Puerto Rico

May 7, 2019

Sheila Amoroso is director of the Municipal Bond Department, Franklin Templeton Fixed Income Group®.

In our continuing efforts to keep our shareholders informed about events in Puerto Rico, we are providing this update.

For over 30 years, Franklin Advisers has been an investor in Puerto Rico bonds, which have historically been part of the investment opportunity set for municipal bond funds because of the bonds’ triple tax-free status (interest exempt from federal, state and local income taxes). Through the years, these bonds have been used to fund infrastructure projects across the island, including schools, public and private universities, hospitals, public housing, public buildings, airport facilities, transportation, electric utilities, water and sewer systems, as well as various economic development projects.

In 2012, we began reducing exposure to Puerto Rico-related bonds due to the weakening financial conditions on the island. We retained those investments that we believed were in the strongest position and felt had significant legal and constitutional protections by their indentures, applicable law and the Puerto Rico constitution.

In the years since, we have continued to selectively reduce our holdings and, as has been disclosed in certain legal filings, Franklin Advisers has sold all of its General Obligation, Cofina and Public Building Authority bonds. We continue to hold Puerto Rico Electric Power Authority (PREPA) bonds and be a member of the PREPA Ad Hoc Bondholder Group.

Puerto Rico debt now comprises less than 1% of our Franklin Tax-Free Income group's total assets under management of over $63 billion as of March 31, 2019.

Detailed holding information for Franklin Templeton funds

PREPA Definitive Restructuring Support Agreement

On May 3, 2019, the PREPA Ad Hoc Bondholder Group, Assured Guaranty, the Financial Oversight and Management Board of Puerto Rico (the Oversight Board), the Puerto Rico Fiscal Agency & Financial Advisory Authority and PREPA, announced all parties had reached agreement on a Definitive Restructuring Support Agreement (RSA). Pursuant to the terms of the RSA, bondholders are to exchange PREPA revenue bonds into new securitization debt.

We have always taken a constructive and collaborative approach to creating a path that will allow for the continued transformation and long-term sustainability of PREPA. We believe that this agreement will help create a positive economic impact not only for PREPA, but for Puerto Rico and its people as well.