(a)
The Registrant has adopted a code of ethics that applies to its principal
executive officers and principal financial and accounting officer.
(f)
Pursuant to Item 13(a)(1), the Registrant is attaching as an exhibit a copy of
its code of ethics that applies to its principal executive officers and
principal financial and accounting officer.
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 expert 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. N/A
Members
of the Audit Committee are: Ann Torre Bates, David W. Niemiec, J. Michael
Luttig and Constantine D. Tseretopoulos
Item
6. Schedule of Investments. N/A
Item
7
. Disclosure
of Proxy Voting Policies and Procedures for Closed-End Management Investment
Companies.
The board of directors of the Fund has
delegated the authority to vote proxies related to the portfolio securities
held by the Fund to the Fund’s investment manager, Templeton Asset Management
Ltd.(TAML), in accordance with the Proxy Voting Policies and Procedures
(Policies) adopted by the investment manager.
The
investment manager has delegated its administrative duties with respect to the
voting of proxies for securities to the Proxy Group within Franklin Templeton
Companies, LLC (Proxy Group), an affiliate and wholly owned subsidiary of
Franklin Resources, Inc. All proxies received by the Proxy Group will be voted
based upon the investment manager’s instructions and/or policies. The
investment manager votes proxies solely in the best interests of the Fund and
its shareholders.
To assist
it in analyzing proxies of equity securities, the investment manager subscribes
to Institutional Shareholder Services, Inc. (ISS), an unaffiliated third-party
corporate governance research service that provides in-depth analyses of
shareholder meeting agendas, vote recommendations, vote execution services,
ballot reconciliation services, recordkeeping and vote disclosure services. In
addition, the investment manager subscribes to Glass, Lewis & Co., LLC
(Glass Lewis), an unaffiliated third-party analytical research firm, to receive
analyses and vote recommendations on the shareholder meetings of publicly held
U.S. companies, as well as a limited subscription to its international
research. Although analyses provided by ISS, Glass Lewis, and/or another independent
third party proxy service provider (each a "Proxy Service") are
thoroughly reviewed and considered in making a final voting decision, the investment
manager does not consider recommendations from a Proxy Service or any third
party to be determinative of the investment manager's ultimate decision.
Rather, the investment manager exercises its independent judgment in making
voting decisions. For most proxy proposals, the investment manager’s evaluation
will result in the same position being taken for all Funds. In some cases,
however, the evaluation may result in a Fund or investment manager voting
differently, depending upon the nature and objective of the Fund, the
composition of its portfolio, whether the investment manager has adopted a
custom voting policy, and other factors. As a matter of policy, the officers,
directors/trustees and employees of the investment manager and the Proxy Group
will not be influenced by outside sources whose interests conflict with the
interests of the Fund and its shareholders. Efforts are made to resolve all
conflicts in the best interests of the investment manager’s clients. Material
conflicts of interest are identified by the Proxy Group based upon analyses of
client, distributor, broker-dealer and vendor lists, information periodically
gathered from directors and officers, and information derived from other
sources, including public filings. In situations where a material conflict of
interest is identified, the Proxy Group may vote consistent with the voting
recommendation of a Proxy Service; or send the proxy directly to the Fund's
board or a committee of the board with the investment manager's recommendation regarding
the vote for approval.
Where a
material conflict of interest has been identified, but the items on which the
investment manager’s vote recommendations differ from a Proxy Service and
relate specifically to (1) shareholder proposals regarding social or
environmental issues, (2) “Other Business” without describing the matters that
might be considered, or (3) items the investment manager wishes to vote in
opposition to the recommendations of an issuer’s management, the Proxy Group
may defer to the vote recommendations of the investment manager rather than
sending the proxy directly to the Fund's board or a board committee for
approval.
To
avoid certain potential conflicts of interest, the investment manager will
employ echo voting or pass-through voting, if possible, in the following
instances: (1) when the Fund invests in an underlying fund in reliance on any
one of Sections 12(d)(1)(F) or (G) of the 1940 Act, the rules thereunder, or pursuant
to a SEC exemptive order thereunder; (2) when the Fund invests uninvested cash
in affiliated money market funds pursuant to the rules under the 1940 Act or
any exemptive orders thereunder (“cash sweep arrangement”); or (3) when
required pursuant to the Fund’s governing documents or applicable law. Echo
voting means that the investment manager will vote the shares in the same
proportion as the vote of all other holders of the underlying fund's shares.
With respect to instances when a Franklin Templeton U.S. registered investment
company invests in an underlying fund in reliance on any one of Sections
12(d)(1)(F) or (G) of the 1940 Act, the rules thereunder, or pursuant to an SEC
exemptive order thereunder, and there are no other unaffiliated shareholders
also invested in the underlying fund, the investment manager will vote in
accordance with the recommendation of such investment company’s board of
trustees or directors. In addition, to avoid certain potential conflicts of
interest, and where required under a fund’s governing documents or applicable
law, the investment manager will employ pass-through voting when a Franklin
Templeton U.S. registered investment company invests in an underlying fund in
reliance on Section 12(d)(1)(E) of the 1940 Act, the rules thereunder, or
pursuant to an SEC exemptive order thereunder. In “pass-through voting,” a
feeder fund will solicit voting instructions from its shareholders as to how to
vote on the master fund’s proposals. If a Franklin Templeton investment company
becomes a holder of more than 25% of the shares on a non-affiliated fund, as a
result of a decrease in the outstanding shares of the non-affiliated fund, then
the investment manager will vote the shares in the same proportion as the vote
of all other holders of the non-affiliated fund.
The
recommendation of management on any issue is a factor that the investment
manager considers in determining how proxies should be voted. However, the
investment manager does not consider recommendations from management to be
determinative of the investment manager’s ultimate decision. As a matter of
practice, the votes with respect to most issues are cast in accordance with the
position of the company's management. Each issue, however, is considered on its
own merits, and the investment manager will not support the position of the
company's management in any situation where it deems that the ratification of
management’s position would adversely affect the investment merits of owning
that company’s shares.
Engagement
with issuers
. The investment manager believes that engagement with issuers is
important to good corporate governance and to assist in making proxy voting
decisions. The investment manager may engage with issuers to discuss specific
ballot items to be voted on in advance of an annual or special meeting to
obtain further information or clarification on the proposals. The investment
manager may also engage with management on a range of environmental, social or
corporate governance issues throughout the year.
Investment
manager’s proxy voting policies and principles
The
investment manager has adopted general proxy voting guidelines, which are
summarized below. These guidelines are not an exhaustive list of all the issues
that may arise and the investment manager cannot anticipate all future
situations. In all cases, each proxy and proposal (including both management
and shareholder proposals) will be considered based on the relevant facts and
circumstances on a case-by-case basis.
Board
of directors
. The investment manager supports an independent, diverse board of
directors, and prefers that key committees such as audit, nominating, and compensation
committees be comprised of independent directors. The investment manager
supports boards with strong risk management oversight. The investment manager
will generally vote against management efforts to classify a board and will
generally support proposals to declassify the board of directors. The
investment manager will consider withholding votes from directors who have
attended less than 75% of meetings without a valid reason. While generally in
favor of separating Chairman and CEO positions, the investment manager will
review this issue as well as proposals to restore or provide for cumulative
voting on a case-by-case basis, taking into consideration factors such as the
company’s corporate governance guidelines or provisions and performance. The
investment manager generally will support non-binding shareholder proposals to
require a majority vote standard for the election of directors; however, if
these proposals are binding, the investment manager will give careful review on
a case-by-case basis of the potential ramifications of such implementation.
In the
event of a contested election, the investment manager will review a number of
factors in making a decision including management’s track record, the company’s
financial performance, qualifications of candidates on both slates, and the
strategic plan of the dissidents and/or shareholder nominees.
Ratification
of auditors of portfolio companies
. The investment manager will closely
scrutinize the independence, role and performance of auditors. On a
case-by-case basis, the investment manager will examine proposals relating to
non-audit relationships and non-audit fees. The investment manager will also
consider, on a case-by-case basis, proposals to rotate auditors, and will vote
against the ratification of auditors when there is clear and compelling
evidence of a lack of independence, accounting irregularities or negligence.
The investment manager may also consider whether the ratification of auditors
has been approved by an appropriate audit committee that meets applicable
composition and independence requirements.
Management
and director compensation
. A company’s equity-based compensation plan should
be in alignment with the shareholders’ long-term interests. The investment
manager believes that executive compensation should be directly linked to the
performance of the company. The investment manager evaluates plans on a
case-by-case basis by considering several factors to determine whether the plan
is fair and reasonable, including the ISS quantitative model utilized to assess
such plans and/or the Glass Lewis evaluation of the plans. The investment
manager will generally oppose plans that have the potential to be excessively
dilutive, and will almost always oppose plans that are structured to allow the
repricing of underwater options, or plans that have an automatic share
replenishment “evergreen” feature. The investment manager will generally
support employee stock option plans in which the purchase price is at least 85%
of fair market value, and when potential dilution is 10% or less.
Severance
compensation arrangements will be reviewed on a case-by-case basis, although
the investment manager will generally oppose “golden parachutes” that are considered
to be excessive. The investment manager will normally support proposals that
require a percentage of directors’ compensation to be in the form of common
stock, as it aligns their interests with those of shareholders.
The
investment manager will review non-binding say-on-pay proposals on a
case-by-case basis, and will generally vote in favor of such proposals unless
compensation is misaligned with performance and/or shareholders’ interests, the
company has not provided reasonably clear disclosure regarding its compensation
practices, or there are concerns with the company’s remuneration practices.
Anti-takeover
mechanisms and related issues
. The investment manager generally
opposes anti-takeover measures since they tend to reduce shareholder rights. However,
as with all proxy issues, the investment manager conducts an independent review
of each anti-takeover proposal. On occasion, the investment manager may vote
with management when the research analyst has concluded that the proposal is
not onerous and would not harm the Fund or its shareholders’ interests. The
investment manager generally supports proposals that require shareholder
rights’ plans (often referred to as “poison pills”) to be subject to a
shareholder vote and will closely evaluate such plans on a case-by-case basis
to determine whether or not they warrant support. In addition, the investment
manager will generally vote against any proposal to issue stock that has
unequal or subordinate voting rights. The investment manager generally opposes
any supermajority voting requirements as well as the payment of “greenmail.”
The investment manager generally supports “fair price” provisions and
confidential voting. The investment manager will review a company’s proposal to
reincorporate to a different state or country on a case-by-case basis taking
into consideration financial benefits such as tax treatment as well as
comparing corporate governance provisions and general business laws that may
result from the change in domicile.
Changes
to capital structure
. The investment manager realizes that a company's financing
decisions have a significant impact on its shareholders, particularly when they
involve the issuance of additional shares of common or preferred stock or the
assumption of additional debt. The investment manager will review, on a
case-by-case basis, proposals by companies to increase authorized shares and
the purpose for the increase. The investment manager will generally not vote in
favor of dual-class capital structures to increase the number of authorized
shares where that class of stock would have superior voting rights. The
investment manager will generally vote in favor of the issuance of preferred
stock in cases where the company specifies the voting, dividend, conversion and
other rights of such stock and the terms of the preferred stock issuance are
deemed reasonable. The investment manager will review proposals seeking
preemptive rights on a case-by-case basis.
Mergers
and corporate restructuring
. Mergers and acquisitions will be subject to
careful review by the research analyst to determine whether they would be
beneficial to shareholders. The investment manager will analyze various
economic and strategic factors in making the final decision on a merger or
acquisition. Corporate restructuring proposals are also subject to a thorough examination
on a case-by-case basis.
Environmental
and social issues
. The investment manager considers environmental and social
issues alongside traditional financial measures to provide a more comprehensive
view of the value, risk and return potential of an investment. Companies may
face significant financial, legal and reputational risks resulting from poor
environmental and social practices, or negligent oversight of environmental or
social issues. Franklin Templeton’s “Responsible Investment Principles and
Policies” describes the investment manager’s approach to consideration of
environmental, social and governance issues within the investment manager’s
processes and ownership practices.
Shareholder
proposals.
The investment manager will review shareholder proposals on a
case-by-case basis and may support those that serve to enhance value or
mitigate risk, are drafted appropriately, and do not disrupt the course of
business or require a disproportionate or inappropriate use of company
resources.
In the investment
manager’s experience, those companies that are managed well are often effective
in dealing with the relevant environmental and social issues that pertain to
their business. As such, the investment manager will generally give management
discretion with regard to environmental and social issues. However, in cases
where management and the board have not demonstrated adequate efforts to mitigate
material environmental or social risks, have engaged in inappropriate or
illegal conduct, or have failed to adequately address current or emergent risks
that threaten shareholder value, the investment manager may choose to support
well-crafted shareholder proposals that serve to promote or protect shareholder
value. This may include seeking appropriate disclosure regarding material environmental
and social issues.
The
investment manager will consider supporting a shareholder proposal seeking
disclosure and greater board oversight of lobbying and corporate political
contributions if the investment manager believes that there is evidence of inadequate
oversight by the company’s board, if the company’s current disclosure is
significantly deficient, or if the disclosure is notably lacking in comparison
to the company’s peers.
Governance
matters
. The investment manager generally supports the right of
shareholders to call special meetings and act by written consent. However, the
investment manager will review such shareholder proposals on a case-by-case
basis in an effort to ensure that such proposals do not disrupt the course of
business or require a disproportionate or inappropriate use of company
resources.
Proxy
access
. In cases where the investment manager is satisfied with company
performance and the responsiveness of management, it will generally vote
against shareholder proxy access proposals not supported by management. In other
instances, the investment manager will consider such proposals on a case-by-case
basis, taking into account factors such as the size of the company, ownership
thresholds and holding periods, nomination limits (e.g., number of candidates
that can be nominated), the intentions of the shareholder proponent, and
shareholder base.
Global
corporate governance
. Many of the tenets discussed above are applied to the investment
manager's proxy voting decisions for international investments. However, the
investment manager must be flexible in these worldwide markets. Principles of
good corporate governance may vary by country, given the constraints of a
country’s laws and acceptable practices in the markets. As a result, it is on
occasion difficult to apply a consistent set of governance practices to all
issuers. As experienced money managers, the investment manager's analysts are
skilled in understanding the complexities of the regions in which they
specialize and are trained to analyze proxy issues germane to their regions.
The
investment manager will generally attempt to process every proxy it receives
for all domestic and foreign securities. However, there may be situations in
which the investment manager may be unable to successfully vote a proxy, or may
choose not to vote a proxy, such as where: (i) a proxy ballot was not received
from the custodian bank; (ii) a meeting notice was received too late; (iii)
there are fees imposed upon the exercise of a vote and it is determined that
such fees outweigh the benefit of voting; (iv) there are legal encumbrances to
voting, including blocking restrictions in certain markets that preclude the
ability to dispose of a security if the investment manager votes a proxy or
where the investment manager is prohibited from voting by applicable law,
economic or other sanctions, or other regulatory or market requirements,
including but not limited to, effective Powers of Attorney; (v) additional
documentation or the disclosure of beneficial owner details is required; (vi)
the investment manager held shares on the record date but has sold them prior
to the meeting date; (vii) a proxy voting service is not offered by the custodian
in the market; (viii) due to either system error or human error, the investment
manager’s intended vote is not correctly submitted; (ix) the investment manager
believes it is not in the best interest of the Fund or its shareholders to vote
the proxy for any other reason not enumerated herein; or (x) a security is
subject to a securities lending or similar program that has transferred legal
title to the security to another person.
In some
non-U.S. jurisdictions, even if the investment manager uses reasonable efforts
to vote a proxy on behalf of the Fund, such vote or proxy may be rejected
because of (a) operational or procedural issues experienced by one or more
third parties involved in voting proxies in such jurisdictions; (b) changes in
the process or agenda for the meeting by the issuer for which the investment
manager does not have sufficient notice; or (c) the exercise by the issuer of
its discretion to reject the vote of the investment manager. In addition,
despite the best efforts of the Proxy Group and its agents, there may be
situations where the investment manager's votes are not received, or properly
tabulated, by an issuer or the issuer's agent.
The
investment manager or its affiliates may, on behalf of one or more of the
proprietary registered investment companies advised by the investment manager
or its affiliates, determine to use its best efforts to recall any security on
loan where the investment manager or its affiliates (a) learn of a vote on a
material event that may affect a security on loan and (b) determine that it is
in the best interests of such proprietary registered investment companies to
recall the security for voting purposes.
Procedures
for meetings involving fixed income securities & privately held issuers
. From
time to time, certain custodians may process events for fixed income securities
through their proxy voting channels rather than corporate action channels for
administrative convenience. In such cases, the Proxy Group will receive ballots
for such events on the ISS voting platform. The Proxy Group will solicit voting
instructions from the investment manager for each Fund involved. If the Proxy
Group does not receive voting instructions from the investment manager, the
Proxy Group will take no action on the event. The investment manager may be
unable to vote a proxy for a fixed income security, or may choose not to vote a
proxy, for the reasons described above.
In the
rare instance where there is a vote for a privately held issuer, the decision
will generally be made by the relevant portfolio managers or research analysts.
The
Proxy Group will monitor such meetings involving fixed income securities or
privately held issuers for conflicts of interest in accordance with these
procedures. If a fixed income or privately held issuer is flagged as a
potential conflict of interest, the investment manager may nonetheless vote as
it deems in the best interests of the Fund. The investment manager will report
such decisions on an annual basis to the Fund board as may be required.
Shareholders
may view the complete Policies online at franklintempleton.com. Alternatively,
shareholders may request copies of the Policies free of charge by calling the
Proxy Group collect at (954) 527-7678 or by sending a written request to:
Franklin Templeton Companies, LLC, 300 S.E. 2nd Street, Fort Lauderdale, FL
33301-1923, Attention: Proxy Group. Copies of the Fund’s proxy voting records
are available online at franklintempleton.com and posted on the SEC website at
www.sec.gov. The proxy voting records are updated each year by August 31 to
reflect the most recent 12-month period ended June 30.
Item
8. Portfolio Managers of Closed-End Management Investment Companies
. N/A
Item
9. Purchases of Equity Securities by Closed-End Management Investment Company
and Affiliated Purchasers
. N/A
Item
10
. Submission
of Matters to a Vote of Security Holders.
There have been no changes to the procedures by which
shareholders may recommend nominees to the Registrant's Board of Directors 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-CSRS, 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. There have been no changes in the Registrant’s
internal control over financial reporting that occurred during the period
covered by this report that has materially affected, or is reasonably likely to
materially affect the internal control over financial reporting.
Item 12. Disclosure of Securities Lending
Activities for Closed-End Management Investment Company.
Securities lending agent
The board of trustees has
approved the Fund’s participation in a securities lending program. Under the
securities lending program, JP Morgan Chase Bank serves as the Fund’s
securities lending agent.
For the six months ended June 30, 2021, the income
earned by the Fund as well as the fees and/or compensation paid by the Fund in
dollars pursuant to a securities lending agreement between the Trust with
respect to the Fund and the Securities Lending Agent were as follows (figures
may differ from those shown in shareholder reports due to time of availability
and use of estimates):
Gross income earned by the Fund
from securities lending activities |
|
Fees and/or compensation paid by the Fund
for securities lending activities and related services |
|
Fees paid to Securities Lending Agent from revenue
split |
|
Fees paid for any cash collateral management service
(including fees deducted from a pooled cash collateral reinvestment vehicle)
not included in a revenue split |
|
Administrative fees not included in a revenue
split |
|
Indemnification fees not included in a revenue
split |
|
Rebate (paid to borrower) |
|
Other fees not included above |
|
Aggregate fees/compensation paid by the
Fund for securities lending activities |
|
Net income from securities lending
activities |
|
(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
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
Dragon Fund, Inc.
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