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 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 August 31, 2021, and certain related
SEC filings. You are being asked to ratify the Board’s selection of PwC for the
current fiscal year ending August 31, 2022. 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
August 31, 2022, was recommended by the Audit Committee and approved by
the Board on October 19, 2021. 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 $42,545
for the fiscal year ended August 31, 2021, and $50,267 for the fiscal year
ended August 31, 2020.
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
August 31, 2021, and August 31, 2020.
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 August 31,
2021, and August 31, 2020, 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 August 31, 2021, and
August 31, 2020.
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. For the fiscal years ended August 31, 2021, and August 31,
2020, there were no fees paid to PwC for such services.
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 $111 for the fiscal year
ended August 31, 2021, and $0 for the fiscal year ended August 31,
2020. 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 $0
for the fiscal year ended August 31, 2021, and $137,944 for the fiscal
year ended August 31, 2020. The services for which these fees were paid
included valuation services related to a fair value engagement.
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 $111 for the fiscal year ended August 31, 2021,
and $137,944 for the fiscal year ended August 31, 2020.
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
mandated 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 Fund’s 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 August 31, 2021, 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 (e.g., COVID-19 related
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 Templeton Asset Management Ltd., a Singapore
company with a branch office at The Chater House, 17th Floor, 8 Connaught Road
Central, Hong Kong. Pursuant to an investment management agreement, the
Investment Manager manages the investment and reinvestment of Fund assets. The
Investment Manager is an indirect, wholly owned subsidiary of Resources.
The Investment
Sub-Adviser. Effective
April 1, 2021, the Investment Sub-Adviser of the Fund is Franklin
Templeton Investment Management Limited (“FTIML”), organized as a Private
Limited Company in England with its principal offices at Cannon Place, 78
Cannon Street, London, England EC4N 6HL. Pursuant to an investment sub-advisory
agreement between the Investment Manager and FTIML, FTIML provides certain
investment sub-advisory services to the Fund. FTIML is an indirect, 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. JPMorgan
Chase & Co. (“JPMC”), 270 Park Avenue, New York, NY 10017, has an
agreement with FT Services to provide certain sub-administrative services 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 August 31, 2021, 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 December 13, 2021, the Fund had 16,068,189 shares outstanding and total
net assets of $300,659,469.12. The Fund’s shares are listed on the NYSE (NYSE:
EMF). To the knowledge of the Fund’s management, as of December 13, 2021,
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:
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|
|
|
|
Name and
Address of Beneficial Ownership
|
Amount and Nature
of Beneficial Ownership
|
Percent of
Outstanding Shares
|
|
City
of London Investment Group PLC.................................................................................
|
2,404,764 *
|
14.94 %
|
|
City
of London Investment Management Company Limited
77 Gracechurch Street
London EC3U 0AS
England
|
|
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* The nature of
beneficial ownership is sole voting and dispositive power as reported on Form
13F-HR filed with the SEC on November 12, 2021.
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|
|
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1607 Capital Partners,
LLC......................................................................................................
|
1,170,643 **
|
7.27 %
|
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13 S. 13th Street
Suite 400
Richmond, VA 23219
|
|
|
** The nature of
beneficial ownership is sole voting and dispositive power as reported on Form
13F-HR filed with the SEC on November 15, 2021.
|
|
|
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Wells Fargo &
Company..........................................................................................................
|
876,909 ***
|
5.45%
|
|
420 Montgomery Street
San Francisco, CA
94163
|
|
|
*** The nature of
beneficial ownership is shared voting and dispositive power as reported on Form
13F-HR filed with the SEC on November 15, 2021.
In addition, to the
knowledge of the Fund’s management, as of December 13, 2021, 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. This means that the Trustee nominees receiving the largest number of
votes will be elected to fill the available positions, and a nominee may be
elected even if he or she received the affirmative vote of less than a majority
of the outstanding shares of the Fund voting. 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.
Adjournment. The Chairman of the Board, the
president of the Fund in the absence of the Chairman of the Board, or any vice
president or other authorized officer of the Fund, in the absence of the
president, 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 2021 annual meeting. If the
Meeting is postponed or adjourned and a new record date is set, any proxy received
from a shareholder with respect to the original record date will remain in full
force and effect with respect to shares held by the shareholder on the new
record date, unless explicitly revoked. No proxy shall be valid after the
expiration of eleven (11) months from the date of the proxy, unless
otherwise expressly provided in the proxy.
Shareholder
Proposals. The
Fund anticipates that its 2023 Annual Meeting of Shareholders will be held on
or about March 6, 2023. A shareholder who wishes to submit a proposal for
consideration for inclusion in the Fund’s proxy statement for the 2023 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 September 8, 2022 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 September 8, 2022, as described above,
may nonetheless present a proposal at the Fund’s 2023 Annual Meeting of
Shareholders if such shareholder notifies the Fund in writing at the Fund’s
offices, of such proposal not earlier than October 7, 2022 and not later
than November 6, 2022. 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 2023 Annual Meeting of
Shareholders, the persons designated as proxies for the 2023 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
November 22, 2022. A shareholder proposal may be presented at the 2023
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 (which is qualified in its entirety by the Fund’s
governing instruments):
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, with proof of such ownership or holding reasonably satisfactory to the
Fund to be provided by such record owner or nominee holder, 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
(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; (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; (v) whether such shareholder believes each such
nominee is or will be an “interested person” of the Fund (as defined in the
1940 Act), (vi) the written and signed consent of each such person to be
nominated, to be named as a nominee and to serve as a Trustee if elected, and (vii) requirement
to complete, execute, and return to the Fund within 5 business days of receipt,
the Fund’s form of trustee questionnaire and any supplemental information
reasonably requested by the Fund. In addition, the shareholder making such
nomination shall promptly provide any other information reasonably requested by
the Fund. A notice regarding a nomination for the election of a Trustee must
provide the information listed herein for each person or persons to be
nominated, together with any persons to be designated as a proposed substitute
nominee in the event that a proposed nominee is unwilling or unable to serve,
including by reason of any disqualification.
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; (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; and (vi) the
Board may request that the shareholder provide, within five business days of
delivery of such demand, written verification demonstrating the accuracy of any
information submitted by the shareholder relating to their nomination or
proposal, as well as a written update of any such information. If the
shareholder fails to provide such written verification or written update within
such period, the information as to which written verification or a written
update was requested may be deemed not to have been provided in accordance with
the Fund’s By-Laws.
For purposes of the
requirements directly above, shares “beneficially owned” shall mean all shares
that such person is deemed to beneficially own pursuant to Rules 13d-3 and
13d-5 under the Securities Exchange Act of 1934 and which the shareholder has
the right to acquire pursuant to any agreement or upon exercise of conversion
rights or warrants, or otherwise (including any derivative or short positions,
profit interests, options or similar rights, and borrowed or loaned shares).
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
January 6, 2022
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.
A-1
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.
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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.
1 This document serves as the Charter for the Committee of certain U.S. registered investment companies within Franklin Templeton, and each series thereof as applicable (a “Fund”), including the Franklin, Templeton and New Jersey/Alternative Strategies Funds, as well as Franklin Templeton ETF Trust, Franklin ETF Trust, Franklin Templeton Trust, Legg Mason ETF Investment Trust, and ActiveShares® ETF Trust. Exchange-listed Funds are included on Appendix A.
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
B-1
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.
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.
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 applicable requirements of the PCAOB and the SEC;
(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, 2021
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 Federal Intermediate Tax-Free Bond Opportunities ETF
Franklin Liberty Federal Tax-Free Bond ETF
Franklin Liberty Investment Grade Corporate ETF
Franklin Liberty Systematic Style Premia ETF
Franklin Liberty Ultra Short Bond ETF
Franklin Liberty U.S. Core Bond ETF
Franklin Liberty U.S. Low Volatility ETF
Franklin Liberty U.S. Treasury Bond 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 Disruptive Commerce ETF
Franklin Exponential Data ETF
Franklin Genomic Advancements ETF
Franklin Intelligent Machines ETF
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
Legg Mason ETF Investment Trust
Legg Mason International Low Volatility High Dividend ETF
ActiveShares® ETF Trust
ClearBridge Focus Value ESG ETF
Funds listed on The Nasdaq Stock Market LLC
Legg Mason ETF Investment Trust
ClearBridge All Cap Growth ESG ETF
ClearBridge Dividend Strategy ESG ETF
ClearBridge Large Cap Growth ESG ETF
Western Asset Short Duration Income ETF
Western Asset Total Return ETF
Legg Mason Global Infrastructure ETF
Legg Mason Low Volatility High Dividend ETF
Legg Mason Small-Cap Quality Value ETF
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