PROPOSAL 2: RATIFICATION
OF THE SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
How are independent auditors selected?
The
Board has a standing Audit Committee currently comprised of David W. Niemiec
(Chairman), Ann Torre Bates, J. Michael Luttig and Constantine D.
Tseretopoulos, all of whom are Independent Trustees and considered to be
“independent” as that term is defined by the NYSE’s listing standards. The
Audit Committee is responsible for the appointment, compensation and retention
of the Fund’s independent registered public accounting firm (“independent
auditors”), including evaluating their independence, recommending the selection
of the Fund’s independent auditors to the full Board, and meeting with such
independent auditors to consider and review matters relating to the Fund’s
financial reports and internal controls.
Which independent auditors did the Board select?
The
Audit Committee and the Board have selected the firm of PricewaterhouseCoopers
LLP (“PwC”) as the independent auditors for the Fund for the current fiscal
year. PwC has examined and reported on the fiscal year-end financial statements
dated December 31, 2019, and certain related SEC filings. You are being
asked to ratify the Board’s selection of PwC for the current fiscal year ending
December 31, 2020. Services to be performed by the independent auditors
include examining and reporting on the fiscal year-end financial statements of
the Fund and certain related filings with the SEC.
The
selection of PwC as the independent auditors for the Fund for the fiscal year
ending December 31, 2020, was recommended by the Audit Committee and
approved by the Board on February 25, 2020. PwC’s reports on the financial
statements of the Fund for the fiscal years for which it has served as auditors
did not contain an adverse opinion or a disclaimer of opinion, nor were
qualified or modified as to uncertainty, audit scope or accounting principles.
The
Audit Committee and the Board have been advised by PwC that neither PwC nor any
of its members have any material direct or indirect financial interest in the
Fund. Representatives of PwC are not expected to be present at the Meeting, but
will have the opportunity to make a statement if they wish, and will be
available to respond to appropriate questions.
◆
AUDITOR INFORMATION
Audit
Fees. The
aggregate fees paid to PwC for professional services rendered by PwC for the
audit of the Fund’s annual financial statements or for services that are
normally provided by PwC in connection with statutory and regulatory filings or
engagements were $60,466 for the fiscal year ended December 31, 2019 and
$56,825 for the fiscal year ended December 31, 2018.
Audit-Related Fees. There
were no fees paid to PwC for assurance and related services rendered by PwC to
the Fund that are reasonably related to the performance of the audit of the
Fund’s financial statements and not reported under “Audit Fees” above for the
fiscal years ended December 31, 2019 and December 31, 2018.
In
addition, the Audit Committee pre-approves PwC’s engagement for audit-related
services to be provided to the Investment Manager and any entity controlling,
controlled by, or under common control with the Investment Manager that
provides ongoing services to the Fund, which engagements relate directly to the
operations and financial reporting of the Fund. For the fiscal years ended
December 31, 2019 and December 31, 2018, there were no fees paid to
PwC for such services.
Tax Fees. There
were no fees paid to PwC for professional services rendered by PwC to the Fund
for tax compliance, tax advice and tax planning for the fiscal years ended
December 31, 2019 and December 31, 2018.
In
addition, the Audit Committee pre-approves PwC’s engagement for tax services to
be provided to the Investment Manager and any entity controlling, controlled
by, or under common control with the Investment Manager that provides ongoing
services to the Fund, which engagements relate directly to the operations and
financial reporting of the Fund. The aggregate fees paid to PwC for such
services were $20,000 for the fiscal year ended December 31, 2019 and
$5,000 for the fiscal year ended December 31, 2018. The services for which
these fees were paid included professional fees in connection with tax
treatment of equipment lease transactions, professional fees in connection with
an Indonesia withholding tax refund claim, and tax consulting services related
to the operating agreement and term sheet for the launch of a new fund.
All Other Fees. The
aggregate fees paid to PwC for products and services rendered by PwC to the
Fund, other than the services reported above, were $0 for the fiscal year ended
December 31, 2019 and $353 for the fiscal year ended December 31,
2018. The services for which these fees were paid included review of materials
provided to the fund Board in connection with the investment management
contract renewal process.
In
addition, the Audit Committee pre-approves PwC’s engagement for other services
to be provided to the Investment Manager and any entity controlling, controlled
by, or under common control with the Investment Manager that provides ongoing
services to the Fund, which engagements relate directly to the operations and
financial reporting of the Fund. The aggregate fees paid to PwC for such
services were $145,644 for the fiscal year ended December 31, 2019 and
$16,500 for the fiscal year ended December 31, 2018. The services for
which these fees were paid included valuation services related to a Fair Value
engagement, issuance of an Auditors’ Certificate for South Korean regulatory
shareholder disclosures, and assets under management certification.
Aggregate Non-Audit Fees. The
aggregate fees paid to PwC for non-audit services rendered by PwC to the Fund
or to the Investment Manager and to any entity controlling, controlled by, or
under common control with the Investment Manager that provides ongoing services
to the Fund were $165,644 for the fiscal year ended December 31, 2019 and
$21,853 for the fiscal year ended December 31, 2018.
The Audit Committee has considered whether the
provision of the non-audit services that were rendered to the Investment
Manager and to any entity controlling, controlled by, or under common control
with the Investment Manager that provides ongoing services to the Fund is
compatible with maintaining PwC’s independence.
Audit Committee Pre-Approval Policies and Procedures. As of the date of this proxy
statement, the Audit Committee has not adopted written pre-approval policies
and procedures within the meaning of Rule 2-01(c)(7)(i) of Regulation S-X. As a
result, the services described above that are subject to Audit Committee
pre-approval and provided by PwC must be directly pre-approved by the Audit
Committee or by a designated member of the Audit Committee pursuant to
delegated authority.
Audit Committee Charter. The
Board has adopted and approved a formal written charter for the Audit Committee
which sets forth the Audit Committee’s responsibilities. A copy of the charter
is attached as Exhibit B to this proxy statement.
As
required by the charter, the Audit Committee reviewed the Fund’s audited
financial statements and met with management, as well as with PwC, the Fund’s
independent auditors, to discuss the financial statements.
Audit Committee Report. The Audit Committee received
the written disclosures and the letter(s) from PwC required by the applicable
requirements of the Public Company Accounting Oversight Board (“PCAOB”)
regarding PwC’s communications with the Audit Committee concerning
independence. The Audit Committee also received the report of PwC regarding the
results of their audit. In connection with the Audit Committee’s review of the
financial statements and PwC’s report, the members of the Audit Committee
discussed with a representative of PwC, PwC’s independence, as well as the
matters required to be discussed by the applicable requirements of the PCAOB
and the SEC, including, but not limited to, the following: PwC’s
responsibilities in accordance with generally accepted auditing standards;
PwC’s responsibilities for information prepared by management that accompanies
the Fund’s audited financial statements and any procedures performed and the
results; the initial selection of, and whether there were any changes in,
significant accounting policies or their application; management’s judgments
and accounting estimates; whether there were any significant audit adjustments;
whether there were any disagreements with management; whether there was any
consultation with other accountants; whether the auditors encountered any
difficulties in dealing with management in performing the audit; and PwC’s
judgments about the quality of the Fund’s accounting principles.
Based
on its review and discussions with management and PwC, the Audit Committee did
not become aware of any material misstatements or omissions in the financial
statements. Accordingly, the Audit Committee recommended to the Board that the
audited financial statements be included in the Fund’s Annual Report to
Shareholders for the fiscal year ended December 31, 2019, for filing with
the SEC.
AUDIT
COMMITTEE
David W. Niemiec (Chairman)
Ann
Torre Bates
J.
Michael Luttig
Constantine
D. Tseretopoulos
◆
ADDITIONAL INFORMATION ABOUT THE
FUND’S BOARD OF TRUSTEES
Board
Role in Risk Oversight. The
Board, as a whole, considers risk management issues as part of its general
oversight responsibilities throughout the year at regular Board meetings,
through regular reports that have been developed by management in consultation
with the Board and its counsel. These reports address certain investment,
valuation and compliance matters. The Board also may receive special written
reports or presentations on a variety of risk issues, either upon the Board’s
request or upon the Investment Manager’s initiative. In addition, the Audit
Committee of the Board meets regularly with the Investment Manager’s internal
audit group to review reports on their examinations of functions and processes
within Franklin Templeton that affect the Fund.
With
respect to investment risk, the Board receives regular written reports
describing and analyzing the investment performance of the Fund. In addition,
the portfolio managers of the Fund meet regularly with the Board to discuss
portfolio performance, including investment risk. To the extent that the Fund
changes a particular investment strategy that could have a material impact on
the Fund’s risk profile, the Board generally is consulted with respect to such
change. To the extent that the Fund invests in certain complex securities,
including derivatives, the Board receives periodic reports containing
information about exposure of the Fund to such instruments. In addition, the
Investment Manager’s investment risk personnel meet regularly with the Board to
discuss a variety of issues, including the impact on the Fund of the investment
in particular securities or instruments, such as derivatives and commodities,
if applicable.
With
respect to valuation, the Fund’s administrator provides regular written reports
to the Board that enable the Board to monitor the number of investments fair
valued by management appraisal in the Fund’s portfolio, the reasons for such
fair valuation and the methodology used to arrive at the fair value. Such
reports also include information concerning illiquid investments within the
Fund’s portfolio. The Board also reviews dispositional analysis information on
the sale of investments that require special valuation considerations such as
illiquid or certain fair valued investments. In addition, the Fund’s Audit
Committee reviews valuation procedures and results with the Fund’s independent
auditors in connection with the Committee’s review of the results of the audit
of the Fund’s year-end financial statements.
With
respect to compliance risks, the Board receives regular compliance reports
prepared by the Investment Manager’s compliance group and meets regularly with
the Fund’s Chief Compliance Officer (“CCO”) to discuss compliance issues,
including compliance risks. In accordance with SEC rules, the Independent
Trustees meet regularly in executive session with the CCO and the CCO prepares
and presents an annual written compliance report to the Board. The Fund’s Board
adopts compliance policies and procedures for the Fund and approves these
procedures for the Fund’s service providers. The compliance policies and
procedures are specifically designed to detect and prevent violations of the
federal securities laws.
The
Investment Manager periodically provides an enterprise risk management
presentation to the Board to describe the way in which risk is managed on a
complex-wide level. The presentation covers such areas as investment risk,
reputational risk, personnel risk, and business continuity risk.
Board Structure. Seventy-five
percent or more of the Fund’s Board members consist of Independent Trustees who
are not deemed to be “interested persons” by reason of their relationship with
the Fund’s management or otherwise as provided under the 1940 Act. While the
Chairman of the Board is an interested person, the Board is also served by a
Lead Independent Trustee. The Lead Independent Trustee, together with
independent counsel, reviews proposed agendas for Board meetings and generally
acts as a liaison with Fund management with respect to questions and issues
raised by the Independent Trustees. The Lead Independent Trustee also presides
at separate meetings of Independent Trustees held in advance of each scheduled
Board meeting where various matters, including those being considered at such
Board meeting, are discussed. It is believed such structure and activities
assure that proper consideration is given at Board meetings to matters deemed
important to the Fund and its shareholders.
◆
ADDITIONAL INFORMATION ABOUT THE FUND
The
Investment Manager. The
Investment Manager of the Fund is Franklin Advisers, Inc., a California
corporation with offices at One Franklin Parkway, San Mateo, California
94403-1906. Pursuant to an investment management agreement, the Investment
Manager manages the investment and reinvestment of Fund assets. The Investment
Manager is a wholly owned subsidiary of Resources.
The Administrator. The
administrator of the Fund is Franklin Templeton Services, LLC
(“FT Services”), with offices at 300 S.E. 2nd Street, Fort Lauderdale,
Florida 33301-1923. FT Services is an indirect, wholly owned subsidiary of
Resources and an affiliate of the Investment Manager. Pursuant to a subcontract
for administrative services, FT Services performs certain administrative
functions for the Fund.
The Transfer Agent. The transfer agent, registrar
and dividend disbursement agent for the Fund is American Stock
Transfer & Trust Company, LLC, 6201 15th Avenue,
Brooklyn, NY 11219.
The Custodian. The
custodian for the Fund is JPMorgan Chase Bank, 270 Park Avenue, New York,
New York 10017-2070.
Other
Financial Information. The
Fund’s latest audited financial statements and annual report for the fiscal
year ended December 31, 2019, are available free of charge. To obtain a
copy, please call (800) DIAL BEN®/342-5236 or forward
a written request to Franklin Templeton Investor Services, LLC, P.O. Box 33030,
St. Petersburg, Florida 33733-8030.
Principal Shareholders. As of March 12, 2020, the
Fund had 134,144,158 shares outstanding and total net assets of
$870,627,499.23. The Fund’s shares are listed on the NYSE (NYSE: GIM). To the
knowledge of the Fund’s management, as of March 12, 2020, there were no
entities holding beneficially or of record more than 5% of the Fund’s
outstanding shares, except as shown in the following table:
|
|
|
Name and
Address of Beneficial Ownership
|
Amount and Nature
of Beneficial Ownership
|
Percent of
Outstanding Shares
|
First Trust Portfolios LP............................................................................................................................................................
|
11,795,917 *
|
8.79 %
|
120 East Liberty Drive
Suite
400
Wheaton, IL 60187
|
|
|
* The
nature of beneficial ownership is shared dispositive power as reported on
Schedule 13G/A filed with the SEC on January 31, 2020.
In addition, to the knowledge of the Fund’s
management, as of March 12, 2020, no nominee or Trustee of the Fund owned
1% or more of the outstanding shares of the Fund, and the Trustees and officers
of the Fund owned, as a group, less than 1% of the outstanding shares of the
Fund.
Contacting the Board of Trustees. If a shareholder wishes to send a communication
to the Board, such correspondence should be in writing and addressed to the
Board of Trustees at the Fund’s offices, 300 S.E. 2nd Street,
Fort Lauderdale, Florida 33301-1923, Attention: Secretary. The correspondence
will be given to the Board for review and consideration.
◆
FURTHER INFORMATION ABOUT VOTING AND
THE MEETING
Solicitation
of Proxies.
Your vote is being solicited by the Trustees. The cost of soliciting proxies,
including the fees of a proxy soliciting agent, is borne by the Fund. The Fund
reimburses brokerage firms and others for their reasonable expenses in forwarding
proxy material to the beneficial owners and soliciting them to execute proxies.
In addition, the Fund may retain a professional proxy solicitation firm to
assist with any necessary solicitation of proxies. The Fund expects that the
solicitation would be primarily by mail, but also may include telephone,
facsimile, electronic or other means of communication. If the Fund does not
receive your proxy by a certain time, you may receive a telephone call from a
proxy soliciting agent asking you to vote. If professional proxy solicitors are
retained, it is expected that soliciting fees would be approximately $5,000,
plus expenses. The Fund does not reimburse Trustees and officers of the Fund,
or regular employees and agents of the Investment Manager involved in the
solicitation of proxies. The Fund intends to pay all costs associated with the
solicitation and the Meeting.
Voting by Broker-Dealers. The
Fund expects that, before the Meeting, broker-dealer firms holding shares of
the Fund in “street name” for their customers will request voting instructions
from their customers and beneficial owners. If these instructions are not
received by the date specified in the broker-dealer firms’ proxy solicitation
materials, the Fund understands that current NYSE Rules permit the broker-dealers
to vote on the Proposals on behalf of their customers and beneficial owners.
Certain broker-dealers may exercise discretion over shares held in their name
for which no instructions are received by voting these shares in the same
proportion as they vote shares for which they received instructions.
Quorum. A
majority of the Fund’s shares entitled to vote at the Meeting—present in person
or represented by proxy—constitutes a quorum at the Meeting. The shares over
which broker-dealers have discretionary voting power, the shares that represent
“broker non-votes” (i.e., shares held by brokers or nominees as to
which (i) instructions have not been received from the beneficial owners
or persons entitled to vote and (ii) the broker or nominee does not have
discretionary voting power on a particular matter), and the shares whose
proxies reflect an abstention on any item will all be counted as shares present
and entitled to vote at the Meeting for purposes of determining whether the
required quorum of shares exists.
Method of Tabulation. Provided a quorum is present
or represented at the Meeting, Proposal 1, the election of Trustees, requires
the affirmative vote of a plurality of the Fund’s shares present in person or
represented by proxy and voting on the Proposal at the Meeting. Proposal 2,
ratification of the selection of the independent auditors, requires the
affirmative vote of (i) sixty-seven percent (67%) or more of the voting
securities present in person or represented by proxy at the Meeting, if the
holders of more than fifty percent (50%) of the outstanding voting securities
of the Fund are present or represented by proxy; or (ii) more than fifty
percent (50%) of the outstanding voting securities of the Fund, whichever is
less. Abstentions and broker non-votes will be treated as votes present at the
Meeting, but will not be treated as votes cast. Abstentions and broker
non-votes, therefore, will have no effect on Proposal 1, but may have the
effect of an “against” vote on Proposal 2. Broker non-votes are not expected
since these are routine proposals.
Simultaneous Meetings. The
Meeting is to be held at the same time as the annual meetings of shareholders
of Templeton Dragon Fund, Inc. and Templeton Emerging Markets Income Fund. If
any shareholder at the Meeting objects to the holding of simultaneous meetings
and moves for an adjournment of the Meeting to a time promptly after the
simultaneous meetings, the persons designated as proxies will vote in favor of
such adjournment.
Adjournment. The
Chairman of the Board or an authorized officer of the Fund for the Meeting, or
the holders of a majority of the shares present (in person or by proxy) and
entitled to vote at the Meeting, may adjourn the Meeting from time to time.
Such authority to adjourn the Meeting may be used in the event that a quorum is
not present at the Meeting or, in the event that a quorum is present but
sufficient votes have not been received to approve the Proposals, or for any
other reason consistent with Delaware law and the Fund’s By-Laws, including to
allow for the further solicitation of proxies. Unless otherwise instructed by a
shareholder granting a proxy, the persons designated as proxies may use their
discretionary authority to vote as instructed by management of the Fund on
questions of adjournment and on any other proposals raised at the Meeting to
the extent permitted by the SEC’s proxy rules, including proposals for which
management of the Fund did not have timely notice, as set forth in the SEC’s proxy
rules and the Fund’s proxy statement for the 2019 annual meeting.
Shareholder Proposals. The
Fund anticipates that its 2021 Annual Meeting of Shareholders will be held on
or about May 27, 2021. A shareholder who wishes to submit a proposal for
consideration for inclusion in the Fund’s proxy statement for the 2021 Annual
Meeting of Shareholders must send such written proposal to the Fund’s offices
at 300 S.E. 2nd Street, Fort Lauderdale, Florida 33301-1923, Attention:
Secretary, so that it is received no later than November 30, 2020 in order
to be included in the Fund’s proxy statement and proxy card relating to that
meeting and presented at the meeting.
A shareholder of the Fund who has not submitted a
written proposal for inclusion in the Fund’s proxy statement by
November 30, 2020, as described above, may nonetheless present a proposal
at the Fund’s 2021 Annual Meeting of Shareholders if such shareholder notifies
the Fund in writing at the Fund’s offices, of such proposal not earlier than December 28,
2020 and not later than January 27, 2021. If a shareholder fails to give
notice within these dates, then the matter shall not be eligible for
consideration at the shareholders’ meeting. If, notwithstanding the effect of
the foregoing notice provisions, a shareholder proposal is acted upon at the
2021 Annual Meeting of Shareholders, the persons designated as proxies for the
2021 Annual Meeting of Shareholders may exercise discretionary voting power
with respect to any shareholder proposal not received by the Fund at the Fund’s
offices by February 13, 2021. A shareholder proposal may be presented at
the 2021 Annual Meeting of Shareholders only if such proposal concerns a matter
that may be properly brought before the meeting under applicable federal proxy
rules and state law. In addition to the requirements set forth above, a
shareholder must comply with the following:
1. A
shareholder intending to present a proposal must (i) be entitled to vote
at the meeting; (ii) comply with the notice procedures set forth in this
proxy statement and in the Fund’s By-Laws; and (iii) have been a
shareholder of record at the time the shareholder’s notice was received by the
Secretary of the Fund.
2. A
notice regarding a nomination for the election of a Trustee shall set forth in
writing (i) the name, age, business address and, if known, residence
address of each nominee proposed in such notice; (ii) the principal
occupation or employment of each such nominee; (iii) the number of
outstanding shares of the Fund which are beneficially owned by each such
nominee; and (iv) all such other information regarding each such nominee
as would have been required to be included in a proxy statement filed pursuant
to the proxy rules of the SEC had each such nominee been nominated by the
Trustees of the Fund. In addition, the shareholder making such nomination shall
promptly provide any other information reasonably requested by the Fund.
3. A
notice regarding a business proposal shall set forth in writing as to each
matter: (i) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the meeting;
(ii) the name and address, as they appear on the Fund’s books, of the
shareholder proposing such business; (iii) the number of shares of the
Fund which are beneficially owned by the shareholder; (iv) any material
interest of the shareholder in such business; and (v) all such other
information regarding each such matter that would have been required to be
included in a proxy statement filed pursuant to the proxy rules of the SEC had
each such matter been proposed by the Trustees of the Fund.
Submission of a proposal
by a shareholder does not guarantee that the proposal will be included in the
Fund’s proxy statement or presented at the meeting.
By
Order of the Board of Trustees,
Lori A. Weber
Vice
President and Secretary
March 30, 2020
EXHIBIT A
NOMINATING COMMITTEE CHARTER
I. The Committee.
The
Nominating Committee (the “Committee”) is a committee of, and established by,
the Board of Directors/Trustees of the Fund (the “Board”). The Committee
consists of such number of members as set by the Board from time to time and
its members shall be selected by the Board. The Committee shall be comprised
entirely of “independent members.” For purposes of this Charter, independent
members shall mean members who are not interested persons of the Fund
(“Disinterested Board members”) as defined in Section 2(a)(19) of the
Investment Company Act of 1940, as amended (the “1940 Act”).
II. Board
Nominations and Functions.
1. The
Committee shall make recommendations for nominations for Disinterested Board
members on the Board to the incumbent Disinterested Board members and to the
full Board. The Committee shall evaluate candidates’ qualifications for Board
membership and the independence of such candidates from the Fund’s investment
manager and other principal service providers. Persons selected must be independent
in terms of both the letter and the spirit of the 1940 Act. The Committee shall
also consider the effect of any relationships beyond those delineated in the
1940 Act that might impair independence, e.g., business, financial or
family relationships with investment managers or service providers.
2. The
Committee also shall evaluate candidates’ qualifications and make
recommendations for “interested” members on the Board to the full Board.
3. The
Committee may adopt from time to time specific, minimum qualifications that the
Committee believes a candidate must meet before being considered as a candidate
for Board membership and shall comply with any rules adopted from time to time
by the U.S. Securities and Exchange Commission regarding investment company nominating
committees and the nomination of persons to be considered as candidates for
Board membership.
4. The
Committee shall review shareholder recommendations for nominations to fill
vacancies on the Board if such recommendations are submitted in writing and
addressed to the Committee at the Fund’s offices. The Committee shall adopt, by
resolution, a policy regarding its procedures for considering candidates for
the Board, including any recommended by shareholders.
III. Committee
Nominations and Functions.
The
Committee shall make recommendations to the full Board for nomination for
membership on all committees of the Board.
IV. Other Powers and Responsibilities.
1. The
Committee shall meet at least once each year or more frequently in open or
executive sessions. The Committee may invite members of management, counsel,
advisers and others to attend its meetings as it deems appropriate. The
Committee shall have separate sessions with management and others, as and when
it deems appropriate.
2. The
Committee shall have the resources and authority appropriate to discharge its
responsibilities, including authority to retain special counsel and other
experts or consultants at the expense of the Fund.
3. The
Committee shall report its activities to the Board and make such
recommendations as the Committee may deem necessary or appropriate.
4. A
majority of the members of the Committee shall constitute a quorum for the
transaction of business at any meeting of the Committee. The action of a
majority of the members of the Committee present at a meeting at which a quorum
is present shall be the action of the Committee. The Committee may meet in
person or by telephone, and the Committee may act by written consent, to the
extent permitted by law and by the Fund’s by-laws. In the event of any
inconsistency between this Charter and the Fund’s organizational documents, the
provisions of the Fund’s organizational documents shall be given precedence.
5. The
Committee shall review this Charter at least annually and recommend any changes
to the full Board.
ADDITIONAL STATEMENT
FOR CLOSED-END FUNDS ONLY
The
Committee shall comply with any rules of any stock exchange, if any, applicable
to nominating committees of closed-end funds whose shares are registered thereon.
EXHIBIT B
FRANKLIN TEMPLETON
AUDIT COMMITTEE CHARTER
I. The Committee.
The Audit Committee (“Committee”) is a committee of, and established by, the Board of Directors/Trustees of the Fund (the “Board”).1 The Committee shall consist of such number of members as set by the Board from time to time, but in no event fewer than three (NYSE-listed Funds only), and its members shall be selected by the Board. The Committee shall be comprised entirely of members who satisfy the requirements for independence set out in Rule 10A-3(b)(1) under the Securities Exchange Act of 1934 (the “1934 Act”) (“Disinterested Board members”).2 Each member of the Committee must be financially literate, as such qualification is interpreted by the Board in its business judgment, or must become financially literate within a reasonable period of time after his or her appointment to the Committee. At least one member of the Committee must be an “audit committee financial expert,” as determined by the Board and as defined in Item 3(b) of U.S. Securities and Exchange Commission (“SEC”) Form N-CSR. The Committee will make recommendations to the Board for its approval with respect to such audit committee financial expert determinations at least annually.
If a Committee member of an NYSE-listed Fund simultaneously serves on the audit committee of more than three public companies, the Board must determine that such simultaneous service would not impair the ability of such member to effectively serve on the Fund’s Committee. When a member serves on multiple boards in the same fund complex, such service will be counted as one board for these purposes (NYSE-listed Funds only).
II. Purposes of the Committee.
The function of the Committee is to assist Board oversight of the Fund’s financial statements and accounting and auditing processes, which shall include being directly responsible for the appointment, compensation, retention and oversight of the work of the Fund’s independent registered public accounting firm (“auditors”) engaged (including resolution of disagreements between management and the auditors regarding financial reporting) for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Fund. It is management’s responsibility to prepare the Fund’s financial statements in accordance with generally accepted accounting principles (“GAAP”) and to maintain appropriate systems for accounting and internal controls. It is the auditors’ responsibility to express an opinion on the Fund’s financial statements, to plan and carry out an audit in accordance with the standards of the SEC and the Public Company Accounting Oversight Board (“PCAOB”) and to report directly to the Committee. It is not the duty of the Committee to plan or conduct audits or to determine that the Fund’s financial statements are complete and in accordance with GAAP.
1 This document serves as the Charter for the Committee of each U.S. registered investment company (a “Fund”) within Franklin Templeton, and each series thereof as applicable, including certain Exchange-listed Funds included on Appendix A hereto.
2 Each member of the Committee may not, other than in his or her capacity as a member of the Committee, the Board, or any other Board committee: (A) accept directly or indirectly any consulting, advisory, or other compensatory fee from the Fund or any subsidiary thereof, provided that, unless the rules of the applicable national securities exchange or national securities association provide otherwise, compensatory fees do not include the receipt of fixed amounts of compensation under a retirement plan (including deferred compensation) for prior service with the Fund (provided that such compensation is not contingent in any way on continued service); or (B) be an “interested person” of the Fund as defined in section 2(a)(19) of the Investment Company Act of 1940.
Consistent with such allocation of functions, the purposes of the Committee are:
(a) To oversee the Fund’s accounting and financial reporting policies and practices and its internal controls, and to obtain, where it deems appropriate, reports on internal controls of service providers to the Fund;
(b) To oversee or, as appropriate, assist Board oversight of the quality, objectivity and integrity of the Fund’s financial statements and the independent audit thereof;
(c) To oversee or, as appropriate, assist Board oversight of the Fund’s compliance with legal and regulatory requirements (primarily as they relate to the Fund’s accounting and financial reporting, internal control over financial reporting and independent audits);
(d) To approve prior to appointment the engagement of the Fund’s auditors and, in connection therewith, to review and evaluate the auditors’ qualifications, independence and performance, taking into account the opinions of management;
(e) To act as a liaison between the Fund’s auditors and the Board;
(f) to prepare, or authorize the preparation of, the disclosure required by Item 407(d)(3)(i) of Regulation S-K (the “Audit Committee Report”) for inclusion in the Fund’s annual proxy statement (NYSE- and NYSE American-listed Funds only); and
(g) To consider such other matters as it deems appropriate in carrying out its purpose and any other matters that may be assigned to it by the Board.
In addition, the Committee shall serve as the Fund’s Qualified Legal Compliance Committee (“QLCC”) pursuant to Section 205 of the SEC’s Standards of Professional Conduct for Attorneys Appearing and Practicing before the Commission in the Representation of an Issuer (the “Standards”). In this capacity, the Committee is required to adopt and maintain written procedures for the confidential receipt, retention and consideration of any report of evidence of a material violation. “Evidence of a material violation” means credible evidence, based upon which it would be unreasonable, under the circumstances, for a prudent and competent attorney not to conclude that it is reasonably likely that a material violation of an applicable U.S. federal or state securities law, a material breach of fiduciary (or similar) duty to the Fund arising under U.S. federal or state law, or a similar material violation of any U.S. federal or state law has occurred, is ongoing, or is about to occur.
III. Powers and Duties.
The Committee shall have the following powers and duties to carry out its purposes:
(a) To select the auditors, subject to approval both by the Board and by a separate vote of the Disinterested Board members, and, in connection therewith, to evaluate the independence and qualifications of the auditors in accordance with applicable federal securities laws and regulations and the rules and standards of the PCAOB.
(b) To be directly responsible for approving the services to be provided by, and the compensation of, the auditors, including:
(i) pre-approval of all audit and audit related services;
(ii) pre-approval of all non-audit related services to be provided to the Fund by the auditors;
(iii) pre-approval of all non-audit related services to be provided by the auditors to the Fund’s investment adviser or to any entity that controls, is controlled by or is under common control with the Fund’s investment adviser and that provides ongoing services to the Fund where the non-audit services relate directly to the operations or financial reporting of the Fund; and
(iv) if deemed necessary or appropriate, as an alternative to Committee pre-approval of services to be provided by the auditors, as required by paragraphs (ii) and (iii) above:
(A) establishment by the Committee of policies and procedures to pre-approve such services, provided the policies and procedures are detailed as to the particular service and the Committee is informed of each service and such policies and procedures do not include delegation of audit committee responsibilities, as contemplated under the 1934 Act), to management; or
(B) delegation by the Committee to one or more designated members of the Committee who are Disinterested Board members of authority to pre-approve such services, provided the Committee is informed of the decisions of any member pursuant to such delegated authority no later than its next scheduled meeting;
subject, in the case of (ii) through (iv), to any waivers, exceptions or exemptions that may be available under applicable law or rules.
(c) To meet with the auditors, including private meetings, as necessary to (i) review the arrangements for and scope of the annual audit and any special audits; (ii) discuss any matters or concerns relating to the Fund’s financial statements, including any recorded and/or unrecorded adjustments to such statements recommended by the auditors, or other results of audits; (iii) consider the auditors’ comments with respect to the Fund’s financial, accounting and reporting policies, procedures and internal controls and management’s responses thereto; and (iv) to review the form of opinion the auditors propose to render.
(d) To meet to review and discuss the Fund’s annual audited financial statements with management and the auditors, including reviewing the Fund’s disclosures under “Management’s Discussion of Fund Performance” (“MDFP”) in its annual shareholder report (All Funds). To meet to review and discuss the Fund’s semi-annual financial statements with management, including reviewing the Fund’s MDFP disclosures in its semi-annual shareholder report, as applicable (NYSE-listed Funds and New Jersey/Alternative Strategies Funds only). Such meetings may be telephonic.
(e) To consider the effect upon the Fund of any changes in accounting principles or practices proposed by management or the auditors.
(f) To receive and consider reports from the auditors:
(i) as required by generally accepted accounting standards, including Auditing Standard (“AS”) No. 1301 (Communications with Audit Committees);
(ii) annually and by update as required by SEC Regulation S-X, regarding:
(A) all critical accounting policies and practices of the Fund to be used;
(B) all alternative treatments within GAAP for policies and practices related to material items that have been discussed with management of the Fund, including ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the auditors;
(C) other material written communications between the auditors and management of the Fund, such as any management letter or schedule of unadjusted differences; and
(D) all non-audit services provided to any entity in an investment company complex, as defined in SEC Regulation S-X, that were not pre-approved by the Committee pursuant to SEC Regulation S-X;
(iii) at least annually regarding the auditors’ internal quality-control procedures; and
(iv) at least annually regarding any material issues raised by the most recent internal quality-control review, or peer review, of the auditors, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the auditors, and any steps taken to deal with any such issues.
(g) To review (i) major issues regarding accounting principles and financial statement presentations, including any significant changes in the Fund’s selection or application of accounting principles, and major issues as to the adequacy of the Fund’s internal controls and any special audit steps adopted in light of material control deficiencies; and (ii) analyses prepared by management and/or the auditors setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative GAAP methods on the financial statements.
(h) In considering the independence of the auditors:
(i) at least annually to receive from the auditors a formal written statement, and other reports as necessary, describing all relationships between the auditors and the Fund, the Fund’s investment adviser and service providers, and other entities advised or serviced by, including any entities controlling, controlled by or under common control with, the investment adviser or any other service providers to the Fund that, in the auditors’ judgment, could be thought to bear upon the auditors’ independence;
(ii) to receive and consider, if applicable, periodic reports from the auditors regarding whether the provision of non-audit services (including tax services) is compatible with maintaining the auditors’ independence;
(iii) to request from the auditors a written affirmation that they are independent auditors under the federal securities laws and standards adopted by the PCAOB; and
(iv) to discuss with the auditors any disclosed relationships or services that may impact the objectivity, impartial judgment, and independence of the auditors and for taking, or recommending that the Board take, appropriate action to oversee the independence of the auditors.
(i) To require that the auditors regularly provide timely information to the Committee with respect to new rules and pronouncements by applicable regulatory and accounting standards agencies, along with an explanation of how such developments may affect the Fund’s financial statements and accounting principles and practices.
(j) To review the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the financial statements of the Fund.
(k) To consider any reports of audit problems or difficulties that may have arisen during the course of the audit, including any limitations of the scope of the audit, and management’s response thereto.
(l) To review communications from the Fund’s Chief Executive Officer—Finance and Administration, and Chief Financial Officer and Chief Accounting Officer concerning (i) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the Fund’s ability to record, process, summarize and report financial information; and (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in the Fund’s internal controls over financial reporting, and to review requested communications from management for any other purposes the Committee deems appropriate.
(m) In connection with the preparation of the Audit Committee Report (NYSE and NYSE American-listed Funds only):
(i) to review and discuss the audited financial statements of the Fund with management;
(ii) to discuss with the auditors the matters required to be discussed by the statement on AS No. 1301, as amended;
(iii) to receive the written disclosures and the letter(s) from the auditors required by applicable requirements of the PCAOB regarding the auditor’s communications with the Committee concerning independence (referred to in paragraph (h) above), and discuss with the auditors the auditor’s independence; and
(iv) based on the review and discussions referred to in paragraphs (i) through (iii) above, to recommend to the Board that the audited financial statements be included in the Fund’s annual report on Form N-CSR for the last fiscal year for filing with the SEC.
(n) To review and discuss, as appropriate, the Fund’s earnings press releases (including the type and presentation of information to be included therein, paying particular attention to any use of “pro forma,” or “adjusted” non-GAAP, information), as well as any financial information and earnings guidance provided to analysts and rating agencies. (NYSE-listed Funds only)
(o) To review and discuss the Fund’s processes with respect to risk assessment and risk management.
(p) To set clear policies relating to the hiring by entities within Franklin Templeton of employees or former employees of the auditors.
(q) To evaluate, as either part of the full Board or as a Committee, its performance at least annually.
(r) To review potential conflict of interest situations where appropriate in connection with the Fund’s ongoing review of all related party transactions.
(s) To inform the chief legal officer (“CLO”) and chief executive officer (“CEO”) of the Fund (or the equivalents thereof) of any report of evidence of a material violation by the Fund, its officers, directors/trustees, employees (if any), or agents (collectively, “affiliates”). In connection therewith, the Committee shall:
(i) determine whether an investigation is necessary regarding any report of evidence of a material violation by the Fund or its affiliates;
(ii) if the Committee determines such an investigation is necessary or appropriate, (A) notify the Board; (B) initiate an investigation, which may be conducted by either the CLO or by outside attorneys; and (C) retain such additional expert personnel as the Committee deems necessary to assist in the investigation;
(iii) at the conclusion of any such investigation, (A) recommend by a majority vote, that the Fund implement an appropriate response (as defined in Section 205.2(b) of the Standards) to evidence of a material violation, and (B) inform the CLO and the CEO and the Board of the results of such investigation and the appropriate remedial measures to be adopted;
(iv) acting by majority vote, take all other appropriate action, including the authority to notify the SEC in the event the Fund fails in any material respect to implement an appropriate response that the Committee has recommended the Fund to take; and
(v) otherwise respond to evidence of a material violation.
IV. Other Functions and Procedures of the Committee.
(a) The Committee shall meet at least twice each year or more frequently, in open or executive sessions, as may be necessary to fulfill its responsibilities. The Committee shall meet as frequently as circumstances require with (i) the auditors as provided in III(c), above; and (ii) management’s internal audit department to review and discuss internal audit functions and reports. The Committee may invite members of management, the auditors, counsel, advisers and others to attend its meetings as it deems appropriate. The Committee shall meet separately, periodically, with management and with the auditors.
(b) The Committee shall establish procedures for (i) the receipt, retention and treatment of complaints received by the Fund or the Fund’s adviser regarding accounting, internal accounting controls, or accounting matters relating to the Fund; and (ii) the confidential, anonymous submission by employees of the Fund or Franklin Resources, Inc. and its subsidiaries of concerns regarding questionable accounting or auditing matters.
(c) The Committee shall have the authority to engage special or independent counsel, experts and other advisers as and when it determines necessary to carry out its duties.
(d) The Fund must provide for appropriate funding, as determined by the Committee in its capacity as a Committee of the Board, for payment of (i) compensation to any auditors engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Fund; (ii) compensation to any advisers employed by the Committee (under paragraph (c) above); and (iii) ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties.
(e) The Committee shall have unrestricted access to the Fund’s management and management of the Fund’s adviser, including, but not limited to, their chief executive officer(s), chief financial officer(s), internal auditors and any other executives and financial officers.
(f) The Committee shall report its activities to the Board, including any issues that arise with respect to the quality or integrity of the Fund’s financial statements, the Fund’s compliance with legal or regulatory requirements, or the qualifications, performance and independence of the Fund’s auditors, and make such recommendations as the Committee may deem necessary or appropriate.
(g) The Committee shall review and assess the adequacy of this Charter annually, or more frequently if it chooses, and recommend any changes to the Board. The Board shall adopt and approve this Charter and may amend it on its own motion.
(h) The Committee shall meet jointly with the Audit Committees of the other Funds within the Franklin Templeton Fund complex as may be appropriate, including to attend presentations and review proposals and other matters of common concern to all such Audit Committees.
(i) Pursuant to delegated authority from the Board, and at the request of the applicable investment manager of the Fund (the “Investment Manager”), the Committee, or an appointed delegate of the Committee as applicable, shall provide proxy voting instructions as a representative of the Fund to the Investment Manager in certain situations where the Investment Manager has identified a material conflict of interest between the Investment Manager or one of its affiliates and an issuer (i.e., the Committee or its appointed delegate will approve or disapprove the Investment Manager’s voting recommendation).
(j) To the extent applicable to the Fund, the Committee shall comply with such other rules of the applicable national securities exchanges and the SEC applicable to exchange-listed funds, as such may be adopted and amended from time to time. (Exchange-listed Funds only)
Appendix A
Amended as of October 1, 2019
EXCHANGE-LISTED FUNDS
Funds listed on New York Stock Exchange LLC (“NYSE-listed Funds”)
Franklin Universal Trust
Templeton Dragon Fund, Inc.
Templeton Emerging Markets Fund
Templeton Emerging Markets Income Fund
Templeton Global Income Fund
Fund listed on NYSE American LLC (“NYSE American-listed Fund”)
Franklin Limited Duration Income Trust
Funds listed on NYSE Arca, Inc.
Franklin ETF Trust
Franklin Liberty Short Duration U.S. Government ETF
Franklin Templeton ETF Trust
Franklin FTSE Asia ex Japan ETF
Franklin FTSE Australia ETF
Franklin FTSE Brazil ETF
Franklin FTSE Canada ETF
Franklin FTSE China ETF
Franklin FTSE Europe ETF
Franklin FTSE Europe Hedged ETF
Franklin FTSE France ETF
Franklin FTSE Germany ETF
Franklin FTSE Hong Kong ETF
Franklin FTSE India ETF
Franklin FTSE Italy ETF
Franklin FTSE Japan ETF
Franklin FTSE Japan Hedged ETF
Franklin FTSE Latin America ETF
Franklin FTSE Mexico ETF
Franklin FTSE Russia ETF
Franklin FTSE Saudi Arabia ETF
Franklin FTSE South Africa ETF
Franklin FTSE South Korea ETF
Franklin FTSE Switzerland ETF
Franklin FTSE Taiwan ETF
Franklin FTSE United Kingdom ETF
Franklin Liberty Intermediate Municipal Opportunities ETF
Franklin Liberty International Opportunities ETF
Franklin Liberty Investment Grade Corporate ETF
Franklin Liberty Municipal Bond ETF
Franklin Liberty Systematic Premia ETF
Franklin Liberty U.S. Core Bond ETF
Franklin Liberty U.S. Low Volatility ETF
Franklin LibertyQ Emerging Markets ETF
Franklin LibertyQ Global Dividend ETF
Franklin LibertyQ Global Equity ETF
Franklin LibertyQ International Equity Hedged ETF
Funds listed on Cboe BZX Exchange, Inc.
Franklin Templeton ETF Trust
Franklin Liberty High Yield Corporate ETF
Franklin Liberty International Aggregate Bond ETF
Franklin Liberty Senior Loan ETF
Franklin LibertyQ U.S. Equity ETF
Franklin LibertyQ U.S. Mid Cap Equity ETF
Franklin LibertyQ U.S. Small Cap Equity ETF
TEMPLETON GLOBAL INCOME FUND