TDF Preliminary Proxy Statement for May 3, 2002
[LOGO]
TEMPLETON DRAGON FUND, INC.
IMPORTANT SHAREHOLDER INFORMATION
These materials are for the Annual Meeting of Shareholders scheduled for May 3,
2002 at 10:00 a.m. Eastern time. The enclosed materials discuss four proposals
(the "Proposals") to be voted on at the meeting, and contain your Proxy
Statement and proxy card. A proxy card is, in essence, a ballot. When you vote
your proxy, it tells us how you wish to vote on important issues relating to
Templeton Dragon Fund, Inc. (the "Fund"). If you specify a vote for all 4
Proposals, your proxy will be voted as you indicate. If you specify a vote for
only certain Proposals, your proxy will be voted as specified, and the
Proposal(s) for which no vote is specified will be voted FOR each such Proposal.
If you simply sign and date the proxy card, but do not specify a vote for any
Proposal, your proxy will be voted FOR all Proposals.
We urge you to spend a few minutes reviewing the Proposals in the Proxy
Statement. Then, please fill out the proxy card and return it to us so that we
know how you would like to vote. When shareholders return their proxies
promptly, the Fund may be able to save money by not having to conduct additional
mailings.
We welcome your comments. If you have any questions, call Fund Information at
1-800/DIAL BEN(R)(1-800-342-5236).
TELEPHONE AND INTERNET VOTING For your convenience, you may be able to vote by
telephone or through the Internet, 24 hours a day. If your account is eligible,
a control number and separate instructions are enclosed.
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[LOGO]
TEMPLETON DRAGON FUND, INC.
NOTICE OF 2002 ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders (the "Meeting") of Templeton Dragon Fund,
Inc. (the "Fund") will be held at the Fund's offices, 500 East Broward
Boulevard, 12th Floor, Ft. Lauderdale, Florida 33394-3091 on May 3, 2002 at
10:00 a.m. Eastern time.
During the Meeting, shareholders of the Fund will vote on four Proposals:
1. To elect five Directors of the Fund to hold office for the terms specified.
2. To approve an Agreement and Plan of Reorganization that provides for the
reorganization of the Fund from a Maryland corporation to a Delaware business
trust.
3. To approve amendments to certain of the Fund's fundamental investment
restrictions (includes three (3) Sub-Proposals):
(a) To amend the Fund's fundamental investment restriction regarding
industry concentration.
(b) To amend the Fund's fundamental investment restriction regarding
borrowing and issuing senior securities.
(c) To amend the Fund's fundamental investment restriction regarding
investments in commodities.
4. To approve the elimination of certain of the Fund's fundamental investment
restrictions.
By Order of the Board of Directors,
Barbara J. Green
Secretary
[_________], 2002
Please sign and promptly return each proxy card in the enclosed self-addressed
envelope regardless of the number of shares you own. Japanese shareholders
should be aware that the Japan Securities Clearing Corporation may exercise a
vote on the Proposals on your behalf if you do not return a proxy card.
(i)
TABLE OF CONTENTS
Page
----
PROXY STATEMENT
Information About Voting...........................................................
Proposal 1:To Elect Five Directors of the Fund to Hold Office for the Terms
Specified...............................................................
Proposal 2:To Approve an Agreement and Plan of Reorganization that Provides for
the Reorganization of the Fund from a Maryland Corporation to a
Delaware Business Trust.................................................
Proposal 3:To Approve Amendments to Certain of the Fund's Fundamental Investment
Restrictions (this Proposal involves separate votes on
Sub-Proposals 3a-3c)....................................................
Sub-Proposal 3a:To amend the Fund's fundamental investment
restriction regarding industry concentration............................
Sub-Proposal 3b:To amend the Fund's fundamental investment
restriction regarding borrowing and issuing senior securities...........
Sub-Proposal 3c:To amend the Fund's fundamental investment
restriction regarding investments in commodities........................
Proposal 4:To Approve the Elimination of Certain of the Fund's Fundamental
Investment Restrictions................................................
Information About the Fund.........................................................
Further Information About Voting and the Meeting...................................
EXHIBITS
Exhibit A:Form of Agreement and Plan of Reorganization between Templeton Dragon
Fund, Inc. (a Maryland corporation) and Templeton Dragon Fund (a
Delaware business trust).................................................
Exhibit B:A Comparison of Governing Documents and State Law........................
Exhibit C:Fundamental Investment Restrictions Proposed to be Amended or
Eliminated...............................................................
(ii)
TEMPLETON DRAGON FUND, INC.
PROXY STATEMENT
INFORMATION ABOUT VOTING
Who is eligible to vote?
Shareholders of record at the close of business on February 22, 2002 are
entitled to be present and to vote at the Meeting or any adjourned Meeting. Each
share of record is entitled to one vote on each matter presented at the Meeting.
The Notice of Meeting, the proxy card, and the Proxy Statement were first mailed
to shareholders of record on or about [__________], 2002.
On what issues am I being asked to vote?
You are being asked to vote on four Proposals:
1. To elect five Directors of the Fund to hold office for the terms specified;
2. To approve an Agreement and Plan of Reorganization that provides for the
reorganization of the Fund from a Maryland corporation to a Delaware
business trust;
3. To approve amendments to certain of the Fund's fundamental investment
restrictions (includes three (3) Sub-Proposals); and
4. To approve the elimination of certain of the Fund's fundamental investment
restrictions.
How do the Fund's Directors recommend that I vote?
The Directors unanimously recommend that you vote:
1. FOR the election of five Directors of the Fund to hold office for the terms
specified;
2. FOR the approval of an Agreement and Plan of Reorganization that provides
for the reorganization of the Fund from a Maryland corporation to a
Delaware business trust;
3. FOR the approval of each of the proposed amendments to certain of the
Fund's fundamental investment restrictions; and
4. FOR the approval of the elimination of certain of the Fund's fundamental
investment restrictions.
How do I ensure that my vote is recorded accurately?
You may attend the Meeting and vote in person or you may complete and return the
enclosed proxy card. If you are eligible to vote by telephone or through the
Internet, a control number and separate instructions are enclosed.
-1-
Proxy cards that are properly signed, dated and received at or prior to the
Meeting will be voted as specified. If you specify a vote for Proposals 1
through 4, your proxy will be voted as you indicate. If you specify a vote for
only certain Proposals, your proxy will be voted as specified, and the
Proposal(s) for which no vote is specified will be voted FOR that Proposal. If
you simply sign and date the proxy card, but do not specify a vote for any of
Proposals 1 through 4, your shares will be voted FOR the nominees for Director
(Proposal 1); FOR an Agreement and Plan of Reorganization that provides for the
reorganization of the Fund from a Maryland corporation to a Delaware business
trust (Proposal 2); FOR amending certain of the Fund's fundamental investment
restrictions (Sub-Proposals 3a-3c); and FOR eliminating certain of the Fund's
fundamental investment restrictions (Proposal 4).
May I revoke my proxy?
You may revoke your proxy at any time before it is voted by forwarding a written
revocation or a later-dated proxy to the Fund that is received at or prior to
the Meeting, or by attending the Meeting and voting in person.
THE PROPOSALS
PROPOSAL 1: TO ELECT FIVE DIRECTORS OF THE FUND TO HOLD OFFICE FOR THE
TERMS SPECIFIED
How are nominees selected?
The Board of Directors of the Fund (the "Board" or the "Directors") has a
Nominating and Compensation Committee (the "Committee") consisting of Frank J.
Crothers, Andrew H. Hines, Jr., Edith E. Holiday and Gordon S. Macklin, none of
whom is an "interested person" as defined by the Investment Company Act of 1940,
as amended (the "1940 Act"). Directors who are not interested persons of the
Fund are referred to as the "Independent Directors." The Committee is
responsible for the selection and nomination of candidates to serve as Directors
of the Fund. The Committee will review shareholders' nominations to fill
vacancies on the Board if these nominations are submitted in writing and
addressed to the Committee at the Fund's offices. However, the Committee expects
to be able to identify from its own resources an ample number of qualified
candidates.
Who are the nominees and current members of the Board of Directors?
The Board is divided into three classes. Each class has a term of three years.
Each year the term of office of one class expires. This year, the terms of five
Directors expire. Harris J. Ashton, Nicholas F. Brady, Frank J. Crothers, S.
Joseph Fortunato and Constantine D. Tseretopoulos have been nominated for
three-year terms, set to expire at the 2005 Annual Meeting of Shareholders.
These terms continue, however, until successors are duly elected and qualified.
Among these Directors, only Nicholas F. Brady is deemed to be an "interested
person" for purposes of the 1940 Act. Directors who are "interested persons" are
referred to as the "Interested Directors." All of the nominees are currently
members of the Board. In addition, all of the current nominees and Directors are
-2-
also directors or trustees of other Franklin(R)funds and/or Templeton(R)funds
(collectively, the "Franklin Templeton funds").
Certain Directors of the Fund hold director and/or officer positions with
Franklin Resources, Inc. ("Resources") and its affiliates. Resources is a
publicly owned holding company, the principal shareholders of which are Charles
B. Johnson and Rupert H. Johnson, Jr., who own approximately [18% and 15%],
respectively, of its outstanding shares. Resources, a global investment
organization operating as Franklin Templeton Investments, is primarily engaged,
through various subsidiaries, in providing investment management, share
distribution, transfer agent and administrative services to a family of
investment companies. Resources is a New York Stock Exchange, Inc. ("NYSE")
listed holding company (NYSE: BEN). Charles E. Johnson, Vice President of the
Fund, is the son and nephew, respectively, of brothers Charles B. Johnson,
Chairman of the Board, Director and Vice President of the Fund, and Rupert H.
Johnson, Jr., Vice President of the Fund. There are no family relationships
among any of the Directors or nominees for Director.
Each nominee currently is available and has consented to serve if elected. If
any of the nominees should become unavailable, the designated proxy holders will
vote in their discretion for another person or persons who may be nominated as
Directors.
Listed below, for each nominee and Director, are their name, age and address, as
well as their position and length of service with the Fund, principal occupation
during the past five years, the number of portfolios in the Franklin Templeton
fund complex that they oversee, and any other directorships held by the
Director.
Nominees for Independent Director to serve until 2005 Annual Meeting of
shareholders
Number of
Portfolios
in Fund
Complex
Overseen
Name, Age and Length of by Other
Address Position Time Served Director* Directorships Held
----------------------------------------------------------------------
----------------------------------------------------------------------
HARRIS J. Director Since 1994 139 Director, RBC
ASHTON (69) Holdings, Inc.
500 East (bank holding
Broward Blvd. company) and Bar-S
Suite 1200 Foods (meat
Fort packing company).
Lauderdale,
FL 33394-3091
Principal Occupation During Past 5 Years: Director of various companies; and
formerly, President, Chief Executive Officer and Chairman of the Board, General
Host Corporation (nursery and craft centers) (until 1998).
----------------------------------------------------------------------
----------------------------------------------------------------------
-3-
Number of
Portfolios
in Fund
Complex
Overseen
Name, Age and Length of by Other
Address Position Time Served Director* Directorships Held
----------------------------------------------------------------------
----------------------------------------------------------------------
FRANK J. Director Since 1998 20 None
CROTHERS (57)
500 East
Broward Blvd.
Suite 1200
Fort
Lauderdale,
FL 33394-3091
Principal Occupation During Past 5 Years:
Chairman, Caribbean Electric Utility Services Corporation and Atlantic Equipment
& Power Ltd.; Vice Chairman, Caribbean Utilities Co., Ltd.; and Director and
President, Provo Power Company Ltd. and director of various other business and
nonprofit organizations.
----------------------------------------------------------------------
----------------------------------------------------------------------
S. JOSEPH Director Since 1994 140 None
FORTUNATO (69)
500 East
Broward Blvd.
Suite 1200
Fort
Lauderdale,
FL 33394-3091
Principal Occupation During Past 5 Years:
Member of the law firm of Pitney, Hardin, Kipp & Szuch.
----------------------------------------------------------------------
----------------------------------------------------------------------
CONSTANTINE Director Since 1998 21 None
D.
TSERETOPOULOS
(47)
500 East
Broward Blvd.
Suite 1200
Fort
Lauderdale,
FL 33394-3091
Principal Occupation During Past 5 Years:
Physician, Lyford Cay Hospital (1987-present), and director of various nonprofit
organizations and formerly, Cardiology Fellow, University of Maryland
(1985-1987) and Internal Medicine Resident, Greater Baltimore Medical Center
(1982-1985).
----------------------------------------------------------------------
-4-
Nominee for Interested Director to serve until 2005 Annual Meeting of
shareholders
Number of
Portfolios
in Fund
Complex
Overseen
Name, Age and Length of by Other
Address Position Time Served Director* Directorships Held
-----------------------------------------------------------------------
-----------------------------------------------------------------------
**NICHOLAS F. Director Since 1994 66 Director, Amerada
BRADY (71) Hess Corporation
500 East (exploration and
Broward Blvd. refining of oil
Suite 1200 and gas), C2, Inc.
Fort (operating and
Lauderdale, investment
FL 33394-3091 business), and
H.J. Heinz Company
(processed foods
and allied
products).
Principal Occupation During Past 5 Years:
Chairman, Templeton Emerging Markets Investment Trust PLC, Darby Overseas
Investments, Ltd. and Darby Emerging Markets Investments LDC (investment firms)
(1994-present); Director, Templeton Capital Advisors Ltd., and Franklin
Templeton Investment Fund; and formerly, Secretary of the United States
Department of the Treasury (1988-1993), Chairman of the Board, Dillon, Read &
Co., Inc. (investment banking) (until 1988) and U.S. Senator, New Jersey (April
1982-December 1982).
----------------------------------------------------------------------
Independent Directors serving until 2004 Annual Meeting of shareholders
Number of
Portfolios
in Fund
Complex
Overseen
Name, Age and Length of by Other
Address Position Time Served Director* Directorships Held
----------------------------------------------------------------------
----------------------------------------------------------------------
ANDREW H. Director Since 1994 31 None
HINES, JR.
(79)
500 East
Broward Blvd.
Suite 1200
Fort
Lauderdale,
FL 33394-3091
Principal Occupation During Past 5 Years:
Consultant, Triangle Consulting Group; and Executive-in-Residence, Eckerd
College (1991-present); and formerly, Chairman and Director, Precise Power
Corporation (1990-1997), Director, Checkers Drive-In Restaurant, Inc.
(1994-1997), and Chairman of the Board and Chief Executive Officer, Florida
Progress Corporation (holding company in the energy area) (1982-1990) and
director of various of its subsidiaries.
----------------------------------------------------------------------
----------------------------------------------------------------------
-5-
Number of
Portfolios
in Fund
Complex
Overseen
Name, Age and Length of by Other
Address Position Time Served Director* Directorships Held
----------------------------------------------------------------------
----------------------------------------------------------------------
EDITH E. Director Since 1996 85 Director, Amerada
HOLIDAY (50) Hess Corporation
500 East (exploration and
Broward Blvd. refining of oil
Suite 1200 and gas), Hercules
Fort Incorporated
Lauderdale, (chemicals, fibers
FL 33394-3091 and resins),
Beverly
Enterprises, Inc.
(health care),
H.J. Heinz Company
(processed foods
and allied
products), RTI
International
Metals, Inc.
(manufacture and
distribution of
titanium), Digex
Incorporated (web
hosting provider),
and Canadian
National Railway
(railroad).
Principal Occupation During Past 5 Years:
Director of various companies; and formerly, Assistant to the President of the
United States and Secretary of the Cabinet (1990-1993), General Counsel to the
United States Treasury Department (1989-1990), and Counselor to the Secretary
and Assistant Secretary for Public Affairs and Public Liaison-United States
Treasury Department (1988-1989).
----------------------------------------------------------------------
Interested Directors serving until 2004 Annual Meeting of shareholders
Number of
Portfolios
in Fund
Complex
Overseen
Name, Age and Length of by Other
Address Position Time Served Director* Directorships Held
----------------------------------------------------------------------
----------------------------------------------------------------------
**MARTIN L. Director Since 1994 7 None
FLANAGAN (41) and Vice
One Franklin President
Parkway
San Mateo, CA
94403-1906
Principal Occupation During Past 5 Years:
President, Member-Office of the President, Chief Financial Officer and Chief
Operating Officer, Franklin Resources, Inc.; Senior Vice President and Chief
Financial Officer, Franklin Mutual Advisers, LLC; Executive Vice President,
Chief Financial Officer and Director, Templeton Worldwide, Inc.; Executive Vice
President and Chief Operating Officer, Templeton Investment Counsel, LLC;
Executive Vice President and Director, Franklin Advisers, Inc.; Executive Vice
President, Franklin Investment Advisory Services, Inc. and Franklin Templeton
Investor Services, LLC; Chief Financial Officer, Franklin Advisory Services,
LLC; Chairman, Franklin Templeton Services, LLC; and officer and/or director of
some of the other subsidiaries of Franklin Resources, Inc.
----------------------------------------------------------------------
----------------------------------------------------------------------
-6-
Number of
Portfolios
in Fund
Complex
Overseen
Name, Age and Length of by Other
Address Position Time Served Director* Directorships Held
----------------------------------------------------------------------
----------------------------------------------------------------------
**CHARLES B. Chairman Chairman 139 None
JOHNSON (69) of the of the
One Franklin Board, Board
Parkway Director since 1995
San Mateo, CA and Vice and
94403-1906 President Director
and Vice
President
since 1994
Principal Occupation During Past 5 Years:
Chairman of the Board, Chief Executive Officer, Member-Office of the Chairman
and Director, Franklin Resources, Inc.; Vice President, Franklin Templeton
Distributors, Inc.; Director, Fiduciary Trust Company International; and officer
and/or director or trustee, as the case may be, of most of the other
subsidiaries of Franklin Resources, Inc.
----------------------------------------------------------------------
Independent Directors serving until 2003 Annual Meeting of shareholders
Number of
Portfolios
in Fund
Complex
Overseen
Name, Age and Length of by Other
Address Position Time Served Director* Directorships Held
----------------------------------------------------------------------
----------------------------------------------------------------------
BETTY P. Director Since 1994 25 None
KRAHMER (72)
500 East
Broward Blvd.
Suite 1200
Fort
Lauderdale,
FL
33394-3091
Principal Occupation During Past 5 Years:
Director or trustee of various civic associations; and formerly, Economic
Analyst, U.S. government.
----------------------------------------------------------------------
----------------------------------------------------------------------
GORDON S. Director Since 1994 139 Director, Martek
MACKLIN (73) Biosciences
500 East Corporation,
Broward Blvd. WorldCom, Inc.
Suite 1200 (communications
Fort services),
Lauderdale, MedImmune, Inc.
FL (biotechnology),
33394-3091 Overstock.com
(Internet
services), and
Spacehab, Inc.
(aerospace
services).
Principal Occupation During Past 5 Years:
Deputy Chairman, White Mountains Insurance Group, Ltd. (holding
company); and formerly, Chairman, White River Corporation (financial
services) (until 1998) and Hambrecht & Quist Group (investment
banking) (until 1992), and President, National Association of
Securities Dealers, Inc. (until 1987).
----------------------------------------------------------------------
----------------------------------------------------------------------
-7-
Number of
Portfolios
in Fund
Complex
Overseen
Name, Age and Length of by Other
Address Position Time Served Director* Directorships Held
----------------------------------------------------------------------
----------------------------------------------------------------------
FRED R. Director Since 1994 31 None
MILLSAPS (72)
500 East
Broward
Blvd. Suite
1200, Fort
Lauderdale,
FL
33394-3091
Principal Occupation During Past 5 Years:
Director of various business and nonprofit organizations, and manager of
personal investments (1978-present); and formerly, Chairman and Chief Executive
Officer, Landmark Banking Corporation (1969-1978), Financial Vice President,
Florida Power and Light (1965-1969), and Vice President, Federal Reserve Bank of
Atlanta (1958-1965).
----------------------------------------------------------------------
* We base the number of portfolios on each separate series of the registered
investment companies comprising the Franklin Templeton Investments fund
complex. These portfolios have a common investment adviser or affiliated
investment advisers, and may also share a common underwriter.
** Nicholas F. Brady, Martin L. Flanagan, and Charles B. Johnson, each an
Interested Director, are "interested persons" of the Fund as defined by the
1940 Act. The 1940 Act limits the percentage of interested persons that can
comprise a fund's board of directors. Mr. Johnson is considered an
interested person of the Fund due to his position as an officer and
director and major shareholder of Resources and his position with the Fund.
Mr. Flanagan's status as an interested person results from his position as
an officer of Resources and his position with the Fund. Mr. Brady's status
as an interested person results from his business affiliations with
Resources and Templeton Global Advisors Limited. Mr. Brady and Resources
are both limited partners of Darby Overseas Partners, L.P. ("Darby
Overseas"). Mr. Brady is Chairman and shareholder of Darby Overseas
Investments, Ltd., which is the corporate general partner of Darby
Overseas. In addition, Darby Overseas and Templeton Global Advisors Limited
are limited partners of Darby Emerging Markets Fund, L.P. ("DEMF"). Mr.
Brady serves as Chairman of the corporate general partner of DEMF, and
Darby Overseas and its general partner own 100% of the stock of the general
partner of DEMF. Mr. Brady is also a director of Templeton Capital Advisors
Ltd. ("TCAL"), which serves as investment manager to certain unregistered
funds. TCAL and Templeton Global Advisors Limited are both indirect
subsidiaries of Resources. The remaining nominees and Directors of the Fund
are Independent Directors.
Note: As discussed previously, Charles B. Johnson, Chairman of the Board,
Director, and Vice President, and Rupert H. Johnson, Jr., Vice President of the
Fund, are brothers and the father and uncle, respectively, of Charles E.
Johnson, Vice President of the Fund.
The following tables provide the equity securities of Franklin Templeton funds
beneficially owned by the Fund's Directors.
-8-
Independent Directors
--------------------------------------------------------------------
Aggregate Dollar Range
of Equity Securities in
All Funds Overseen by
the Director in the
Dollar Range of Franklin Templeton
Equity Securities in Investments Fund
Name of Director the Fund(1) Complex(1)
--------------------------------------------------------------------
--------------------------------------------------------------------
Harris J. Ashton $1 - $10,000 Over $100,000
--------------------------------------------------------------------
--------------------------------------------------------------------
Frank J. Crothers None Over $100,000
--------------------------------------------------------------------
--------------------------------------------------------------------
S. Joseph Fortunato $1 - $10,000 Over $100,000
--------------------------------------------------------------------
--------------------------------------------------------------------
Andrew H. Hines, None Over $100,000
Jr.
--------------------------------------------------------------------
--------------------------------------------------------------------
Edith E. Holiday $1 - $10,000 Over $100,000
--------------------------------------------------------------------
--------------------------------------------------------------------
Betty P. Krahmer $50,001 - $100,000 Over $100,000
--------------------------------------------------------------------
--------------------------------------------------------------------
Gordon S. Macklin $10,001 - $50,000 Over $100,000
--------------------------------------------------------------------
--------------------------------------------------------------------
Fred R. Millsaps None Over $100,000
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--------------------------------------------------------------------
Constantine D. None Over $100,000
Tseretopoulos
--------------------------------------------------------------------
Interested Directors
--------------------------------------------------------------------
Aggregate Dollar Range
of Equity Securiites in
All Funds Overseen by
the Director in the
Dollar Range of Franklin Templeton
Equity Securities in Investments Fund
Name of Director the Fund(1) Complex(1)
--------------------------------------------------------------------
--------------------------------------------------------------------
Nicholas F. Brady $1 - $10,000 Over $100,000
--------------------------------------------------------------------
--------------------------------------------------------------------
Martin L. Flanagan $1 - $10,000 Over $100,000
--------------------------------------------------------------------
--------------------------------------------------------------------
Charles B. Johnson Over $100,000 Over $100,000
--------------------------------------------------------------------
(1) For the calendar year ended December 31, 2001.
How often do the Directors meet and what are they paid?
The role of the Directors is to provide general oversight of the Fund's
business, and to ensure that the Fund is operated for the benefit of
shareholders. The Directors anticipate meeting at least five times during the
current fiscal year to review the operations of the Fund and the Fund's
investment performance. The Directors also oversee the services furnished to the
Fund by Templeton Asset Management Ltd. - Hong Kong branch, the Fund's
investment manager (the "Investment Manager"), and various other service
providers. The Fund currently pays the Independent Directors and Mr. Brady an
annual retainer of $2,000 and a fee of $400 per Board meeting attended.
Directors serving on the Audit Committee of the Fund and other investment
companies in Franklin Templeton Investments receive a flat fee of $2,000 per
Audit Committee meeting attended, a portion of which is allocated to the Fund.
Members of a committee are not compensated for any committee meeting held on the
day of a Board meeting.
During the fiscal year ended December 31, 2001, there were five meetings of the
Board, three meetings of the Audit Committee, and three meetings of the
Nominating and Compensation Committee. Each Director then in office attended at
least 75% of the aggregate number of meetings of the Board and of the
committee(s) on which he or she participated.
-9-
Certain Directors and officers of the Fund are shareholders of Resources and may
receive indirect remuneration due to their participation in management fees and
other fees received by the Investment Manager and its affiliates from Franklin
Templeton funds. The Investment Manager or its affiliates pay the salaries and
expenses of the officers. No pension or retirement benefits are accrued as part
of Fund expenses.
Aggregate Total Compensation
Compensation from Franklin
Name of Director from the Fund* Templeton funds**
---------------------------------------------------------------
Harris J. Ashton $4,000 $353,221
Nicholas F. Brady $4,000 134,500
Frank J. Crothers $4,077 92,000
S. Joseph Fortunato $4,000 352,380
Andrew H. Hines, Jr. $4,065 203,500
Edith E. Holiday $4,000 254,670
Betty P. Krahmer $4,000 134,500
Gordon S. Macklin $4,000 353,221
Fred R. Millsaps $4,065 201,500
Constantine D. $4,119 94,500
Tseretopoulos
---------------------
* Compensation received for the fiscal year ended December 31, 2001.
** For the calendar year ended December 31, 2001.
The table above indicates the total fees paid to Directors by the Fund
individually, and by all of the Franklin Templeton funds. These Directors also
serve as directors or trustees of other investment companies that are part of
Franklin Templeton Investments, many of which hold meetings at different dates
and times. The Directors and the Fund's management believe that having the same
individuals serving on the boards of many of the Franklin Templeton funds
enhances the ability of each fund to obtain, at a relatively modest cost to each
separate fund, the services of high caliber, experienced and knowledgeable
Independent Directors who can more effectively oversee the management of the
funds.
Board members historically have followed a policy of having substantial
investments in one or more of the Franklin Templeton funds, as is consistent
with their individual financial goals. In February 1998, this policy was
formalized through adoption of a requirement that each board member invest
one-third of the fees received for serving as a director or trustee of a
Templeton fund in shares of one or more Templeton funds and one-third of the
fees received for serving as a director or trustee of a Franklin fund in shares
of one or more Franklin funds, until the value of such investments equals or
exceeds five times the annual fees paid to such board member. Investments in the
name of family members or entities controlled by a board member constitute fund
holdings of such board member for purposes of this policy, and a three year
phase-in period applies to such investment requirements for newly elected board
members. In implementing such policy, a board member's fund holdings existing on
February 27, 1998, were valued as of such date with subsequent investments
valued at cost.
-10-
Who are the Executive Officers of the Fund?
Officers of the Fund are appointed by the Directors and serve at the pleasure of
the Board. Listed below for each Executive Officer are their name, age and
address, as well as their position and length of service with the Fund, and
principal occupation during the past five years. In addition to their service on
the Board, Charles B. Johnson serves as Chairman of the Board, Director and Vice
President to the Fund, and Martin L. Flanagan serves as Vice President to the
Fund. Please refer to the table "Interested Directors serving until 2004 Annual
Meeting of Shareholders" above for information regarding Messrs. Johnson and
Flanagan.
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Length
Name, Age and of Time Principal Occupation During Past
Address Position Served 5 Years
---------------------------------------------------------------------
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Mark Mobius President Since 1994 Portfolio Manager of various
(65) Templeton advisory affiliates;
Two Exchange Managing Director, Templeton
Square, 39th Asset Management Ltd.; Executive
Floor, Vice President and Director,
Suite 3905-08 Templeton Global Advisors
Hong Kong Limited; officer of eight of the
investment companies in Franklin
Templeton Investments; officer
and/or director, as the case may
be, of some of the subsidiaries of
Franklin Resources, Inc.; and
formerly, President,
International Investment Trust
Company Limited (investment
manager of Taiwan R.O.C. Fund)
(1986-1987), and Director,
Vickers da Costa, Hong Kong
(1983-1986).
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Rupert H. Vice Since 1996 Vice Chairman, Member-Office of
Johnson, Jr. President the Chairman and Director,
(61) Franklin Resources, Inc.; Vice
One Franklin President and Director, Franklin
Parkway, San Templeton Distributors, Inc.;
Mateo, CA Director, Franklin Advisers, Inc.
94403-1906 and Franklin Investment Advisory
Services, Inc.; Senior Vice
President, Franklin Advisory
Services, LLC; and officer and/or
director or trustee, as the case
may be, of most of the other
subsidiaries of Franklin
Resources, Inc. and of 51 of the
investment companies in Franklin
Templeton Investments.
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---------------------------------------------------------------------
Harmon E. Vice Since 1996 Vice Chairman, Member-Office of
Burns (56) President the Chairman and Director,
One Franklin Franklin Resources, Inc.; Vice
Parkway, San President and Director, Franklin
Mateo, CA Templeton Distributors, Inc.;
94403-1906 Executive Vice President,
Franklin Advisers, Inc.;
Director, Franklin Investment
Advisory Services, Inc.; and
officer and/or director or
trustee, as the case may be, of
most of the other subsidiaries of
Franklin Resources, Inc. and of
51 of the investment companies in
Franklin Templeton Investments.
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Charles E. Vice Since 1996 President, Member-Office of the
Johnson (45) President President and Director, Franklin
One Franklin Resources, Inc.; Senior Vice
Parkway, San President, Franklin Templeton
Mateo, CA Distributors, Inc.; President and
94403-1906 Director, Templeton Worldwide,
Inc. and Franklin Advisers, Inc.;
Chairman of the Board, President
and Director, Franklin Investment
Advisory Services, Inc.; officer
and/or director of some of the
other subsidiaries of Franklin
Resources, Inc.; and officer
and/or director or trustee, as
the case may be, of 34 of the
investment companies in Franklin
Templeton Investments.
-11-
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Length
Name, Age and of Time Principal Occupation During Past
Address Position Served 5 Years
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Jeffrey A. Vice Since 2001 President and Director, Templeton
Everett (38) President Global Advisors Limited; officer
P.O. Box of 18 of the investment companies
N-7759, Lyford in Franklin Templeton
Cay, Nassau, Investments; and formerly,
Bahamas Investment Officer, First
Pennsylvania Investment Research
(until 1989).
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John R. Kay Vice Since 1994 Vice President, Templeton
(61) President Worldwide, Inc.; Assistant Vice
500 East President, Franklin Templeton
Broward Blvd., Distributors, Inc.; Senior Vice
Suite 1200, President, Franklin Templeton
Fort Services, LLC; officer of 23 of
Lauderdale, FL the investment companies in
33394-3091 Franklin Templeton Investments;
and formerly, Vice President and
Controller, Keystone Group, Inc.
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Murray L. Vice Since 2000 Executive Vice President and
Simpson (64) President General Counsel, Franklin
One Franklin and Resources, Inc.; officer and/or
Parkway, San Assistant director of some of the
Mateo, CA Secretary subsidiaries of Franklin
94403-1906 Resources, Inc.; officer of 53 of
the investment companies in
Franklin Templeton Investments;
and formerly, Chief Executive
Officer and Managing Director,
Templeton Franklin Investment
Services (Asia) Limited (until
2000) and Director, Templeton
Asset Management Ltd. (until
1999).
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Barbara J. Vice Vice Vice President and Deputy General
Green (54) President President Counsel, Franklin Resources,
One Franklin and since Inc.; and Senior Vice President,
Parkway, San Secretary 2000 and Templeton Worldwide, Inc.;
Mateo, CA Secretary officer of 53 of the investment
94403-1906 since companies in Franklin Templeton
1996 Investments; and formerly, Deputy
Director, Division of Investment
Management, Executive Assistant
and Senior Advisor to the
Chairman, Counselor to the
Chairman, Special Counsel and
Attorney Fellow, U.S. Securities
and Exchange Commission
(1986-1995), Attorney, Rogers &
Wells (until 1986), and Judicial
Clerk, U.S. District Court
(District of Massachusetts)
(until 1979).
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DAVID P. GOSS Vice Since Associate General Counsel,
(54) President 2000 Franklin Resources, Inc.;
One Franklin and President, Chief Executive
Parkway, San Assistant Officer and Director, Property
Mateo, CA Secretary Resources, Inc. and Franklin
94403-1906 Properties, Inc.; officer and/or
director of some of the other
subsidiaries of Franklin
Resources, Inc.; officer of 53 of
the investment companies in
Franklin Templeton Investments;
and formerly, President, Chief
Executive Officer and Director,
Property Resources Equity Trust
(until 1999) and Franklin Select
Realty Trust (until 2000).
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BRUCE S. Treasurer Since Vice President, Franklin
ROSENBERG (40) 2000 Templeton Services, LLC; and
500 East officer of 19 of the investment
Broward Blvd., companies in Franklin Templeton
Suite 1200, Investments.
Fort
Lauderdale, FL
33394-3091
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-12-
PROPOSAL 2: TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION THAT PROVIDES FOR
THE REORGANIZATION OF THE FUND FROM A MARYLAND CORPORATION TO A
DELAWARE BUSINESS TRUST
The Directors unanimously recommend that you approve an Agreement and Plan of
Reorganization (the "DBT Plan"), substantially in the form attached to this
Proxy Statement as Exhibit A, that would change the state and form of
organization of the Fund. This proposed change calls for the reorganization of
the Fund from a Maryland corporation into a newly formed Delaware business
trust. This proposed reorganization will be referred to throughout this Proxy
Statement as the "DBT Reorganization." To implement the DBT Reorganization, the
Directors have approved the DBT Plan, which contemplates the continuation of the
current business of the Fund in the form of a new Delaware business trust named
"Templeton Dragon Fund" (the "Trust").
What will the DBT Reorganization mean for the Fund and its shareholders?
If the DBT Plan is approved by shareholders and the DBT Reorganization is
implemented, the Trust would have the same investment objective, policies and
restrictions as the Fund (including, if approved by shareholders at the Meeting,
any amended or eliminated fundamental investment restrictions described in
Proposals 3 and 4 in this Proxy Statement). The Board, including any persons
elected under Proposal 1, and officers of the Trust would be the same as those
of the Fund, and would operate the Trust in essentially the same manner as they
previously operated the Fund. Thus, on the date the DBT Reorganization is
effected, you would hold an interest in the Trust that is equivalent to your
then interest in the Fund. For all practical purposes, a shareholder's
investment in the Fund would not change.
Why are the Directors recommending approval of the DBT Plan and the DBT
Reorganization?
The Directors have determined that investment companies formed as Delaware
business trusts have certain advantages over investment companies organized as
Maryland corporations. Under Delaware law, investment companies are able to
simplify their operations by reducing administrative burdens. Delaware law
allows greater flexibility in drafting and amending an investment company's
governing documents, which can result in greater efficiencies of operation and
savings for an investment company and its shareholders. Delaware law also
provides favorable state tax treatment. Furthermore, there is a well-established
body of legal precedent in the area of corporate and alternative business
entities law that may be relevant in deciding issues pertaining to the Trust.
Accordingly, the Directors believe that it is in the best interests of the
shareholders to approve the DBT Plan.
How do the Maryland corporate law, and the Fund's governing documents, compare
to the Delaware business trust law, and the Trust's governing documents?
Reorganizing the Fund from a Maryland corporation to a Delaware business trust
is expected to provide many benefits to the Fund and its shareholders. As a
Delaware business trust formed under the Delaware business trust law, with its
operations governed by a Declaration of Trust and By-Laws (that streamline many
-13-
of the provisions in the Fund's Articles of Incorporation and By-Laws), the
Trust should lead to enhanced flexibility in management and administration as
compared to its current operation as a Maryland corporation. It should be able
to adapt more quickly and cost effectively to new developments in the fund
industry and the financial markets. Moreover, to the extent provisions in the
Trust's Declaration of Trust and By-Laws are addressed by rules and principles
established under Delaware corporation law and the laws governing other Delaware
business entities (such as limited partnerships and limited liability
companies), the Delaware courts may look to such other laws to help interpret
provisions of the Trust's Declaration of Trust and By-Laws. Applying this body
of law to the operation of the Trust should prove beneficial because these laws
are extensively developed and business-oriented. In addition, Delaware's
Chancery Court is dedicated to business law matters, which means that the judges
tend to be more specialized and better versed in the nuances of the law that
will be applied to the Trust. These legal advantages make more certain the
resolution of legal controversies and help to reduce legal costs resulting from
uncertainty in the law.
A comparison of the Delaware business trust law and the Maryland General
Corporation law, and a comparison of the relevant provisions of the governing
documents of the Trust and the Fund, are included in Exhibit B to this Proxy
Statement, which is entitled, "A Comparison of Governing Documents and State
Law." In this connection, we note that the By-Laws which will govern the
operation of the Trust if this Proposal 2 is approved by shareholders and the
Reorganization is completed, contain a provision which requires that notice be
given to the Trust by a shareholder in advance of a shareholder meeting to
enable a shareholder to present a proposal at any such meeting. Failure to
satisfy the requirements of this advance notice provision will mean that a
shareholder may not be able to present a proposal at a meeting. The details of
that new advance notice provision are included in Exhibit B and its operation is
described under "Further Information About Voting and the Meeting - Shareholder
Proposals" below.
What are the consequences and procedures of the DBT Reorganization?
As noted above, upon completion of the DBT Reorganization, the Trust will
continue the business of the Fund with the same investment objective, policies
and investment restrictions as exist on the date of the DBT Reorganization, and
will hold the same portfolio of securities then held by the Fund. The Trust will
operate under substantially identical overall management, investment management,
and administrative arrangements as those of the Fund.
The Trust was formed solely for the purpose of becoming the successor
organization to, and carrying on the business of, the Fund. As the successor to
the Fund's operations, the Trust will adopt the Fund's notification of
registration under the Investment Company Act of 1940, as amended (the "1940
Act"). To accomplish the DBT Reorganization, the DBT Plan provides that the Fund
will transfer all of its portfolio securities and any other assets, subject to
its liabilities, to the Trust. In exchange for these assets and liabilities, the
Trust will issue shares of beneficial interest in the Trust to the Fund, which,
in turn, will distribute those shares pro rata to you. Through this procedure,
you will receive exactly the same number and dollar amount of shares of the
Trust as shares of the Fund ("Fund Shares") owned by you immediately prior to
the effectiveness of the DBT Reorganization, and the net asset value of each
-14-
share of the Trust will be the same as that of the Fund. In addition, you will
retain the right to any declared but undistributed dividends or other
distributions payable on Fund Shares that you may have had on the effective date
of the DBT Reorganization. As soon as practicable after the effective date of
the DBT Reorganization, the Fund will be dissolved and cease its corporate
existence.
The Directors may terminate the DBT Plan and abandon the DBT Reorganization at
any time prior to the effective date of the DBT Reorganization if they determine
that such actions are in the best interests of the Fund's shareholders. If the
DBT Plan is not approved by shareholders or the Directors abandon the DBT
Reorganization, the Fund will continue to operate as a corporation under the
laws of the State of Maryland.
What effect will the DBT Reorganization have on the current investment
management agreement?
In connection with the implementation of the DBT Reorganization, the Trust will
enter into an investment management agreement with Templeton Asset Management
Ltd.-Hong Kong branch, the Trust's investment manager (the "Investment
Manager"). This investment management agreement will be substantially identical
to the current investment management agreement between the Investment Manager
and the Fund. Thus, it is anticipated that, other than a change in contracting
party and the date of the agreement, there will be no material change in the
essential terms of the investment management agreement because of the DBT
Reorganization.
What effect will the DBT Reorganization have on the current shareholder
servicing agreements?
The Trust will enter into an agreement for administration services with Franklin
Templeton Services, LLC ("FT Services") that is substantially identical to the
Fund Administration Agreement currently in place between the Fund and FT
Services. The Fund will assign to the Trust the Fund's (i) service and transfer
agency agreements with Mellon Investor Services, LLC (which provide for certain
financial, administrative, transfer agency and fund accounting services); and
(ii) shareholder servicing and administrative services agreement with FT
Services and Nomura Asset Management U.S.A. (formerly, Nomura Capital
Management, Inc.). Consequently, shareholders of the Trust should receive the
same quality of services they have received as shareholders of the Fund.
What is the effect of shareholder approval of the DBT Plan?
Under the 1940 Act, the shareholders of an investment company are entitled to
vote on the election of directors or trustees and the initial approval of the
investment management agreement for the investment company. Thus, if the DBT
Plan is approved, shareholders of the Trust would need to elect Trustees(1) and
approve an investment management agreement or the Trust would not be in
compliance with the 1940 Act. For investment companies that have already
commenced operations and have public shareholders, these matters typically must
be submitted to shareholders for their consideration at a meeting specially
--------------------------------
(1) The members of the board of a Delaware business trust are referred to as
Trustees.
-15-
called for that purpose. In the case of a reorganization, such as that
contemplated by this Proposal 2, a meeting could not be called until after the
completion of the transaction, because only then would there exist public
shareholders of the Trust who could vote. Such a procedure would be both
impractical and expensive. Therefore, in accordance with standard practice and
announced positions of the staff of the U.S. Securities and Exchange Commission
("SEC"), the Directors have determined that it is in the best interests of the
shareholders to avoid the considerable expense of a shareholder meeting to
obtain these approvals following completion of the DBT Reorganization. Thus, the
Directors have determined that shareholder approval of the DBT Plan
substantially in the form contained in Exhibit A would, for purposes of the 1940
Act, constitute shareholder approval of: (1) the election, as Trustees of the
Trust, of the Directors of the Fund who are in office at the time of the DBT
Reorganization, including those Directors elected at this Meeting pursuant to
Proposal 1; and (2) the new investment management agreement between the Trust
and the Investment Manager, which is substantially identical to the investment
management agreement currently in effect between the Fund and the Investment
Manager. Mechanically, this will be accomplished, prior to the effectiveness of
the DBT Reorganization, by issuing a single share of beneficial interest in the
Trust to the Fund, and having the Fund vote on these matters as sole shareholder
of the Trust.
In summary, to implement the special voting procedures described above, prior to
the completion of the DBT Reorganization, the officers will cause the Fund,
which will have the status of initial sole shareholder of the Trust, to vote its
share of the Trust FOR the election of the Trustees of the Trust and approval of
the investment management agreement as specified above. This action will enable
the Trust to satisfy the requirements of the 1940 Act without involving the time
and expense of a shareholder meeting. If approved by shareholders of the Fund
and not abandoned by the Directors, the DBT Reorganization will be completed as
soon as reasonably practicable after the Meeting.
What is the capitalization and structure of the Trust?
The Trust was formed as a business trust on February 28, 2002 pursuant to
Delaware law. The Trust has authorized an unlimited number of shares of
beneficial interest without par value. As of the effective time of the DBT
Reorganization, outstanding shares of the Trust will have the same dividend
rights as those of the Fund immediately prior to the effective time of the DBT
Reorganization and will be fully paid, nonassessable, freely transferable, and
have no preemptive or subscription rights. Shares of the Trust and the Fund have
the same voting and liquidation rights and have one vote per full share. Both
the Trust and Fund provide for noncumulative voting in the election of their
Trustees/Directors and provide for a classified board consisting of three
classes of Trustees/Directors, with staggered terms. Each class of
Trustees/Directors remains in office for three years and until their successors
are elected and qualify with the term of office of one class expiring each year.
The Trust also has the same fiscal year as the Fund.
-16-
Are there any tax consequences for shareholders?
The DBT Reorganization is designed to be tax-free for federal income tax
purposes so that you will not experience a taxable gain or loss when the DBT
Reorganization is completed. The basis and holding period of your shares in the
Trust will be the same as the basis and holding period of your shares in the
Fund. Consummation of the DBT Reorganization is subject to receipt of a legal
opinion from the law firm of Stradley, Ronon, Stevens & Young, LLP that, under
the Internal Revenue Code of 1986, as amended, the exchange of assets of the
Fund for the shares of the Trust, the transfer of such shares to the holders of
Fund Shares, and the liquidation and dissolution of the Fund pursuant to the DBT
Plan, will not give rise to the recognition of a gain or loss for federal income
tax purposes to the Fund, the Trust, or shareholders of either the Fund or the
Trust.
What if I choose to sell my shares at any time?
You may continue to trade your Fund Shares on the NYSE or Osaka Securities
Exchange ("OSE") until the close of trading on the business day before the
effective date of the DBT Reorganization. The shares of the Trust will be listed
on the NYSE and the OSE just as Fund Shares historically have been listed.
Consequently, upon the effectiveness of the DBT Reorganization you may trade, on
the NYSE or the OSE, the shares of the Trust you receive in the DBT
Reorganization. The value of your shares will not be affected by the DBT
Reorganization except to the extent that market forces effect the value of the
shares, as currently occurs.
What is the effect of my voting "FOR" the DBT Plan?
By voting "FOR" the DBT Plan, you will be agreeing to become a shareholder of an
investment company that has been formed as a Delaware business trust, with the
Trustees, investment management, and other service arrangements that are
substantially identical to those in place for the Fund.
THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL 2
-17-
INTRODUCTION TO PROPOSALS 3 AND 4
Why is the Board recommending the amendment or elimination of certain of the
Fund's fundamental investment restrictions?
The Fund is subject to certain "fundamental" investment restrictions that govern
the Fund's investment activities. Under the 1940 Act, "fundamental" investment
restrictions may be changed or eliminated only if shareholders approve such
action. The Board is recommending that shareholders approve the amendment or
elimination of certain of the Fund's fundamental investment restrictions
principally because such fundamental investment restrictions are more
restrictive than is required under the federal securities laws and their
amendment or elimination would provide the Fund with greater investment
flexibility to meet its investment objective. The proposed restrictions not only
satisfy current federal regulatory requirements, but generally are formulated to
provide the Fund with the flexibility to respond to future legal, regulatory,
market or technical changes. The proposed changes would not affect the Fund's
investment objective.
After the Fund was organized as a Maryland corporation in 1994, certain legal
and regulatory requirements applicable to investment companies changed. For
example, certain restrictions imposed by state laws and regulations were
preempted by the National Securities Markets Improvement Act of 1996 ("NSMIA")
and, therefore, are no longer applicable to investment companies. As a result,
the Fund currently is subject to certain fundamental investment restrictions
that are either more restrictive than required under current law or which are no
longer required at all. For this reason, the Board is recommending that the
Fund's shareholders approve the amendment or elimination of certain of the
Fund's current fundamental investment restrictions in order to provide the Fund
with a more modernized list of restrictions that will enable the Fund to operate
more efficiently, and to more easily monitor compliance with its investment
restrictions.
The Board does not anticipate that the proposed amendments to, or the
elimination of, certain of the Fund's restrictions, individually or in the
aggregate, will materially affect the way the Fund is managed or will result in
a material change in the level of investment risk associated with an investment
in the Fund. Should the Board determine at a later date that a material
modification to an investment policy that would be permitted under the changed
restrictions is appropriate for the Fund, notice of any such change would be
provided to shareholders. However, the Board believes that the proposed changes
are in the best interests of the Fund and its shareholders as they will
modernize the subject investment restrictions and should enhance the Fund's
ability to achieve its investment objective.
-18-
PROPOSAL 3: TO APPROVE AMENDMENTS TO CERTAIN OF THE FUND'S FUNDAMENTAL
INVESTMENT RESTRICTIONS (this Proposal involves
separate votes on Sub-Proposals 3a - 3c)
The Fund's current investment restrictions that are the subject of this Proposal
3, together with the recommended changes to those restrictions, are detailed in
Exhibit C, which is entitled, "Fundamental Investment Restrictions Proposed to
be Amended or Eliminated." Shareholders are requested to vote on each
Sub-Proposal in Proposal 3 separately.
Sub-Proposal 3a: To amend the Fund's fundamental investment restriction
regarding industry concentration.
Under the 1940 Act, an investment company's policy regarding concentration of
investments in the securities of companies in any particular industry or group
of industries must be fundamental. The staff of the SEC has clarified that an
investment company "concentrates" its investments if it invests more than 25% of
its "net" assets (exclusive of certain items such as cash, U.S. government
securities, securities of other investment companies, and tax-exempt securities)
in any particular industry or group of industries. An investment company is not
permitted to concentrate its investments in any particular industry or group of
industries unless it discloses its intention to do so.
What effect will amending the current restriction regarding industry
concentration have on the Fund?
The proposed concentration policy set forth in Exhibit C to this Proxy Statement
is substantially the same as the Fund's current policy, except that it (i)
modifies the Fund asset measure (from "total assets" to "net assets") by which
concentration is assessed; (ii) slightly increases (from "25% or more" to "more
than 25%") the numerical limit on permissible investments; and (iii) expressly
references, in a manner consistent with current SEC staff policy, the categories
of investments that are excepted from coverage of the restriction. The proposed
restriction reflects a more modernized approach to industry concentration, and
provides the Fund with investment flexibility that ultimately is expected to
help the Fund respond to future legal, regulatory, market or technical changes.
The proposed restriction would expressly exempt from the 25% limitation, those
securities issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities, and the securities of other investment companies, consistent
with SEC staff policy. The proposed restriction thus clarifies the types of U.S.
government securities in which the Fund may invest. In addition, although the
Fund has always been permitted to invest in other investment companies in
accordance with the terms of its Prospectus, the proposed restriction now makes
explicit that such investments are exempted from the Fund's concentration
policy. Even with this modified restriction, however, the Fund would continue to
remain subject to the limitations on investments in other investment companies
as set forth in the 1940 Act and its Prospectus. In brief, absent special relief
from the SEC, the 1940 Act would prohibit the Fund from investing more than 5%
of its total assets in any one investment company and more than 10% of its total
assets in other investment companies overall.
-19-
The Fund's restriction on industry concentration is not required to specify, as
it does currently, that a foreign government is deemed an "industry." However,
that view represents a long-standing SEC staff position, and would continue to
limit the Fund's ability to invest in securities issued by foreign governments
even without an express reference to that policy in the restriction.
The adoption of the proposed restriction is not expected to change materially
the way in which the Fund currently is managed. The Fund does not, under normal
market conditions, invest a significant proportion of its assets in U.S.
government securities or those issued by its agencies or instrumentalities.
Moreover, without SEC relief, the Fund would still be limited in its investments
in other investment companies and, without further shareholder approval, could
not invest more than 25% of its net assets in securities issued by a foreign
government.
Sub-Proposal 3b: To amend the Fund's fundamental investment restriction
regarding borrowing and issuing senior securities.
The 1940 Act imposes certain limits on investment companies with respect to
borrowing money or issuing senior securities, and a fund's policies concerning
the borrowing of money and the issuance of senior securities must be
fundamental. A "senior security" is, in essence, an obligation of the Fund with
respect to its earnings or assets that takes precedence over the claims of the
Fund's shareholders with respect to the same earnings or assets. The 1940 Act's
limitations are designed to protect shareholders and their investments by
restricting a fund's ability to subject its assets to the claims of creditors or
senior security holders who would be entitled to dividends or rights on
liquidation of the Fund that would have to be discharged before the claims of
shareholders. Consistent with that policy, the 1940 Act generally limits the
ability of a closed-end investment company, like the Fund, from leveraging its
assets by borrowing money or through the issuance of senior securities.
In summary, under the 1940 Act, a closed-end fund may leverage its assets by
borrowing or through the issuance of debt instruments or preferred stock. In the
case of a senior security that is in the form of a borrowing or the issuance of
debt, the Fund, among other requirements, must have assets equal to at least
300% of the amount borrowed or the amount of the debt issue immediately after
the borrowing or issuance of debt. In determining whether it meets the 300%
asset coverage requirement, the Fund is permitted to include as an asset the
amount borrowed or the amount of the debt instrument. In the case of a senior
security that is in the form of an issue of preferred stock, among other
requirements, the asset coverage requirement is 200% of the amount of the
preferred stock issued. As in the case of a borrowing or debt issue, the amount
of the preferred stock issue is included as an asset for purposes of the asset
coverage requirement. So long as the borrowing continues or the debt issue or
preferred stock is outstanding, a fund may not pay dividends or make
distributions or repurchase its common stock if that action would reduce asset
coverage below the required amount.
In addition, in accordance with SEC staff interpretations under the 1940 Act,
closed-end funds may engage in a number of types of transactions that might be
considered to raise "senior security" or "leveraging" concerns, if the funds do
not meet certain collateral requirements designated by the SEC staff. These
-20-
collateral requirements are designed to protect shareholders by ensuring that
when an obligation from one of these "leverage-type transactions" comes due,
liquid assets of the fund sufficient to discharge the obligation are readily
available in a segregated account of the fund. The collateralization requirement
limits a fund's ability to engage in those types of transactions and thereby
limits a fund's exposure to risk associated with them. In very general terms, an
investment company is considered to be leveraging when it enters into securities
transactions without being required to make payment until a later point in time.
The leverage-type transactions identified by the SEC staff as presenting senior
security concerns include, among others, short sales, certain options and
futures transactions, and reverse repurchase agreements. Among these, short
sales are currently the subject of a fundamental restriction that the Board is
proposing to eliminate under Proposal 4 of this Proxy Statement.
What effect will amending the current borrowing and senior securities
restriction have on the Fund?
The proposed borrowing and senior securities restriction set forth in Exhibit C
is intended to modernize the Fund's investment restriction, and to clarify that
the Fund may borrow money, issue senior securities or engage in the
"leverage-type transactions" noted above, in accordance with the limits
established under the 1940 Act, or any SEC order, rule, regulation or staff
interpretation thereof.
The proposed restriction is designed to reflect all current regulatory
requirements and is formulated to provide the Fund with enhanced flexibility to
respond to future legal, regulatory or market changes. This enhanced flexibility
would be achieved by eliminating certain operational limitations set forth in
the Fund's current fundamental restriction. That restriction currently prohibits
the Fund from borrowing money or issuing senior securities except that (a)
short-term credits necessary for settlement of securities transactions are not
considered borrowings or senior securities; (b) the Fund may borrow no more than
5% of the value of the Fund's total assets, except for emergency purposes; and
(c) the Fund may borrow up to 33 1/3% of its total assets in connection with a
repurchase of its shares. Although the proposed restriction does not
specifically carve out these enumerated activities, the Fund would continue to
be permitted to engage in them, because these activities are all permissible
under the 1940 Act and interpretations of the SEC staff.
The proposed borrowing and senior securities restriction set forth in Exhibit C
would provide the Fund with greater borrowing and leveraging flexibility, and
would permit the Fund to engage in a broader range of the leverage-type
transactions. The Fund may therefore be subject to additional costs and risks if
it engages in practices that would be permissible under this modified policy.
For example, the Fund could borrow money or issue senior securities, such as
preferred stock, for investment purposes when the Investment Manager believes
that it is appropriate to expand the Fund's investments beyond its existing
holdings. Because borrowing or the issuance of senior securities will subject
the Fund to additional costs, the Fund would only borrow or issue senior
securities when the Investment Manager believes that the cost of carrying the
assets to be acquired through leverage would be lower than the Fund's expected
-21-
return on its longer-term portfolio investments. Should this differential
narrow, the Fund would realize less of a positive return, with the additional
risk that, during periods of adverse market conditions, the market value of the
Fund's entire portfolio holdings (including those acquired through leverage) may
decline far in excess of incremental returns the Fund may have achieved in the
interim. Indeed, any such leveraging tends to magnify market exposure and can
result in higher than expected losses to the Fund.
Because the investment risk associated with investment assets purchased with
borrowed funds would be borne solely by the holders of the Fund's shares,
adverse movements in the price of the Fund's portfolio holdings would have a
more severe effect on the Fund's net asset value than if the Fund were not
leveraged. Leverage creates risks for shareholders in the Fund, including the
likelihood of greater volatility of the Fund's net asset value and the market
price of its shares, and the risk that fluctuations in interest rates on
borrowings or in the dividend rates on any preferred stock may affect the return
to shareholders. If the income from the securities purchased with borrowed funds
is not sufficient to cover the cost of leverage, the net income of the Fund
would be less than if leverage had not been used, and therefore the amount
available for distribution to shareholders as dividends will be reduced. In such
an event, the Fund may nevertheless determine to maintain its leveraged position
in order to avoid capital losses on securities purchased with the leverage.
Also, if the asset coverage for senior securities or other borrowings of the
Fund declines below the limits specified in the 1940 Act, the Fund may be
required to sell a portion of its investments when it may not be advantageous to
do so. In the extreme, sales of investments required to meet asset coverage
tests imposed by the 1940 Act could also cause the Fund to lose its status as a
regulated investment company. In addition, if the Fund were unable to make
adequate distributions to shareholders because of asset coverage or other
restrictions, it could fail to qualify as a regulated investment company for
federal income tax purposes and, even if it did not fail to so qualify, it could
become liable for income and excise tax on the portion of its earnings which are
not distributed on a timely basis in accordance with applicable provisions of
the Internal Revenue Code of 1986, as amended.
The Fund's willingness to borrow money and issue new securities for investment
purposes, and the amount it will borrow, will depend on many factors, the most
important of which are investment outlook, market conditions and interest rates.
Successful use of a leveraging strategy depends on the Investment Manager's
ability to predict correctly interest rates and market movements, and there is
no assurance that a leveraging strategy will be successful during any period in
which it is employed.
Among the "leverage-type transactions" in which the Fund would be authorized to
engage are transactions involving futures, options thereon and similar
derivative instruments. These instruments could be used in an attempt to protect
Fund assets, implement a cash or tax management strategy or enhance Fund
returns. With derivatives, the Investment Manager often would be attempting to
predict whether an underlying investment will increase or decrease in value at
some future time.
Derivatives and similar instruments generally involve costs, may be volatile
and may involve a small investment relative to the risk assumed. Their
-22-
successful use will depend on the Investment Manager's ability to predict market
movements. Risks include delivery failure, default by the other party and the
inability to close out a position because the trading market becomes illiquid.
Therefore, these instruments will be utilized only if the Investment Manager
determines that such investments are advisable.
The above notwithstanding, the Board does not anticipate that the Fund would be
exposed to any additional risk if the current restriction is amended, because
the Fund has no present intention of changing its current investment practices
with respect to borrowing money or issuing senior securities. In addition, even
if the Fund were to engage in these leverage-type transactions, the SEC staff's
collateralization requirements and other applicable regulatory limitations
should help to mitigate the investment risks attendant to them.
Sub-Proposal 3c: To amend the Fund's fundamental investment restriction
regarding investments in commodities.
Under the 1940 Act, a fund's policy as recited in its registration statement
regarding investments in commodities must be fundamental. The most common types
of commodities are physical commodities such as wheat, cotton, rice and corn.
Under the federal securities and commodities laws, certain futures contracts and
options thereon are considered to be commodity interests. Financial futures
contracts such as those related to currencies, stock indices or interest rates,
also may be considered to be commodity interests. If the Fund buys a financial
futures contract, it obtains the right to receive (or, if the Fund sells the
contract, the Fund is obligated to pay) the cash difference between the contract
price for an underlying asset or index and the future market price, if the
future market price is higher. If the future market price is lower, the Fund is
obligated to pay (or, if the Fund sold the contract, the Fund is entitled to
receive) the amount of the decrease. Funds typically seek to invest in such
financial futures contracts and options related to such contracts for hedging or
investment purposes.
What effect will amending the commodities restriction have on the Fund?
The Fund's current fundamental restriction states that the Fund may not purchase
or sell futures contracts and options thereon "except that the Fund may engage
in hedging transactions as described in [the Fund's] Prospectus." As described
in the Prospectus, the Fund may hedge against various market risks through,
among other practices, entering into forward currency exchange contracts and
various financial, index and currency futures contracts and options on such
futures contracts, as well as purchasing or writing put or call options on
securities, indices and foreign currencies, in U.S. or foreign markets, to the
extent available and deemed appropriate by the Investment Manager. The Fund also
is authorized to hedge against interest rate fluctuations by entering into
interest rate futures contracts and options thereon.
The proposed commodities restriction set forth in Exhibit C states that the
prohibition on purchases and sales covers commodities, but does not prevent the
Fund from engaging in transactions involving futures contracts and options
thereon or investing in securities that are secured by physical commodities.
This makes clear that the Fund has the flexibility, consistent with federal
securities and commodities laws, to engage in transactions involving futures
-23-
contracts and related options. The proposed restriction also would expand the
Fund's authority to make investments in such transactions and related options
for investment purposes as well as hedging purposes. The proposed restriction
does not otherwise limit the types of financial agreements and instruments used
in hedging transactions. Thus, the proposed restriction will continue to enable
the Fund to engage, consistent with its investment objective, in hedging
transactions as described in the Fund's Prospectus.
The terms of the modified restriction clarify that the Fund is permitted to
engage in transactions involving various financial agreements and instruments,
including forward foreign currency contracts, options on foreign currencies,
futures contracts and options on futures for hedging or investment purposes.
Among these are foreign currency exchange transactions which the Fund may
conduct either on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market, or through entering into forward contracts to
purchase or sell foreign currencies. A forward contract is an obligation to
purchase or sell a specific currency for an agreed price at a future date, which
is individually negotiated and privately traded by currency traders and their
customers. Although forward contracts will be used primarily to protect the Fund
from adverse currency movements, they also involve the risk of loss in the event
that anticipated currency movements are not accurately predicted.
Other transactions include the purchasing and writing of put and call options on
foreign currencies for the primary purpose of protecting against declines in the
U.S. dollar value of foreign currency-denominated portfolio securities and
against increases in the U.S. dollar cost of such securities to be acquired. As
in the case of other kinds of options, however, the writing of an option on a
foreign currency constitutes only a partial hedge, up to the amount of the
premium received, and the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchanges rates, thereby incurring losses. The
purchase of an option on a foreign currency may constitute an effective hedge
against fluctuations in exchange rates although, in the event of rate movements
adverse to the Fund's position, it may forfeit the entire amount of the premium
plus related transaction costs.
The Fund also may buy and sell financial futures contracts, index futures
contracts, foreign currency futures contracts and options on any of the
foregoing. A financial futures contract is an agreement between two parties to
buy or sell a specified debt security at a set price on a future date. An index
futures contract is an agreement to take or make delivery of an amount of cash
based on the difference between the value of the index at the beginning and at
the end of the contract period. A futures contract on a foreign currency is an
agreement to buy or sell a specified amount of a currency for a set price on a
future date. These instruments can present significant investment risk to the
Fund if the Investment Manager does not accurately predict the fluctuations in,
as the case may be, interest rates, currency values or the market to which the
financial instrument is tied.
Using these financial agreements and similar instruments for hedging, and
particularly for investment purposes, can involve substantial risks, and they
will be utilized only if the Investment Manager determines that such investments
are advisable. The adoption of this restriction is not expected to affect the
way the Fund is currently managed, as disclosed in the Fund's Prospectus and,
-24-
therefore, it is not currently anticipated that the proposed restriction will
expose the Fund to any additional material risk.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT YOU VOTE "FOR" SUB-PROPOSALS 3a - 3c
-25-
PROPOSAL 4: TO APPROVE THE ELIMINATION OF CERTAIN OF THE FUND'S FUNDAMENTAL
INVESTMENT RESTRICTIONS
Why is the Board recommending that certain fundamental investment restrictions
be eliminated, and what effect will their elimination have on the Fund?
Some of the Fund's fundamental investment restrictions were originally adopted
to comply with state law and regulation. Due to the passage of NSMIA, and
changes in SEC staff positions, these fundamental restrictions are either no
longer required by law or are no longer relevant to the operation of the Fund.
Since NSMIA eliminated the states' ability to adopt or substantively regulate
investment companies, the Fund is no longer legally required to adopt or
maintain investment restrictions relating to diversification, purchasing
securities on margin, short sales, or control over management. The Board has
determined that eliminating these four restrictions (referred to in this
Proposal 4 as the "Restrictions") is consistent with the federal securities
laws. By reducing the total number of investment restrictions that can be
changed only by a shareholder vote, the Board believes that the Fund will be
able to reduce the costs and delays associated with holding future shareholder
meetings for the purpose of revising fundamental policies that become outdated
or inappropriate. The Board believes that the elimination of the Restrictions is
in the best interest of the Fund's shareholders as it will provide the Fund with
increased flexibility to pursue its investment objective.
Which four (4) Restrictions are the Board recommending that the Fund eliminate?
The Fund currently is subject to four Restrictions that are no longer required
by law and were adopted primarily in response to regulatory, business or
industry conditions that no longer exist. Accordingly, the Investment Manager
has recommended, and the Board has determined, that the Restrictions be
eliminated. Elimination of the Restrictions would enable the Fund to be managed
in accordance with the current requirements of the 1940 Act, without being
constrained by additional and unnecessary limitations. The Directors believe
that the Investment Manager's ability to manage the Fund's assets in a changing
investment environment will be enhanced, and that investment management
opportunities will be increased, by these changes. The exact language of the
Restrictions has been included in Exhibit C, which is entitled "Fundamental
Investment Restrictions Proposed to be Amended or Eliminated."
Diversification of Investments. The Fund's diversification restriction, which
prohibits the Fund from investing, with certain exceptions, more than 25% of its
total assets in the voting or non-voting securities of a single issuer, is
currently combined with a restriction on acquiring more than 25% of the voting
securities of another issuer (the "control restriction") in a single fundamental
restriction. Hereafter, the control restriction will be separated from the
diversification restriction, the latter of which would be eliminated if this
Proposal 4 is approved by shareholders. No change is being proposed to the
control restriction.
Investment companies, like the Fund, generally diversify their investments among
many different securities. They are, however, free to choose the extent to which
they will diversify their investments, provided they comply with certain minimum
limits set forth in the 1940 Act and/or the Internal Revenue Code of 1986, as
-26-
amended ("Code"). Generally, in order to be diversified under the 1940 Act, a
fund may not invest more than 5% of its total assets in a single issuer (except
U.S. government securities, as defined in the 1940 Act), or purchase more than
10% of the outstanding securities of a single issuer, but these limits apply
only to 75% of the fund's total assets. As a result, any fund that is
diversified under the 1940 Act may invest up to 25% of its assets in a single
security. If a fund elects to be "non-diversified" under the 1940 Act, it must
still operate within the diversification requirements of the Code, which are
similar to the 1940 Act diversification requirements, but apply only to 50% of a
fund's assets, rather than 75%. As to the remaining 50% of fund assets, the Code
permits a fund to buy as few as two separate securities, each representing 25%
of the value of the fund.
The Fund's Prospectus states that the Fund is classified as a non-diversified
fund for purposes of the 1940 Act. Having elected to be a non-diversified fund,
the Fund is not obligated to adhere to the 1940 Act's limits on the proportion
of its assets that may be invested in the securities of a single issuer that
apply to funds that elect to be diversified. As a non-diversified fund, the Fund
could invest a greater proportion of its assets in the securities of a smaller
number of issuers, thereby subjecting the Fund to greater risk of loss with
respect to its portfolio securities than could a diversified fund.
Despite the above, and although not required to do so, the Fund currently has a
fundamental investment restriction limiting the Fund's ability to invest more
than 25% of the total value of its assets in the securities of any one issuer.
In addition, the Fund has adopted a non-fundamental policy-one that may be
changed by the Board without shareholder approval-under which the Fund may not
invest more than 10% of its total assets in the securities of any one issuer.
Because the Fund would remain subject to this non-fundamental policy, the
elimination of this Restriction is not expected to affect the day-to-day
management of the Fund.
Though the Fund would continue to be limited by its non-fundamental policy
regarding investments in the securities of a single issuer, that policy could be
changed by the Board in the future without shareholder approval. In the absence
of the current fundamental policy, the Board could therefore increase the
proportion of assets allocable to a single issuer or eliminate the
non-fundamental policy altogether. Even if the Board were to do so, however, the
Fund would continue to be limited to investing no more than 25% of its net
assets in a single issuer under the limits of its fundamental investment
restriction regarding industry concentration (as discussed previously in
Sub-Proposal 3a) because investment in any one issuer would be deemed to be
investment in a single industry. Moreover, the Fund still would have to satisfy
the requirements of the diversification limits prescribed by the Code or lose
its status as a regulated investment company. Were the Fund to lose that status,
the Fund itself would become subject to tax, thereby materially reducing the
returns provided to shareholders. To preserve its value as a viable investment
vehicle for shareholders, the Fund intends to continue to comply with the
provisions of the Code.
Purchase Securities on Margin. The Fund's Prospectus contains a fundamental
policy that prohibits the Fund from purchasing securities on margin. However,
that policy expressly permits the Fund to engage in when-issued and delayed
delivery transactions and makes provision for the completion of those
transactions. This Restriction was originally adopted at the Fund's inception
-27-
because state law, to which the Fund was then subject, required investment
companies to expressly recite in their prospectuses that purchasing securities
on margin was prohibited. After the passage of NSMIA, the Fund is no longer
required to include in its Prospectus a fundamental policy expressly prohibiting
these types of investment activities.
Under the 1940 Act, however, the purchase of securities on margin is
specifically prohibited. As a general matter, therefore, elimination of this
Restriction should not have any impact on the day-to-day management of the Fund.
Its elimination would: (i) not change the Fund's current inability to purchase
securities on margin; (ii) continue to permit the Fund to engage in the
activities currently excepted from the Restriction; and (iii) permit the Fund,
going forward, to easily and efficiently respond to any future changes in
regulations or future interpretations of the 1940 Act.
Short Sales. The Fund's Prospectus currently prohibits the Fund from selling
securities short or maintaining a short position. A short sale is the sale of a
security that is later purchased or borrowed from a broker or other institution
to complete the sale. A short sale is "against the box" if the Fund owns, or has
the right to obtain, securities identical to those sold short.
Following the passage of NSMIA, applicable law no longer requires funds to
declare a fundamental policy concerning short selling. Under the 1940 Act, the
Fund may engage in short sales of securities provided it establishes a
segregated account that contains the same security that is the subject of the
short sale (the above-described short sale "against the box"), or other liquid
assets in an amount sufficient to discharge the liability created by the short
sale. If the Fund did not establish a segregated account with adequate
collateral, the short sale might be deemed to create a senior security, which
would be prohibited under the 1940 Act.
Eliminating this Restriction on short sales would provide the Fund with the
flexibility to enter into short sales in the limited instances that are
interpreted by the SEC staff as not constituting the issuance of senior
securities under the federal securities laws. The Fund's use of short sales
could pose certain risks, including potential losses if the market price of the
security sold short increases between the date when the Fund enters into the
short position and the date when the Fund closes the short position. However,
because the Fund does not currently intend to enter into short sales or maintain
short positions, eliminating this Restriction is not expected to affect the
day-to-day management of the Fund.
Control over Management. The Fund's Prospectus currently prohibits the Fund from
investing in securities of issuers for the purpose of exercising control over
management of that issuer. If a fund acquires a large percentage of the
securities of a single issuer, it could be deemed to have invested in such
issuer for the purpose of exercising control of management. Former state law
required that funds expressly prohibit these practices to ensure that an
investment company would not be engaged in the business of managing another
company. Following the passage of NSMIA, applicable law no longer requires that
the Fund have such a restriction.
-28-
Eliminating this Restriction is not intended to have any impact on the
day-to-day management of the Fund because the Fund has no present intention of
investing in issuers for the purpose of exercising control over management.
What are the risks, if any, of eliminating the Restrictions?
The Board does not anticipate that eliminating the Restrictions will result in
additional material risk to the Fund. Although the Restrictions, as drafted, are
no longer legally required, the Fund's ability to engage in these practices will
continue to be subject to the limitations of the 1940 Act, any rule, SEC staff
interpretation, and any exemptive orders granted under the 1940 Act. Moreover,
the Fund does not currently intend to change its present investment practices
following the elimination of the Restrictions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT YOU VOTE "FOR" PROPOSAL 4
INFORMATION ABOUT THE FUND
The Investment Manager. The Investment Manager of the Fund is Templeton Asset
Management Ltd.-Hong Kong Branch, a Singapore company with a branch office at
Two Exchange Square, 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 Administrator. The administrator of the Fund is Franklin Templeton Services,
LLC ("FT Services"), with offices at One Franklin Parkway, San Mateo, California
94403-1906. FT Services is an indirect, wholly owned subsidiary of Resources.
Pursuant to an administration agreement, FT Services performs certain
administrative functions for the Fund. In addition, FT Services has entered into
a Japanese shareholder servicing and administration agreement with Nomura Asset
Management U.S.A. Inc. ("NAM-USA"), formerly Nomura Capital Management, Inc.,
under which NAM-USA performs certain administrative functions in Japan, subject
to FT Services' supervision. NAM-USA is an affiliate of Nomura International
(Hong Kong) Limited, an initial underwriter of the Fund's shares. NAM-USA has
offices at 180 Maiden Lane, 26th Floor, New York, New York 10038.
The Transfer Agent. The transfer agent, registrar and dividend disbursement
agent for the Fund is Mellon Investor Services LLC, 85 Challenger Road, Overpeck
Centre, Ridgefield Park, New Jersey 07660.
The Custodian. The custodian for the Fund is JP Morgan Chase Bank, MetroTech
Center, Brooklyn, New York 11245.
Other Matters. The Fund's last audited financial statements and annual report,
dated December 31, 2001, are available free of charge. To obtain a copy, please
call 1-800/DIAL BEN(R)(1-800-342-5236) or forward a written request to
Franklin/Templeton Investor Services, LLC, P.O. Box 33030, St. Petersburg,
Florida 33733-8030.
-29-
As of February 22, 2002, the Fund had 48,741,093 shares outstanding and total
net assets of $453,657,816. The Fund's shares are listed on the NYSE (Symbol:
TDF) and on the Osaka Securities Exchange (Symbol: 8683). From time to time, the
number of shares held in "street name" accounts of various securities dealers
for the benefit of their clients may exceed 5% of the total shares outstanding.
To the knowledge of the Fund's management, as of February 22, 2002, there were
no other entities holding beneficially or of record more than 5% of the Fund's
outstanding shares, except as shown in the following table:
Amount and
Nature Percent of
Name and Address of Of Beneficial Outstanding
Beneficial Owner Ownership Shares
--------------------------- ----------------- ------------------
President and Fellows of 5,228,351(1) 10.7%(2)
Harvard College
c/o Harvard Management
Company, Inc.
600 Atlantic Avenue
Boston, MA 02210
----------------
(1) The nature of beneficial ownership is sole voting and dispositive
power as reported on Schedule 13G, filed with the U.S. Securities and
Exchange Commission on February 14, 2002.
(2) As reported on Schedule 13G, dated and filed with the U.S. Securities
and Exchange Commission on February 14, 2002.
In addition, to the knowledge of the Fund's management, as of February 22, 2002,
no nominee or Director of the Fund owned 1% or more of the outstanding shares of
the Fund, and the Directors and officers of the Fund owned, as a group, less
than 1% of the outstanding shares of the Fund.
AUDIT COMMITTEE
The Board has a standing Audit Committee consisting of Messrs. Millsaps
(Chairman), Crothers, Hines and Tseretopoulos, all of whom are Independent
Directors and also are considered to be "independent" as that term is defined by
the NYSE's listing standards. The Audit Committee reviews the maintenance of the
Fund's records and the safekeeping arrangements of the Fund's custodian, reviews
both the audit and non-audit work of the Fund's independent auditors, and
submits a recommendation to the Board as to the selection of independent
auditors.
Selection of Independent Auditors. Upon the recommendation of the Audit
Committee, the Board selected the firm of PricewaterhouseCoopers LLP ("PwC") as
independent auditors of the Fund for the current fiscal year. 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 should any matter arise
requiring their presence.
Audit Fees. The aggregate fees paid to PwC in connection with the annual audit
of the Fund's financial statements for the fiscal year ended December 31, 2001
were $57,373.
Financial Information Systems Design and Implementation Fees. PwC did not render
any services with respect to financial information systems design and
implementation during the fiscal year ended December 31, 2001 to the Fund or
-30-
entities affiliated with the Fund that provide services to the Fund.
All Other Fees. The aggregate fees billed for all other non-audit services,
including fees for tax-related services, rendered by PwC to the Fund or entities
affiliated with the Fund that provide services to the Fund for the fiscal year
ended December 31, 2001 were $142,204. The Audit Committee of the Fund has
determined that provision of these non-audit services is compatible with
maintaining the independence of PwC.
Audit Committee Report. The Board has adopted and approved a formal written
charter for the Audit Committee, which sets forth the Audit Committee's
responsibilities. The charter was filed with the proxy statement for the Fund's
2001 Annual Meeting of Shareholders.
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.
The Audit Committee received the written disclosures and the letter from PwC
required by Independence Standards Board No. 1. The Audit Committee also
received the report of PwC regarding the results of their audit. In connection
with its review of the financial statements and the auditors' report, the
members of the Audit Committee discussed with a representative of PwC, their
independence, as well as the following: the auditors' responsibilities in
accordance with generally accepted auditing standards; the auditors'
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 there were any major issues
discussed with management prior to the auditors' retention; whether the auditors
encountered any difficulties in dealing with management in performing the audit;
and the auditors' judgments about the quality of the company's accounting
principles.
Based on its discussions with management and the Fund's auditors, 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, 2001 for filing with the
U.S. Securities and Exchange Commission.
AUDIT COMMITTEE
Fred R. Millsaps (Chairman)
Frank J. Crothers
Andrew H. Hines, Jr.
Constantine D. Tseretopoulos
-31-
FURTHER INFORMATION ABOUT VOTING AND THE MEETING
Solicitation of Proxies. Your vote is being solicited by the Board. 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 expenses in
forwarding proxy material to the beneficial owners and soliciting them to
execute proxies. The Fund has engaged Georgeson Shareholder Communications, Inc.
to solicit proxies from brokers, banks, other institutional holders and
individual shareholders at an anticipated cost of approximately $[81,992],
including out-of-pocket expenses. The Fund expects that the solicitation would
be primarily by mail, but also may include telephone, telecopy or oral
solicitations. If the Fund does not receive your proxy by a certain time, you
may receive a telephone call from Georgeson Shareholder asking you to vote. The
Fund does not reimburse Directors 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, as well as the Japan Securities Clearing Corporation ("JSCC") holding
shares of the Fund for its beneficial owners, 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' or JSCC's proxy
solicitation materials, the Fund understands that NYSE Rules permit the
broker-dealers and JSCC to vote on Proposal 1 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 shares entitled to vote - present in person or
represented by proxy - constitutes a quorum at the Meeting. The shares over
which broker-dealers and JSCC 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 for purposes of determining whether the required quorum of
shares exists.
Methods of Tabulation. Proposal 1, the election of Directors, requires the
affirmative vote of the holders of a plurality of the Fund's shares present and
voting on the Proposal at the Meeting. Proposal 2, to approve an Agreement and
Plan of Reorganization that provides for the reorganization of the Fund from a
Maryland corporation to a Delaware business trust, requires the affirmative vote
of a majority of all the shares entitled to be cast on the matter (all of the
outstanding shares of the Fund are entitled to vote on Proposal 2). Proposal 3,
to approve amendments to certain of the Fund's fundamental investment
restrictions (includes three (3) Sub-Proposals); and Proposal 4, to approve the
elimination of certain of the Fund's fundamental investment restrictions,
require the affirmative vote of the lesser of: (i) more than 50% of the
outstanding voting securities of the Fund; or (ii) 67% or more of the voting
securities of the Fund present at the Meeting, if the holders of more than 50%
of the outstanding voting securities are present or represented by proxy.
-32-
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, which requires a
plurality of the Fund's shares present and voting, but will have the same effect
as a vote "against" Proposals 2, 3 and 4.
Adjournment. 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 a Proposal, the Meeting may be adjourned to permit further solicitation
of proxies. The presiding officer of the Fund for the Meeting, the secretary of
the Meeting, or the persons designated as proxies may adjourn the Meeting to
permit further solicitation of proxies or for other reasons consistent with
Maryland law and the Fund's Articles of Incorporation and By-Laws. 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.
[Shareholder Proposals. The shareholder vote on Proposal 2, the matter
concerning the proposed reorganization of the Fund from a Maryland corporation
to a Delaware business trust, will dictate the requirements relating to
shareholder proposals for the 2003 Annual Meeting of Shareholders. This section
describes those requirements.
Submission of Shareholder Proposals to the Trust. If Proposal 2 is approved by
the shareholders, the Fund will be reorganized as the Trust, and the Trust's
By-Laws, in addition to the proxy rules under the federal securities laws, will
govern shareholder proposals. The Trust anticipates that the 2003 Annual Meeting
of Shareholders will be held on or before May 30, 2003. A shareholder who wishes
to submit a proposal for consideration for inclusion in the Trust's proxy
statement for the 2003 Annual Meeting of Shareholders must send such written
proposal to the Trust's offices, at 500 East Broward Boulevard, Ft. Lauderdale,
Florida 33394-3091, Attention: Secretary, no later than November [11], 2002 in
order to be included in the Trust's proxy statement and proxy card relating to
that meeting and presented at the meeting. Submission of a proposal by a
shareholder does not guarantee that the proposal will be included in the Trust's
proxy statement or presented at the meeting.
A shareholder of the Trust who has not submitted a written proposal for
inclusion in the proxy statement by November [11], 2002 as set forth above, may
nonetheless present a proposal at the Trust's 2003 Annual Meeting of
Shareholders if such shareholder notifies the Trust, at the Trust's offices, of
such proposal not earlier than December 31, 2002 and not later than January 30,
2003. If a shareholder fails to give notice within these dates, then the persons
designated as proxies for the 2003 Annual Meeting of Shareholders may exercise
discretionary voting power with respect to any such proposal. A shareholder
proposal may be presented at the 2003 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.
-33-
In addition to the requirements set forth above, a shareholder must comply with
the following:
I. A shareholder intending to present a proposal must (i) be entitled to
vote at the meeting; (ii) comply with the notice procedures set forth herein;
and (iii) have been a shareholder of record at the time the shareholder's notice
was received by the Trust.
II. Each notice regarding nominations for the election of Trustees 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
Trust which are beneficially owned by each such nominee; and (iv) all such other
information regarding each such nominee that 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 Trust. In addition, the
shareholder making such nomination shall promptly provide any other information
reasonably requested by the Trust.
III. Each notice regarding business proposals shall set forth 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 Trust's books, of the shareholder
proposing such business; (iii) the number of outstanding shares of the Trust
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 Trust.
Submission of Shareholder Proposals to the Fund. If Proposal 2 is not approved
by the shareholders, the Fund will remain a Maryland corporation, and the proxy
rules under the federal securities laws alone will continue to govern
shareholder proposals. The Fund anticipates that the 2003 Annual Meeting of
Shareholders will be held on or before May 30, 2003. A shareholder who wishes to
submit a proposal for consideration for inclusion in the Fund's proxy statement
for the 2003 Annual Meeting of Shareholders must send such written proposal to
the Fund's offices, at 500 East Broward Boulevard, Ft. Lauderdale, Florida
33394-3091, Attention: Secretary, no later than November [11], 2002 in order to
be included in the Fund's proxy statement and proxy card relating to that
meeting and presented at the meeting. 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.
A shareholder of the Fund who has not submitted a written proposal for inclusion
in the Fund's proxy statement by November [11], 2002, as described above, may
nonetheless present a proposal at the Fund's 2003 Annual Meeting of Shareholders
if such shareholder notifies the Fund, at the Fund's offices, of such proposal
by January 25, 2003. If a shareholder fails to give notice by this date, then
the persons designated as proxies for the 2003 Annual Meeting of Shareholders
may exercise discretionary voting power with respect to any such proposal. A
shareholder proposal may be presented at the 2003 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.]
By Order of the Board of Directors,
Barbara J. Green
Secretary
[_________], 2002
-34-
EXHIBIT A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN TEMPLETON DRAGON FUND, INC.
AND TEMPLETON DRAGON FUND
This Agreement and Plan of Reorganization ("Agreement") is made as of
this ____ day of _________, 2002 by and between Templeton Dragon Fund, a
Delaware business trust ("Trust"), and Templeton Dragon Fund, Inc., a Maryland
corporation ("Fund") (the Trust and the Fund are hereinafter collectively
referred to as the "parties").
In consideration of the mutual promises contained herein, and
intending to be legally bound, the parties hereto agree as follows:
1. Plan of Reorganization.
(a) Upon satisfaction of the conditions precedent described in Section
3 hereof, the Fund will convey, transfer and deliver to the Trust at the closing
provided for in Section 2 (hereinafter referred to as the "Closing") all of the
Fund's then-existing assets. In consideration thereof, the Trust agrees at the
Closing (i) to assume and pay when due, to the extent that there exist Fund
obligations and liabilities on or after the Effective Date of the Reorganization
(as defined in Section 2 hereof), all of such obligations and liabilities,
whether absolute, accrued, contingent or otherwise, including all fees and
expenses in connection with the Agreement, which fees and expenses shall, in
turn, include, without limitation, costs of legal advice, accounting, printing,
mailing, proxy solicitation and transfer taxes, if any, such obligations and
liabilities of the Fund to become the obligations and liabilities of the Trust;
and (ii) to deliver, in accordance with paragraph (b) of this Section 1, full
and fractional shares of beneficial interest, without par value, of the Trust,
A-1
equal in number to the number of full and fractional shares of common stock,
$.01 par value per share, of the Fund outstanding immediately prior to the
Effective Date of the Reorganization. The reorganization contemplated hereby is
intended to qualify as a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended ("Code"). The Fund shall distribute to
its shareholders the shares of the Trust in accordance with this Agreement and
the resolutions of the Board of Directors of the Fund authorizing the
transactions contemplated by this Agreement.
(b) In order to effect the delivery of shares described in Section
1(a)(ii) hereof, the Trust will establish an open account for each shareholder
of the Fund and, on the Effective Date of the Reorganization, will credit to
such account full and fractional shares of beneficial interest, without par
value, of the Trust equal to the number of full and fractional shares such
shareholder holds in the Fund at the close of regular trading on the New York
Stock Exchange ("NYSE") on the business day immediately preceding the Effective
Date of the Reorganization; fractional shares of the Trust will be carried to
the third decimal place. At the start of regular trading on the NYSE on the
Effective Date of the Reorganization, the net asset value per share of shares of
the Trust shall be deemed to be the same as the net asset value per share of the
common stock of the Fund at the close of regular trading on the NYSE on the
business day immediately preceding the Effective Date of the Reorganization. On
the Effective Date of the Reorganization, each certificate representing shares
of the Fund will be deemed to represent the same number of shares of the Trust.
Simultaneously with the crediting of the shares of the Trust to the shareholders
of record of the Fund, the shares of common stock of the Fund held by such
shareholder shall be cancelled. Each shareholder of the Fund will have the right
to deliver their share certificates of the Fund in exchange for share
A-2
certificates of the Trust. However, a shareholder need not deliver such
certificates to the Trust unless the shareholder so desires.
(c) As soon as practicable after the Effective Date of the
Reorganization, the Fund shall take all necessary steps under Maryland law to
effect a complete dissolution of the Fund.
(d) The expenses of entering into and carrying out the Agreement will
be borne by the Fund.
2. Closing and Effective Date of the Reorganization.
The Closing shall consist of (i) the conveyance, transfer and delivery
of the Fund's assets to the Trust, in exchange for the assumption and payment,
when due, by the Trust of the Fund's obligations and liabilities; and (ii) the
issuance and delivery of the Trust's shares in accordance with Section 1(b),
together with related acts necessary to consummate such transactions. The
Closing shall occur either on (a) the business day immediately following the
later of the receipt of all necessary regulatory approvals and the final
adjournment of the meeting of shareholders of the Fund at which this Agreement
is considered and approved or (b) such later date as the parties may mutually
agree ("Effective Date of the Reorganization").
3. Conditions Precedent.
The obligations of the Fund and the Trust to effectuate the
transactions hereunder shall be subject to the satisfaction of each of the
following conditions:
(a) Such approvals from the NYSE and Osaka Securities Exchange as may
be necessary to permit the parties to carry out the transactions contemplated by
this Agreement shall have been received;
A-3
(b) (i) An amendment to the Fund's Notification of Registration on
Form N-8A ("Form N-8A") filed pursuant to Section 8(a) of the Investment Company
Act of 1940, as amended ("1940 Act"), containing such amendments to the Form
N-8A as are determined by the trustees of the Trust (each, a "Trustee") to be
necessary and appropriate as a result of the transactions contemplated by this
Agreement shall have been filed with the U.S. Securities and Exchange Commission
("Commission"); (ii) the Trust shall have expressly adopted as its own such Form
N-8A, as so amended, for purposes of the 1940 Act; (iii) a registration
statement on Form 8-A ("8-A Registration Statement") under the Securities
Exchange Act of 1934, as amended, shall have been filed with the Commission and
the NYSE by the Trust; (iv) a Technical Original Listing Application shall have
been filed with the NYSE by the Trust; and (v) the 8-A Registration Statement
filed with the Commission relating to the Trust shall have become effective, and
no stop-order suspending the effectiveness of the 8-A Registration Statement
shall have been issued, and no proceeding for that purpose shall have been
initiated or threatened by the Commission (other than any such stop-order,
proceeding or threatened proceeding which shall have been withdrawn or
terminated);
(c) Each party shall have received an opinion of Stradley, Ronon,
Stevens & Young, LLP, Philadelphia, Pennsylvania, to the effect that, assuming
the reorganization contemplated hereby is carried out in accordance with this
Agreement, the laws of the States of Delaware and Maryland, and in accordance
with customary representations provided by the parties in a certificate(s)
delivered to Stradley, Ronon, Stevens & Young, LLP, the reorganization
contemplated by this Agreement qualifies as a "reorganization" under Section 368
of the Code, and thus will not give rise to the recognition of income, gain or
loss for federal income tax purposes to the Fund, the Trust or the shareholders
of the Fund or the Trust;
A-4
(d) The Fund shall have received an opinion of Stradley, Ronon,
Stevens & Young, LLP, dated the Effective Date of the Reorganization, addressed
to and in form and substance reasonably satisfactory to the Fund, to the effect
that (i) the Trust is duly formed as a business trust under the laws of the
State of Delaware; (ii) this Agreement and the transactions contemplated thereby
and the execution and delivery of this Agreement have been duly authorized and
approved by all requisite action of the Trust and this Agreement has been duly
executed and delivered by the Trust and is a legal, valid and binding agreement
of the Trust in accordance with its terms; and (iii) the shares of the Trust to
be issued in the reorganization have been duly authorized and, upon issuance
thereof in accordance with this Agreement, will have been validly issued and
fully paid and will be nonassessable by the Trust;
(e) The Trust shall have received the opinion of Stradley, Ronon,
Stevens & Young, LLP, dated the Effective Date of the Reorganization, addressed
to and in form and substance reasonably satisfactory to the Trust, to the effect
that: (i) the Fund is duly organized and validly existing under the laws of the
State of Maryland; (ii) the Fund is a closed-end investment company of the
management type registered under the 1940 Act; and (iii) this Agreement and the
transactions contemplated hereby and the execution and delivery of this
Agreement have been duly authorized and approved by all requisite corporate
action of the Fund and this Agreement has been duly executed and delivered by
the Fund and is a legal, valid and binding agreement of the Fund in accordance
with its terms;
(f) The shares of the Trust are eligible for offering to the public in
those states of the United States and jurisdictions in which the shares of the
Fund are currently eligible for offering to the public so as to permit the
issuance and delivery by the Trust of the shares contemplated by this Agreement
to be consummated;
A-5
(g) This Agreement and the transactions contemplated hereby shall have
been duly adopted and approved by the appropriate action of the board of
directors of the Fund (the "Board of Directors") and the shareholders of the
Fund;
(h) The shareholders of the Fund shall have voted to direct the Fund
to vote, and the Fund shall have voted, as sole shareholder of the Trust, to:
(1) Elect as Trustees of the Trust the following individuals:
Nominees to serve as Trustees until the 2005 Annual Meeting of
Shareholders-Messrs. Harris J. Ashton, Nicholas F. Brady, Frank J. Crothers, S.
Joseph Fortunato and Constantine D. Tseretopoulos; Nominees to serve as Trustees
until the 2004 Annual Meeting of Shareholders-Messrs. Martin L. Flanagan, Andrew
H. Hines, Jr., and Charles B. Johnson and Ms. Edith E. Holiday; and Nominees to
serve as Trustees until the 2003 Annual Meeting of Shareholders-Messrs. Gordon
S. Macklin and Fred R. Millsaps and Ms. Betty P. Krahmer; and
(2) Approve an Investment Management Agreement between Templeton
Asset Management Ltd. ("TAML") and the Trust, which is substantially identical
to the then-current Investment Management Agreement between TAML and the Fund;
(i) The Trustees of the Trust shall have duly adopted and approved
this Agreement and the transactions contemplated hereby and shall have taken the
following actions at a meeting duly called for such purposes:
(1) Approval of the Investment Management Agreement described in
paragraph (h)(2) of this Section 3 hereof for the Trust;
(2) Approval of the assignment to the Trust of the Fund's Custody
Agreement dated August 30, 1994 (the "Custody Agreement"), with The Chase
Manhattan Bank, N.A. (now JP Morgan Chase Bank), including the Amendment to the
Custody Agreement, dated March 2, 1998, Amendment No. 2 to the Custody
A-6
Agreement, dated July 23, 1998, and Amendment No. 3 to the Custody Agreement,
dated May 1, 2001;
(3) Selection of PricewaterhouseCoopers LLP as the Trust's
independent auditors for the fiscal year ending December 31, 2002;
(4) Approval of an Administration Agreement between the Trust and
Franklin Templeton Services, LLC;
(5) Approval of the assignment to the Trust of the Service
Agreement between the Fund and Mellon Securities Trust Co., dated September 20,
1994, the Fund's Successor Stock Transfer Agent Agreement dated February 2, 1995
with Chemical Mellon Shareholder Services (now Mellon Investor Services LLC);
and the Fund's Plan Agent Agreement with Mellon Securities Trust Company, dated
March 15, 1998;
(6) Approval of the assignment to the Trust of the Japanese
Shareholder Servicing and Administration Agreement, dated September 28, 1994
(the "Nomura Agreement"), by and among the Fund, Templeton Global Investors,
Inc. ("TGI") and Nomura Capital Management, Inc., as amended by the First
Amendment to the Nomura Agreement, dated October 1, 1996 (replacing TGI with
Franklin Templeton Services, Inc. ("FTSI")) and further amended effective
January 1, 2001 by the assumption by Franklin Templeton Services, LLC of the
rights and liabilities of FTSI under the Nomura Agreement;
(7) Approval of the assignment of the Paying Agreement, dated
September 30, 1994, by and among the Fund, Japan Securities Clearing Corporation
("JSCC") and Mitsui Trust and Banking Company, Limited ("Mitsui"); the Service
Agreement, dated September 30, 1994 (the "Service Agreement"), by and among the
Fund, JSCC and Mitsui; and the Agreement of Commissions Concerning Entrustment
of Services, dated September 30, 1994, by and between the Fund and Mitsui,
A-7
pursuant to Article 12 of the Service Agreement; and
(8) Authorization of the issuance by the Trust, prior to the
Effective Date of the Reorganization, of one share of beneficial interest of the
Trust to the Fund in consideration for the payment of $1.00 for the purpose of
enabling the Fund to vote on the matters referred to in paragraph (h) of this
Section 3 hereof;
(9) Submission of the matters referred to in paragraph (h) of
this Section 3 to the Fund as sole shareholder of the Trust; and
(10) Authorization of the issuance and delivery by the Trust of
its shares on the Effective Date of the Reorganization and the assumption by the
Trust of the obligations and liabilities of the Fund in exchange for the assets
of the Fund pursuant to the terms and provisions of this Agreement.
At any time prior to the Closing, any of the foregoing conditions may
be waived or amended, or any additional terms and conditions may be fixed, by
the Board of Directors of the Fund, if, in the judgment of such Board, such
waiver, amendment, term or condition will not affect in a materially adverse way
the benefits intended to be accorded the shareholders of the Fund under this
Agreement.
4. Dissolution of the Fund.
Promptly following the consummation of the distribution of the Trust
shares to holders of TDF common stock under the Agreement, the officers of TDF
shall take all steps necessary under Maryland law to dissolve its corporate
status, including publication of any necessary notices to creditors, receipt of
any necessary pre-dissolution clearances from the State of Maryland, and filing
A-8
for record with the State Department of Assessments and Taxation of Maryland of
Articles of Dissolution.
5. Termination.
The Board of Directors may terminate this Agreement and abandon the
reorganization contemplated hereby, notwithstanding approval thereof by the
shareholders of the Fund, at any time prior to the Effective Date of the
Reorganization if, in the judgment of such Board, the facts and circumstances
make proceeding with this Agreement inadvisable.
6. Entire Agreement.
This Agreement embodies the entire agreement between the parties
hereto and there are no agreements, understandings, restrictions or warranties
among the parties hereto other than those set forth herein or herein provided
for.
7. Further Assurances.
The Fund and the Trust shall take such further action as may be
necessary or desirable and proper to consummate the transactions contemplated
hereby.
8. Counterparts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
9. Governing Law.
This Agreement and the transactions contemplated hereby shall be
governed by and construed and enforced in accordance with the laws of the State
of Delaware.
A-9
IN WITNESS WHEREOF, the Trust and the Fund have each caused this
Agreement and Plan of Reorganization to be executed on its behalf by its
Chairman, President or a Vice President and attested by its Secretary or an
Assistant Secretary, all as of the day and year first-above written.
Templeton Dragon Fund, Inc.
(a Maryland corporation)
Attest:
By_________________________ By_________________________
Templeton Dragon Fund
(a Delaware business trust)
Attest:
By_________________________ By_________________________
A-10
EXHIBIT B
A COMPARISON OF GOVERNING DOCUMENTS AND STATE LAW
A Comparison of:
The Law Governing Delaware Business Trusts and
The Charter Documents of Templeton Dragon Fund Under Such Law
With
The Law Governing Maryland Corporations and
The Charter Documents of Templeton Dragon Fund, Inc. Under Such Law
Delaware Business Trust Maryland Corporation
Governing A Delaware statutory business A Maryland corporation is
Documents/ trust (a "DBT") is formed by created by filing articles of
Governing a governing instrument and incorporation with the
Body the filing of a certificate Maryland State Department of
of trust with the Delaware Assessments and Taxation
Secretary of State ("MSDAT"). The Maryland law
("Secretary of State").The governing corporations is
Delaware law governing a DBT referred to in this analysis
is referred to in this as "Maryland Law."
analysis as the "Delaware
Act."
A DBT is an unincorporated A corporation is incorporated
association organized under under the Maryland Law. A
the Delaware Act whose corporation's operations are
operations are governed by governed by its charter and
its governing instrument by-laws, and its business and
(which may consist of one or affairs are managed by or
more instruments). Its under the direction of a
business and affairs are board of directors (the
managed by or under the "board" or "board of
direction of one or more directors" or collectively,
trustees. the "directors"). No public
filing of the by-laws is made.
The governing instrument for Templeton Dragon Fund, Inc.,
the DBT, Templeton Dragon a Maryland corporation,
Fund (the "Trust"), is is referred to in this analysis
comprised of an agreement and as the "Corporation." The
declaration of trust Corporation is governed by
("Declaration") and by-laws its charter ("Charter") and
("By-Laws"). The Trust's by-laws ("By-Laws") and the
governing body is a board of Corporation's governing body
trustees (the "board" or is a board of directors.
"board of trustees" or
collectively, the
"trustees").
Designation Under the Delaware Act, the Equity securities of a
of ownership interests in a DBT corporation are generally
Ownership are denominated as denominated as shares of
Shares or "beneficial interests" and stock. Record owners of
Interests are held by "beneficial shares of stock are
owners." However, there is stockholders. Generally,
flexibility as to how a equity securities that have
governing instrument refers voting rights and are
to "beneficial interests" and entitled to the residual
"beneficial owners" and the assets of the corporation,
governing instrument may after payment of liabilities,
identify "beneficial are referred to as "common
interests" and "beneficial stock."
owners" as "shares" and
"shareholders," respectively.
B-1
Delaware Business Trust Maryland Corporation
The Trust's beneficial The Corporation's equity
interests, without par value, securities are shares of
are designated as "shares" common stock, par value $0.01
and its beneficial owners are per share, and the owners of
designated as "shareholders." such stock are "stockholders."
This analysis will use the
"share" and "shareholder"
terminology.
Amendments Governing Instrument Charter
to The Delaware Act provides Under Maryland Law, with
Governing broad flexibility with certain exceptions,
Documents respect to the provisions of amendments to the charter
the governing instrument of a must be approved by the board
DBT for amending and/or and by the affirmative vote
restating such governing of two-thirds of all votes
instrument. entitled to be cast (unless
the charter permits amendment
Declaration of Trust by a higher or lesser
The Declaration provides that proportion of the voting
amendments and/or stock, but not less than a
restatements of the majority of the shares
Declaration may generally be outstanding).
made at any time by the board
of trustees, by a vote of a The Charter provides that the
majority of the trustees Charter may be altered,
present at a meeting at which repealed, or added to upon
a quorum is present, without vote of holders of a majority
approval of the shareholders. of the shares outstanding and
Amendments or a repeal of entitled to vote thereon,
certain provisions, however, except that amendment or
require approval of the board repeal of provisions
of trustees, as set forth pertaining to the number of
above, and the affirmative directors, removal of
vote of holders of at least directors, directors'
two-thirds (66 2/3%) of the liability, indemnification,
outstanding shares entitled reorganizations, dissolution
to vote, unless such action or conversion to open-end
has previously been approved company, and amendments to
by the affirmative vote of the Charter require the
two-thirds (66 2/3%) of the affirmative vote of the
board of trustees, in which holders of at least 66 2/3%
case the affirmative "vote of of the outstanding shares
a majority of the outstanding entitled to vote, unless such
voting securities", as action has previously been
defined in the Investment approved by the affirmative
Company Act of 1940 and the vote of two-thirds of the
rules and regulations board of directors. Upon such
thereunder, as amended (the a two-thirds vote by the
"1940 Act"), of the Trust board of directors, such
entitled to vote at a meeting provisions may be amended
at which a quorum is present, upon the vote of holders of a
shall be required. Such majority of the shares
provisions include those outstanding and entitled to
pertaining to the number, vote thereon (the general
classes, election, term, vote needed to amend the
removal, resignation, quorum, other provisions of the
powers, required vote and Charter).
action by written consent of
the board of trustees;
shareholders' voting power,
quorum, required vote, action
by written consent and record
dates; limitation of
liability and indemnification
of agents of the Trust;
transactions such as the
dissolution, merger,
consolidation, conversion,
reorganization and
reclassification of the Trust
to an open-end company and
amendments of the Declaration.
By-Laws By-Laws
The By-Laws may be amended, Under Maryland law, after the
restated or repealed or new organizational meeting, the
by-laws may be adopted by the power to adopt, alter or
affirmative "vote of a repeal the by-laws is vested
majority of the outstanding in the stockholders, except
voting securities" (as to the extent that the
defined in the 1940 Act) of charter or by-laws vest such
the Trust. The By-Laws may power in the board.
also be amended, restated or
repealed or new by-laws may The By-Laws may be adopted,
be adopted by the board of amended or repealed by "vote
trustees, by a vote of a of the holders of a majority
majority of the trustees of the [Corporation's] stock"
present at a meeting at which (as defined in the 1940 Act);
a quorum is present. except that provisions in the
B-2
Delaware Business Trust Maryland Corporation
By-Laws regarding
Pursuant to the Declaration, increasing/decreasing number
amendments and/or of directors and removal of
restatements of the directors may be amended only
certificate of trust shall be by the vote of the holders of
made at any time by the board 75% of the common stock,
of trustees, without approval unless approved by the
of the shareholders, to affirmative vote of
correct any inaccuracy two-thirds of the total
contained therein. Any such number of directors fixed by
amendments/restatements of the By-Laws, in which case
the Certificate of Trust must the affirmative vote of a
be executed by at least one majority of the outstanding
(1) trustee and filed with shares is required. Directors
the Secretary of State in may adopt, amend or repeal
order to become effective. By-Laws (not inconsistent
with any By-Law adopted,
amended or repealed by
stockholders) by majority
vote of all of directors in
office, subject to applicable
law.
Preemptive Under the Delaware Act, a Under Maryland Law, the
Rights and governing instrument may charter may provide
Repurchase contain any provision shareholders with the
of Shares relating to the rights, preemptive right to subscribe
duties and obligations of the to any or all additional
shareholders. issues of stock or any
securities of the corporation
The Declaration provides that convertible into additional
no shareholder shall have the issues of stock. The charter
preemptive or other right to may also define or limit the
subscribe for new or preemptive rights of
additional shares or other stockholders to acquire
securities issued by the additional stock or
Trust. securities in the corporation.
The Trust has the right at The Corporation does not
its option and at any time, provide shareholders with the
subject to the 1940 Act and preemptive right to subscribe
other applicable law, to to additional issues of stock
repurchase shares of any or other securities of the
shareholder under certain Corporation.
circumstances at a price that
meets the requirements of
Section 23 of the 1940 Act,
and the rules and regulations
adopted thereunder, and that
is in accordance with the
terms of the Declaration, the
By-Laws and other applicable
law.
Liquidation A DBT that has dissolved A corporation that has
Rights upon shall first pay or make voluntarily dissolved shall
Dissolution reasonable provision to pay pay, satisfy and discharge
all known claims and the existing debts and
obligations, including those obligations of the
that are contingent, corporation, including
conditional and unmatured, necessary expenses of
and all known claims and liquidation, before
obligations for which the distributing the remaining
claimant is unknown. Any assets to the stockholders.
remaining assets shall be
distributed to the
shareholders or as otherwise
provided in the governing
instrument.
The Declaration provides that
any assets remaining after
payment or the reasonable
provision for payment of all
claims and obligations of the
Trust shall be distributed to
the shareholders ratably
according to the number of
outstanding shares held by
the several shareholders on
the record date for such
dissolution distribution.
Voting Under the Delaware Act, the
Rights, governing instrument may set
Meetings, forth any provision relating
Notice, to trustee and shareholder
Quorum, voting rights, including the
Record withholding of such rights
Dates and from certain trustees or
Proxies shareholders. If voting
B-3
Delaware Business Trust Maryland Corporation
rights are granted, the
governing instrument may
contain any provision
relating to meetings, notice
requirements, written
consents, record dates,
quorum requirements, voting
by proxy and any other matter
pertaining to the exercise of
voting rights. The governing
instrument may also provide
for the establishment of
record dates for allocations
and distributions by the DBT.
One Vote Per Share One Vote Per Share
The Declaration provides that Unless a corporation's
each outstanding share is charter provides for a
entitled to one vote and each greater or lesser number of
outstanding fractional share votes per share, or limits or
is entitled to a fractional denies voting rights, each
vote. outstanding share of stock is
entitled to one vote on each
matter submitted to a vote at
a meeting of stockholders. A
corporation may issue
fractional shares of stock.
The Charter provides that
each outstanding share of
stock is entitled to one vote
and each outstanding
fractional share of stock is
entitled to a fractional vote.
Shareholders' Meetings Stockholders' Meetings
Although the Delaware Act Under Maryland Law, every
does not mandate annual corporation must hold an
shareholders' meetings, the annual stockholders' meeting
By-Laws require annual to elect directors and
meetings for the election of transact other business,
trustees and the transaction except that the charter or
of other business. The by-laws of a corporation
By-Laws also authorize the registered under the 1940 Act
calling of a special meeting may provide that an annual
(i) when deemed necessary or meeting is not required in
desirable by the board of any year in which the
trustees or (ii) to the election of directors is not
extent permitted by the 1940 required by the 1940 Act.
Act, by the chairperson of Maryland Law authorizes, and
the board, or at the request permits the charter and
of holders of 10% of the By-Laws to authorize, certain
outstanding shares if such persons to call special
shareholders pay the meetings of stockholders.
reasonably estimated cost of
preparing and mailing the The By-Laws require annual
notice thereof, for the meetings for the election of
purpose of electing trustees directors and the transaction
or filling vacancies on the of other business. The
board. However, no special By-Laws also authorize the
meeting may be called at the calling of a special meeting,
request of shareholders to unless otherwise "prescribed"
consider any matter that is by statute or the Charter, by
substantially the same as a the board, upon the written
matter voted upon at a request of a majority of the
shareholders' meeting held directors, or by the
during the preceding twelve president, or at the written
(12) months, unless requested request of stockholders
by holders of a majority of owning 10% "in amount of the
all outstanding shares entire capital stock" of the
entitled to vote at such Corporation then issued and
meeting. outstanding, if the
stockholders requesting such
Under the By-Laws, meeting pay the reasonably
shareholder proposals may be estimated cost of preparing
presented at an annual and mailing the notice
shareholders' meeting if thereof. However, no special
brought by a shareholder who meeting will be called at the
(i) is entitled to vote at request of stockholders to
the meeting; (ii) complies consider any matter that is
with the notice procedures substantially the same as a
set forth in the By-Laws; and matter voted upon at a
(iii) was a shareholder of stockholders' special meeting
record at the time such held during the preceding 12
notice is received by the months, unless requested by
secretary of the Trust. The holders of a majority of all
shareholder's notice must be outstanding shares entitled
in writing and delivered to to vote at such meeting.
B-4
Delaware Business Trust Maryland Corporation
the Trust not less than one
hundred twenty (120) days nor
more than one hundred fifty
(150) days prior to the date
of any such meeting. Each
such notice given by a
shareholder must include
certain information set forth
in the By-Laws and as
reasonably requested by the
Trust. At the annual meeting,
the appropriate officer may,
if the facts warrant,
determine and declare to such
meeting that a proposal was
not made in accordance with
the procedure in the By-Laws,
and, if the officer should so
determine, shall so declare
to the meeting, and the
defective proposal shall be
disregarded and laid over for
action at the next succeeding
special or annual meeting of
the shareholders taking place
thirty (30) days or more
thereafter.
Record Dates Record Dates
In order to determine the Under Maryland law, unless
shareholders entitled to the by-laws otherwise
notice of, and to vote at, a provide, the board may set a
shareholders' meeting, the record date, which date must
Declaration authorizes the be set within the parameters
board of trustees to fix a outlined by the Maryland
record date. The record date statute, for determining
may not precede the date on stockholders entitled to
which it is fixed by the notice of a meeting, vote at
board and it may not be more a meeting, receive dividends
than one hundred twenty (120) or be allotted other rights.
days, nor less than ten (10)
days, before the date of the In order to determine the
shareholders' meeting. The stockholders entitled to
By-Laws provide that notice notice of, and to vote at, a
of a shareholders' meeting stockholders' meeting, the
shall not be given to By-Laws authorize the board
shareholders more than one of directors to fix a record
hundred twenty (120) days nor date not less than ten (10),
less than ten (10) days nor more than ninety (90),
before the date of the days prior to the date of the
meeting. meeting or prior to the last
day on which the consent or
To determine the shareholders dissent of stockholders may
entitled to vote on any be effectively expressed for
action without a meeting, the any purpose without a meeting.
Declaration authorizes the
board of trustees to fix a To determine the stockholders
record date. The record date entitled to a dividend, any
may not precede the date on other distribution, or
which it is fixed by the delivery of evidences of
board nor may it be more than rights or interests from the
thirty (30) days after the Corporation, the By-Laws
date on which it is fixed by authorize the board to fix a
the board. record date not exceeding
ninety (90) days preceding
To determine the shareholders the date fixed for the
entitled to a dividend or any payment of the dividend or
other distribution from the distribution or delivery of
Trust, the Declaration the evidences.
authorizes the board of
trustees to fix a record If the board does not fix a
date. The record date may not record date, the record date
precede the date on which it shall be the later of the
is fixed by the board nor may close of business on the day
it be more than sixty (60) on which notice of the
days before the date such meeting is mailed or the 30th
dividend or distribution is day before the meeting,
to be paid. except if all stockholders
waive notice, the record date
Pursuant to the Declaration, is the close of business on
if the board of trustees does the 10th day next preceding
not fix a record date: the day the meeting is held.
(a) the record date for
determining shareholders
entitled to notice of, and to
vote at, a meeting will be
the day before the date on
which notice is given or, if
notice is waived, on the day
before the date of the
meeting; (b) the record date
B-5
Delaware Business Trust Maryland Corporation
for determining shareholders
entitled to vote on any
action by consent in writing
without a meeting, (i) when
no prior action by the board
of trustees has been taken,
shall be the day on which the
first signed written consent
is delivered to the Trust, or
(ii) when prior action of the
board of trustees has been
taken, shall be the day on
which the board of trustees
adopts the resolution taking
such prior action.
Quorum for Shareholders' Quorum for Stockholders'
Meeting Meeting
To transact business at a Under Maryland Law, unless
meeting, the Declaration the charter or Maryland Law
provides that a majority of provides otherwise, in order
the outstanding shares to constitute a quorum for a
entitled to vote, which are meeting, there must be
present in person or present in person or by
represented by proxy, shall proxy, stockholders entitled
constitute a quorum at a to cast a majority of all the
shareholders' meeting, except votes entitled to be cast at
when a larger quorum is the meeting.
required by applicable law or
any securities exchange on To transact business at a
which such shares are listed meeting, the By-Laws provide
for trading, in which case that a majority of the
such quorum shall comply with outstanding shares entitled
such requirements. to vote, which are present in
person or represented by
proxy, shall constitute a
quorum at a stockholders'
meeting.
Shareholder Vote Stockholder Vote
The Declaration provides Under Maryland law, for most
that, subject to any stockholder actions, unless
provision of the Declaration, the charter or Maryland Law
the By-Laws or applicable law provides otherwise, a
that requires a different majority of all votes cast at
vote: (i) in all matters a meeting at which a quorum
other than the election of is present is required to
trustees, the affirmative approve any matter. Actions
"vote of a majority of the such as (i) amendments to the
outstanding voting corporation's charter, (ii)
securities" (as defined in mergers, (iii)
the 1940 Act) of the Trust consolidations, (iv)
entitled to vote at a statutory share exchanges,
shareholders' meeting at (v) transfers of assets and
which a quorum is present, (vi) dissolutions require the
shall be the act of the affirmative vote of
shareholders; and two-thirds of all votes
(ii) trustees shall be entitled to be cast on the
elected by a plurality of the matter unless the charter
votes cast of the holders of provides for a lesser
outstanding shares entitled proportion which may not be
to vote present in person or less than a majority of all
represented by proxy at a votes entitled to be cast on
shareholders' meeting at the matter. Unless the
which a quorum is present. charter or by-laws require a
greater vote, a plurality of
all votes cast at a meeting
at which a quorum is present
is required to elect a
director.
Election of Directors. Under
the Charter and By-Laws, at a
stockholders' meeting at
which a quorum is present, a
plurality of the votes cast
of the holders of outstanding
shares entitled to vote,
shall be required to elect
directors at the annual
meeting, to fill any vacancy
resulting from an increase in
the number of directors on
the board (adopted by vote of
the stockholders) or to fill
any other then existing
vacancies on the board.
Other matters for which the
vote is not expressly
designated otherwise. For all
other matters, other than any
B-6
Delaware Business Trust Maryland Corporation
matter for which the Charter
expressly provides for a
different vote, the
affirmative vote of the
holders of a majority of the
total number of shares
outstanding and entitled to
vote thereon, at a
stockholders' meeting at
which a quorum is present,
shall be the act of the
stockholders.
Shareholder Vote on Certain Stockholder Vote on Certain
Transactions Transactions
Under the Declaration, in Under the Charter, in order
order for the Trust to to consummate a merger,
consummate a dissolution, consolidation, sale of all or
merger, consolidation, substantially all of the
conversion, reorganization or assets, liquidation or
reclassification, such dissolution of the
transaction shall be approved Corporation, or a conversion
in the following manner: from a closed-end company to
The transaction must be an open-end company (as
approved by the board of defined in the 1940 Act),
trustees, by the vote of a such transaction shall be
majority of the trustees approved in the following
present at a meeting at which manner:
a quorum is present, and the
affirmative vote of the The transaction must be
holders of two-thirds (66 approved by the favorable
2/3%) of the outstanding vote of at least 66 2/3% of
shares entitled to vote, the outstanding shares
unless such action has been entitled to vote, unless such
previously approved by the action has been previously
affirmative vote of approved by the affirmative
two-thirds (66 2/3%) of the vote of two-thirds of the
board of trustees, in which total number of directors
case the affirmative "vote of fixed pursuant to the
a majority of the outstanding By-Laws, in which case the
voting securities" (as affirmative "vote of a
defined in the 1940 Act) of majority of the outstanding
the Trust entitled to vote at voting shares" (as defined in
a shareholders' meeting at the 1940 Act) of the
which a quorum is present Corporation shall be
shall be required. required, but not less than a
majority of the outstanding
voting shares for purposes of
Maryland Law.
Cumulative Voting Cumulative Voting
The Declaration provides that Maryland law provides that
shareholders are not entitled the charter may authorize
to cumulate their votes on cumulative voting for the
any matter. election of the directors and
if the charter does not so
provide, then the
stockholders are not entitled
to cumulative voting rights.
The Charter and By-Laws do
not have any provisions as to
whether stockholders are
entitled to cumulate their
votes on any matter and
consequently, the
stockholders are not entitled
to cumulate their votes on
any matter.
Proxies Proxies
The By-Laws authorize the Maryland Law permits a
Trust to accept proxies by stockholder to authorize
execution of a written another person to act as a
instrument or by electronic, proxy and sets forth
telephonic, computerized, acceptable methods of
telecommunications or another transmitting such
reasonable alternative to the authorization. Unless a proxy
execution of a written provides otherwise, it is not
instrument. Unless a proxy valid more than 11 months
provides otherwise, it is not after its date. The proxy is
valid more than 11 months revocable unless certain
after its date. In addition, statutory requirements are
the By-Laws provide that the met.
revocability of a proxy that
states on its face that it is
irrevocable shall be governed
by the provisions of the
general corporation law of
the State of Delaware.
B-7
Delaware Business Trust Maryland Corporation
Action by Written Consent Action by Written Consent
The Declaration also Maryland Law provides that
authorizes shareholders to any action required or
take action without a meeting permitted to be taken at a
and without prior notice if stockholders' meeting may be
written consents setting taken without a meeting, if a
forth the action taken are unanimous written consent is
signed by the holders of all signed by each stockholder
outstanding shares entitled entitled to vote on the
to vote on that action. matter.
The Declaration also The By-Laws authorize
authorizes the board of stockholders to take action
trustees or any committee of without a meeting if all
the board of trustees to take stockholders entitled to vote
action without a meeting and consent in writing and all
without prior written notice stockholders entitled to
if written consents setting notice of the meeting, but
forth the action taken are not entitled to vote, sign a
executed by trustees having written waiver of any right
the number of votes necessary to dissent.
to take that action at a
meeting at which the entire The By-Laws provide that the
board of trustees or any board or any committee of the
committee thereof, is present board may act by written
and voting. consent signed by all the
members of the board or
committee, respectively.
Removal of The governing instrument of a Under Maryland Law, unless
Trustees/ DBT may contain any provision otherwise provided in the
Directors relating to the removal of charter, a director may
trustees; provided however, generally be removed with or
that there shall at all times without cause by the vote of
be at least one trustee of a majority of all the votes
the DBT. entitled to be cast generally
for the election of directors
Under the Declaration, any unless (i) such director is
trustee may be removed, with elected by a certain class or
or without cause, by the series, (ii) the charter
Shareholders, upon the vote provides for cumulative
of the holders of two-thirds voting or (iii) the board is
(66 2/3%) of the outstanding classified.
shares entitled to vote.
Under the Charter, a director
may be removed with or
without cause by holders of
66 2/3% of shares then
entitled to vote in an
election of directors and a
stockholders' meeting may be
called for such purpose if
requested in writing by not
less than 10% of outstanding
shares of the Corporation.
Vacancies Vacancies in any class of Under Maryland law
on Board of trustees may be filled by a stockholders may elect
Trustees/ majority vote of the trustees persons to fill vacancies
Directors then in office, regardless of that result from the removal
the number and even if less of directors. Unless the
than a quorum, unless a charter or by-laws provide
special meeting of otherwise, a majority of the
shareholders is called for directors in office, whether
the purpose of filling such or not comprising a quorum,
vacancies, in which case, may fill vacancies that
such vacancies shall be result from any cause except
filled in the same manner as an increase in the number of
an election of trustees. directors. A majority of the
entire board of directors may
fill vacancies that result
from an increase in the
number of directors.
Under the By-Laws, directors
may increase or decrease
their number; if the number
is increased, the added
directors may be elected by a
majority of directors in
office. For other vacancies,
the directors then in office
(though less than quorum) may
continue to act and may by
majority vote fill any
vacancy until the next
meeting of stockholders,
subject to the 1940 Act.
The number of directors may
also be increased or
B-8
Delaware Business Trust Maryland Corporation
decreased by vote of
stockholders at any meeting
called for the purpose and if
the vote is to increase the
number, stockholders will
vote by plurality to elect
the directors to fill the new
vacancies as well as any then
existing vacancies.
Shareholder Under the Delaware Act, The stockholders of a
Liability except to the extent corporation are not liable
otherwise provided in the for the obligations of the
governing instrument of a DBT, corporation.
shareholders of a DBT are
entitled to the same limitation
of personal liability extended
to shareholders of a private
corporation organized for profit
under the general corporation law
of the State of Delaware.
Under the Declaration,
shareholders are entitled to the
same limitation of personal
liability as that extended to
shareholders of a private
corporation organized for profit
under the general corporate law
of the State of Delaware.
However, the board of trustees
may cause any shareholder
to pay for charges of the
trust's custodian or transfer,
dividend disbursing, shareholder
servicing or similar agent
for services provided to such
shareholder.
Trustee/ Subject to the provisions in Maryland Law requires a
Director the governing instrument, the director to perform his or
Liability Delaware Act provides that a her duties in good faith, in
trustee or any other person a manner he or she reasonably
managing the DBT, when acting believes to be in the best
in such capacity, will not be interests of the corporation
personally liable to any and with the care that an
person other than the DBT or ordinarily prudent person in
a shareholder of the DBT for a like position would use
any act, omission or under similar circumstances.
obligation of the DBT or any A director who performs his
trustee. To the extent that or her duties in accordance
at law or in equity, a with this standard has no
trustee has duties (including liability to the corporation,
fiduciary duties) and its stockholders or to third
liabilities to the DBT and persons by reason of being or
its shareholders, such duties having been a director. A
and liabilities may be corporation may include in
expanded or restricted by the its charter a provision
governing instrument. expanding or limiting the
liability of its directors
The Declaration provides that and officers for money
any person who is or was a damages to the corporation or
trustee, officer, employee or its stockholders, provided
other agent of the Trust or however, that liability may
is or was serving at the not be limited to the extent
request of the Trust as a the person has received an
trustee, director, officer, improper benefit or profit in
employee or other agent of money, property or services
another corporation, or where such person has been
partnership, joint venture, actively and deliberately
trust or other enterprise (an dishonest.
"Agent") will be liable to
the Trust and to any The Charter expressly
shareholder solely for such provides that no director or
Agent's own willful officer shall be protected
misfeasance, bad faith, gross from liability to the
negligence or reckless Corporation and its
disregard of the duties stockholders to which such
involved in the conduct of person would otherwise be
such Agent (such conduct subject by reason of willful
referred to as "Disqualifying misfeasance, bad faith, gross
Conduct"). Subject to the negligence or reckless
preceding sentence, Agents disregard of the duties
will not be liable for any involved in the conduct of
act or omission of any other such person's office.
Agent or any investment
adviser or principal
underwriter of the Trust. No
Agent, when acting in such
capacity, shall be personally
liable to any person (other
B-9
Delaware Business Trust Maryland Corporation
than the Trust or its
shareholders as described
above) for any act, omission
or obligation of the Trust or
any trustee.
Indemnification Subject to such standards and Unless limited by its
restrictions contained in the charter, Maryland Law
governing instrument of a requires a corporation to
DBT, the Delaware Act indemnify a director or
authorizes a DBT to indemnify officer who has successfully
and hold harmless any defended a proceeding to
trustee, shareholder or other which such person was a party
person from and against any because of such person's
and all claims and demands. service in such capacity,
against reasonable expenses
Pursuant to the Declaration, incurred in connection with
the Trust will indemnify any the proceeding.
Agent who was or is a party
or is threatened to be made a Maryland Law permits a
party to any proceeding by corporation to indemnify a
reason of such Agent's director, officer, employee
capacity, against attorneys' or agent who is a party or
fees and other certain threatened to be a party, by
expenses, judgments, fines, reason of service in that
settlements and other amounts capacity, to any threatened,
incurred in connection with pending or completed action,
such proceeding if such Agent suit or proceeding, against
acted in good faith or in the judgments, penalties, fines,
case of a criminal settlements and reasonable
proceeding, had no reasonable expenses unless it is
cause to believe such Agent's established that (i) the act
conduct was unlawful. or omission of such person
However, there is no right to was material to the matter
indemnification for any giving rise to the
liability arising from the proceeding, and was committed
Agent's Disqualifying in bad faith or was the
Conduct. As to any matter for result of active and
which such Agent is found to deliberate dishonesty; (ii)
be liable in the performance such person actually received
of such Agent's duty to the an improper personal benefit;
Trust or its shareholders or (iii) such person had
indemnification will be made reasonable cause to believe
only to the extent that the that the act or omission was
court in which that action unlawful. This permissible
was brought determines that indemnification obligation
in view of all the may become mandatory or may
circumstances of the case, be prohibited through a
the Agent was not liable by corporation's charter,
reason of such Agent's by-laws, a board resolution
Disqualifying Conduct. or another agreement.
However, if the proceeding is
Expenses incurred by an Agent a derivative suit, the
in defending any proceeding corporation may not indemnify
may be advanced by the Trust a person who has been
before the final disposition adjudged to be liable to the
of the proceeding on receipt corporation. Corporations are
of an undertaking by or on authorized to advance payment
behalf of the Agent to repay of reasonable expenses.
the amount of the advance if
it is ultimately determined The Charter provides that the
that the Agent is not Corporation shall, to the
entitled to indemnification full extent permitted by
by the Trust. Maryland Law, indemnify all
persons whom it may indemnify
under Maryland Law. However,
no director or officer shall
be protected from liability
to the Corporation or its
stockholders to which such
person would otherwise be
subject by reason of willful
misfeasance, bad faith, gross
negligence or reckless
disregard of the duties
involved in the conduct of
his office.
The By-Laws provide that, to
the fullest extent permitted
by Maryland Law, any current
or former director or officer
seeking indemnification shall
be entitled to the
advancement of reasonable
expenses from the
Corporation. The Corporation
may advance expenses to
officers, employees and
agents.
B-10
Delaware Business Trust Maryland Corporation
Insurance The Delaware Act is silent as A corporation may purchase
to the right of a DBT to insurance on behalf of any
purchase insurance on behalf person who is or was a
of its trustees or other director, officer, employee
persons. However, as the or agent against any
policy of the Delaware Act is liability asserted against
to give maximum effect to the and incurred by such person
principle of freedom of in any such capacity whether
contract and to the or not the corporation would
enforceability of governing have the power to indemnify
instruments, the Declaration such person against such
authorizes the board of liability.
trustees, to the fullest
extent permitted by The By-Laws authorize the
applicable law, to purchase Corporation to purchase
with Trust assets, insurance insurance on behalf of any
for liability and for all person who is or was a
expenses of an Agent in director, officer, employee
connection with any or agent against any
proceeding in which such liability asserted against
Agent becomes involved by and incurred by such person
virtue of such Agent's in any such capacity.
actions, or omissions to act, However, no insurance may be
in its capacity or former purchased which would
capacity with the Trust, indemnify any director or
whether or not the Trust officer against any liability
would have the power to to the Corporation or its
indemnify such Agent against stockholders to which such
such liability. person would otherwise be
subject by reason of willful
misfeasance, bad faith, gross
negligence or reckless
disregard of the duties
involved in the conduct of
such person's office.
Shareholder Under the Delaware Act, Under Maryland Law, a
Right of except to the extent stockholder may inspect,
Inspection otherwise provided in the during usual business hours,
governing instrument and the corporation's by-laws,
subject to reasonable stockholder proceeding
standards established by the minutes, annual statements of
trustees, each shareholder affairs, voting trust
has the right, upon agreements and, if the
reasonable demand for any corporation is not an
purpose reasonably related to open-end investment company,
the shareholder's interest as a statement showing all stock
a shareholder, to obtain from and securities issued by the
the DBT certain information corporation for the previous
regarding the governance and 12 months. In addition,
affairs of the DBT. stockholders who have
individually or together been
Under the Declaration, a holders of at least 5% of the
shareholder, upon reasonable outstanding stock of any
written demand to the Trust class for at least 6 months,
for any purpose reasonably may inspect the corporation's
related to such shareholder's books of accounts, its stock
interest as a shareholder, ledger and its statement of
may inspect certain affairs. Although not
information as to the expressly required by the
governance and affairs of the Maryland statute, Maryland
Trust during regular business courts have engrafted a
hours. However, reasonable proper purpose requirement
standards governing, without upon this statutory right.
limitation, the information
and documents to be furnished The Charter grants
and the time and location of stockholders inspection
furnishing the same, will be rights only to the extent
established by the board or provided by Maryland Law.
any officer to whom such Such rights are subject to
power is delegated in the reasonable regulations of the
By-Laws. In addition, as board of directors not
permitted by the Delaware contrary to Maryland Law.
Act, the By-Laws also
authorize the board or an
officer to whom the board
delegates such powers to keep
confidential from
shareholders for such period
of time as deemed reasonable
any information that the
board or such officer in good
faith believes would not be
in the best interest of the
Trust to disclose or that
could damage the Trust or
that the Trust is required by
law or by agreement with a
3rd party to keep
confidential.
B-11
Delaware Business Trust Maryland Corporation
Derivative Under the Delaware Act, a Under Maryland Law, in order
Actions shareholder may bring a to bring a derivative action,
derivative action if trustees a stockholder (or his
with authority to do so have predecessor if he became a
refused to bring the action stockholder by operation of
or if a demand upon the law) must be a stockholder
trustees to bring the action (a) at the time of the acts
is not likely to succeed. A or omissions complained
shareholder may bring a about; (b) at the time the
derivative action only if the action is brought and (c)
shareholder is a shareholder until the completion of the
at the time the action is litigation. A derivative
brought and: (i) was a action may be brought by a
shareholder at the time of stockholder if (i) a demand
the transaction complained upon the board of directors
about or (ii) acquired the to bring the action is
status of shareholder by improperly refused or (ii) a
operation of law or pursuant request upon the board of
to the governing instrument directors would be futile.
from a person who was a
shareholder at the time of Under Maryland Law, a
the transaction. A director of an investment
shareholder's right to bring company who "is not an
a derivative action may be interested person, as defined
subject to such additional by the Investment Company Act
standards and restrictions, of 1940, shall be deemed to
if any, as are set forth in be independent and
the governing instrument. disinterested when making any
determination or taking any
The Declaration provides action as a director."
that, subject to the
requirements set forth in the
Delaware Act, a shareholder
may bring a derivative action
on behalf of the Trust only
if the shareholder first
makes a pre-suit demand upon
the board of trustees to
bring the subject action
unless an effort to cause the
board of trustees to bring
such action is excused. A
demand on the board of
trustees shall only be
excused if a majority of the
board of trustees, or a
majority of any committee
established to consider the
merits of such action, has a
material personal financial
interest in the action at
issue. A trustee shall not be
deemed to have a material
personal financial interest
in an action or otherwise be
disqualified from ruling on a
shareholder demand by virtue
of the fact that such trustee
receives remuneration from
his service on the board of
trustees of the Trust or on
the boards of one or more
investment companies with the
same or an affiliated
investment advisor or
underwriter.
B-12
EXHIBIT C
FUNDAMENTAL INVESTMENT RESTRICTIONS PROPOSED
TO BE AMENDED OR ELIMINATED
---------------------------------------------------------------------------------
CURRENT FUNDAMENTAL PROPOSED FUNDAMENTAL
PROPOSAL INVESTMENT INVESTMENT RESTRICTION INVESTMENT RESTRICTION
OR RESTRICTION
SUB-PROPOSAL CATEGORY The Fund may not: The Fund may not:
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
3a Industry (1) invest 25% or more Invest more than 25% of its
Concentration of the total value net assets in the securities
of its assets in a of issuers in any one
particular industry. industry; provided that this
For purposes of this limitation shall not apply
restriction, a with respect to securities
foreign government issued or guaranteed by the
(but not the United U.S. government or by its
States government) agencies or instrumentalities
is deemed to be an or securities of other
"industry." investment companies.
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
3b Borrowing (4) issue senior Borrow money or issue senior
and securities or borrow securities, except as
Issuing money, except that permitted by the 1940 Act or
Senior (a) short-term any rule, SEC interpretation
Securities credits necessary thereof or any exemptions
for settlement of there from which may be granted
securities by the SEC.
transactions are not
considered
borrowings or senior
securities, and (b)
the Fund may borrow,
on a temporary
basis, up to 5% of
its total assets
(including the
amount borrowed) for
emergency purposes,
except that
borrowings in
connection with the
repurchases of its
Shares or tender
offers may be made
in an amount of up
to 33 1/3% of its
total assets
(including the
amount borrowed).
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
3c Commodities purchase or sell Purchase or sell
commodities or as defined in the Commodity
commodity contracts, Exchange Act, as amended, and
including futures the rules and regulations
contracts and thereunder, unless acquired as
options thereon, a result of ownership of
except that the Fund securities or other
may engage in instruments and provided that
hedging transactions this restriction does not
as described in this prevent the Fund from engaging
Prospectus. in transactions involving
futures contracts and options
thereon or investing in
securities that are secured by
physical commodities.
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
CURRENT FUNDAMENTAL PROPOSED FUNDAMENTAL
PROPOSAL INVESTMENT INVESTMENT RESTRICTION INVESTMENT RESTRICTION
OR RESTRICTION
SUB-PROPOSAL CATEGORY The Fund may not: The Fund may not:
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
4 Diversification invest more than 25% Proposed to be eliminated.
of of the total value
Investments of its assets in the
securities of any
one issuer, except
securities issued or
guaranteed by the
United States
government or any of
its agencies or
instrumentalities.
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
4 Purchase purchase securities Proposed to be eliminated.
Securities on margin (except
on Margin for delayed delivery
or when-issued
transactions or such
short term credits
as are necessary for
the clearance of
transactions).
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
4 Short (10) make short sales Proposed to be eliminated.
Sales of securities or
maintain a short
position.
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
4 Control (11) invest for the Proposed to be eliminated.
over purpose of
Management exercising control
over management of
any company.
---------------------------------------------------------------------------------
TEMPLETON DRAGON FUND, INC.
ANNUAL MEETING OF SHAREHOLDERS - MAY 3, 2002
The undersigned hereby revokes all previous proxies for his/her shares and
appoints BARBARA J. GREEN, BRUCE S. ROSENBERG and LORI A. WEBER, and each of
them, proxies of the undersigned with full power of substitution to vote all
shares of Templeton Dragon Fund, Inc. (the "Fund") that the undersigned is
entitled to vote at the Fund's Annual Meeting of Shareholders (the "Meeting") to
be held at 500 East Broward Blvd., 12th Floor, Ft. Lauderdale, Florida 33394 at
10:00 a.m., Eastern time, on the 3rd day of May 2002, including any
postponements or adjournments thereof, upon the matters set forth below and
instructs them to vote upon any matters that may properly be acted upon at the
Meeting.
This Proxy is solicited on behalf of the Board of Directors. It will be voted as
specified. If no specification is made, this Proxy shall be voted FOR Proposals
1 through 4. If any other matters properly come before the Meeting to be voted
on, the proxy holders will vote, act and consent on those matters in accordance
with the views of management.
(Continued and to be signed on the other side)
FOLD AND DETACH HERE
Please mark your votes as
indicated in this example [X]
The Board of Directors unanimously recommends a vote FOR Proposals 1 through 4.
Proposal 1 - Election of Directors.
FOR all nominees WITHHOLD Nominees: Harris J. Ashton, Nicholas F.
listed (except AUTHORITY Brady, Frank J. Crothers, S.
as to vote for Joseph Fortunato and Constantine
marked to the all D. Tseretopoulos
right) nominees
listed
To withhold authority to vote for any
individual nominee, write that nominee's
[__] [__] name on the line below.
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Proposal 2 - To approve an Agreement and Plan of FOR AGAINST ABSTAIN
Reorganization that provides for the [_] [_] [_]
reorganization of the Fund from a Maryland
corporation to a Delaware business trust.
Proposal 3 - To approve amendments to certain of
the Fund's fundamental investment
restrictions (includes three (3)
Sub-Proposals):
3a. To amend the Fund's fundamental FOR AGAINST ABSTAIN
investment restriction regarding industry [_] [_] [_]
concentration.
3b. To amend the Fund's fundamental FOR AGAINST ABSTAIN
investment restriction regarding borrowing [_] [_] [_]
and issuing senior securities.
3c. To amend the Fund's fundamental FOR AGAINST ABSTAIN
investment restriction regarding [_] [_] [_]
investments in commodities.
Proposal 4 - To approve the elimination of FOR AGAINST ABSTAIN
certain of the Fund's fundamental [_] [_] [_]
investment restrictions.
YES NO
I PLAN TO ATTEND THE MEETING. [_] [_]
Signature(s): Dated: _____________________, 2002
Please sign exactly as your name appears on this Proxy. If signing for estates,
trusts or corporations, title or capacity should be stated. If shares are held
jointly, each holder should sign.
FOLD AND DETACH HERE