B-1 STATEMENT OF ADDITIONAL INFORMATION Dated May 1 ...

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Vote proposals to increase blank check preferred authorizations on a CASE-BY-CASE basis.Debt Issuance RequestsVote nonconvertible debt issuance requests on a CASE-BY-CASE basis, with or without preemptiverights.Vote FOR the creation/issuance of convertible debt instruments as long as the maximum number ofcommon shares that could be issued upon conversion meets ISS’s guidelines on equity issuance requests.Vote FOR proposals to restructure existing debt arrangements unless the terms of the restructuring wouldadversely affect the rights of shareholders.Pledging of Assets for DebtVote proposals to approve the pledging of assets for debt on a CASE-BY-CASE basis.Increase in Borrowing PowersVote proposals to approve increases in a company’s borrowing powers on a CASE-BY-CASE basis.Share Repurchase Plans:Vote FOR share repurchase plans, unless:• clear evidence of past abuse of the authority is available; or• the plan contains no safeguards against selective buybacks.Reissuance of Shares Repurchased:Vote FOR requests to reissue any repurchased shares unless there is clear evidence of abuse of thisauthority in the past.Capitalization of Reserves for Bonus Issues/Increase In Par Value:Vote FOR requests to capitalize reserves for bonus issues of shares or to increase par value.Reorganizations/Restructurings:Vote reorganizations and restructurings on a CASE-BY-CASE basis.Mergers and Acquisitions:Vote FOR mergers and acquisitions, unless:• the impact on earnings or voting rights for one class of shareholders is disproportionate to therelative contributions of the group; or• the company’s structure following the acquisition or merger does not reflect good corporategovernance.Vote AGAINST if the companies do not provide sufficient information upon request to make an informedvoting decision.ABSTAIN if there is insufficient information available to make an informed voting decision.Mandatory Takeover Bid Waivers:Vote proposals to waive mandatory takeover bid requirements on a CASE-BY-CASE basis.Reincorporation Proposals:Vote reincorporation proposals on a CASE-BY-CASE basis.Expansion of Business Activities:Vote FOR resolutions to expand business activities unless the new business takes the company into riskyareas.B-106
Related-Party Transactions:Vote related-party transactions on a CASE-BY-CASE basis.Compensation Plans:Vote compensation plans on a CASE-BY-CASE basis.Antitakeover Mechanisms:Vote AGAINST all antitakeover proposals unless they are structured in such a way that they giveshareholders the ultimate decision on any proposal or offer.Shareholder Proposals:Vote all shareholder proposals on a CASE-BY-CASE basis.Vote FOR proposals that would improve the company’s corporate governance or business profile at areasonable cost.Vote AGAINST proposals that limit the company’s business activities or capabilities or result insignificant costs being incurred with little or no benefit.TEMPLETON INVESTMENT COUNSEL, LLCPROXY VOTING POLICIES & PROCEDURESRESPONSIBILITY <strong>OF</strong> INVESTMENT MANAGER TO VOTE PROXIESTempleton Investment Counsel, LLC (hereinafter "Investment Manager") has delegated its administrativeduties with respect to voting proxies to the Proxy Group within Franklin Templeton Companies, LLC (the"Proxy Group"), a wholly-owned subsidiary of Franklin Resources, Inc. Franklin Templeton Companies,LLC provides a variety of general corporate services to its affiliates, including but not limited to legal andcompliance activities. Proxy duties consist of analyzing proxy statements of issuers whose stock is ownedby any client (including both investment companies and any separate accounts managed by InvestmentManager) that has either delegated proxy voting administrative responsibility to Investment Manager orhas asked for information and/or recommendations on the issues to be voted. The Proxy Group willprocess proxy votes on behalf of, and Investment Manager votes proxies solely in the interests of,separate account clients, Investment Manager-managed mutual fund shareholders, or, where employeebenefit plan assets are involved, in the interests of the plan participants and beneficiaries (collectively,"Advisory Clients") that have properly delegated such responsibility or will inform Advisory Clients thathave not delegated the voting responsibility but that have requested voting advice about InvestmentManager's views on such proxy votes. The Proxy Group also provides these services to other advisoryaffiliates of Investment Manager.HOW INVESTMENT MANAGER VOTES PROXIESFiduciary ConsiderationsAll proxies received by the Proxy Group will be voted based upon Investment Manager's instructionsand/or policies. To assist it in analyzing proxies, Investment Manager subscribes to RiskMetrics Group("RiskMetrics"), an unaffiliated third party corporate governance research service that provides in-depthanalyses of shareholder meeting agendas, vote recommendations, record keeping and vote disclosureservices. In addition, Investment Manager subscribes to Glass Lewis & Co., LLC ("Glass Lewis"), anunaffiliated third party analytical research firm, to receive analyses and vote recommendations on theshareholder meetings of publicly held U.S. companies. Although RiskMetrics' and/or Glass Lewis'sanalyses are thoroughly reviewed and considered in making a final voting decision, Investment Managerdoes not consider recommendations from RiskMetrics, Glass Lewis, or any other third party to bedeterminative of Investment Manager's ultimate decision. As a matter of policy, the officers, directors andB-107
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APPENDIX F - Proxy Voting Policies
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stocks that make up that index. Str
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Interest rate swaps do not involve
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the Adviser or Sub-Adviser will not
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Forward Contracts. The Portfolios m
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principal amount as the call writte
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Options on Foreign Currencies. The
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securities. The issuers of the unde
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the former pools. However, timely p
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CMO residuals are generally purchas
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utilize the underlying assets may r
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include range floaters which are a
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par unless the price of the underly
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to changes in interest rates genera
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corresponding floaters. The underly
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A Portfolio will not enter into suc
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egulations. The presence of an issu
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Portfolio TurnoverPortfolio turnove
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The ability of the Portfolio to ach
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Advisors, LLC, in accordance with t
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OWNERSHIP OF SHARES OF THE FUNDAll
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on the next $50 million, 0.50% on t
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Independent Registered Public Accou
Page 56 and 57: Name of Portfolio 2008 2007 2006Int
Page 58 and 59: Broker High Yield Bond BalancedAsse
Page 60 and 61: and cost of trade execution of Port
Page 62 and 63: Effective April 30, 2008, the Fund
Page 64 and 65: TAXES AND DIVIDENDSEach Portfolio i
Page 66 and 67: APPENDIX A - Credit RatingsDescript
Page 68 and 69: F2Good credit quality. A satisfacto
Page 70 and 71: . Moody’s Commercial Paper (short
Page 72 and 73: Plus (+) or minus (-)The ratings fr
Page 74 and 75: APPENDIX B - Directors and Officers
Page 76 and 77: Name, Address, andYear of BirthDavi
Page 78 and 79: APPENDIX C - Ownership of Shares of
Page 80 and 81: SMALL CAP VALUE PORTFOLIOGeneral Ac
Page 82 and 83: APPENDIX D - Portfolio ManagersOthe
Page 84 and 85: PortfolioManager(s)FundRegisteredIn
Page 86 and 87: Compensation of Portfolio ManagersM
Page 88 and 89: management firms. Performance is pr
Page 90 and 91: Portfolio managers are eligible for
Page 92 and 93: PortfolioPortfolio Manager(s)Dollar
Page 94 and 95: On August 25, 2005, the Court enter
Page 96 and 97: MSA’s Equity Trading Department s
Page 98 and 99: ERISA ClientsIn the case of client
Page 100 and 101: Shareholder Ability to Call Special
Page 102 and 103: • Exercise price• Participation
Page 104 and 105: Amend Quorum RequirementsVote propo
Page 108 and 109: employees of Investment Manager and
Page 110 and 111: will not support the position of a
Page 112 and 113: company specifies the voting, divid
Page 114 and 115: egarding whether Investment Manager
Page 116 and 117: 3. The issuer is an entity particip
Page 118 and 119: manager(s) are responsible for maki
Page 120 and 121: Global Corporate Governance: Invest
Page 122 and 123: 13. The Proxy Group will review the
Page 124 and 125: determined by those investment comm
Page 126 and 127: T. Rowe Price has adopted these Pro
Page 128 and 129: shareholders and the effect on shar
Page 130 and 131: portfolio company could have influe
Page 132 and 133: The Proxy Voting Service will refer
Page 134 and 135: that substantially differs from dom
Page 136 and 137: 15. Janus will generally vote in fa
Page 138 and 139: 46. For shareholder proposals outsi
Page 140 and 141: 2. Staggered BoardIf a company has
Page 142 and 143: proposed for a legitimate business
Page 144 and 145: APPENDIX G - Portfolio Holdings Dis
Page 146: ICP Securities LLCIntermonte Securi
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B-1 STATEMENT OF ADDITIONAL INFORMATION Dated May 1 ...

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