on a case-by-case basis.
Mergers
and corporate restructuring.
Mergers and acquisitions will be subject to careful
review by the research analyst to determine whether they would be beneficial to
shareholders. The investment manager will analyze various economic and
strategic factors in making the final decision on a merger or acquisition.
Corporate restructuring proposals are also subject to a thorough examination on
a case-by-case basis.
Environmental
and social issues.
The investment manager considers environmental and social issues alongside
traditional financial measures to provide a more comprehensive view of the
value, risk and return potential of an investment. Companies may face
significant financial, legal and reputational risks resulting from poor
environmental and social practices, or negligent oversight of environmental or
social issues. Franklin Templeton’s “Responsible Investment Principles and
Policies” describes the investment manager’s approach to consideration of
environmental, social and governance issues within the investment manager’s
processes and ownership practices.
The
investment manager will review shareholder proposals on a case-by-case basis
and may support those that serve to enhance value or mitigate risk, are drafted
appropriately, and do not disrupt the course of business or require a
disproportionate or inappropriate use of company resources. In the investment
manager’s experience, those companies that are managed well are often effective
in dealing with the relevant environmental and social issues that pertain to
their business. As such, the investment manager will generally give management
discretion with regard to environmental and social issues. However, in cases
where management and the board have not demonstrated adequate efforts to
mitigate material environmental or social risks, have engaged in inappropriate
or illegal conduct, or have failed to adequately address current or emergent
risks that threaten shareholder value, the investment manager may choose to
support well-crafted shareholder proposals that serve to promote or protect
shareholder value. This may include seeking appropriate disclosure regarding
material environmental and social issues.
The
investment manager will consider supporting a shareholder proposal seeking
disclosure and greater board oversight of lobbying and corporate political
contributions if the investment manager believes that there is evidence of
inadequate oversight by the company’s board, if the company’s current
disclosure is significantly deficient, or if the disclosure is notably lacking
in comparison to the company’s peers.
Governance
matters.
The
investment manager generally supports the right of shareholders to call special
meetings and act by written consent. However, the investment manager will
review such shareholder proposals on a case-by-case basis in an effort to
ensure that such proposals do not disrupt the course of business or require a
disproportionate or inappropriate use of company resources.
Proxy
access.
In
cases where the investment manager is satisfied with company performance and
the responsiveness of management, it will generally vote against shareholder
proxy access proposals not supported by management. In other instances, the
investment manager will consider such proposals on a case-by-case basis, taking
into account factors such as the size of the company, ownership thresholds and
holding periods, nomination limits (e.g., number of candidates that can be
nominated), the intentions of the shareholder proponent, and shareholder base.
Global
corporate governance.
Many of the tenets discussed above are applied to the investment
manager's proxy voting decisions for international investments. However, the
investment manager must be flexible in these worldwide markets. Principles of
good corporate governance may vary by country, given the constraints of a
country’s laws and acceptable practices in the markets. As a result, it is on
occasion difficult to apply a consistent set of governance practices to all
issuers. As experienced money managers, the investment manager's analysts are
skilled in understanding the complexities of the regions in which they
specialize and are trained to analyze proxy issues germane to their regions.
The
investment manager will generally attempt to process every proxy it receives
for all domestic and foreign securities. However, there may be situations in
which the investment manager may be unable to successfully vote a proxy, or may
choose not to vote a proxy, such as where: (i) a proxy ballot was not received
from the custodian bank; (ii) a meeting notice was received too late; (iii)
there are fees imposed upon the exercise of a vote and it is determined that
such fees outweigh the benefit of voting; (iv) there are legal encumbrances to
voting, including blocking restrictions in certain markets that preclude the
ability to dispose of a security if the investment manager votes a proxy or
where the investment manager is prohibited from voting by applicable law,
economic or other sanctions, or other regulatory or market requirements, including
but not limited to, effective Powers of Attorney; (v) additional documentation
or the disclosure of beneficial owner details is required; (vi) the investment
manager held shares on the record date but has sold them prior to the meeting
date; (vii) a proxy voting service is not offered by the custodian in the
market; (viii) due to either system error or human error, the investment
manager’s intended vote is not correctly submitted; (ix) the investment manager
believes it is not in the best interest of the Fund or its shareholders to vote
the proxy for any other reason not enumerated herein; or (x) a security is
subject to a securities lending or similar program that has transferred legal
title to the security to another person.
In some
non-U.S. jurisdictions, even if the investment manager uses reasonable efforts
to vote a proxy on behalf of the Fund, such vote or proxy may be rejected
because of (a) operational or procedural issues experienced by one or more
third parties involved in voting proxies in such jurisdictions; (b) changes in
the process or agenda for the meeting by the issuer for which the investment
manager does not have sufficient notice; or (c) the exercise by the issuer of
its discretion to reject the vote of the investment manager. In addition,
despite the best efforts of the Proxy Group and its agents, there may be
situations where the investment manager's votes are not received, or properly
tabulated, by an issuer or the issuer's agent.
The
investment manager or its affiliates may, on behalf of one or more of the
proprietary registered investment companies advised by the investment manager
or its affiliates, determine to use its best efforts to recall any security on
loan where the investment manager or its affiliates (a) learn of a vote on a
material event that may affect a security on loan and (b) determine that it is
in the best interests of such proprietary registered investment companies to
recall the security for voting purposes.
Procedures
for meetings involving fixed income securities & privately held issuers.
From time to time, certain
custodians may process events for fixed income securities through their proxy
voting channels rather than corporate action channels for administrative
convenience. In such cases, the Proxy Group will receive ballots for such
events on the ISS voting platform. The Proxy Group will solicit voting
instructions from the investment manager for each Fund involved. If the Proxy
Group does not receive voting instructions from the investment manager, the
Proxy Group will take no action on the event. The investment manager may be
unable to vote a proxy for a fixed income security, or may choose not to vote a
proxy, for the reasons described above.
In the
rare instance where there is a vote for a privately held issuer, the decision
will generally be made by the relevant portfolio managers or research analysts.
The
Proxy Group will monitor such meetings involving fixed income securities or
privately held issuers for conflicts of interest in accordance with these procedures.
If a fixed income or privately held issuer is flagged as a potential conflict
of interest, the investment manager may nonetheless vote as it deems in the
best interests of the Fund. The investment manager will report such decisions
on an annual basis to the Fund board as may be required.
Shareholders
may view the complete Policies online at franklintempleton.com. Alternatively,
shareholders may request copies of the Policies free of charge by calling the
Proxy Group collect at (954) 527-7678 or by sending a written request to:
Franklin Templeton Companies, LLC, 300 S.E. 2nd Street, Fort Lauderdale, FL
33301-1923, Attention: Proxy Group. Copies of the Fund’s proxy voting records
are available online at franklintempleton.com and posted on the SEC website at
www.sec.gov. The proxy voting records are updated each year by August 31 to
reflect the most recent 12-month period ended June 30.
Item 8. Portfolio Managers
of Closed-End Management Investment Companies.
(a)(1) As of February 26,
2021, the portfolio managers of the Fund are as follows:
MICHAEL HASENSTAB,
Ph.D., Executive Vice President of Franklin
Advisers, Inc.
Dr. Hasenstab has been a
portfolio manager of the Fund since 2002. He
has final authority over all aspects of the Fund's investment portfolio,
including but not limited to, purchases and sales of individual securities,
portfolio risk assessment, and the management of daily cash balances in
accordance with anticipated management requirements. The degree to which he may
perform these functions, and the nature of these functions, may change from
time to time.
He first joined Franklin
Templeton in 1995, rejoining again in 2001 after a three-year leave to obtain
his PH.D.
Calvin Ho, Ph.D.,
Senior Vice President of Franklin Advisers
Dr. Ho has been a portfolio
manager of the Fund since December 2018. He provides
research and advice on the purchases and sales of
individual securities and portfolio risk assessment. He joined Franklin
Templeton in 2005.
(a)(2) This section reflects
information about the portfolio managers as of the fiscal year ended December
31, 2020.
The following table shows the
number of other accounts managed by each portfolio manager and the total assets
in the accounts managed within each category:
|
Number of Other Registered
Investment Companies Managed1
|
Assets of Other Registered
Investment Companies Managed
|
Number of Other Pooled
Investment Vehicles Managed1
|
Assets of Other Pooled
Investment Vehicles Managed
|
Number of Other Accounts
Managed1
|
Assets of Other Accounts
Managed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
various pooled investment vehicles and accounts listed are managed by a team of
investment professionals. Accordingly, the individual manager listed would not
be solely responsible for managing such listed amounts.
Dr.
Hasenstab manages Pooled Investment Vehicles and Other Accounts with $9,929 in
total assets with a performance fee.
Portfolio managers that
provide investment services to the Fund may also provide services to a variety
of other investment products, including other funds, institutional accounts and
private accounts. The advisory fees for some of such other products and
accounts may be different than that charged to the Fund and may include
performance based compensation (as noted in the chart above, if any). This may
result in fees that are higher (or lower) than the advisory fees paid by the
Fund. As a matter of policy, each fund or account is managed solely for the
benefit of the beneficial owners thereof. As discussed below, the separation of
the trading execution function from the portfolio management function and the
application of objectively based trade allocation procedures help to mitigate
potential conflicts of interest that may arise as a result of the portfolio
managers managing accounts with different advisory fees.
Conflicts.
The management of multiple funds, including the Fund,
and accounts may also give rise to potential conflicts of interest if the funds
and other accounts have different objectives, benchmarks, time horizons, and
fees as the portfolio manager must allocate his or her time and investment
ideas across multiple funds and accounts. The investment manager seeks to
manage such competing interests for the time and attention of portfolio
managers by having portfolio managers focus on a particular investment
discipline. Most other accounts managed by a portfolio manager are managed
using the same investment strategies that are used in connection with the
management of the Fund. Accordingly, portfolio holdings, position sizes, and
industry and sector exposures tend to be similar across similar portfolios,
which may minimize the potential for conflicts of interest. As noted above, the
separate management of the trade execution and valuation functions from the
portfolio management process also helps to reduce potential conflicts of
interest. However, securities selected for funds or accounts other than the
Fund may outperform the securities selected for the Fund. Moreover, if a
portfolio manager identifies a limited investment opportunity that may be
suitable for more than one fund or other account, the Fund may not be able to
take full advantage of that opportunity due to an allocation of that
opportunity across all eligible funds and other accounts. The investment
manager seeks to manage such potential conflicts by using procedures intended
to provide a fair allocation of buy and sell opportunities among funds and
other accounts.
The structure of a portfolio manager’s compensation may
give rise to potential conflicts of interest. A portfolio manager’s base pay
and bonus tend to increase with additional and more complex responsibilities
that include increased assets under management. As such, there may be an
indirect relationship between a portfolio manager’s marketing or sales efforts
and his or her bonus.
Finally, the management of
personal accounts by a portfolio manager may give rise to potential conflicts
of interest. While the funds and the investment manager have adopted a code of
ethics which they believe contains provisions designed to prevent a wide range
of prohibited activities by portfolio managers and others with respect to their
personal trading activities, there can be no assurance that the code of ethics
addresses all individual conduct that could result in conflicts of interest.
The investment manager and the Fund have adopted certain
compliance procedures that are designed to address these, and other, types of
conflicts. However, there is no guarantee that such procedures will detect
each and every situation where a conflict arises.
Compensation.
The investment manager seeks to maintain a
compensation program that is competitively positioned to attract, retain and
motivate top-quality investment professionals. Portfolio managers receive a
base salary, a cash incentive bonus opportunity, an equity compensation
opportunity, and a benefits package. Portfolio manager compensation is reviewed
annually and the level of compensation is based on individual performance, the
salary range for a portfolio manager’s level of responsibility and Franklin
Templeton guidelines. Portfolio managers are provided no financial incentive to
favor one fund or account over another. Each portfolio manager’s compensation
consists of the following three elements:
Base
salary
Each portfolio
manager is paid a base salary.
Annual
bonus
Annual bonuses are
structured to align the interests of the portfolio manager with those of the
Fund’s shareholders. Each portfolio manager is eligible to receive an annual
bonus. Bonuses generally are split between cash (50% to 65%) and restricted
shares of Resources stock (17.5% to 25%) and mutual fund shares (17.5% to 25%).
The deferred equity-based compensation is intended to build a vested interest
of the portfolio manager in the financial performance of both Resources and
mutual funds advised by the investment manager. The bonus plan is intended to
provide a competitive level of annual bonus compensation that is tied to the
portfolio manager achieving consistently strong investment performance, which
aligns the financial incentives of the portfolio manager and Fund shareholders.
The Chief Investment Officer of the investment manager and/or other officers of
the investment manager, with responsibility for the Fund, have discretion in
the granting of annual bonuses to portfolio managers in accordance with
Franklin Templeton guidelines. The following factors are generally used in
determining bonuses under the plan:
Investment
performance.
Primary
consideration is given to the historic investment performance of all
accounts managed by the portfolio manager over the 1, 3 and 5 preceding
years measured against risk benchmarks developed by the fixed income
management team. The pre-tax performance of each fund managed is measured
relative to a relevant peer group and/or applicable benchmark as
appropriate.
Non-investment
performance.
The more
qualitative contributions of the portfolio manager to the investment
manager’s business and the investment management team, including business
knowledge, productivity, customer service, creativity, and contribution to
team goals, are evaluated in determining the amount of any bonus award.
Responsibilities.
The characteristics and complexity of funds
managed by the portfolio manager are factored in the investment manager’s
appraisal.
Additional
long-term equity-based compensation
.
Portfolio managers may also be awarded restricted shares or units of Resources
stock or restricted shares or units of one or more mutual funds. Awards of such
deferred equity-based compensation typically vest over time, so as to create
incentives to retain key talent.
Portfolio managers also participate
in benefit plans and programs available generally to all employees of the
investment manager.
Ownership of Fund shares.
The investment manager has a policy of
encouraging portfolio managers to invest in the funds they manage. Exceptions
arise when, for example, a fund is closed to new investors or when tax
considerations or jurisdictional constraints cause such an investment to be
inappropriate for the portfolio manager. The following is the dollar range of
Fund shares beneficially owned by the portfolio managers (such amounts may
change from time to time):
|
Dollar Range of Fund Shares Beneficially Owned
|
|
|
|
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Item 9. Purchases of
Equity Securities by Closed-End Management Investment Company and Affiliated
Purchasers. N/A
Item 10. Submission of
Matters to a Vote of Security Holders.
There have been no changes to the procedures by which
shareholders may recommend nominees to the Registrant's Board of Trustees that
would require disclosure herein.
Item 11. Controls and
Procedures.
(a) Evaluation of
Disclosure Controls and Procedures.
The
Registrant maintains disclosure controls and procedures that are designed to
provide reasonable assurance that information required to be disclosed in the
Registrant’s filings under the Securities Exchange Act of 1934, as amended, and
the Investment Company Act of 1940 is recorded, processed, summarized and
reported within the periods specified in the rules and forms of the Securities
and Exchange Commission. Such information is accumulated and communicated to
the Registrant’s management, including its principal executive officer and
principal financial officer, as appropriate, to allow timely decisions
regarding required disclosure. The Registrant’s management, including the
principal executive officer and the principal financial officer, recognizes
that any set of controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives.
Within 90 days prior to the
filing date of this Shareholder Report on Form N-CSR, the Registrant
had carried out an evaluation, under the supervision and with the participation
of the Registrant’s management, including the Registrant’s principal executive
officer and the Registrant’s principal financial officer, of the effectiveness
of the design and operation of the Registrant’s disclosure controls and
procedures. Based on such evaluation, the Registrant’s principal executive
officer and principal financial officer concluded that the Registrant’s
disclosure controls and procedures are effective.
(b) Changes in
Internal Controls.
During the
period covered by this report, a third-party service provider commenced
performing certain accounting and administrative services for the Registrant
that are subject to Franklin Templeton’s oversight.
Item 12. Disclosure of
Securities Lending Activities for Closed-End Management Investment Company. N/A
(a)(2)
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of
Matthew T. Hinkle
,
Chief Executive Officer - Finance and Administration, and
Robert G. Kubilis
,
Chief Financial Officer and Chief Accounting Officer
(b)
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Matthew T. Hinkle
,
Chief Executive Officer - Finance and Administration, and
Robert G. Kubilis
,
Chief Financial Officer and Chief Accounting Officer
SIGNATURES
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.
TEMPLETON GLOBAL INCOME
FUND
By S/MATTHEW T. HINKLE_______________
Chief Executive Officer –
Finance and Administration
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.
By S/MATTHEW T. HINKLE_______________
Chief Executive Officer –
Finance and Administration
By S/ROBERT G. KUBILIS_________
____
Chief
Financial Officer and Chief Accounting Officer