Item 1 Cover Page FRANKLIN TEMPLETON PORTFOLIO ADVISORS, INC. One Franklin Parkway San Mateo, California 94403 (650) 312-3018 www.franklintempleton.com _____________________________________________________ INVESTMENT ADVISER REGISTRATION FORM ADV PART 2A: FIRM BROCHURE This brochure provides information about the qualifications and business practices of Franklin Templeton Portfolio Advisors, Inc. If you have any questions about the contents of this brochure, please contact FTPA Account Services at (800) 822-8464 (option 2) or via email at [email protected]. The information in this brochure has not been approved or verified by the United States Securities and Exchange Commission or by any state securities authority. Additional information about Franklin Templeton Portfolio Advisors, Inc. is also available on the SEC’s website at www.adviserinfo.sec.gov. ANY REFERENCE TO FRANKLIN TEMPLETON PORTFOLIO ADVISORS, INC. AS BEING A REGISTERED INVESTMENT ADVISER DOES NOT IMPLY A CERTAIN LEVEL OF SKILL OR TRAINING. September 30, 2015 1 Item 2 Material Changes Material changes made on or after the date of the last annual update of the Adviser’s brochure on September 30, 2014 are summarized below: Item 5: Fees and Expenses – Standard fee schedule updated. Added detail on the calculation of fees. Item 8: Methods of Analysis, Investment Strategies and Risk of Loss – Updated available strategies. Clients may request a copy of the current version of our brochure at no cost by contacting FTPA Account Services at (800) 822-8464 (option 2) or via email at [email protected]. Item 3 Table of Contents Item 4 Advisory Business ................................................................................................................ 1 Item 5 Fees and Compensation ...................................................................................................... 4 Item 6 Performance-Based Fees and Side-By-Side Management ................................................. 7 Item 7 Types of Clients .................................................................................................................... 8 Item 8 Methods of Analysis, Investment Strategies and Risk of Loss ............................................. 9 Item 9 Disciplinary Information ...................................................................................................... 13 Item 10 Other Financial Industry Activities and Affiliations ........................................................... 13 Item 11 Code of Ethics, Participation or Interest in Client Transactions and Personal Trading ... 14 Item 12 Brokerage Practices ......................................................................................................... 19 Item 13 Review of Accounts .......................................................................................................... 27 Item 14 Client Referrals and Other Compensation ....................................................................... 28 Item 15 Custody............................................................................................................................. 28 Item 16 Investment Discretion ....................................................................................................... 29 Item 17 Voting Client Securities .................................................................................................... 31 Item 18 Financial Information ........................................................................................................ 33 Item 4 Advisory Business INTRODUCTION TO FRANKLIN TEMPLETON PORTFOLIO ADVISORS, INC. Franklin Templeton Portfolio Advisors, Inc. (the “Adviser” or “we”), is a California corporation formed on February 23, 1978 and based in San Mateo, California. The Adviser is a wholly-owned subsidiary of Franklin Resources, Inc. (“Franklin Resources”), a holding company that, together with its various subsidiaries, is referred to as Franklin Templeton Investments,® a global investment management organization offering investment services under the Franklin,® Templeton,® Mutual Series,® Bissett,® Fiduciary Trust,™ Darby,® Balanced Equity Management™ and K2® brand names. Franklin Templeton Investments, through current and predecessor subsidiaries, has been engaged in the investment management and related services business since 1947. In September 2014, Franklin Resources deregistered as a bank holding company with the Board of Governors of the Federal Reserve System after limiting the operations of two of its subsidiaries to trust and fiduciary activities. The common stock of Franklin Resources is traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “BEN,” and is included in the Standard & Poor’s 500 Index. ADVISORY SERVICES The Adviser provides investment advisory services to a number of individual and institutional separate account clients and in connection with third-party separately managed accounts (“SMA”), unified managed account (“UMA”) or other “wrap fee” programs (collectively, “SMA Programs”). Where Franklin Templeton Investments participates in U.S-based SMA Programs, the Adviser serves as the contracting adviser. The Adviser may provide investment advisory services directly to clients and sponsors of SMA Programs (“Sponsors”). Additionally, with respect to certain investment mandates, the Adviser from time to time hires one or more of its affiliated advisers to serve as sub-advisers in such SMA Programs. The Adviser provides continuous and regular supervisory services for any accounts for which it has delegated management services to an affiliated adviser. The SMA and UMA programs in which the Adviser and its affiliated sub-advisers currently participate are identified under Item 5 of the Adviser’s Form ADV, Part 1A. The services offered by the Adviser and its affiliated sub-advisers are described more fully below. The terms under which the investment advisory services are provided to clients are set forth in the relevant investment management agreement, SMA Program agreements, investment guidelines and objectives, or other written instructions. The Adviser and its affiliated sub-advisers provide investment management services pursuant to agreements in effect governing each of the accounts that it manages. Investment management services include services to accounts with full investment discretion, and may also include services to accounts with no investment discretion. Accounts for which the Adviser and its affiliated sub-advisers do not have investment discretion may or may not include the authority to trade for the account. The management fee on an account varies with the types of services provided for the account, among other things. With respect to the accounts for which the Adviser and its affiliated sub-advisers provide discretionary investment management services, the portfolio managers will perform investment research and determine which securities the accounts will purchase, hold or sell. In addition, the portfolio managers may take all appropriate steps to implement such decisions, including arranging for the selection of brokers and dealers and the execution and settlement of trades in accordance with detailed criteria set forth in the management agreement for each account, internal policies, the policies of an SMA Program Sponsor, where applicable, and applicable law and practice. Individual and Institutional Separate Accounts An individual or institutional separate account client typically consults with the Adviser at the outset of the adviser-client relationship to establish customized investment guidelines applicable Franklin Templeton Portfolio Advisors, Inc. Page 1 to the Adviser’s management of the client’s account, and such guidelines may vary significantly among accounts with the same investment objective. The Adviser offers equity, fixed-income and balanced advice to individuals and institutions. With respect to fixed income securities, the Adviser provides investment advisory services directly through its Franklin Separately Managed Accounts operating division. The Adviser first assesses the appropriate maturity and duration structure under current market conditions, then performs market research and credit analysis and evaluates the differences in creditworthiness, liquidity and value among similar securities. With respect to equity securities, the Adviser’s affiliated advisers use a “bottom-up” approach, which includes analysis of a company’s balance sheet, revenues, cash flow and long-term prospects as well as general industry sectors and economic trends. The above security selection and analysis processes are performed in accordance with the stated investment objectives and guidelines of the client. Clients are typically provided with account performance statements on a quarterly basis, unless otherwise agreed. Prior to accepting a client’s funds for investment, the Adviser will review the client’s investment objectives and other information obtained from the client that provides Adviser and its affiliated sub-advisers with direction and a framework within which to manage the client’s account. The Adviser and its affiliated sub-advisers supervise and direct the investment of the assets under their management, subject to such limitations as the client may impose by written notice. Please see Item 16 (“Investment Discretion”) for details of the circumstances in which clients may place limitations on the Adviser’s discretionary authority. SMA Programs The Adviser and its affiliated sub-advisers may require a minimum account size for their investment strategies, which may vary among SMA Programs. In most SMA Programs, the program’s sponsor (the “Sponsor”) is responsible for establishing the financial circumstances, investment objectives and investment restrictions applicable to each client, often through a client questionnaire or profile (the “Profile”) and discussions between the client and the Sponsor’s personnel. Each client typically completes a Profile in addition to executing a SMA Program contract with the Sponsor. The Adviser and its affiliated sub-advisers will undertake to provide advice pursuant to the terms of an investment management agreement executed with the Sponsor. In some SMA Programs (often referred to as “Dual Contract SMA Programs”), clients also may be required to execute a separate agreement directly with the Adviser or the Adviser may be made a party to the client/Sponsor agreement. The client’s program agreement with the Sponsor generally establishes the services to be provided to the client by or on behalf of the Sponsor, which may include, among other things: (i) manager selection; (ii) trade execution for transactions executed through the Sponsor, often without a transaction-specific commission or charge; (iii) custodial services; (iv) periodic monitoring of investment managers; and (v) performance reporting. Please see “Separately Managed Account Brokerage Transactions” section in Item 12 for further discussion. Clients generally are charged by the Sponsor a comprehensive or wrap fee based upon a percentage of the value of the assets under management to cover such services. The wrap fee often, but not always, includes the advisory fees charged by the Adviser through the program. Where the services provided by the Adviser are included in the wrap fee, the Sponsor generally collects the wrap fee from the client and remits the advisory fee to the Adviser. In Dual Contract SMA Programs, the Adviser’s fee typically is paid directly by the client pursuant to a separate agreement between the Adviser and the client. Where the Adviser hires an affiliated sub-adviser, the Adviser pays a portion of its fee to the affiliated sub-adviser, and clients are not charged any additional fees. Please see Item 5 (“Fees and Compensation”) for further explanation. An SMA Program client typically selects (in its program agreement) an investment strategy for the Adviser (or its affiliated sub-advisers) to utilize in connection with its management of the client’s account. SMA Program accounts following the same investment strategy typically hold to a large extent the same or similar securities. In addition, since the comprehensive or wrap fee covers trades executed through the Sponsor, the Adviser and its affiliated sub-advisers may frequently effect transactions for SMA Program accounts with the program’s designated broker-dealer, whereas the Adviser and its affiliated sub-advisers usually effect equity transactions for Franklin Templeton Portfolio Advisors, Inc. Page 2 institutional accounts with a variety of broker-dealers. Please see Item 12 (“Brokerage Practices”) for more information. The Adviser and its affiliated sub-advisers may also provide non-discretionary investment management services, through SMA Programs typically known as Unified Managed Account (“UMA”) programs or otherwise, generally providing ongoing investment recommendations in the form of one or more “model” portfolios. The SMA Sponsor or an “overlay” manager, rather than the Adviser or its affiliated sub-advisers, makes the investment decision and executes trades on behalf of its underlying clients, and is the investment adviser for accounts of such underlying clients. The assets under such UMA programs are included under the “Non-Discretionary” category below. The Adviser and its affiliated sub-advisers have adopted policies and procedures designed to help ensure that any non-discretionary investment advice is communicated to SMA Sponsors and/or clients on a timely basis so that trades can be executed for both discretionary and non-discretionary clients in a fair manner. Please see “Separately Managed Account Brokerage Transactions” under Item 12 (“Brokerage Practices”) for more information. Potential or actual conflicts of interest may arise in the allocation of investment opportunities among the Adviser’s accounts. Some of these are discussed in more detail in Item 11 (“Code of Ethics, Participation or Interest in Client Transactions and Personal Trading”). SERVICES OF AFFILIATES Franklin Templeton Investments operates its investment management business through the Adviser, as well as through multiple affiliates of the Adviser, some of which are registered with non- U.S. regulatory authorities and some of which are registered with multiple regulatory authorities. The Adviser uses the services of appropriate personnel of one or more of its affiliates for investment advice, portfolio execution and trading, and client servicing in their local or regional markets or in their areas of special expertise, except to the extent restricted by the client under its investment management agreement, or inconsistent with applicable law. Arrangements among affiliates take a variety of forms, including delegation arrangements or formal sub-advisory or servicing agreements. In these circumstances, the client with whom the Adviser has executed the investment management agreement will typically require that the Adviser remains fully responsible for the account from a legal and contractual perspective. No additional fees are charged for the affiliates’ services except as disclosed in the investment management agreement. Please see Item 10 (“Other Financial Industry Activities and Affiliations”) for more details. ASSETS UNDER MANAGEMENT Adviser provides management services or continuous and regular supervisory services for the accounts that it manages. As part of these overall services, the Adviser will typically provide one or more of the following: (i) management services as an adviser to an account; (ii) management services as a sub-adviser to an affiliated adviser managing or supervising an account; (iii) management services under delegated authority by an affiliated adviser; (iv) continuous and regular supervisory services for an account for which it has delegated management services to an affiliated adviser; (v) management services as a co-manager to an account for which an affiliated adviser also provides management services; or (vi) non-discretionary management services, typically under a UMA or similar program. Assets under management described in this item may include all of these types of accounts, and may include accounts and assets that an affiliated adviser is also reporting on its Form ADV. As of September 30, 2015, the Adviser managed the following amounts on a discretionary and non-discretionary basis: U.S. Dollar Amount Discretionary $ 5,056,624,438.30 Non-Discretionary* $ 287,729,321.06 Total** $ 5,344,353,759.36 Franklin Templeton Portfolio Advisors, Inc. Page 3 * Non-discretionary assets under management described in this item may include accounts and assets for which the Adviser has neither discretionary authority nor responsibility for arranging or effecting the purchase or sale of recommendations provided to and accepted by the client. Any accounts and assets for which the Adviser provides solely asset allocation recommendations without continuous and regular monitoring of holdings within the client’s portfolio are not included in this item. **May differ from assets under management disclosed in Item 5.F of Adviser’s Form ADV Part 1A due to specific calculation instructions for Regulatory Assets Under Management. Item 5 Fees and Compensation ADVISORY FEES Investment management fees are generally calculated under contractual arrangements with each account as a percentage of the market value of assets under management. Annual rates vary by investment objective and type of services provided. Fee arrangements for separate accounts vary by client, and are based on a number of different factors, including investment mandate, services performed, and account/relationship size. To the extent permitted under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), the Adviser may negotiate and charge performance fees, as well as asset based fees. In addition, fees may be fixed, fixed plus performance or performance only. Please refer to Item 6 (“Performance-Based Fees and Side-by-Side Management”) for additional discussion of performance based fees. The Adviser is not generally required to provide notice to, or obtain the consent of, one client when waiving, reducing or varying fees or modifying other contractual terms with any other client. However, some separate account clients may from time to time seek to negotiate most favored nation (“MFN”) clauses in their investment management agreements with the Adviser. These clauses may require the Adviser to notify the MFN client if the Adviser subsequently enters into an investment management agreement with another separate account client that offers more favorable pricing or other contractual terms than those currently offered to the MFN client. An MFN clause will typically require that the Adviser notify the MFN client of the more favorable terms so that the MFN client can elect to either adopt or reject them or, usually when the MFN clause relates only to fees, may require that any more favorable fee terms be extended automatically to the MFN client. The applicability of an MFN clause will typically depend on the degree of similarity between separate account clients, such as the type of client, the scope of investment discretion, reporting and other servicing requirements, the amount of assets under management, the fee structure and the particular investment strategy (and therefore the relevant investment adviser) selected by each client. The Adviser has sole discretion over whether or not to grant any MFN clause in all circumstances. As discussed in more detail in Item 4 (“Advisory Business - Separately Managed Accounts”), the Adviser may participate as an investment manager in SMA Programs sponsored by various firms (“Sponsors”). The Sponsor’s Program Brochure generally contains information on minimum account sizes and fees payable to the Sponsor and participating investment managers, such as the Adviser. Accordingly, the Adviser’s minimum account size and fees may vary from program to program or within a single program based on, among other things, the investment strategies offered by the Adviser. The Adviser’s fees for managing SMA Program accounts may be less than the fees it receives for managing similar accounts outside of an SMA Program. However, SMA Program clients should be aware that the total fees and expenses associated with an SMA Program may exceed those which might be available if the services were acquired separately. SMA Program clients should contact their SMA Program Sponsor for more information on the fees payable to the Adviser in connection with such program. With respect to the SMAs advised under wrap fee programs, the Adviser receives an annualized fee from the wrap-fee Sponsors, typically paid quarterly, based on the value of the assets in the clients’ accounts. Franklin Templeton Portfolio Advisors, Inc. Page 4 From time to time, some SMA Sponsors may from time to time seek to negotiate MFN clauses in their agreements with the Adviser requiring Adviser to notify the Sponsor if the Adviser subsequently enters into arrangement with another SMA Sponsor that offers more favorable pricing or other contractual terms than those currently offered through the MFN Sponsor’s SMA Program. As with MFN clients, such clauses may require notification or automatic extension of more favorable fee terms to the MFN Sponsor’s program, and will typically depend on the degree of similarity between the SMA Programs, such as the type of client, the scope of investment discretion, reporting and other servicing requirements, the amount of assets under management, the fee structure and the particular investment strategy. FEES SCHEDULES Generally, the Adviser’s fee schedules for separate accounts are set out below (normally calculated as a percentage of the value of assets under management, and typically calculated monthly or quarterly, or as agreed with each client). Fees can vary from the fee schedules below and may be negotiated based upon factors that include, but are not limited to: (i) the amount and/or composition of the assets in the client’s account, (ii) the number of accounts and/or total amount of assets that the client has with the Adviser and/or the program Sponsor, (iii) the range and extent of services provided to the client, and (iv) whether the client is an employee of the Adviser or the program Sponsor. Moreover, fees, minimum account sizes and other account requirements may vary as a result of prior policies and the date of the relevant account opened, or if account assets are custodied at firms other than the Sponsor. The Adviser may, from time to time, agree to a lower effective rate for clients, or clients of certain financial advisors, that place large amounts of assets under the Adviser’s management, or that agree to place specified levels of assets under the Adviser’s management by specified future dates. Types of Mandates Standard Investment Advisory Fee1 Global Equity2 75 bps to 30 bps International Equity World Balanced3 75 bps to 55 bps Intermediate Fixed Income Intermediate Municipal Fixed 35 bps to 20 bps Limited Maturity Municipal Fixed Small Cap Growth 90 bps to 75 bps TIMING AND PAYMENT OF ADVISORY FEES The timing of fee payments will be negotiated with each client or SMA Sponsor. Asset-based fees generally are paid monthly or quarterly and are calculated on a percentage of the value of the account’s net assets. The Adviser’s investment management agreements with clients and Sponsors generally do not have termination dates. Rather, investment management agreements typically may be terminated by the Adviser or the client or Sponsor with advance notice, as set forth in the relevant investment management agreement, and may include automatic renewal provisions. In some situations, clients may arrange to pay fees in advance. In the event of the termination of a relationship, unearned fees, if any, paid in advance will be refunded to the client. To the extent fees have been earned but not yet billed, such fees will be pro-rated and paid by the client upon 1 Fees are generally calculated on a tiered fee schedule based on the level of assets in a separate account. 2 Adviser’s affiliate, Templeton Investment Counsel, LLC, currently serves as sub-adviser with respect to Global Equity and International Equity mandates. 3 Adviser’s affiliate, Templeton Investment Counsel, LLC, currently serves as sub-adviser with respect to the equity portion of World Balanced mandate. Franklin Templeton Portfolio Advisors, Inc. Page 5 termination. In certain cases (e.g., separate accounts with performance based fees), fees may continue to be paid after termination of the relationship in accordance with the investment management agreement. The advisory agreements generally may be terminated at any time by either party by giving advance written notice of such termination to the other party. Management fees paid in advance will be prorated to the date of termination specified in the notice of termination, and any unearned portion of the fee will be refunded to the client. Except as separately negotiated or as otherwise disclosed, fees are calculated in most cases as a percentage of assets under management and are payable monthly or quarterly in arrears (i.e. after the services are rendered) based on the month or quarter-end market value or on the average value for the fee period. Where the Adviser has agreed with a Separate Account client to calculate fees based on the value of assets at the end of a particular fee period, the Adviser will typically unless otherwise instructed prorate its fees to take into account capital contributions or withdrawals made by the client (with the exception of contributions or withdrawals below a threshold amount determined by the Adviser) during the relevant month or quarter. Although separate account clients typically elect to pay fees by authorizing their custodian to pay the Adviser out of their account assets pursuant to a pre-agreed fee schedule, some clients request the Adviser to bill them directly for fees incurred. If the Adviser manages multiple accounts for a client (or group of related clients), the assets of these accounts may be aggregated for purposes of taking advantage of available breakpoint fee reductions. OTHER FEES AND EXPENSES In addition to the fees described above, clients of the Adviser may bear other costs associated with investments or accounts including but not limited to: (i) custodial charges, brokerage fees, commissions and related costs; (ii) interest expenses; (iii) taxes, duties and other governmental charges; (iv) transfer and registration fees or similar expenses; (v) costs associated with foreign exchange transactions; (vi) other portfolio expenses; and (vii) costs, expenses and fees (including investment advisory and other fees charged by the investment advisers of funds in which the client’s account invest) associated with products or services that may be necessary or incidental to such investments or accounts. With respect to such services (which may include, but are not limited to, custodial, securities lending, brokerage, futures, banking, consulting or third-party advisory services) each client will be required to establish business relationships with relevant service providers or other counterparties based on the client’s own credit standing. The Adviser will not have any obligation to allow its credit to be used in connection with the establishment of such relationships, nor is it expected that such service providers or counterparties will consider or rely on the Adviser’s credit in evaluating the client’s creditworthiness. Clients will generally incur brokerage and other transaction costs. See Item 12 (“Brokerage Practices”) for discussion on brokerage. SMA Program clients also may be subject to fees, expenses and charges in addition to the Sponsor’s comprehensive or wrap fee (e.g., commissions on transactions executed by a broker- dealer other than the Sponsor or the program’s designated broker-dealer(s), expenses with respect to investments in pooled vehicles, dealer mark-ups or mark-downs on principal transactions, and certain costs or charges imposed by the Sponsor or a third-party, such as odd- lot differentials, exchange fees and transfer taxes mandated by law). The Adviser may, on behalf of certain clients, invest in pooled or collective investment vehicles, including mutual funds and exchange traded funds. Subject to applicable law and regulation and the terms of applicable agreements, such clients may bear the costs and expenses charged by such investment vehicles to their shareholders, such as management and administrative fees, in addition to the Adviser’s management fees or any wrap fee under a separately managed account program. In some cases it may be appropriate for the Adviser to invest a portion of a client’s separate account assets in funds for which the Adviser or its affiliate serves as investment adviser or sub-adviser (“Affiliated Funds”). This may be appropriate where, for example, the Affiliated Fund provides a more efficient and cost-effective way to diversify an account. Assets of separate accounts invested in Affiliated Funds are not subject to the advisory fee otherwise applicable to the account. Rather, those assets are subject to the fund fees and charges applicable to all shareholders in the fund, as set forth in the fund’s current prospectus. As a result, Franklin Templeton Portfolio Advisors, Inc. Page 6 the Adviser or its affiliates will indirectly receive advisory fees paid by those clients as shareholders of an Affiliated Fund. Accordingly, the Adviser may have a conflict of interest to the extent that it recommends investments in one of the Affiliated Funds rather than in unaffiliated mutual funds or other securities because the Adviser or its affiliates receive investment advisory fees from the Affiliated Funds but not from unaffiliated mutual funds or other investments (although any investments in unaffiliated mutual funds or other investments would be subject to the Adviser’s applicable advisory fee). Item 6 Performance-Based Fees and Side-By-Side Management The Adviser may provide advice to one or more separate account clients that are charged performance-based fees. Some portfolio managers may manage both accounts that are charged a performance fee and accounts that are charged another type of fee, such as separate accounts that are charged an asset based fee and pooled investment vehicles with a performance fee in which employees or associates of the Adviser or an affiliate may participate as investors. The management of multiple accounts may also give rise to potential conflicts of interest if the accounts have different objectives, benchmarks, time horizons, and fees as the portfolio manager must allocate his or her time and investment ideas across multiple accounts. The Adviser seeks to manage such competing interests for the time and attention of portfolio managers by having portfolio managers focus on a particular investment discipline. For example separate accounts managed by a portfolio manager are typically managed using the same or similar investment strategies that are used in connection with the other accounts he or she manages. Accordingly, portfolio holdings, position sizes, and industry and sector exposures tend to be similar across similar portfolios, which will minimize the potential for conflicts of interest. 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 one account may outperform the securities selected for another account. Moreover, if a portfolio manager identifies a limited investment opportunity that may be suitable for several accounts, a single account may not be able to take full advantage of that opportunity due to an allocation of that opportunity across all eligible accounts. The Adviser seeks to manage such potential conflicts by using procedures intended to provide a fair allocation of buy and sell opportunities among accounts. Please refer to Item 12 (“Brokerage Practices”) for more details. 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. Cross trades are another area that may present potential conflicts of interest in that they may be viewed as favoring one client over another. For example, an adviser receiving performance- based compensation could be perceived as effecting cross trades that it anticipates may increase in value from one account to another merely to increase the compensation it receives from the performance-based account. The reverse is true with respect to securities expected to decrease in value. In that case, an adviser may be perceived to cross-trade such securities from one account to another to minimize the effect of those securities on the performance-based compensation. The Adviser has implemented inter-account transaction procedures to address these potential conflicts of interest by, among other things, requiring pre-clearance of all cross- trades. The Adviser may aggregate orders of its clients to effect a larger transaction and thereby reduce transaction costs. The Adviser must then allocate the securities among the participating accounts. Although such bunching of transactions is permissible, potential conflicts of interest may exist in the aggregation and allocation of client transactions. For example, with respect to the allocations of aggregated trades, an adviser could be viewed as allocating securities that it anticipates will increase in value to certain favored clients, especially those that pay a performance-based fee to that adviser. 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