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Franklin discussed GIM vote with shareholder -court filings

·2 min read

Sept 6 (Reuters) - The operator of the Templeton Global Income Fund early this year discussed plans with its second-largest investor that made it more difficult for the fund's largest investor to wrest control of the closed-end fund, court filings suggest.

The previously undisclosed discussions between executives at Franklin Resources Inc's Franklin Templeton unit and First Trust Portfolios emerged due to litigation with Saba Capital Management, an activist investment firm and the fund's largest shareholder.

Saba, a New York-based hedge fund run by Boaz Weinstein, appeared to have won control of the Templeton fund's board at a June 6 election, but the fund filed a lawsuit accusing Saba of concealing an agreement to buy an investor's shares at a premium if it backed Saba's director candidates.

Saba responded that it filed the requisite disclosure within one business day.

A representative for Franklin Templeton was not immediately available for comment. Saba declined to comment.

Emails attached to court filings show Franklin Templeton and First Trust executives communicating weeks before the proxy solicitation materials were filed in April about when First Trust's ownership stake would fall below 10%.

That threshold is important because the U.S. Securities and Exchange Commission requires unit investment trusts, such as First Trust, owning more than 10% of closed-end funds to vote in the same proportions as, or "mirror vote," other shareholders in contested votes.

The requirement is designed to protect closed-end funds from undue influence, the SEC has said. Unit investment trusts owning less than 10% can vote however they want.

Court filings show a February e-mail from Franklin Templeton asking First Trust about its internal "voting discussion," as well as its "share ownership and how it will change over time through the end of May."

First Trust confirmed the following month that its stake had fallen below 10%, the filings show.

But the fund's April 12 proxy statement said First Trust still held an 11.22% stake, suggesting to shareholders that it still needed to use "mirror voting."

Disclosures show the Templeton bond fund's assets at $6.7 billion this year, down from $73 billion in 2013.

A federal judge in Manhattan is expected to rule on the case this month.