SCHEDULE 14A
(RULE 14A-101) INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
TEMPLETON EMERGING MARKETS FUND, INC.
------------------------------------------------
(Name of Registrant as Specified in its Charter)
--------------------------------------------------------------------
Name of Person(s) Filing Proxy Statement, other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11(s)(2).
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
[LOGO]
FRANKLIN TEMPLETON
INVESTMENTS
TEMPLETON EMERGING MARKETS FUND, INC.
IMPORTANT SHAREHOLDER INFORMATION
These materials are for the Annual Meeting of Shareholders scheduled for
August 26, 2002 at 4:00 p.m. Eastern time. The enclosed materials discuss four
proposals (the "Proposals" or, each, a "Proposal") to be voted on at the
meeting, and contain the Notice of Meeting, 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 Emerging Markets
Fund, Inc. (the "Fund"). If you specify a vote for all four Proposals, your
proxy will be voted as you indicate. If you specify a vote for one or more
Proposals, but not all, your proxy will be voted as specified on such Proposals
and, on the Proposal(s) for which no vote is specified, your proxy will be
voted FOR such Proposal(s). 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.
[LOGO]
FRANKLIN TEMPLETON
INVESTMENTS
TEMPLETON EMERGING MARKETS FUND, INC.
NOTICE OF 2002 ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders (the "Meeting") of Templeton Emerging
Markets Fund, Inc. (the "Fund") will be held at the Fund's offices, 500 East
Broward Boulevard, 12/th/ Floor, Fort Lauderdale, Florida 33394-3091 on August
26, 2002 at 4:00 p.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 five (5) Sub-Proposals):
(a) To amend the Fund's fundamental investment restriction regarding
borrowing and issuing senior securities;
(b) To amend the Fund's fundamental investment restriction regarding
industry concentration;
(c) To amend the Fund's fundamental investment restriction regarding
investments in commodities;
(d) To amend the Fund's fundamental investment restriction regarding
investments in real estate; and
(e) To amend the Fund's fundamental investment restriction regarding
lending.
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
July 15, 2002
Many shareholders hold shares in more than one Templeton fund and will
receive proxy material for each fund owned. Please sign and promptly return
each proxy card in the self-addressed envelope regardless of the number of
shares you own.
TABLE OF CONTENTS
PROXY STATEMENT
Page
----
Information About Voting......................................................................... 1
PROPOSAL 1: TO ELECT FIVE DIRECTORS OF THE FUND TO HOLD OFFICE FOR THE
TERMS SPECIFIED...................................................................... 2
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.............................................................. 12
Introduction to Proposals 3 and 4................................................................ 15
PROPOSAL 3: TO APPROVE AMENDMENTS TO CERTAIN OF THE FUND'S FUNDAMENTAL INVESTMENT
RESTRICTIONS (THIS PROPOSAL INVOLVES SEPARATE VOTES ON SUB-PROPOSALS 3a-3e)......... 16
Sub-Proposal 3a: To amend the Fund's fundamental investment restriction regarding
borrowing and issuing senior securities....................................... 16
Sub-Proposal 3b: To amend the Fund's fundamental investment restriction regarding
industry concentration......................................................... 18
Sub-Proposal 3c: To amend the Fund's fundamental investment restriction regarding
investments in commodities..................................................... 19
Sub-Proposal 3d: To amend the Fund's fundamental investment restriction regarding
investments in real estate..................................................... 21
Sub-Proposal 3e: To amend the Fund's fundamental investment restriction regarding
lending........................................................................ 21
PROPOSAL 4: TO APPROVE THE ELIMINATION OF CERTAIN OF THE FUND'S FUNDAMENTAL INVESTMENT
RESTRICTIONS......................................................................... 22
Information About the Fund....................................................................... 24
Further Information About Voting and the Meeting................................................. 26
EXHIBITS
Exhibit A:--Form of Agreement and Plan of Reorganization between Templeton Emerging Markets Fund,
Inc. (a Maryland corporation) and Templeton Emerging Markets Fund (a Delaware
business trust)...................................................................... A-1
Exhibit B:--A Comparison of Governing Documents and State Law.................................... B-1
Exhibit C:--Fundamental Investment Restrictions Proposed to be Amended or Eliminated............. C-1
TEMPLETON EMERGING MARKETS FUND, INC.
PROXY STATEMENT
.. INFORMATION ABOUT VOTING
WHO IS ELIGIBLE TO VOTE?
Shareholders of record at the close of business on May 31, 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 July 15, 2002.
ON WHAT ISSUES AM I BEING ASKED TO VOTE?
You are being asked to vote on four Proposals:
1. To elect five nominees to the position of Director;
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 five (5) 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 the five nominees;
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 ACCURATELY RECORDED?
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.
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 any of the
Proposals 1 through 4, your proxy will be voted as you indicate, and any
Proposal for which no vote is specified will be voted FOR that Proposal. If you
simply sign, date and return the proxy card, but do not specify a vote for any
of the Proposals 1 through 4, your shares will be voted as follows: FOR the
election of all nominees for Director (Proposal 1); 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 (Proposal 2);
FOR the approval of each of the proposed amendments to certain of the Fund's
fundamental investment restrictions (Sub-Proposals 3a-3e); and FOR the approval
of the elimination of 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 Andrew H.
Hines, Jr., Chairman, Frank J. Crothers, 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 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 Edith E. Holiday 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 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 17.6% and 14.5%,
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 other 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 Investments fund complex that they oversee, and any
other directorships held by the Director.
2
NOMINEES FOR INDEPENDENT DIRECTOR TO SERVE UNTIL 2005 ANNUAL MEETING OF
SHAREHOLDERS:
NUMBER OF
PORTFOLIOS IN
FRANKLIN
TEMPLETON
INVESTMENTS
FUND COMPLEX
LENGTH OF OVERSEEN BY
NAME, AGE AND ADDRESS POSITION TIME SERVED DIRECTOR* OTHER DIRECTORSHIPS HELD
--------------------------- ---------- ------------- --------------- -------------------------------------
HARRIS J. ASHTON (69) Director Since 1992 133 Director, RBC Holdings,
500 East Broward Blvd. Inc. (bank holding company)
Suite 2100 and Bar-S Foods (meat
Fort Lauderdale, FL packing company).
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).
-----------------------------------------------------------------------------------------------------------------
FRANK J. CROTHERS (57) Director Since 1999 17 None
500 East Broward Blvd.
Suite 2100
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.; Director and President, Provo Power Company Ltd.; and director of
various other business and nonprofit organizations.
-----------------------------------------------------------------------------------------------------------------
S. JOSEPH FORTUNATO (69) Director Since 1992 134 None
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL
33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Member of the law firm of Pitney, Hardin, Kipp & Szuch.
-----------------------------------------------------------------------------------------------------------------
EDITH E. HOLIDAY (50) Director Since 1996 82 Director, Amerada Hess
500 East Broward Blvd. Corporation (exploration and
Suite 2100 refining of oil and gas); Hercules
Fort Lauderdale, FL Incorporated (chemicals, fibers
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).
-----------------------------------------------------------------------------------------------------------------
3
NOMINEE FOR INTERESTED DIRECTOR TO SERVE UNTIL 2005 ANNUAL MEETING OF
SHAREHOLDERS:
NUMBER OF
PORTFOLIOS IN
FRANKLIN
TEMPLETON
INVESTMENTS
FUND COMPLEX
LENGTH OF OVERSEEN BY
NAME, AGE AND ADDRESS POSITION TIME SERVED DIRECTOR* OTHER DIRECTORSHIPS HELD
---------------------------- ------------ --------------- ---------------- ---------------------------------
**NICHOLAS F. BRADY (72) Director Since 1993 63 Director, Amerada Hess
500 East Broward Blvd. Corporation (exploration and
Suite 2100 refining of oil and gas); C2,
Fort Lauderdale, FL Inc. (operating and investment
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:
ANDREW H. HINES, JR. (79) Director Since 1990 28 None
500 East Broward Blvd.
Suite 2100
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.
-------------------------------------------------------------------------------------------------------------
CONSTANTINE D.
TSERETOPOULOS (48) Director Since 1999 18 None
500 East Broward Blvd.
Suite 2100
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
INTERESTED DIRECTORS SERVING UNTIL 2004 ANNUAL MEETING OF SHAREHOLDERS:
NUMBER OF
PORTFOLIOS IN
FRANKLIN
TEMPLETON
INVESTMENTS
FUND COMPLEX
LENGTH OF OVERSEEN BY
NAME, AGE AND ADDRESS POSITION TIME SERVED DIRECTOR* OTHER DIRECTORSHIPS HELD
--------------------------------------------------------------------------------------------------------------------
**HARMON E. BURNS (57) Director Director 33 None
One Franklin Parkway and Vice since 1992
San Mateo, CA President and Vice
94403-1906 President
since 1996
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member--Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and
Director, Franklin Templeton Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.; Director,
Franklin Investment Advisory Services, Inc.; officer and/or director or trustee, as the case may be, of some of the
other subsidiaries of Franklin Resources, Inc.; and officer of 51 of the investment companies in Franklin
Templeton Investments.
--------------------------------------------------------------------------------------------------------------------
**CHARLES B. JOHNSON (69) Chairman Chairman 133 None
One Franklin Parkway of the of the
San Mateo, CA Board, Board
94403-1906 Director since 1995
and Vice and
President Director
and Vice
President
since 1992
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; officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin
Resources, Inc.; and officer of 48 of the investment companies in Franklin Templeton Investments.
--------------------------------------------------------------------------------------------------------------------
5
INDEPENDENT DIRECTORS SERVING UNTIL 2003 ANNUAL MEETING OF SHAREHOLDERS:
NUMBER OF
PORTFOLIOS IN
FRANKLIN
TEMPLETON
INVESTMENTS
FUND COMPLEX
LENGTH OF OVERSEEN BY
NAME, AGE AND ADDRESS POSITION TIME SERVED DIRECTOR* OTHER DIRECTORSHIPS HELD
-------------------------- ---------- ------------- --------------- ------------------------------------
BETTY P. KRAHMER (72) Director Since 1990 22 None
500 East Broward Blvd.
Suite 2100
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. MACKLIN (74) Director Since 1993 133 Director, White Mountains
500 East Broward Blvd. Insurance Group, Ltd. (holding
Suite 2100 company); Martek Biosciences
Fort Lauderdale, FL Corporation; WorldCom, Inc.
33394-3091 (communications services);
MedImmune, Inc.
(biotechnology); 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).
-----------------------------------------------------------------------------------------------------------
FRED R. MILLSAPS (73) Director Since 1990 28 None
500 East Broward Blvd.
Suite 2100,
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).
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* We base the number of portfolios on each separate series of the U.S.
registered investment companies included in 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, Harmon E. Burns, and Charles B. Johnson 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,
which is the parent company of the Fund's Investment Manager, and his
position with the Fund. Mr. Burns' status as an interested person results
from his position as an officer and director 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. Resources also is an investor in Darby Technology Ventures
Group, LLC ("DTV") in which Darby Overseas is a significant investor and for
which Darby Overseas has the right to appoint a majority of the directors.
Templeton Global Advisors Limited also is a limited partner
6
in Darby--BBVA Latin America Private Equity Fund, L.P. ("DBVA"), a private
equity fund in which Darby Overseas is a significant investor, and the
general partner of which Darby Overseas controls jointly with an
unaffiliated third party. 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.
The following tables provide the dollar range of the equity securities of
the Fund and of funds in Franklin Templeton Investments beneficially owned by
the Fund's Directors as of March 31, 2002.
INDEPENDENT DIRECTORS
AGGREGATE DOLLAR RANGE OF EQUITY
SECURITIES IN ALL FUNDS OVERSEEN BY
DOLLAR RANGE OF THE DIRECTOR IN THE
EQUITY SECURITIES IN THE FRANKLIN TEMPLETON
NAME OF DIRECTOR FUND INVESTMENTS FUND COMPLEX
------------------------- ------------------------- -----------------------------------
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, Jr....... $1 - $10,000 Over $100,000
Edith E. Holiday.......... $1 - $10,000 Over $100,000
Betty P. Krahmer.......... $10,001 - $50,000 Over $100,000
Gordon S. Macklin......... $10,001 - $50,000 Over $100,000
Fred R. Millsaps.......... None Over $100,000
Constantine D.
Tseretopoulos........... None Over $100,000
INTERESTED DIRECTORS
AGGREGATE DOLLAR RANGE OF EQUITY
SECURITIES IN ALL FUNDS OVERSEEN BY
DOLLAR RANGE OF THE DIRECTOR IN THE
EQUITY SECURITIES IN THE FRANKLIN TEMPLETON
NAME OF DIRECTOR FUND INVESTMENTS FUND COMPLEX
------------------------- ------------------------- -------------------------------------
Nicholas F. Brady......... $10,001 - $50,000 Over $100,000
Harmon E. Burns........... None Over $100,000
Charles B. Johnson........ $10,001 - $50,000 Over $100,000
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 $200 per Board meeting attended.
Directors serving on the Audit Committee of the Fund and other funds 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 August 31, 2001, there were five meetings of
the Board, three meetings of the Audit Committee, and four 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) of the Board on which the Director served.
7
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 the
funds in Franklin Templeton Investments. 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.
NUMBER OF BOARDS IN
AGGREGATE TOTAL COMPENSATION FROM FRANKLIN TEMPLETON
COMPENSATION FROM FRANKLIN TEMPLETON INVESTMENTS FUND COMPLEX ON
NAME OF DIRECTOR THE FUND* INVESTMENTS FUND COMPLEX** WHICH DIRECTOR SERVES***
---------------------------- ----------------- -------------------------- ---------------------------
Harris J. Ashton............ $3,000 $353,221 48
Nicholas F. Brady........... 2,800 134,500 18
Frank J. Crothers........... 3,013 92,000 14
S. Joseph Fortunato......... 3,000 352,380 49
Andrew H. Hines, Jr......... 3,024 201,500 19
Edith E. Holiday............ 3,000 254,670 28
Betty P. Krahmer............ 3,000 134,500 18
Gordon S. Macklin........... 3,000 353,221 48
Fred R. Millsaps............ 3,022 201,500 19
Constantine D. Tseretopoulos 3,026 94,500 15
--------
* Compensation received for the fiscal year ended August 31, 2001.
** For the calendar year ended December 31, 2001.
*** We base the number of boards on the number of U.S. registered investment
companies in Franklin Templeton Investments fund complex. This number does
not include the total number of series or funds within each investment
company for which the board members are responsible. Franklin Templeton
Investments currently includes 53 registered investment companies, with
approximately 155 U.S. based funds or series.
The table above indicates the total fees paid to Directors by the Fund
individually, and by all of the funds in Franklin Templeton Investments. These
Directors also serve as directors or trustees of other funds in 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 funds in Franklin Templeton
Investments 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 funds in Franklin Templeton Investments, 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 this policy, a board member's fund
holdings existing on February 27, 1998, were valued as of such date with
subsequent investments valued at cost.
8
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.
NAME, AGE AND ADDRESS POSITION LENGTH OF TIME SERVED
---------------------------------- ------------------------------------- ----------------------------------------
CHARLES B. JOHNSON Chairman of the Board, Director Chairman of the Board and Director
and Vice President since 1995 and Vice President
since 1992
Please refer to the table "Interested Directors serving until 2004 Annual Meeting of Shareholders" for additional
information about Mr. Charles B. Johnson.
-----------------------------------------------------------------------------------------------------------------
MARK MOBIUS (65) President Since 1987
Two Exchange Square
39th Floor
Suite 3905-08
Hong Kong
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Portfolio Manager of various Templeton advisory affiliates; Managing Director, Templeton Asset Management
Ltd.; Executive Vice President and Director, Templeton Global Advisors 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).
-----------------------------------------------------------------------------------------------------------------
RUPERT H. JOHNSON, JR. (61) Vice President Since 1996
One Franklin Parkway
San Mateo, CA
94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member--Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and
Director, Franklin Templeton Distributors, Inc.; Director, Franklin Advisers, Inc. 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 some of the other subsidiaries of Franklin Resources, Inc. and of 51 of the
investment companies in Franklin Templeton Investments.
-----------------------------------------------------------------------------------------------------------------
HARMON E. BURNS Director and Vice President Director since 1992 and Vice
President since 1996
Please refer to the table "Interested Directors serving until 2004 Annual Meeting of Shareholders" for additional
information about Mr. Harmon E. Burns.
-----------------------------------------------------------------------------------------------------------------
9
NAME, AGE AND ADDRESS POSITION LENGTH OF TIME SERVED
-------------------------- --------------------- --------------------------
MARTIN L. FLANAGAN (41) Vice President Since 1989
One Franklin
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. and of 52 of the
investment companies in Franklin Templeton Investments.
--------------------------------------------------------------------------------
CHARLES E. JOHNSON (45) Vice President Since 1996
One Franklin
Parkway San Mateo,
CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Member--Office of the President and Director, Franklin Resources,
Inc.; Senior Vice President, Franklin Templeton Distributors, Inc.; President
and Director, Templeton Worldwide, Inc. and Franklin Advisers, Inc.; Chairman
of the Board, President and Director, Franklin Investment Advisory Services,
Inc.; and officer and/or director of some of the other subsidiaries of Franklin
Resources, Inc.; and officer of 34 of the investment companies in Franklin
Templeton Investments.
--------------------------------------------------------------------------------
JEFFREY A. EVERETT (38) Vice President Since 2001
P.O. Box
N-7759 Lyford Cay,
Nassau Bahamas
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President and Director, Templeton Global Advisors Limited; officer of 18 of the
investment companies in Franklin Templeton Investments; and FORMERLY,
Investment Officer, First Pennsylvania Investment Research (until 1989).
--------------------------------------------------------------------------------
JOHN R. KAY (61) Vice President Since 1994
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL
33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Templeton Worldwide, Inc.; Assistant Vice President, Franklin
Templeton Distributors, Inc.; Senior Vice President, Franklin Templeton
Services, LLC; and officer of one of the other subsidiaries of Franklin
Resources, Inc. and of 23 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Vice President and Controller, Keystone Group, Inc.
--------------------------------------------------------------------------------
10
NAME, AGE AND ADDRESS POSITION LENGTH OF TIME SERVED
-------------------------- --------------------- ------------------------
MURRAY L. SIMPSON (64) Vice President and Since 2000
One Franklin Parkway Assistant Secretary
San Mateo, CA
94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Executive Vice President and General Counsel, Franklin Resources, Inc.; officer
and/or director of some of the subsidiaries of Franklin 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).
--------------------------------------------------------------------------------
BARBARA J. GREEN (54) Vice President and Vice President since
One Franklin Parkway Secretary 2000 and Secretary
San Mateo, CA since 1996
94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President and Deputy General Counsel, Franklin Resources, Inc.; and Senior
Vice President, Templeton Worldwide, Inc.; and officer of one of the other
subsidiaries of Franklin Resources, Inc. and of 53 of the investment companies
in Franklin Templeton 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).
--------------------------------------------------------------------------------
DAVID P. GOSS (55) Vice President and Since 2000
One Franklin Parkway Assistant Secretary
San Mateo, CA
94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Associate General Counsel, Franklin Resources, Inc.; President, Chief Executive
Officer and Director, Property Resources, Inc. and Franklin 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).
--------------------------------------------------------------------------------
MICHAEL O. MAGDOL (65) Vice President - Since May 2002
600 5th Avenue AML Compliance
Rockefeller Center
New York, NY 10048-0772
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Chief Financial Officer and Director, Fiduciary Trust Company
International; Director, FTI Banque, Arch Chemicals, Inc. and Lingnan
Foundation; and officer of 40 of the investment companies in Franklin Templeton
Investments.
--------------------------------------------------------------------------------
BRUCE S. ROSENBERG (40) Treasurer Since 2000
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL
33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC; and officer of some of the
subsidiaries of Franklin Resources, Inc. and of 19 of the investment companies
in Franklin Templeton Investments.
--------------------------------------------------------------------------------
11
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 Emerging Markets 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 of 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 effective date of the
DBT Reorganization, 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. For example,
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. Most significantly, an
investment company formed as a Delaware business trust, unlike one formed as a
Maryland corporation, need not pay an organization and capitalization tax on
the aggregate par value of shares it issues to shareholders. Furthermore, there
is a well-established body of legal precedent in the area of corporate law that
may be relevant in deciding issues pertaining to the Trust. This could benefit
the Trust and its shareholders by, for example, making litigation involving the
interpretation of provisions in the Trust's governing documents less likely or,
if litigation should be initiated, less burdensome or expensive. 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 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
of the provisions in the Fund's Amended and Restated Articles of Incorporation
and By-Laws), the Trust should enjoy 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.
12
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
tend to 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
DBT 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 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 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. If the DBT Reorganization
is approved by shareholders, it is expected to be completed in the fall of 2002.
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 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.
13
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 service and
transfer agency agreement with Mellon Investor Services, LLC (which provide for
certain financial, administrative, transfer agency and fund accounting
services). 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
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 another 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) a 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 date 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 date of the DBT
Reorganization and will be fully paid, nonassessable, freely transferable, and
will 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.
--------
/1/ The members of the board of a Delaware business trust are referred to as
Trustees.
14
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. Generally, 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, counsel to the Trust and the Fund, 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 shareholders of the Fund, 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 either of their shareholders.
WHAT IF I CHOOSE TO SELL MY SHARES AT ANY TIME?
You may continue to trade your Fund Shares on the NYSE or Pacific Exchange,
Inc. (the "PCX") 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 PCX just as Fund Shares historically have been
listed. Consequently, upon the effectiveness of the DBT Reorganization you may
trade, on the NYSE or the PCX 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 affect 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
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 1987, 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
15
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 currently managed or will
result in a material change in the level of investment risk associated with an
investment in the Fund at this time. However, the Fund may change the way the
Fund is managed in the future, as contemplated by the proposed amendments to,
or elimination of, the applicable investment restrictions. 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.
PROPOSAL 3: TO APPROVE AMENDMENTS TO CERTAIN OF THE FUND'S FUNDAMENTAL
INVESTMENT RESTRICTIONS (this Proposal involves separate votes on
Sub-Proposals 3a-3e)
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
separately on each Sub-Proposal in Proposal 3. Any Sub-Proposal that is
approved by shareholders will be effective immediately upon such approval.
SUB-PROPOSAL 3A: 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 and 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," which includes certain borrowings, 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 regarding 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 collateral requirements are designed to protect shareholders by ensuring
that when an obligation from one of these
16
"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
"leverage-type transactions" 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 issuing senior securities or borrowing money
except that the Fund may borrow from a bank (i) for temporary or emergency
purposes, or (ii) to finance repurchase of its shares, in amounts not exceeding
5% (taken at the lower of cost or current value) of its total assets (not
including the amount borrowed), and may also pledge its assets to secure such
borrowings. 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
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.
BORROWING AND ISSUANCE OF SENIOR SECURITIES. For example, the Fund could
borrow money or issue senior securities, such as preferred stock, for
investment purposes when the 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 manager believes
that the cost of carrying the assets to be acquired through leverage would be
lower than the Fund's expected 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
funds obtained through a borrowing or the issuance of senior securities 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 such 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
17
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 borrowings or other senior securities 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 or issue, 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 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.
LEVERAGE-TYPE TRANSACTIONS. As recited in the Fund's Prospectus, the Fund
is currently authorized to engage in certain investment practices that
constitute "leverage-type transactions," subject to certain limitations. That
authority would be preserved and expanded under the proposed amendment to the
Fund's restriction. Among the leverage-type transactions in which the Fund
would be authorized to engage under the proposed restriction 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
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
successful use will depend on the 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 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.
However, the Fund may change the way it is managed in the future, as
contemplated by the proposed amendment to this investment restriction. Even if
the Fund were to engage in "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 3B: 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 SEC staff takes the position 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.
18
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
the proposed policy would (i) modify the Fund's asset measure (from "total
assets" to "net assets") by which concentration is assessed; (ii) slightly
increase (from "25% or more" to "more than 25%") the numerical limit on
permissible investments; and (iii) expressly reference, in a manner consistent
with current SEC staff policy, the categories of investments that are excepted
from coverage of the restriction. Consistent with the Fund's current
restriction, the proposed restriction would preserve the Fund's authority,
without limit, to purchase the securities of any issuer pursuant to the
exercise of rights distributed to the Fund by such issuer. 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 current SEC staff policy. The Fund is currently
authorized to invest in U.S. government securities, but those investments
generally are permissible for temporary defensive purposes or when the Fund's
assets are not invested in emerging markets equity securities. In addition,
although the Fund is not currently prevented from making investments in other
investment companies, the proposed restriction would make explicit that any
such investments are exempted from the Fund's concentration policy. Even if the
Fund were to make investments in investment company securities under this
modified restriction, however, the Fund would continue to remain subject to the
limitations on such investments as set forth in the 1940 Act. 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.
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
typically invest a significant proportion of its assets in U.S. government
securities or those issued by its agencies or instrumentalities. However, the
Fund may, in the future, change the way it is managed in conformity with this
proposed amendment. Moreover, without SEC relief, the Fund would be limited in
its investments in other investment companies as it is currently pursuant to
applicable law.
SUB-PROPOSAL 3C: TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
REGARDING INVESTMENTS IN COMMODITIES.
Under the 1940 Act, a fund's investment policy relating to the purchase and
sale of commodities must be fundamental. The substance of the Fund's current
investment policy regarding commodities is set forth in Exhibit C. At present,
that policy is combined with the Fund's fundamental policy relating to purchase
of real estate; the latter policy is proposed to be modified under Sub-Proposal
3d, set forth below. Management is proposing to separate the fundamental
restrictions relating to these two practices for purposes of clarity and to
facilitate administration of the Fund's compliance program. If shareholders do
not approve both Sub-Proposals 3c and 3d, the current policy respecting the
investment practice that is the subject of the rejected Sub-Proposal will be
preserved and the current fundamental restriction will be reformulated
accordingly.
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.
19
WHAT EFFECT WILL AMENDING THE COMMODITIES RESTRICTION HAVE ON THE FUND?
Under the Fund's current fundamental restriction relating to commodities,
the Fund is permitted to purchase and sell (i) futures contracts on stock
indices and foreign currencies, (ii) securities which are secured by
commodities and (iii) securities of companies which invest or deal in
commodities. Consistent with the investment practices noted in the restriction
and as described in more detail in the Fund's Prospectus, the Fund currently
has the authority to enter into foreign currency futures contracts (and forward
foreign currency exchange contracts) as well as purchase put or call options on
foreign currency in order to hedge against foreign currency exchange risk. As
set forth in the Prospectus, the Fund is subject to certain limitations on the
amount of assets it can devote to these transactions, the amount of margin
deposits to which it can become subject in connection with futures contracts,
as well as other limits. In addition, subject to certain other express limits,
the Fund may seek to increase its investment returns or may hedge all or a
portion of its portfolio investments through transactions involving stock index
futures and stock options.
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 would have the flexibility, consistent with
federal securities and commodities laws, to engage in transactions involving
futures contracts and related options. The proposed restriction also would make
clear, and in some instances 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 that can be used in hedging
transactions. Thus, the proposed restriction would continue to enable the Fund
to engage, consistent with its investment objective, in transactions that are
described in the Fund's Prospectus.
Under the terms of the modified restriction, the Fund would be 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 would also be permitted to 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 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.
20
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 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,
therefore, it is not currently anticipated that the proposed restriction will
expose the Fund to any additional material risk. However, the Fund may change
the way it is managed in the future, as contemplated by the proposed amendment
to this investment restriction.
SUB-PROPOSAL 3D: TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
REGARDING INVESTMENTS IN REAL ESTATE.
Under the 1940 Act, a fund's investment policy relating to the purchase of
real estate must be fundamental. The substance of the Fund's current investment
restriction regarding real estate is set forth on Exhibit C. As noted above in
connection with Sub-Proposal 3c (relating to investments in commodities), the
Fund's current fundamental restriction relating to real estate is combined with
its investment restriction relating to commodities. Management is proposing to
separate the two fundamental restrictions for purposes of clarity and to
facilitate administration of the Fund's compliance program. As noted above, if
Shareholders do not approve both Sub-Proposals 3c and 3d, the current policy
respecting the investment practice that is the subject of the rejected
Sub-Proposal will be preserved and the current fundamental investment
restriction will be reformulated accordingly.
WHAT EFFECT WILL AMENDING THE CURRENT RESTRICTION REGARDING INVESTMENTS IN
REAL ESTATE HAVE ON THE FUND?
The proposed fundamental restriction, set forth on Exhibit C, is
substantially similar to the current restriction in that it would permit the
Fund to invest in securities secured by real estate or invest in securities of
companies that invest in or deal in real estate to the extent consistent with
the Fund's investment objective. It would continue to generally prohibit buying
and selling real estate.
The only noteworthy change is the proposed reformulation of language to
ensure the Fund's ability to invest in real estate investment trusts (REITs)
and similar instruments. The current restriction's prohibition on buying and
selling "interests in real estate" could be inappropriately construed to
prohibit such investments. Investing in REITs has gained in popularity and the
number of REITs available for investment by funds and other institutional
investors has grown dramatically. The proposed change would clarify that the
Fund is not prohibited from investing in them. It is not anticipated that the
proposed restriction would pose any additional risk to the Fund because the
proposed restriction is designed principally to clarify the current restriction
and, in any event, the Fund does not currently anticipate altering its present
investment program. However, the Fund may change the way it is managed in the
future, as contemplated by the proposed amendment to this investment
restriction.
SUB-PROPOSAL 3E: TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
REGARDING LENDING.
Under the 1940 Act, a fund must describe and designate as fundamental, its
policy with respect to "making loans to other persons." In addition to a loan
of cash, the term "loans" may, under certain circumstances, be deemed to
include certain other transactions and investment related practices. Among
those transactions and practices are lending of portfolio securities, entering
into repurchase agreements and the purchase of certain debt instruments. The
Fund's current fundamental restriction prohibits the Fund from making loans,
but specifically carves out repurchase agreements from its prohibition. Thus,
the current restriction may be construed to prevent the Fund from engaging in
the transactions and practices that the SEC may consider to be loans, even if
such activities would otherwise be consistent with the Fund's investment
objective and policies.
WHAT EFFECT WILL AMENDING THE CURRENT LENDING RESTRICTION HAVE ON THE FUND?
The proposed restriction would preserve the Fund's authority to enter into
repurchase agreements (to the extent they are deemed loans) and would provide
the Fund with greater lending flexibility. In addition to the authority the
Fund already has to invest in debt instruments, the modified restriction would
expressly permit the Fund, consistent with investment objectives, to invest in
loan participations and direct corporate loans, which, under certain
circumstances, may be deemed to be loans. For several reasons, these
investments recently have become more common for investment companies. Under
the applicable law in some developing markets, loan
21
financing of certain enterprises offer certain advantages over equity
investments, especially for foreign investors, such as the Fund. For example,
loan financing may be more flexible than equity investments in markets where
the equity capital contributed by foreign investors is fixed and may not be
changed without regulatory approvals. In addition, payments of interest and
principal on loans are sometimes entitled to priority of repayment and may not
be subject to withholding taxes. Moreover, the proceeds of loan payments are
sometimes more easily converted to foreign currency than dividend distributions.
The proposed restriction also would explicitly permit the Fund to lend its
portfolio securities. Securities lending is a practice that has become common
in the mutual fund industry and involves the temporary loan of portfolio
securities to parties who use the securities for the settlement of other
securities transactions. The collateral delivered to the Fund in connection
with such a transaction is then invested to provide the Fund with additional
income it might not otherwise have.
The proposed restriction would, in addition, provide the Fund with the
flexibility to make cash loans to affiliated investment companies under an SEC
exemptive order issued to the investment companies within Franklin Templeton
Investments. The proposed restriction permits the Fund, subject to certain
conditions, to lend cash to other Franklin or Templeton funds at rates higher
than those which the Fund would receive if the Fund were to loan cash to banks
through short-term lendings such as repurchase agreements. The Board
anticipates that this additional flexibility to lend cash to affiliated
investment companies would provide the Fund additional investment opportunities
and would enhance the Fund's ability to respond to changes in market, industry
or regulatory conditions.
Because the proposed lending restriction would provide the Fund with greater
flexibility to invest in loan participations and direct corporate loans, and to
engage in securities lending, the Fund may be exposed to some additional risks
associated with these practices. In the case of investments in loan
participations and direct corporate loans, these risks would include the risk
of general illiquidity and greater price volatility, as well as the lack of
publicly available information about issuers of privately placed debt
obligations and loan counterparties. In the case of securities lending, these
risks include the possibility that a borrower fails to return the securities to
the Fund when demanded or required to be returned.
The Fund does not intend currently to change its investment practices as a
result of the adoption of the proposed restriction. Therefore, it is not
anticipated at this time that the adoption of the proposed restriction would
expose the Fund to risks beyond those to which the Fund is currently subject.
However, the Fund may change the way it is managed in the future, as
contemplated by the proposed amendment to this investment restriction.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
YOU VOTE "FOR" SUB-PROPOSALS 3a-3e
PROPOSAL 4: TO APPROVE THE ELIMINATION OF CERTAIN OF THE FUND'S FUNDAMENTAL
INVESTMENT RESTRICTIONS
The Fund's current investment restrictions that are proposed to be
eliminated are detailed in Exhibit C, which is entitled "Fundamental Investment
Restrictions Proposed to be Amended or Eliminated." If shareholders approve
Proposal 4, it will be effective immediately upon such approval.
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
derived from 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. In view
of these changes in law and regulation, the Fund need not adopt or maintain
investment restrictions relating to purchasing securities on margin, short
sales or investments in non-publicly traded, restricted or illiquid securities.
The Board
22
has determined that eliminating these three 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 THREE (3) RESTRICTIONS IS THE BOARD RECOMMENDING THAT THE FUND
ELIMINATE?
The Fund currently is subject to three 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 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 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."
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 use short-term credits necessary for
clearance of transactions and to maintain margin with respect to futures
contracts. This restriction was originally adopted at the Fund's inception
because applicable state law required investment companies to expressly recite
in their prospectuses that purchasing securities on margin was prohibited.
After the passage of NSMIA, funds are no longer required to include in their
prospectuses 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
23
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.
However, the Fund may initiate the use of these strategies in the future.
NON-PUBLICLY TRADED, RESTRICTED AND ILLIQUID SECURITIES. Since its
inception, the Fund has been subject to a fundamental investment restriction
that prohibits the Fund from investing more than 25% of it total assets in
non-publicly traded, restricted and illiquid securities. Prior to NSMIA, some
state laws required funds to adopt restrictive policies concerning such
investments. Following the passage of NSMIA, those state restrictions are no
longer required.
In addition, neither the 1940 Act nor the SEC staff imposes limits on the
percentage of closed-end fund assets invested in non-publicly traded,
restricted and illiquid securities primarily because the day-to-day operations
of a closed-end fund do not typically require the quick disposition of
portfolio securities to raise cash. As a consequence, in general, maintaining a
minimum proportion of Fund assets in liquid securities is not a compelling
operational concern. The above notwithstanding, at the Fund's inception,
management determined that it was appropriate for the Fund to limit the Fund's
exposure to non-publicly traded, restricted and illiquid securities.
Accordingly, the Fund adopted a non-fundamental policy--one that can be changed
by Board action alone--limiting to 15% the proportion of total Fund assets that
could be allocated to those investments. The risks attendant to investments in
these securities identified in the Fund's Prospectus are: (i) the absence of a
public market for these securities, (ii) the potential registration costs to be
borne by the Fund should restricted securities need to be registered for sale,
(iii) the greater risk of loss on sales of such securities, and (iv) the lack
of public information and other regulatory requirements intended to provide
investor protection respecting these securities.
Because of the existence of the Fund's current non-fundamental policy to
limit the Fund's investments in non-publicly traded, restricted and illiquid
securities to 15% of total assets, the elimination of the Fund's current
fundamental policy related to these investments is expected to have little, if
any, impact on Fund operations and, thus, is not expected to increase the risks
to which shareholders might otherwise become subject. As a non-fundamental
policy, however, the Board could change this voluntary restriction at any time
without seeking shareholder approval. Should the Board change the restriction
and management increase its investments in these securities, the Fund would
become subject to a potential increase in the risks (to the extent they remain
relevant in a particular market) outlined above commensurate with the scope of
expanded investment exposure. At present, though, the Board does not anticipate
changing the current non-fundamental restriction, and accordingly does not
expect a material change in the day-to-day operations of the Fund if
Shareholders approve the elimination of this restriction. However, the Fund
may, in the future, change the way it is managed in order to permit the
Investment Manager to expand its investment in non-publicly traded, restricted
and illiquid securities.
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 at this time. Although the Fund's
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, or any rule, SEC staff interpretation, or 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. However, the Fund may initiate the use of strategies that are no
longer prohibited at some time in the future.
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
Franklin Resources, Inc.
24
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 provides
certain administrative functions for the Fund.
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 JPMorgan Chase Bank, MetroTech
Center, Brooklyn, New York 11245.
OTHER MATTERS. The Fund's last audited financial statements and annual
report, dated August 31, 2001 and its latest semi-annual report dated February
28, 2002, 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.
As of May 31, 2002, the Fund had 17,656,437 shares outstanding and total net
assets of $175,173,974. The Fund's shares are listed on the NYSE (Symbol: EMF)
and on the Pacific Exchange, Inc. 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 May 31, 2002, there were no other entities
holding beneficially or of record more than 5% of the Fund's outstanding
shares. In addition, to the knowledge of the Fund's management, as of May 31,
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 August 31,
2001 were $18,085.
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 August 31, 2001 to the Fund or
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 August 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.
25
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 August 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
..FURTHER INFORMATION ABOUT VOTING AND THE MEETING
SOLICITATION OF PROXIES. Your vote is being solicited by the Board of
Dirctors of the Fund. 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. ("Georgeson Shareholder") to solicit
proxies from brokers, banks, other institutional holders and individual
shareholders at an anticipated cost of $47,239, including out-of-pocket
expenses. The Fund expects that the solicitation will 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 will request voting instructions from their customers and beneficial
owners. If these instructions are not received by the date specified in the
broker-dealer firms' proxy solicitation materials, the Fund understands that
NYSE Rules permit the broker-dealers to vote on Proposal 1 on
26
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 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 the majority of all the shares entitled to be cast on the matter (all
of the outstanding shares of the Fund on the record date are entitled to vote
on Proposal 2). The approval of the Sub-Proposals 3a-3e and Proposal 4 requires
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.
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" Proposal 2, Sub-Proposals 3a-3e, and Proposal 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 with respect to
some or all of the Proposals 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 Amended and Restated 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 about February 28, 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, Suite 2100, Fort Lauderdale, Florida 33394-3091, Attention:
Secretary, so that it is received no later than September 30, 2002 in order to
be included in the Trust's proxy statement and proxy card relating to that
meeting and presented at the meeting.
27
A shareholder of the Trust who has not submitted a written proposal for
inclusion in the proxy statement by September 30, 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 October 1, 2002 and not later than October 31,
2002. If a shareholder fails to give notice within these dates, then the matter
shall not be eligible for consideration at the shareholders' meeting. If,
notwithstanding the effect of the foregoing notice provisions, a shareholder
proposal is acted upon at the 2003 Annual Meeting of Shareholders, the persons
designated as proxies for the 2003 Annual Meeting of Shareholders may exercise
discretionary voting power with respect to any shareholder proposal not
received by the Trust at the Trust's offices, by December 2, 2002. 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.
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.
In addition to the requirements set forth above, a shareholder must comply
with the following:
1. A shareholder intending to present a proposal must (i) be entitled to
vote at the meeting; (ii) comply with the notice procedures set forth
herein; and (iii) have been a shareholder of record at the time the
shareholder's notice was received by the Trust.
2. 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.
3. 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 about February 28, 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, Suite 2100, Fort
Lauderdale, Florida 33394-3091, Attention: Secretary, so that it is received no
later than September 30, 2002 in order to be included in the Fund's proxy
statement and proxy card relating to that meeting and presented at the meeting.
A shareholder of the Fund who has not submitted a written proposal for
inclusion in the Fund's proxy statement by September 30, 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 December 2, 2002. 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.
28
Submission of a proposal by a shareholder does not guarantee that the
proposal will be included in the Fund's proxy statement or presented at the
Meeting.
By Order of the Board of Directors,
Barbara J. Green,
Secretary
July 15, 2002
29
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN TEMPLETON EMERGING MARKETS FUND, INC.
AND TEMPLETON EMERGING MARKETS FUND
This Agreement and Plan of Reorganization ("Agreement") is made as of this
28th day of February, 2002 by and between Templeton Emerging Markets Fund, a
Delaware business trust ("Trust"), and Templeton Emerging Markets 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, 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, Inc. ("NYSE") on the business day immediately preceding the Effective
Date of the Reorganization; fractional shares of the Trust will be carried to
the fourth 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
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.
A-1
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 Pacific Exchange, Inc. ("PCX") as
may be necessary to permit the parties to carry out the transactions
contemplated by this Agreement shall have been received;
(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, and a listing application
shall have been filed with the PCX, 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;
(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
A-2
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;
(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 Ms. Edith E. Holiday; Nominees to
serve as Trustees until the 2004 Annual Meeting of Shareholders--Messrs.
Harmon E. Burns, Andrew H. Hines, Jr., Charles B. Johnson and
Constantine D. Tseretopoulos; and Nominees to serve as Trustees until
the 2003 Annual Meeting of Shareholders--Messrs. Gordon S. Macklin, 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:
(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 February 1, 1987 (the "Custody Agreement"), with The
Chase Manhattan Bank, N.A. (now JPMorgan Chase Bank), including the
Amendment dated May 10, 1996; Amendment dated March 2, 1998; Amendment,
effective as of May 21, 1998; Amendment No. 2 to the Custody 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 August 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 Company, dated January 2,
1992; 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) 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;
A-3
(7) Submission of the matters referred to in paragraph (h) of this
Section 3 to the Fund as sole shareholder of the Trust; and
(8) 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 Fund common stock under the Agreement, the officers of the Fund
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
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-4
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 EMERGING MARKETS FUND, INC.
(a Maryland corporation)
Attest: /s/ Lori A. Weber By: /s/ David P. Goss
---------------------------------- ----------------------------------
Name: Lori A. Weber Name: David P. Goss
Title: Assistant Secretary Title: Vice President
TEMPLETON EMERGING MARKETS FUND
(a Delaware business trust)
Attest: /s/ Lori A. Weber By: /s/ Barbara J. Green
---------------------------------- ----------------------------------
Name: Lori A. Weber Name: Barbara J. Green
Title: Assistant Secretary Title: Vice President and
Secretary
A-5
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 EMERGING MARKETS FUND UNDER SUCH LAW
WITH
THE LAW GOVERNING MARYLAND CORPORATIONS AND
THE CHARTER DOCUMENTS OF TEMPLETON EMERGING MARKETS FUND, INC. UNDER SUCH LAW
DELAWARE BUSINESS TRUST MARYLAND CORPORATION
----------------------- --------------------
GOVERNING A Delaware statutory business trust (a A Maryland corporation is created by
DOCUMENTS/ "DBT") is formed by a governing filing articles of incorporation with the
GOVERNING BODY instrument and the filing of a certificate of Maryland State Department of
trust with the Delaware Secretary of State Assessments and Taxation ("MSDAT").
("Secretary of State"). The Delaware law The Maryland law governing corporations
governing a DBT is referred to in this is referred to in this analysis as "Maryland
analysis as the "Delaware Act." Law."
A DBT is an unincorporated association A corporation is incorporated under the
organized under the Delaware Act whose Maryland Law. A corporation's operations
operations are governed by its governing are governed by its charter and by-laws,
instrument (which may consist of one or and its business and affairs are managed
more instruments). Its business and affairs by or under the direction of a board of
are managed by or under the direction of directors (the "board" or "board of
one or more trustees. directors" or collectively, the "directors").
No public filing of the by-laws is made.
The governing instrument for the DBT, Templeton Emerging Markets Fund, Inc.,
Templeton Emerging Markets Fund (the a Maryland corporation, is referred to in
"Trust"), is comprised of an agreement this analysis as the "Corporation." The
and declaration of trust ("Declaration") Corporation is governed by its charter
and by-laws ("By-Laws"). The Trust's ("Charter") and by-laws ("By-Laws") and
governing body is a board of trustees (the the Corporation's governing body is a
"board" or "board of trustees" or board of directors.
collectively, the "trustees").
DESIGNATION OF Under the Delaware Act, the ownership Equity securities of a corporation are
OWNERSHIP interests in a DBT are denominated as generally denominated as shares of stock.
SHARES OR INTERESTS "beneficial interests" and are held by Record owners of shares of stock are
"beneficial owners." However, there is stockholders. Generally, equity securities
flexibility as to how a governing that have voting rights and are entitled to
instrument refers to "beneficial interests" the residual assets of the corporation, after
and "beneficial owners" and the governing payment of liabilities, are referred to as
instrument may identify "beneficial "common stock."
interests" and "beneficial owners" as
"shares" and "shareholders," respectively.
The Trust's beneficial interests, without The Corporation's equity securities are
par value, are designated as "shares" and shares of common stock, par value $0.01
its beneficial owners are designated as per share, and the owners of such stock
"shareholders." This analysis will use the are "stockholders."
"share" and "shareholder" terminology.
B-1
DELAWARE BUSINESS TRUST MARYLAND CORPORATION
----------------------- --------------------
AMENDMENTS TO GOVERNING INSTRUMENT CHARTER
GOVERNING The Delaware Act provides broad Under Maryland Law, with certain
DOCUMENTS flexibility with respect to the provisions exceptions, amendments to the charter
of the governing instrument of a DBT for must be approved by the board and by the
amending and/or restating such governing affirmative vote of two-thirds of all votes
instrument. entitled to be cast (unless the charter
permits amendment by a higher or lesser
DECLARATION OF TRUST proportion of the voting stock, but not less
The Declaration provides that than a majority of the shares outstanding).
amendments and/or restatements of the
Declaration may generally be made at any The Charter provides that the Charter may
time by the board of trustees, by a vote of be amended, altered, repealed, or added to
a majority of the trustees present at a upon vote of holders of a majority of the
meeting at which a quorum is present, shares outstanding and entitled to vote
without approval of the shareholders. thereon, except that the amendment or
Amendments or a repeal of certain repeal of provisions pertaining to the
provisions, however, require approval of merger or consolidation of the
the board of trustees, as set forth above, Corporation, sale of all or substantially all
and the affirmative vote of holders of at of the assets of the Corporation,
least two-thirds (66 2/3%) of the dissolution or liquidation require the
outstanding shares entitled to vote, unless affirmative vote of the holders of at least
such action has previously been approved 75% of the shares then entitled to vote on
by the affirmative vote of two-thirds the matter.
(66 2/3%) of the board of trustees, in which
case the affirmative "vote of a majority of
the outstanding voting securities", as
defined in the Investment Company Act of
1940 and the rules and regulations
thereunder, as amended (the "1940 Act"),
of the Trust entitled to vote at a meeting at
which a quorum is present, shall be
required. Such provisions include those
pertaining to the number, classes, election,
term, removal, resignation, quorum,
powers, required vote and 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.
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BY-LAWS BY-LAWS
The By-Laws may be amended, restated Under Maryland law, after the
or repealed or new by-laws may be organizational meeting, the power to
adopted by the affirmative "vote of a adopt, alter or repeal the by-laws is vested
majority of the outstanding voting in the stockholders, except to the extent
securities" (as defined in the 1940 Act) that the charter or by-laws vest such
of the Trust. The By-Laws may also be power in the board.
amended, restated or repealed or new by-
laws may be adopted by the board of The By-Laws may be adopted, amended
trustees, by a vote of a majority of the or repealed by "vote of the holders of a
trustees present at a meeting at which a majority of the [Corporation's] stock" (as
quorum is present. defined in the 1940 Act), which is
generally the lesser of at least a majority
Pursuant to the Declaration, amendments of the outstanding shares or 67% of the
and/or restatements of the certificate of shares present or represented in a meeting
trust shall be made at any time by the if more than 50% of the outstanding
board of trustees, without approval of the shares are present or represented at the
shareholders, to correct any inaccuracy meeting; except that provisions in the By-
contained therein. Any such amendments/ Laws regarding increasing/decreasing
restatements of the Certificate of Trust number of directors and removal of
must be executed by at least one (1) directors may be amended only by the
trustee and filed with the Secretary of vote of the holders of 75% of the common
State in order to become effective. stock, unless the amendment is approved
by the affirmative vote of two-thirds of the
total number of directors fixed by the By-
Laws, in which case the affirmative vote
of a majority of the outstanding shares is
required. Directors may adopt, amend or
repeal By-Laws (not inconsistent with any
By-Law adopted, amended or repealed by
stockholders), except a provision
regarding Board actions in case shares
trade on an exchange at a discount from
net asset value, by majority vote of all of
directors in office, subject to applicable
law.
PREEMPTIVE Under the Delaware Act, a governing Under Maryland Law, the charter may
RIGHTS AND instrument may contain any provision provide shareholders with the preemptive
REPURCHASE relating to the rights, duties and right to subscribe to any or all additional
OF SHARES obligations of the shareholders. issues of stock or any securities of the
corporation convertible into additional
The Declaration provides that no issues of stock. The charter may also
shareholder shall have the preemptive or define or limit the preemptive rights of
other right to subscribe for new or stockholders to acquire additional stock or
additional shares or other securities securities in the corporation.
issued by the Trust.
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Delaware Business Trust Maryland Corporation
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The Trust has the right at its option and The Corporation does not provide
at any time, subject to the 1940 Act and shareholders with the preemptive right to
other applicable law, to repurchase shares subscribe to additional issues of stock or
of any shareholder under certain other securities of the 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 shall first pay or A corporation that has voluntarily
RIGHTS UPON make reasonable provision to pay all dissolved shall pay, satisfy and discharge
DISSOLUTION known claims and obligations, including the existing debts and obligations of the
those that are contingent, conditional and corporation, including necessary expenses
unmatured, and all known claims and of liquidation, before distributing the
obligations for which the claimant is remaining assets to the stockholders.
unknown. Any 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 RIGHTS, Under the Delaware Act, the governing
MEETINGS, NOTICE, instrument may set forth any provision
QUORUM, RECORD relating to trustee and shareholder voting
DATES AND PROXIES rights, including the withholding of such
rights from certain trustees or
shareholders. If voting 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.
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ONE VOTE PER SHARE ONE VOTE PER SHARE
The Declaration provides that each Unless a corporation's charter provides for
outstanding share is entitled to one vote a greater or lesser number of votes per
and each outstanding fractional share is share, or limits or denies voting rights, each
entitled to a fractional 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 does not Under Maryland Law, every corporation
mandate annual shareholders' meetings, must hold an annual stockholders'
the By-Laws require annual meetings for meeting to elect directors and transact
the election of trustees and the transaction other business, except that the charter or
of other business. The By-Laws also by-laws of a corporation registered under
authorize the calling of a special meeting the 1940 Act may provide that an annual
(i) when deemed necessary or desirable by meeting is not required in any year in
the board of trustees or (ii) to the extent which the election of directors is not
permitted by the 1940 Act, by the required by the 1940 Act. Maryland Law
chairperson of the board, or at the request authorizes, and permits the charter and
of holders of 10% of the outstanding By-Laws to authorize, certain persons to
shares if such shareholders pay the call special meetings of stockholders.
reasonably estimated cost of preparing and
mailing the notice thereof, for the purpose The By-Laws require annual meetings for
of electing trustees or filling vacancies on the election of directors and the
the board. However, no special meeting transaction of other business. The By-
may be called at the request of Laws also authorize the calling of a
shareholders to consider any matter that is special meeting, unless otherwise
substantially the same as a matter voted "prescribed" by statute or the Charter,
upon at a shareholders' meeting held upon the written request of a majority of
during the preceding twelve (12) months, the directors, or by the president, or at the
unless requested by holders of a majority written request of stockholders owning
of all outstanding shares entitled to vote 10% "in amount of the entire capital
at such meeting. stock" of the Corporation then issued and
outstanding, if the stockholders requesting
Under the By-Laws, shareholder proposals such meeting pay the reasonably estimated
may be presented at an annual cost of preparing and mailing the notice
shareholders' meeting if brought by a thereof. However, no special meeting will
shareholder who (i) is entitled to vote at be called at the request of stockholders to
the meeting; (ii) complies with the notice consider any matter that is substantially
procedures set forth in the By-Laws; and the same as a matter voted upon at a
(iii) was a shareholder of record at the stockholders' special meeting held during
time such notice is received by the the preceding 12 months, unless requested
secretary of the Trust. The shareholder's by holders of a majority of all outstanding
notice must be in writing and delivered to shares entitled to vote at such meeting.
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DELAWARE BUSINESS TRUST MARYLAND CORPORATION
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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 shareholders Under Maryland law, unless the by-laws
entitled to notice of, and to vote at, a otherwise provide, the board may set a
shareholders' meeting, the Declaration record date, which date must be set within
authorizes the board of trustees to fix a the parameters outlined by the Maryland
record date. The record date may not statute, for determining stockholders
precede the date on which it is fixed by entitled to notice of a meeting, vote at a
the board and it may not be more than one meeting, receive dividends or be allotted
hundred twenty (120) days, nor less than other rights.
ten (10) days, before the date of the
shareholders' meeting. The By-Laws In order to determine the stockholders
provide that notice of a shareholders' entitled to notice of, and to vote at, a
meeting shall be given to shareholders not stockholders' meeting, the By-Laws
more than one hundred twenty (120) days authorize the board of directors to fix a
nor less than ten (10) days before the date record date not less than ten (10), nor
of the meeting. more than ninety (90), days prior to the
date of the meeting or prior to the last day
To determine the shareholders entitled to on which the consent or dissent of
vote on any action without a meeting, the stockholders may be effectively expressed
Declaration authorizes the board of for any purpose without a meeting.
trustees to fix a record date. The record
date may not precede the date on which it If the board does not fix a record date, the
is fixed by the board nor may it be more record date shall be the later of the close
than thirty (30) days after the date on of business on the day on which notice of
which it is fixed by the board. the meeting is mailed or the 30th day
before the meeting, except if all
To determine the shareholders entitled to a stockholders waive notice, the record date
dividend or any other distribution from the is the close of business on the 10th day
Trust, the Declaration authorizes the board next preceding the day the meeting is held.
of trustees to fix a record date. The record
date may not precede the date on which it To determine the stockholders entitled to a
is fixed by the board nor may it be more dividend, any other distribution, or
than sixty (60) days before the date such delivery of evidences of rights or interests
dividend or distribution is to be paid.
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DELAWARE BUSINESS TRUST MARYLAND CORPORATION
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Pursuant to the Declaration, if the board of from the Corporation, the By-Laws
trustees does not fix a record date: authorize the board to fix a record date not
(a) the record date for determining exceeding ninety (90) days preceding the
shareholders entitled to notice of, and to date fixed for the payment of the dividend
vote at, a meeting will be the day before or distribution or delivery of the
the date on which notice is given or, if evidences.
notice is waived, on the day before the
date of the meeting; (b) the record date
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' MEETING QUORUM FOR STOCKHOLDERS' MEETING
To transact business at a meeting, the Under Maryland Law, unless the charter
Declaration provides that a majority of the or Maryland Law provides otherwise, in
outstanding shares entitled to vote, which order to constitute a quorum for a meeting,
are present in person or represented by there must be present in person or by
proxy, shall constitute a quorum at a proxy, stockholders entitled to cast a
shareholders' meeting, except when a majority of all the votes entitled to be cast
larger quorum is required by applicable at the meeting.
law or any securities exchange on which
such shares are listed for trading, in which To transact business at a meeting, the By-
case such quorum shall comply with such Laws provide that a majority of the
requirements. outstanding shares entitled 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 that, subject to Under Maryland law, for most stockholder
any provision of the Declaration, the By- actions, unless the charter or Maryland
Laws or applicable law that requires a Law provides otherwise, a majority of all
different vote: (i) in all matters other than votes cast at a meeting at which a quorum
the election of trustees, the affirmative is present is required to approve any
"vote of a majority of the outstanding matter. Actions such as (i) amendments to
voting securities" (as defined in the 1940 the corporation's charter, (ii) mergers, (iii)
Act) of the Trust entitled to vote at a consolidations, (iv) statutory share
shareholders' meeting at which a quorum exchanges, (v) transfers of assets and (vi)
is present, shall be the act of the dissolutions require the affirmative vote of
shareholders; and (ii) trustees shall be two-thirds of all votes entitled to be cast
elected by a plurality of the votes cast of on the matter unless the charter provides
the holders of outstanding shares entitled for a lesser proportion which may not be
to vote present in person or represented by less than a majority of all votes entitled to
proxy at a shareholders' meeting at which be cast on the matter. Unless the charter or
a quorum is present. by-laws require a greater vote, a plurality
B-7
DELAWARE BUSINESS TRUST MARYLAND CORPORATION
----------------------- --------------------
of all votes cast at a meeting at which a
quorum is present is required to elect a
director.
Election of Directors. Under the 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 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 cast at a stockholders' meeting at
which a quorum is present, shall be the act
of the stockholders.
SHAREHOLDER VOTE ON CERTAIN TRANSACTIONS STOCKHOLDER VOTE ON CERTAIN TRANSACTIONS
Under the Declaration, in order for the Under the Charter, in order to
Trust to consummate a dissolution, consummate a merger, consolidation, sale
merger, consolidation, conversion, of all or substantially all of the assets, or
reorganization or reclassification, such the liquidation or dissolution of the
transaction shall be approved in the Corporation, such transaction shall be
following manner: approved in the following manner:
The transaction must be approved by The transaction must be approved by
the vote of a majority of the trustees the favorable vote of at least 75% of the
present at a meeting at which a quorum outstanding shares entitled to vote,
is present, and the affirmative vote of unless such action has been previously
the holders of 75% of the outstanding approved by the affirmative vote of
shares entitled to vote, unless such two-thirds of the total number of
action has been previously approved by directors fixed pursuant to the By-Laws,
the affirmative vote of 66 2/3% of the in which case the transaction must be
board of trustees, in which case the approved by the affirmative vote of a
affirmative "vote of a majority of the majority of all the votes entitled to be
outstanding voting securities" (as cast on the matter, for purposes of
defined in the 1940 Act) of the Trust Maryland Law.
entitled to vote at a shareholders'
meeting at which a quorum is present
shall be required.
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DELAWARE BUSINESS TRUST MARYLAND CORPORATION
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CUMULATIVE VOTING CUMULATIVE VOTING
The Declaration provides that shareholders Maryland law provides that the charter
are not entitled to cumulate their votes may authorize cumulative voting for the
on 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 Trust to accept Maryland Law permits a stockholder to
proxies by execution of a written authorize another person to act as a proxy
instrument or by electronic, telephonic, and sets forth acceptable methods of
computerized, telecommunications or transmitting such authorization. Unless a
another reasonable alternative to the proxy provides otherwise, it is not valid
execution of a written instrument. Unless more than 11 months after its date. The
a proxy provides otherwise, it is not valid proxy is revocable unless certain statutory
more than 11 months after its date. In requirements are met.
addition, the By-Laws provide that the
revocability of a proxy that states on its The By-Laws provide that stockholders
face that it is irrevocable shall be may vote by proxy and provide the
governed by the provisions of the general acceptable method of transmitting and
corporation law of the State of Delaware. executing a proxy.
ACTION BY WRITTEN CONSENT ACTION BY WRITTEN CONSENT
The Declaration also authorizes Maryland Law provides that any action
shareholders to take action without a required or permitted to be taken at a
meeting and without prior notice if written stockholders' meeting may be taken
consents setting forth the action taken are without a meeting, if a unanimous written
signed by the holders of all outstanding consent is signed by each stockholder
shares entitled to vote on that action. entitled to vote on the matter.
The Declaration also authorizes the board The By-Laws authorize stockholders to
of trustees or any committee of the board take action without a meeting if all
of trustees to take action without a stockholders entitled to vote consent in
meeting and without prior written notice if writing and all stockholders entitled to
written consents setting forth the action notice of the meeting, but not entitled to
taken are executed by trustees having the vote, sign a written waiver of any right to
number of votes necessary to take that dissent.
action at a meeting at which the entire
board of trustees or any committee The By-Laws provide that the board or
thereof, is present and voting. any committee of the board may act by
written consent signed by all the members
of the board or committee, respectively.
B-9
Delaware Business Trust Maryland Corporation
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REMOVAL OF The governing instrument of a DBT may Under Maryland Law, unless otherwise
TRUSTEES/DIRECTORS contain any provision relating to the provided in the charter, a director may
removal of trustees; provided however, generally be removed with or without
that there shall at all times be at least one cause by the vote of a majority of all the
trustee of the DBT. votes entitled to be cast generally for the
election of directors unless (i) such
Under the Declaration, any trustee may be director is elected by a certain class or
removed, with or without cause, by the series, (ii) the charter provides for
Shareholders, upon the vote of the holders cumulative voting or (iii) the board is
of 75% of the outstanding shares entitled classified.
to vote.
Under the Charter, a director may be
removed with or without cause by holders
of 75% 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 ON Vacancies in any class of trustees may be Under Maryland law stockholders may
BOARD OF filled by a majority vote of the trustees elect persons to fill vacancies that result
TRUSTEES/DIRECTORS then in office, regardless of the number from the removal of directors. Unless the
and even if less than a quorum, unless a charter or by-laws provide otherwise, a
special meeting of shareholders is called majority of the directors in office, whether
for the purpose of filling such vacancies, or not comprising a quorum, may fill
in which case, such vacancies shall be vacancies that result from any cause
filled in the same manner as an election of except an increase in the number 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 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.
B-10
DELAWARE BUSINESS TRUST MARYLAND CORPORATION
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SHAREHOLDER Under the Delaware Act, except to the The stockholders of a corporation are not
LIABILITY extent otherwise provided in the liable 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/DIRECTOR Subject to the provisions in the governing Maryland Law requires a director to
LIABILITY instrument, the Delaware Act provides perform his or her duties in good faith, in
that a trustee or any other person a manner he or she reasonably believes to
managing the DBT, when acting in such be in the best interests of the corporation
capacity, will not be personally liable to and with the care that an ordinarily
any person other than the DBT or a prudent person in a like position would
shareholder of the DBT for any act, use under similar circumstances. A
omission or obligation of the DBT or any director who performs his or her duties in
trustee. To the extent that at law or in accordance with this standard has no
equity, a trustee has duties (including liability to the corporation, its
fiduciary duties) and liabilities to the DBT stockholders or to third persons by reason
and its shareholders, such duties and of being or having been a director. A
liabilities may be expanded or restricted corporation may include in its charter a
by the governing instrument. provision expanding or limiting the
liability of its directors and officers for
The Declaration provides that any person money damages to the corporation or its
who is or was a trustee, officer, employee stockholders, provided however, that
or other agent of the Trust or is or was liability may not be limited to the extent
serving at the request of the Trust as a the person has received an improper
trustee, director, officer, employee or benefit or profit in money, property or
other agent of another corporation, services or where such person has been
partnership, joint venture, trust or other actively and deliberately dishonest.
enterprise (an "Agent") will be liable to
the Trust and to any shareholder solely for The Charter expressly provides that no
such Agent's own willful misfeasance, director or officer shall be protected from
bad faith, gross negligence or reckless liability to the Corporation and its
disregard of the duties involved in the stockholders to which such person would
conduct of such Agent (such conduct otherwise be subject by reason of willful
referred to as "Disqualifying Conduct"). misfeasance, bad faith, gross negligence
Subject to the preceding sentence, Agents or reckless disregard of the duties
B-11
Delaware Business Trust Maryland Corporation
----------------------- --------------------
will not be liable for any act or omission involved in the conduct of such person's
of any other Agent or any investment office.
adviser or principal underwriter of the
Trust. No Agent, when acting in such
capacity, shall be personally liable to any
person (other 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 restrictions Unless limited by its charter, Maryland
contained in the governing instrument of a Law requires a corporation to indemnify a
DBT, the Delaware Act authorizes a DBT director or officer who has successfully
to indemnify and hold harmless any defended a proceeding to which such
trustee, shareholder or other person from person was a party because of such
and against any and all claims and person's service in such capacity, against
demands. reasonable expenses incurred in
connection with the proceeding.
Pursuant to the Declaration, the Trust will
indemnify any Agent who was or is a Maryland Law permits a corporation to
party or is threatened to be made a party to indemnify a director, officer, employee or
any proceeding by reason of such Agent's agent who is a party or threatened to be a
capacity, against attorneys' fees and other party, by reason of service in that
certain expenses, judgments, fines, capacity, to any threatened, pending or
settlements and other amounts incurred in completed action, suit or proceeding,
connection with such proceeding if such against judgments, penalties, fines,
Agent acted in good faith or in the case of settlements and reasonable expenses
a criminal proceeding, had no reasonable unless it is established that (i) the act or
cause to believe such Agent's conduct was omission of such person was material to
unlawful. However, there is no right to the matter giving rise to the proceeding,
indemnification for any liability arising and was committed in bad faith or was the
from the Agent's Disqualifying Conduct. result of active and deliberate dishonesty;
As to any matter for which such Agent is (ii) such person actually received an
found to be liable in the performance of improper personal benefit; or (iii) such
such Agent's duty to the Trust or its person had reasonable cause to believe
shareholders indemnification will be made that the act or omission was unlawful.
only to the extent that the court in which This permissible indemnification
that action was brought determines that in obligation may become mandatory or may
view of all the circumstances of the case, be prohibited through a corporation's
the Agent was not liable by reason of such charter, by-laws, a board resolution or
Agent's Disqualifying Conduct. another agreement. However, if the
proceeding is a derivative suit, the
Expenses incurred by an Agent in corporation may not indemnify a person
defending any proceeding may be who has been adjudged to be liable to the
advanced by the Trust before the final corporation. Corporations are authorized
disposition of the proceeding on receipt of to advance payment of reasonable
an undertaking by or on behalf of the expenses.
Agent to repay the amount of the advance
if it is ultimately determined that the The Charter provides that the Corporation
Agent is not entitled to indemnification by shall, to the full extent permitted by
the Trust. Maryland Law, indemnify all persons
whom it may indemnify under Maryland
B-12
DELAWARE BUSINESS TRUST MARYLAND CORPORATION
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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.
INSURANCE The Delaware Act is silent as to the right A corporation may purchase insurance on
of a DBT to purchase insurance on behalf behalf of any person who is or was a
of its trustees or other persons. However, director, officer, employee or agent
as the policy of the Delaware Act is to against any liability asserted against and
give maximum effect to the principle of incurred by such person in any such
freedom of contract and to the capacity whether or not the corporation
enforceability of governing instruments, would have the power to indemnify such
the Declaration authorizes the board of person against such liability.
trustees, to the fullest extent permitted by
applicable law, to purchase with Trust The By-Laws authorize the Corporation to
assets, insurance for liability and for all purchase insurance on behalf of any
expenses of an Agent in connection with person who is or was a director, officer,
any proceeding in which such Agent employee or agent against any liability
becomes involved by virtue of such asserted against and incurred by such
Agent's actions, or omissions to act, in its person in any such capacity. However, no
capacity or former capacity with the Trust, insurance may be purchased which would
whether or not the Trust would have the indemnify any director or officer against
power to indemnify such Agent against any liability to the Corporation or its
such liability. 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 such person's
office.
SHAREHOLDER Under the Delaware Act, except to the Under Maryland Law, a stockholder may
RIGHT OF extent otherwise provided in the inspect, during usual business hours, the
INSPECTION governing instrument and subject to corporation's by-laws, stockholder
reasonable standards established by the proceeding minutes, annual statements of
trustees, each shareholder has the right, affairs, voting trust agreements and, if the
upon reasonable demand for any purpose corporation is not an open-end investment
reasonably related to the shareholder's company, a statement showing all stock
interest as a shareholder, to obtain from and securities issued by the corporation
the DBT certain information regarding the for the previous 12 months. In addition,
governance and affairs of the DBT. stockholders who have individually or
B-13
DELAWARE BUSINESS TRUST MARYLAND CORPORATION
----------------------- --------------------
Under the Declaration, a shareholder, together been holders of at least 5% of the
upon reasonable written demand to the outstanding stock of any class for at least
Trust for any purpose reasonably related 6 months, may inspect the corporation's
to such shareholder's interest as a books of accounts, its stock ledger and its
shareholder, may inspect certain statement of affairs. Although not
information as to the governance and expressly required by the Maryland
affairs of the Trust during regular business statute, Maryland courts have engrafted a
hours. However, reasonable standards proper purpose requirement upon this
governing, without limitation, the statutory right.
information and documents to be
furnished and the time and location of The Charter grants stockholders inspection
furnishing the same, will be established by rights only to the extent provided by
the board or any officer to whom such Maryland Law. Such rights are subject to
power is delegated in the By-Laws. In reasonable regulations of the board of
addition, as permitted by the Delaware directors not 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
third party to keep confidential.
DERIVATIVE Under the Delaware Act, a shareholder Under Maryland Law, in order to bring a
ACTIONS may bring a derivative action if trustees derivative action, a stockholder (or his
with authority to do so have refused to predecessor if he became a stockholder by
bring the action or if a demand upon the operation of law) must be a stockholder
trustees to bring the action is not likely to (a) at the time of the acts or omissions
succeed. A shareholder may bring a complained about; (b) at the time the
derivative action only if the shareholder is action is brought and (c) until the
a shareholder at the time the action is completion of the litigation. A derivative
brought and: (i) was a shareholder at the action may be brought by a stockholder if
time of the transaction complained about (i) a demand upon the board of directors to
or (ii) acquired the status of shareholder bring the action is improperly refused or
by operation of law or pursuant to the (ii) a request upon the board of directors
governing instrument from a person who would be futile.
was a shareholder at the time of the
transaction. A shareholder's right to bring Under Maryland Law, a director of an
a derivative action may be subject to such investment company who "is not an
additional standards and restrictions, if interested person, as defined by the
any, as are set forth in the governing Investment Company Act of 1940, shall
instrument. be deemed to be independent and
disinterested when making any
The Declaration provides that, subject to determination or taking any action as a
the requirements set forth in the Delaware director."
Act, a shareholder may bring a derivative
action on behalf of the Trust only if the
shareholder first makes a pre-suit demand
B-14
DELAWARE BUSINESS TRUST MARYLAND CORPORATION
----------------------- --------------------
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-15
EXHIBIT C
FUNDAMENTAL INVESTMENT RESTRICTIONS PROPOSED
TO BE AMENDED OR ELIMINATED
PROPOSAL CURRENT FUNDAMENTAL PROPOSED FUNDAMENTAL
OR SUB- INVESTMENT INVESTMENT RESTRICTION INVESTMENT RESTRICTION
PROPOSAL RESTRICTION The Fund may not: The Fund may not:
-------------------------------------------------------------------------------------------------------
3a Borrowing and Issue senior securities, borrow money Borrow money or issue senior
Issuing Senior or pledge its assets, except that the securities, except to the extent
Securities Fund may borrow from a bank (i) for permitted by the 1940 Act or any
temporary or emergency purposes, or rules, exemptions or
(ii) to finance repurchase of its shares, interpretations thereunder that
in amounts not exceeding 5% (taken at may be adopted, granted or issued
the lower of cost or current value) of by the SEC.
its total assets (not including the
amount borrowed), and may also
pledge its assets to secure such
borrowings.
-------------------------------------------------------------------------------------------------------
3b Industry Invest 25% or more of the total value Invest more than 25% of its net
Concentration of its assets in a particular industry; assets in securities of issuers in
provided however, that the foregoing any one industry; provided that
restriction shall not be deemed to this limitation (i) shall not apply
prohibit the Fund from purchasing the with respect to securities issued or
securities of any issuer pursuant to the guaranteed by the U.S.
exercise of rights distributed to the government or by its agencies or
Fund by the issuer. instrumentalities or securities of
other investment companies and
(ii) shall not be deemed to prohibit
the Fund from purchasing the
securities of any issuer pursuant to
the exercise of rights distributed to
the Fund by the issuer.
-------------------------------------------------------------------------------------------------------
3c Commodities Buy or sell commodities or Purchase or sell commodities as
commodity contracts . . .,except that it defined in the Commodity
may purchase and sell futures Exchange Act, as amended, and
contracts on stock indices and foreign the rules and regulations
currencies, securities which are thereunder, unless acquired as a
secured by . . . commodities, and result of ownership of securities or
securities of companies which invest other instruments and provided
or deal in . . . commodities. that this restriction 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.
-------------------------------------------------------------------------------------------------------
C-1
PROPOSAL CURRENT FUNDAMENTAL PROPOSED FUNDAMENTAL
OR SUB- INVESTMENT INVESTMENT RESTRICTION INVESTMENT RESTRICTION
PROPOSAL RESTRICTION The Fund may not: The Fund may not:
--------------------------------------------------------------------------------------------------------
3d Real Estate Buy or sell . . . real estate or interests Purchase or sell real estate unless
in real estate, except that it may acquired as a result of ownership
purchase and sell . . . securities which of securities or other instruments
are secured by real estate . . . and and provided that this restriction
securities of companies which invest does not prevent the Fund from
or deal in real estate . . . . investing in issuers which invest,
deal, or otherwise engage in
transactions in real estate or
interests therein, or investing in
securities that are secured by real
estate or interests therein.
--------------------------------------------------------------------------------------------------------
3e Lending Make loans, except through Make loans to other persons
repurchase agreements to the extent except (a) through the lending of
permitted under applicable law. its portfolio securities, (b) through
the purchase of debt securities,
loan participations and/or
engaging in direct corporate loans
in accordance with its investment
objectives and policies, and (c) to
the extent the entry into a
repurchase agreement is deemed
to be a loan. The Fund may also
make loans to other investment
companies to the extent permitted
by the 1940 Act or any
exemptions therefrom which may
be granted by the SEC.
--------------------------------------------------------------------------------------------------------
4 Margin Purchase securities on margin, except Proposed to be eliminated.
such short-term credits as may be
necessary for clearance of transactions
and the maintenance of margin with
respect to futures contracts.
--------------------------------------------------------------------------------------------------------
4 Short Sales Make short sales of securities or Proposed to be eliminated.
maintain a short position.
--------------------------------------------------------------------------------------------------------
4 Non-Publicly Invest in securities which are not Proposed to be eliminated.
Traded, publicly traded, which cannot be
Restricted and readily resold because of legal or
Illiquid contractual restrictions or which are
Securities not otherwise readily marketable
(including repurchase agreements
having more than seven days
remaining to maturity) if, regarding all
such securities, more than 25% of its
total assets (taken at current value)
would be invested in such securities.
--------------------------------------------------------------------------------------------------------
C-2
TLEMF PROXY 07/02
TEMPLETON EMERGING MARKETS FUND, INC.
ANNUAL MEETING OF SHAREHOLDERS - AUGUST 26, 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 Emerging Markets 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, Fort
Lauderdale, Florida 33394 at 4:00 p.m., Eastern time, on the 26th day of August
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 (INCLUDING ALL NOMINEES FOR DIRECTOR), 2, 3 (INCLUDING 5 SUB-PROPOSALS) AND
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 VOTES AS
INDICATED IN THIS
EXAMPLE [X]
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSALS 1 THROUGH 4.
FOR ALL
Proposal 1 - Election of Directors.
FOR all nominees WITHHOLD Nominees: 01 Harris J. Ashton, 02 Nicholas F. Brady,
listed (except as AUTHORITY 03 Frank J. Crothers, 04 S. Joseph Fortunato and
marked to the right) to vote for all 05 Edith E. Holiday
nominees listed
[ ] [ ] TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, WRITE THAT NOMINEE'S NAME ON THE LINE
BELOW.
------------------------------------------------------------
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.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Proposal 3 - To approve amendments to certain of the Fund's fundamental
investment restrictions (includes five (5) Sub-Proposals):
3a. To amend the Fund's fundamental investment restriction
regarding borrowing and issuing senior securities.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3b. To amend the Fund's fundamental investment restriction
regarding industry concentration.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3c. To amend the Fund's fundamental investment restriction
regarding investments in commodities.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3d. To amend the Fund's fundamental investment restriction
regarding investments in real estate.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3e. To amend the Fund's fundamental investment restriction
regarding lending.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Proposal 4 - To approve the elimination of certain of the Fund's fundamental
investment restrictions.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
I PLAN TO ATTEND THE MEETING. YES NO
[ ] [ ]
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