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
[ X] Definitive proxy statement permitted Rule 14a-6(e)(2)
[ ] Definitive additional materials
[ ] Soliciting material pursuant to 240.14a-11(c) or 240.14a-12
(Name of Registrant as Specified in Its Charter)
TEMPLETON DRAGON FUND, INC.
(Name of Person(s) Filing Proxy Statement)
TEMPLETON DRAGON FUND, INC.
Payment of filing fee (Check the appropriate box):
[X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and O-11.
(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 material.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identifying 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:
<PAGE>
TEMPLETON DRAGON FUND, INC.
IMPORTANT SHAREHOLDER INFORMATION
This document announces the date, time and location of the annual shareholders
meeting, identifies the proposals to be voted on at the meeting, and contains
your proxy statement and proxy card. A proxy card is, in essence, a ballot. When
you vote your proxy, it tells us how you wish to vote on important issues
relating to your fund. If you complete and sign the proxy, we'll vote it exactly
as you tell us. If you simply sign the proxy, we'll vote it in accordance with
the Directors' recommendations on page 1.
WE URGE YOU TO REVIEW THE PROXY STATEMENT CAREFULLY. THEN, FILL OUT YOUR
PROXY CARD AND RETURN IT TO US. WHEN SHAREHOLDERS DON'T RETURN THEIR PROXIES
IN SUFFICIENT NUMBERS, WE HAVE TO INCUR THE EXPENSE OF FOLLOW-UP
SOLICITATIONS, WHICH CAN COST YOUR FUND MONEY. WE WANT TO KNOW HOW YOU WOULD
LIKE TO VOTE AND WELCOME YOUR COMMENTS. PLEASE TAKE A FEW MINUTES WITH THESE
MATERIALS AND RETURN YOUR PROXY TO US. IF YOU HAVE ANY QUESTIONS, CALL THE
FUND INFORMATION DEPARTMENT AT 1-800/DIAL BEN.
<PAGE>
TEMPLETON DRAGON FUND, INC.
NOTICE OF 1997 ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting ("Meeting") of shareholders of Templeton Dragon Fund, Inc.
(the "Fund") will be held at 500 East Broward Boulevard, 12th Floor, Ft.
Lauderdale, Florida 33394-3091 on Tuesday, September 23, 1997 at 2:00 PM (EDT).
During the Meeting, shareholders of the Fund will vote on four proposals:
1. The election of Directors of the Fund to hold office for the terms
specified;
2. The ratification or rejection of the selection of McGladrey & Pullen,
LLP as independent auditors of the Fund for the fiscal year ending March 31,
1998;
3. The approval or rejection of a shareholder proposal to request and
recommend that the Board of Directors consider approving, and submitting for
shareholder approval, a proposal to convert the Fund from a closed-end fund to
an interval fund; and
4. The transaction of any other business as may properly come before the
Meeting.
By order of the Board of Directors,
Barbara J. Green,
Secretary
August 1, 1997
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. JAPANESE SHAREHOLDERS OF THE FUND SHOULD BE AWARE THAT JAPAN
SECURITIES CLEARING CORPORATION MAY EXERCISE A VOTE ON PROPOSALS 1 AND 2 ON YOUR
BEHALF IF YOU DO NOT RETURN A PROXY CARD.
1
<PAGE>
TEMPLETON DRAGON FUND, INC.
PROXY STATEMENT
INFORMATION ABOUT VOTING:
WHO IS ELIGIBLE TO VOTE?
Shareholders of record at the close of business on June 27, 1997 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 all matters presented at the Meeting. The
Notice of Meeting, the proxy, and the proxy statement were mailed to
shareholders of record on or about August 1, 1997. ON WHAT ISSUES AM I BEING
ASKED TO VOTE? You are being asked to vote on four proposals:
1. The election of five nominees to the position of Director;
2. The ratification or rejection of the selection of McGladrey & Pullen, LLP
as independent auditors of the Fund for the fiscal year ending March 31,
1998;
3. The approval or rejection of a shareholder proposal to request and recommend
that the Board of Directors consider approving, and submitting for shareholder
approval, a proposal to convert the Fund from a closed-end fund to an interval
fund; and
4. The transaction of any other business that may properly come before the
Meeting.
2
<PAGE>
HOW DO THE FUND'S DIRECTORS RECOMMEND THAT I VOTE?
The Directors unanimously recommend that you vote:
1. FOR the election of nominees;
2. FOR the ratification of the selection of McGladrey & Pullen, LLP as
independent auditors for the Fund;
3. AGAINST the shareholder proposal that the Board of Directors consider
approving, and submitting for shareholder approval, a proposal to convert the
Fund from a closed-end fund to an interval fund; and
4. FOR the proxyholders to vote, in their discretion, on any other business
that may properly come before the Meeting.
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
attached proxy. Proxies that are properly signed, dated and received by the
close of business on Monday, September 22, 1997 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 indicated. If you simply sign and date the proxy, but don't specify
a vote for any of the proposals 1 through 4, your shares will be voted in favor
of the nominees for Director (Proposal 1), in favor of ratifying the selection
of McGladrey & Pullen, LLP as independent auditors (Proposal 2), against the
shareholder proposal that the Board of Directors consider approving, and
submitting for shareholder approval, a proposal to convert the Fund from a
closed-end fund to an interval fund (Proposal 3), and/or in accordance with the
discretion of the persons named in the proxy as to any other matters (Proposal
4). CAN I REVOKE MY PROXY? You may revoke your proxy at any time before it is
voted by (1) delivering a written revocation to the Secretary of the Fund, (2)
forwarding to the Fund a later-dated proxy that is received by the Fund at or
prior to the Meeting, or (3) attending the Meeting and voting in person.
3
<PAGE>
THE PROPOSALS:
1. ELECTION OF DIRECTORS:
HOW ARE NOMINEES SELECTED?
The Board of Directors of the Fund (the "Board") has a standing Nominating and
Compensation Committee (the "Committee") consisting of Andrew H. Hines, Jr. and
Gordon S. Macklin. The Committee is responsible for the selection, nomination
for appointment and election 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 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 and each year the term of
office of one class expires. John Wm. Galbraith, Betty P. Krahmer, Gordon S.
Macklin and Fred R. Millsaps have been nominated for three-year terms, set to
expire at the 2000 Annual Meeting of Shareholders. Edith E. Holiday has been
nominated for a one-year term, set to expire at the 1998 Annual Meeting of
Shareholders. These terms continue, however, until successors are duly elected
and qualified. In addition, all of the nominees are currently members of the
Board and all of the current Directors are also directors or trustees of other
investment companies in the Franklin Group of Funds and the Templeton Group of
Funds (the "Franklin Templeton Group of Funds"). Certain nominees and 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 19% and 15%, respectively, of its
outstanding shares. Resources 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).
The Fund's investment manager and fund administrator are indirect wholly-owned
subsidiaries of Resources. There are no family relationships among any of the
Directors or nominees for Director.
4
<PAGE>
Each nominee is currently available and has consented to serve if elected. If
any of the nominees should become unavailable, the persons named in the proxy
will vote in their discretion for another person or other persons who may be
nominated as Directors. Listed below, for each nominee and Director, is a brief
description of recent professional experience, as well as each such person's
ownership of shares of the Fund and shares of all funds in the Franklin
Templeton Group of Funds:
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED IN THE
FRANKLIN
SHARES OWNED TEMPLETON
BENEFICIALLY IN THE GROUP OF FUNDS
PRINCIPAL OCCUPATION FUND AND % OF TOTAL (INCLUDING THE
NAME AND OFFICES DURING PAST FIVE OUTSTANDING ON FUND) AS OF
WITH THE FUND YEARS AND AGE MAY 31, 1997 APRIL 18, 1997
- ----------------------------- ------------------------------------- ------------------- --------------
<S> <C> <C> <C>
NOMINEES TO SERVE UNTIL 2000 ANNUAL MEETING OF SHAREHOLDERS:
JOHN WM. GALBRAITH President of Galbraith Properties, 1,029(**) 2,359,596
Director since 1995 Inc. (personal investment company);
director of Gulf West Banks, Inc.
(bank holding company)
(1995-present); formerly, director of
Mercantile Bank (1991-1995), vice
chairman of Templeton, Galbraith &
Hansberger Ltd. (1986-1992), and
chairman of Templeton Funds
Management, Inc. (1974-1991); and
director or trustee, as the case may
be, of 22 of the investment companies
in the Franklin Templeton Group of
Funds.
Age 75.
BETTY P. KRAHMER Director or trustee of various civic 9,000(**) 87,791
Director since 1994 associations; formerly, economic
analyst, U.S. government; and
director or trustee of 23 of the
investment companies in the Franklin
Templeton Group of Funds. Age 68.
5
<PAGE>
SHARES
BENEFICIALLY
OWNED IN THE
FRANKLIN
SHARES OWNED TEMPLETON
BENEFICIALLY IN THE GROUP OF FUNDS
PRINCIPAL OCCUPATION FUND AND % OF TOTAL (INCLUDING THE
NAME AND OFFICES DURING PAST FIVE OUTSTANDING ON FUND) AS OF
WITH THE FUND YEARS AND AGE MAY 31, 1997 APRIL 18, 1997
- ----------------------------- ------------------------------------- ------------------- --------------
GORDON S. MACKLIN Chairman of White River Corporation 2,000(**) 165,409
Director since 1994 (financial services); director of
Fund American Enterprises Holdings,
Inc., MCI Communications Corporation,
CCC Information Services Group, Inc.
(information services), MedImmune,
Inc. (biotechnology), Shoppers
Express, Inc. (home shopping) and
Spacehab, Inc. (aerospace
technology); formerly, chairman of
Hambrecht and Quist Group; director
of H&Q Healthcare Investors, and
president of the National Association
of Securities Dealers, Inc.; and
director or trustee, as the case may
be, of 50 of the investment companies
in the Franklin Templeton Group of
Funds. Age 69.
FRED R. MILLSAPS Manager of personal investments 0 495,283
Director since 1994 (1978-present); director of various
business and nonprofit organizations; formerly,
chairman and chief executive officer of Landmark
Banking Corporation (1969-1978), financial vice
president of Florida Power and Light (1965-1969),
and vice president of The Federal Reserve Bank of
Atlanta (1958-1965); and director or trustee, as
the case may be, of 24 of the investment companies
in the Franklin Templeton Group of Funds.
Age 68.
6
<PAGE>
SHARES
BENEFICIALLY
OWNED IN THE
FRANKLIN
SHARES OWNED TEMPLETON
BENEFICIALLY IN THE GROUP OF FUNDS
PRINCIPAL OCCUPATION FUND AND % OF TOTAL (INCLUDING THE
NAME AND OFFICES DURING PAST FIVE OUTSTANDING ON FUND) AS OF
WITH THE FUND YEARS AND AGE MAY 31, 1997 APRIL 18, 1997
- ----------------------------- ------------------------------------- ------------------- --------------
DIRECTORS SERVING UNTIL 1999 ANNUAL MEETING OF SHAREHOLDERS:
HARRIS J. ASHTON Chairman of the board, president and 500(**) 270,600
Director since 1994 chief executive officer of General
Host Corporation (nursery and craft centers);
director of RBC Holdings Inc. (a bank holding
company) and Bar-S Foods (a meat packing company);
and director or trustee, as the case may be, of 53
of the investment companies in the Franklin
Templeton Group of Funds. Age 65.
NICHOLAS F. BRADY* Chairman of Templeton Emerging 0 17,805
Director since 1994 Markets Investment Trust PLC;
chairman of Templeton Latin America Investment
Trust PLC; chairman of Darby Overseas Investments,
Ltd. (an investment firm) (1994-present); chairman
and director of Templeton Central and Eastern
European Investment Company; director of the
Amerada Hess Corporation, Christiana Companies,
and the H.J. Heinz Company; formerly, Secretary of
the United States Department of the Treasury
(1988-1993) and chairman of the board of Dillon,
Read & Co. Inc. (investment banking) prior to
1988; and director or trustee, as the case may be,
of 23 of the investment companies in the Franklin
Templeton Group of Funds. Age 67.
7
<PAGE>
SHARES
BENEFICIALLY
OWNED IN THE
FRANKLIN
SHARES OWNED TEMPLETON
BENEFICIALLY IN THE GROUP OF FUNDS
PRINCIPAL OCCUPATION FUND AND % OF TOTAL (INCLUDING THE
NAME AND OFFICES DURING PAST FIVE OUTSTANDING ON FUND) AS OF
WITH THE FUND YEARS AND AGE MAY 31, 1997 APRIL 18, 1997
- ----------------------------- ------------------------------------- ------------------- --------------
S. JOSEPH FORTUNATO Member of the law firm of Pitney, 100(**) 372,998
Director since 1994 Hardin, Kipp & Szuch; director of
General Host Corporation (nursery and
craft centers); and director or
trustee, as the case may be, of 55 of
the investment companies in the
Franklin Templeton Group of Funds.
Age 65.
NOMINEE TO SERVE UNTIL 1998 ANNUAL MEETING OF SHAREHOLDERS:
EDITH E. HOLIDAY Director (1993-present) of Amerada 0 248
Director since 1996 Hess Corporation and Hercules
Incorporated; director of Beverly
Enterprises, Inc. (1995-present) and
H.J. Heinz Company (1994-present);
chairman (1995-present) and trustee
(1993-present) of National Child
Research Center; 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); and director or trustee
as the case may be, of 16 of the
investment companies in the Franklin
Templeton Group of Funds.
Age 45.
8
<PAGE>
SHARES
BENEFICIALLY
OWNED IN THE
FRANKLIN
SHARES OWNED TEMPLETON
BENEFICIALLY IN THE GROUP OF FUNDS
PRINCIPAL OCCUPATION FUND AND % OF TOTAL (INCLUDING THE
NAME AND OFFICES DURING PAST FIVE OUTSTANDING ON FUND) AS OF
WITH THE FUND YEARS AND AGE MAY 31, 1997 APRIL 18, 1997
- ----------------------------- ------------------------------------- ------------------- --------------
DIRECTORS SERVING UNTIL 1998 ANNUAL MEETING OF SHAREHOLDERS:
MARTIN L. FLANAGAN* Senior vice president, treasurer and 1,000(**) 2,803
Director and Vice President chief financial officer of Franklin
since 1994 Resources, Inc.; director and
executive vice president of Templeton Worldwide,
Inc.; director, executive vice president and chief
operating officer of Templeton Investment Counsel,
Inc.; senior vice president and treasurer of
Franklin Advisers, Inc.; treasurer of Franklin
Advisory Services, Inc.; treasurer and chief
financial officer of Franklin Investment Advisory
Services, Inc.; president of Franklin Templeton
Services, Inc.; senior vice president of Franklin/
Templeton Investor Services, Inc.; and officer
and/or director or trustee, as the case may be, of
58 of the investment companies in the Franklin
Templeton Group of Funds. Age 37.
9
<PAGE>
SHARES
BENEFICIALLY
OWNED IN THE
FRANKLIN
SHARES OWNED TEMPLETON
BENEFICIALLY IN THE GROUP OF FUNDS
PRINCIPAL OCCUPATION FUND AND % OF TOTAL (INCLUDING THE
NAME AND OFFICES DURING PAST FIVE OUTSTANDING ON FUND) AS OF
WITH THE FUND YEARS AND AGE MAY 31, 1997 APRIL 18, 1997
- ----------------------------- ------------------------------------- ------------------- --------------
ANDREW H. HINES, JR. Consultant for the Triangle 0 27,488
Director since 1994 Consulting Group; executive-
in-residence of Eckerd College (1991-present);
formerly, chairman of the board and chief
executive officer of Florida Progress Corporation
(1982-1990) and director of various of its
subsidiaries; and director or trustee, as the case
may be, of 24 of the investment companies in the
Franklin Templeton Group of Funds.
Age 74.
CHARLES B. JOHNSON* President, chief executive officer, 10,000 (**) 2,086,567
Chairman of the Board since and director of Franklin Resources,
1995 and Vice President Inc.; chairman of the board and director of
since 1994 Franklin Advisers, Inc.,
Franklin Investment Advisory Services, Inc.,
Franklin Advisory Services, Inc., and Franklin
Templeton Distributors, Inc.; director of
Franklin/Templeton Investor Services, Inc.,
Franklin Templeton Services, Inc., and General
Host Corporation (nursery and craft centers); and
officer and/or director or trustee, as the case
may be, of most of the other subsidiaries of
Franklin Resources, Inc. and 54 of the investment
companies in the Franklin Templeton Group of
Funds. Age 64.
</TABLE>
10
<PAGE>
* Nicholas F. Brady, Martin L. Flanagan, and Charles B. Johnson are
"interested persons" as defined by the Investment Company Act of 1940 (the
"1940 Act"). The 1940 Act limits the percentage of interested persons that
can comprise a fund's board of directors. Mr. Johnson is an interested person
due to his ownership interest in Resources. Mr. Flanagan is an interested
person due to his employment affiliation with Resources. 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 established Darby Overseas in February 1994, and is Chairman and
shareholder of 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. The remaining nominees and Directors of the
Fund are not interested persons (the "Independent Directors").
** Less than 1%.
HOW OFTEN DO THE DIRECTORS MEET AND WHAT ARE THEY PAID? The Directors generally
meet quarterly to review the operations of the Fund and other funds within the
Franklin Templeton Group of Funds. Each fund pays its independent
directors/trustees and Mr. Brady an annual retainer and/or fees for attendance
at board and committee meetings. This compensation is based on the total net
assets in each fund. Accordingly, the Fund pays the Independent Directors and
Mr. Brady an annual retainer of $6,000 and a fee of $500 per meeting of the
Board and its portion of a flat fee of $2,000 for each Audit Committee and/or
Nominating and Compensation Committee meeting attended. Independent Directors
and Mr. Brady are reimbursed by the Fund for any expenses incurred in attending
Board and Committee meetings. During the fiscal year ended March 31, 1997, there
were five meetings of the Board, two meetings of the Nominating and Compensation
Committee, and one meeting of the Audit Committee. Each of the Directors then in
office attended at least 75% of the total number of meetings of the Board and
the Audit Committee throughout the year. There was 100% attendance at the
meetings of the Nominating and Compensation Committee. 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 from the Franklin Templeton Group of Funds by Templeton Asset
Management Ltd. - Hong Kong Branch (the "Investment Manager") and its
affiliates. 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.
11
<PAGE>
The following table shows the compensation paid to Independent Directors and Mr.
Brady by the Fund and by the Franklin Templeton Group of Funds:
<TABLE>
<CAPTION>
AGGREGATE NUMBER OF BOARDS WITHIN THE TOTAL COMPENSATION FROM
COMPENSATION FRANKLIN TEMPLETON GROUP OF THE FRANKLIN TEMPLETON
NAME OF DIRECTOR FROM THE FUND* FUNDS ON WHICH DIRECTOR SERVES GROUP OF FUNDS**
- --------------------- -------------- ------------------------------ -----------------------
<S> <C> <C> <C>
Harris J. Ashton $7,050 53 $343,592
F. Bruce Clarke*** 4,518 0 69,500
Andrew H. Hines, Jr. 8,518 24 130,525
Hasso-G von
Diergardt-Naglo**** 1,700 0 66,375
Betty P. Krahmer 7,050 23 119,275
Fred R. Millsaps 8,518 24 130,525
S. Joseph Fortunato 7,050 55 360,412
Gordon S. Macklin 7,050 50 335,542
John Wm. Galbraith 8,168 22 102,475
Nicholas F. Brady 7,050 23 119,275
Edith E. Holiday***** 4,000 16 15,450
</TABLE>
* For the fiscal year ended March 31, 1997.
** For the calendar year ended December 31, 1996.
*** Mr. Clarke resigned as a Director on October 20, 1996.
**** Mr. von Diergardt-Naglo did not stand for re-election at the July 24,
1996 shareholders meeting.
***** Ms. Holiday was appointed to the Board on December 3, 1996.
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, is a brief description of
recent professional experience:
<TABLE>
<CAPTION>
NAME AND OFFICES PRINCIPAL OCCUPATION
WITH THE FUND DURING PAST FIVE YEARS AND AGE
- ------------------------------------ -------------------------------------------------------------------
<S> <C>
CHARLES B. JOHNSON See Proposal 1, "Election of Directors."
Chairman of the Board since 1995
and Vice President since 1994
J. MARK MOBIUS Portfolio manager of various Templeton advisory affiliates;
President since 1994 managing director of Templeton Asset Management Ltd.; formerly,
president of International Investment Trust
Company Limited (investment manager of
Taiwan R.O.C. Fund) (1986-1987) and
director of Vickers da Costa, Hong Kong
(1983-1986); and officer of 8 of the
investment companies in the Franklin
Templeton Group of Funds.
Age 60.
12
<PAGE>
NAME AND OFFICES PRINCIPAL OCCUPATION
WITH THE FUND DURING PAST FIVE YEARS AND AGE
- ------------------------------------ -------------------------------------------------------------------
RUPERT H. JOHNSON, JR. Executive vice president and director of Franklin Resources, Inc.
Vice President since 1996 and Franklin Templeton Distributors, Inc.; president and director
of Franklin Advisers, Inc.; senior vice
president and director of Franklin Advisory
Services, Inc.; director of
Franklin/Templeton Investor Services, Inc.;
and officer and/or director or trustee, as
the case may be, of most other subsidiaries
of Franklin Resources, Inc. and 58 of the
investment companies in the Franklin
Templeton Group of Funds. Age 56.
HARMON E. BURNS Executive vice president, secretary, and director of Franklin
Vice President since 1996 Resources, Inc.; executive vice president and director of Franklin
Templeton Distributors, Inc. and Franklin
Templeton Services, Inc.; executive vice
president of Franklin Advisers, Inc.;
director of Franklin/Templeton Investor
Services, Inc.; and officer and/or director
or trustee, as the case may be, of most of
the other subsidiaries of Franklin
Resources, Inc. and 58 of the investment
companies in the Franklin Templeton Group
of Funds. Age 52.
CHARLES E. JOHNSON Senior vice president and director of Franklin Resources, Inc.;
Vice President since 1996 senior vice president of Franklin Templeton Distributors, Inc.;
president and director of Templeton
Worldwide, Inc.; president, chief executive
officer, chief investment officer and
director of Franklin Institutional Services
Corporation; chairman and director of
Templeton Investment Counsel, Inc.; vice
president of Franklin Advisers, Inc.;
officer and/or director, of some of the
other subsidiaries of Franklin Resources,
Inc.; and officer and/or director or
trustee, as the case may be, of 37 of the
investment companies in the Franklin
Templeton Group of Funds. Age 41.
DEBORAH R. GATZEK Senior vice president and general counsel of Franklin Resources,
Vice President since 1996 Inc.; senior vice president of Franklin Templeton Services, Inc.
and Franklin Templeton Distributors, Inc.;
vice president of Franklin Advisers, Inc.
and Franklin Advisory Services, Inc.; vice
president, chief legal officer and chief
operating officer of Franklin Investment
Advisory Services, Inc.; and officer of 58
of the investment companies in the Franklin
Templeton Group of Funds.
Age 48.
13
<PAGE>
NAME AND OFFICES PRINCIPAL OCCUPATION
WITH THE FUND DURING PAST FIVE YEARS AND AGE
- ------------------------------------ -------------------------------------------------------------------
MARK G. HOLOWESKO President and director of Templeton Global Advisors Limited; chief
Vice President since 1994 investment officer of global equity research for Templeton
Worldwide, Inc.; president or vice
president, as the case may be, of the
Templeton Funds; formerly, investment
administrator with Roy West Trust
Corporation (Bahamas) Limited (1984-1985);
and officer of 23 of the investment
companies in the Franklin Templeton Group
of Funds. Age 37.
MARTIN L. FLANAGAN See Proposal 1, "Election of Directors."
Vice President and Director
since 1994
SAMUEL J. FORESTER, JR. Vice President of 10 of the investment companies in the Franklin
Vice President since 1994 Templeton Group of Funds; formerly, president of the Templeton
Global Bond Managers Division of Templeton
Investment Counsel, Inc.; founder and
partner of Forester, Hairston Investment
Management (1989-1990), managing director
(Mid-East Region) of Merrill Lynch, Pierce,
Fenner & Smith Inc. (1987-1988) and advisor
for Saudi Arabian Monetary Agency
(1982-1987). Age 49.
JOHN R. KAY Vice president and treasurer of Templeton Worldwide, Inc.;
Vice President since 1994 assistant vice president of Franklin Templeton Distributors, Inc.;
formerly, vice president and controller of
the Keystone Group, Inc.; and officer of 27
of the investment companies in the Franklin
Templeton Group of Funds. Age 57.
ELIZABETH M. KNOBLOCK General counsel, secretary and a senior vice president of Templeton
Vice President-- Investment Counsel, Inc.; senior vice president of Templeton Global
Compliance since 1996 Investors, Inc.; formerly, vice president and associate general
counsel of Kidder Peabody & Co., Inc. (1989-1990), assistant
general counsel of Gruntal & Co., Inc. (1988), vice president and
associate general counsel of Shearson Lehman Hutton Inc. (1988),
vice president and assistant general counsel of E.F. Hutton & Co.
Inc. (1986-1988), and special counsel of the Division of Investment
Management of the U.S. Securities and Exchange Commission
(1984-1986); and officer of 23 of the investment companies in the
Franklin Templeton Group of Funds.
Age 42.
14
<PAGE>
NAME AND OFFICES PRINCIPAL OCCUPATION
WITH THE FUND DURING PAST FIVE YEARS AND AGE
- ------------------------------------ -------------------------------------------------------------------
BARBARA J. GREEN Senior vice president of Templeton Worldwide, Inc.; senior vice
Secretary since 1996 president of Templeton Global Investors, Inc., and an officer of
other subsidiaries of Templeton Worldwide,
Inc.; formerly, deputy director of the
Division of Investment Management,
executive assistant and senior advisor to
the chairman, counsellor to the chairman,
special counsel and attorney fellow, U.S.
Securities and Exchange Commission
(1986-1995), attorney, Rogers & Wells, and
judicial clerk, U.S. District Court
(District of Massachusetts); and secretary
of 23 of the investment companies in the
Franklin Templeton Group of Funds. Age 49.
JAMES R. BAIO Certified public accountant; treasurer of Franklin Mutual Advisers,
Treasurer since 1994 Inc.; senior vice president of Templeton Worldwide, Inc., Templeton
Global Investors, Inc. and Templeton Funds
Trust Company; formerly, senior tax manager
with Ernst & Young (certified public
accountants) (1977-1989); and treasurer of
24 of the investment companies in the
Franklin Templeton Group of Funds. Age 43.
</TABLE>
2. RATIFICATION OR REJECTION OF INDEPENDENT AUDITORS:
HOW IS AN INDEPENDENT AUDITOR SELECTED?
The Board has a standing Audit Committee consisting of Messrs. Galbraith, Hines
and Millsaps, all of whom are Independent Directors. The Audit Committee reviews
generally 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 auditor, and submits a recommendation to the Board as to the
selection of an independent auditor. WHICH INDEPENDENT AUDITOR DID THE BOARD OF
DIRECTORS SELECT? For the current fiscal year, the Board selected as auditors
the firm of McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York 10017.
McGladrey & Pullen, LLP has been the auditor of the Fund since its inception in
1994, and has examined and reported on the fiscal year-end financial statements,
dated March 31, 1997, and certain related Securities and Exchange Commission
filings. Neither the firm of McGladrey & Pullen, LLP nor any of its members have
any material direct or indirect financial interest in the Fund.
15
<PAGE>
Representatives of McGladrey & Pullen, LLP are not expected to be present at the
Meeting, but have been given the opportunity to make a statement if they wish,
and will be available should any matter arise requiring their presence.
3. SHAREHOLDER PROPOSAL THAT THE BOARD CONSIDER APPROVING, AND SUBMITTING FOR
SHAREHOLDER APPROVAL, A PROPOSAL TO CONVERT THE FUND FROM A CLOSED-END FUND TO
AN INTERVAL FUND:
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE AGAINST THIS
PROPOSAL.
WHAT IS BEING CONSIDERED UNDER THIS ITEM?
At the meeting, a shareholder of the Fund will ask you to vote on its proposal
that the Board consider approving, and submitting for approval at a future
shareholder meeting, a proposal to convert the Fund from a closed-end fund to an
interval fund and to establish a fundamental policy requiring the Fund to make
periodic offers to repurchase between 5% and 25% of its outstanding shares at
net asset value. THE DIRECTORS UNANIMOUSLY RECOMMEND THAT YOU VOTE AGAINST THIS
PROPOSAL. THE DIRECTORS BELIEVE THAT THE FUND'S INVESTMENT OBJECTIVES AND
POLICIES ARE ENHANCED BY A CLOSED-END STRUCTURE. A CLOSED-END FUND CAN KEEP ALL
OF ITS ASSETS INVESTED TOWARD MEETING ITS GOALS. BECAUSE AN INTERVAL FUND IS
REQUIRED TO PERIODICALLY BUY BACK SHARES FROM ITS SHAREHOLDERS, IT MUST KEEP ON
HAND CASH OR SECURITIES THAT CAN BE READILY SOLD TO RAISE CASH TO PAY REDEEMING
SHAREHOLDERS. THE DIRECTORS CONTINUE TO BELIEVE THAT THE BEST WAY FOR THE FUND
TO PURSUE LONG-TERM CAPITAL APPRECIATION IS TO IDENTIFY INVESTMENTS IN THE CHINA
REGION ON A COMPANY-BY-COMPANY BASIS AND TO HOLD THESE INVESTMENTS FOR A
SUFFICIENTLY LONG PERIOD OF TIME TO ALLOW THEM TO APPRECIATE IN VALUE. THIS
LONG-TERM INVESTMENT PHILOSOPHY, TOGETHER WITH THE LESS-LIQUID NATURE OF THE
CHINESE SECURITIES MARKET, LED THE BOARD TO ORGANIZE THE FUND AS A CLOSED-END
FUND. THE BOARD AND MANAGEMENT BELIEVE THAT THE CLOSED-END STRUCTURE REMAINS THE
BEST STRUCTURE FOR THE FUND.
16
<PAGE>
HOW DOES AN INTERVAL FUND OPERATE?
An interval fund must operate according to applicable Securities and Exchange
Commission ("SEC") rules. These rules require an interval fund to commit to buy
back its shares from investors at net asset value at periodic intervals of 3, 6,
or 12 months. The periodic repurchase offers must be made pursuant to a
fundamental policy approved by the fund's shareholders. Once a fund adopts a
fundamental policy, it cannot be changed again without shareholder approval.
Periodic repurchase offers must be made to all shareholders. The directors of an
interval fund will decide the actual percentage of shares to be repurchased,
between a minimum of 5%, and a maximum of 25% of the shares outstanding. An
interval fund must hold cash or liquid securities, in an amount at least equal
to the value of the shares to be repurchased, from the notice date of the offer
until the date the fund determines the price at which the shares will be bought.
For more information on Rule 23c-3 and the tax effects of repurchase offers, see
Appendix A, "Summary of Rule 23c-3." WHAT IS THE SHAREHOLDER PROPOSAL? The Fund
has been informed by Newgate Management Associates ("Newgate"), 1995 Broadway,
12th Floor, New York, NY 10023, a shareholder who claims beneficial ownership of
approximately 1,690,000 shares of the Fund as of June 17, 1997, that Newgate
expects to present the following proposal: RESOLVED, that the holders of the
common stock of Templeton Dragon Fund, Inc. (the "Fund") hereby recommend that
the Fund's Board of Directors establish a fundamental policy requiring the Fund
to make repurchase offers for Fund's shares at periodic intervals pursuant to
Rule 23c-3 promulgated under the Investment Company Act of 1940, as such Rule
may be amended from time to time.
17
<PAGE>
Newgate has requested that the following statement be included in the proxy
statement in support of its proposal: The prospectus, dated September 21, 1994,
pursuant to which the Fund offered its Common Stock to the public states, that:
"After March 31, 1996, the Board of Directors of the Fund will consider at its
regularly scheduled quarterly meetings any average discount (calculated on the
basis of the closing price as of the last day of trading each week during the
fiscal quarters) from the net asset value at which the Fund's common stock have
traded during the previous three fiscal quarters. If any such discount, in light
of prevailing market conditions at that time, is deemed to be substantial, then
the Board will consider whether or not any actions to address such discount
should be undertaken." DESPITE THE FACT THAT THE FUND HAS TRADED AT AN AVERAGE
DISCOUNT OF 19.0% FOR THE PAST 52 WEEKS AND AN AVERAGE DISCOUNT OF 15.4% SINCE
THE FUND'S INCEPTION THROUGH JUNE 13, 1997, THE BOARD OF DIRECTORS HAS NOT
ATTEMPTED TO REDUCE THIS DISCOUNT EITHER THROUGH SHARE BUYBACKS OR TENDER OFFERS
OR THE CONVERSION OF THE FUND TO OPEN-END STATUS. If the Fund adopted the
proposed fundamental policy the Fund would become a "closed-end interval fund."
Rule 23c-3, under the Investment Company Act of 1940, provides that closed-end
management investment companies such as the Fund may make periodic and certain
discretionary repurchases of their securities at net asset value. Periodic
repurchases, which may be for
18
<PAGE>
between 5% and 25% of the Fund's outstanding shares must be made pursuant to a
fundamental policy adopted by the Fund. The Board of Directors of the Fund would
determine the interval between repurchase offers and the percentage of Fund
shares subject to repurchases consistent with Rule 23c-3. o Adoption of this
policy would assure shareholders of at least an annual opportunity to obtain net
asset value for at least some of their shares, subject to certain limitations
imposed by Rule 23c-3. o The periodic repurchase offer by the Fund for a portion
of its shares may reduce the discount to net asset value at which shares of the
Fund have historically traded on the NYSE. o In the opinion of the Proponent,
this policy will promote stable portfolio management and maintain the Fund as a
viable investment vehicle for its long-term shareholders. FOR ALL OF THE
FOREGOING REASONS, THE PROPONENT STRONGLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR
THIS PROPOSAL. WHAT IS THE RECOMMENDATION OF THE DIRECTORS? THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE AGAINST THE PROPOSAL.
19
<PAGE>
WHY DO THE DIRECTORS UNANIMOUSLY RECOMMEND A VOTE AGAINST THIS PROPOSAL? The
Directors recommend a vote AGAINST adopting the shareholder proposal for the
following reasons, which are discussed in more detail below: O CHANGING THE
FUND'S STRUCTURE WOULD REQUIRE A CHANGE IN INVESTMENT STRATEGY THAT IS NOT IN
THE BEST INTERESTS OF THE FUND AND ITS SHAREHOLDERS; O THE LIMITED TIME PERIOD
THAT THE FUND HAS BEEN IN OPERATION HAS NOT BEEN LONG ENOUGH TO REALIZE THE FULL
POTENTIAL OF THE FUND'S INVESTMENTS; O CONVERTING TO AN INTERVAL FUND WOULD
INTERFERE WITH AND SERIOUSLY LIMIT THE FUND'S INVESTMENT FLEXIBILITY; O BECAUSE
OF CURRENT MARKET DEVELOPMENTS AND POLITICAL CONDITIONS IN CHINA AND HONG KONG,
CONVERSION TO AN INTERVAL FUND IS INAPPROPRIATE AT THIS TIME; O THE LEVEL OF THE
FUND'S DISCOUNT TO NET ASSET VALUE HAS NOT BEEN UNUSUAL AND HAS BEEN IN THE SAME
RANGE AS THAT OF COMPARABLE CLOSED-END FUNDS; O SIGNIFICANT TAX CONSEQUENCES MAY
RESULT FROM CONVERSION TO AN INTERVAL FUND; O THE FUND'S EXPENSES ARE LIKELY TO
INCREASE IF THE FUND IS CONVERTED TO AN INTERVAL FUND; AND O THE FUND MAY HAVE
TO BORROW TO RAISE THE MONEY NECESSARY TO BUY BACK FUND SHARES, INCREASING THE
RISK OF AN INVESTMENT IN THE FUND.
20
<PAGE>
1. CONVERSION TO AN INTERVAL FUND REQUIRES CHANGES TO THE FUND'S PORTFOLIO
STRUCTURE AND INVESTMENT STRATEGY THAT ARE NOT IN THE BEST INTERESTS OF THE
FUND AND ITS SHAREHOLDERS.
The Directors have reviewed the Fund's discount to net asset value at regularly
scheduled Board meetings. They have, each time, carefully considered whether the
interests of the shareholders, who bought Fund shares because they want to
participate in the investment opportunities presented by <F1> China Companies,1
(1) China Companies are defined in the Fund's prospectus as equity securities of
companies (i) organized under the laws of, or with a principal office in, the
People's Republic of China ("China" or the "PRC") or Hong Kong, or the principal
business activities of which are conducted in China or Hong Kong, or for which
the principal equity securities trading market is in China or Hong Kong, and
(ii) that derive at least 50% of their revenues from goods or services sold or
produced, or have at least 50% of their assets, in China or Hong Kong. are being
well served. They have concluded that share buy-backs, tender offers and other
measures which simply address the discount are not in the interests of the Fund
and its shareholders. The Fund was originally established as a closed-end fund
because of its investment objective: seeking long-term capital appreciation by
investing in China Companies. The long-term nature of the Fund's investment
program was described in the Fund's prospectus. Most shareholders have invested
in Fund shares because of this program. The Investment Manager's approach to
investing the Fund's assets is to purchase shares of companies that are
perceived to have potential to benefit from the growth and opening of the
Chinese markets and from continuing economic integration in Asia. Realizing the
full benefit of these investments is a long-term process, and the Fund has been
in existence for fewer than three years. Converting the Fund to an interval fund
would require the Fund to focus on short-term considerations to facilitate
periodic redemptions. Of course, using the Fund's assets to buy back shares
reduces the asset base which can be deployed to realize the Fund's primary
goals. This short-term focus would be disruptive to the Fund's "buy and hold"
investment program, and therefore is not in the best interests of the Fund and
its shareholders.
21
<PAGE>
2. THE LIMITED TIME PERIOD THAT THE FUND HAS BEEN IN OPERATION HAS NOT BEEN LONG
ENOUGH TO REALIZE THE FULL POTENTIAL OF THE FUND'S INVESTMENTS.
<F1>
The Fund has been in existence for a limited period of time.2
(2) The Fund commenced operations on September 21, 1994.
The Investment Manager has successfully implemented an investment program of
long-term value investing in an emerging market. The Fund's portfolio turnover
demonstrates the Fund's buy-and-hold investment strategy. Portfolio turnover
measures how actively a fund buys and sells portfolio securities. For 1997 and
1996, the two full fiscal years the Fund has been in operation, the portfolio
turnover rate has been 8.73% and 7.81%, respectively, rates significantly lower
than most other funds. The limited time period that the Fund has been in
operation has not been long enough to realize the full potential of the Fund's
investments. Operation of the Fund to facilitate periodic redemptions does not
comport with the Fund's long-term investment approach. If forced to make
periodic buy-backs as an interval fund, the Fund would be required to increase
its portfolio turnover, resulting in both increased transaction costs and
disruption of the Fund's primary investment program of long-term value
investing. 3. CONVERTING TO AN INTERVAL STRUCTURE WOULD INTERFERE WITH AND LIMIT
THE FUND'S INVESTMENT FLEXIBILITY. The closed-end structure allows the
Investment Manager to invest the Fund's assets solely in accordance with the
Fund's investment objective. As a closed-end fund, the Fund can keep all of its
assets working toward its investment goals. This gives the Investment Manager
the flexibility to invest in less liquid securities that present attractive
long-term opportunities. If the Fund is converted to an interval fund, however,
the Investment Manager could be required to sell portfolio securities before
their full potential has been reached in order to raise cash. Moreover, the
Investment Manager continues to look for attractive investment opportunities for
the Fund. By having to hold cash and liquid securities to meet periodic
buy-backs, however, the Fund may be unable to take advantage of these
opportunities. Finally, the Investment Manager has informed the Board that the
Fund's liquidity and its "ability to sell" Chinese securities decreases in times
of generally declining market prices. In a declining market, the Fund could be
forced to accept a lower price for securities than might otherwise be the case.
On the other hand, as a closed-end fund, the Fund is protected from
22
<PAGE>
the necessity of selling its investments at a time when market prices are
temporarily depressed, because it does not have to sell off investments to meet
mandatory "buy-back" offers. 4. SIGNIFICANT MARKET DEVELOPMENTS AND POLITICAL
CONDITIONS IN CHINA AND HONG KONG MAKE CONVERTING TO AN INTERVAL FUND
INAPPROPRIATE AT THIS TIME. As described more fully in the prospectus, investing
in emerging markets like China involves special considerations related to market
and currency volatility, unexpected economic, social, and political
developments, and the relatively small size and lesser liquidity of the markets
involved. Currently, in China and Hong Kong, political and economic forces have
created uncertainties in the securities markets. For example, United
States-China relations, China-Taiwan relations, the political future of China
and the incorporation of Hong Kong into China are all significant factors which
create an unpredictable and variable marketplace and increase market volatility
for Chinese securities. In addition, foreign investors in securities listed on
Chinese exchanges are restricted to buying "B" shares, which may only be owned
by foreign investors and are less liquid than might otherwise be the case. These
market restrictions and uncertainties have influenced the Directors' decision of
how to address the discount and whether to convert to an interval fund. In the
face of these factors, the Board continues to believe that the Fund's closed-end
structure is particularly well suited to investing in the China region and
advises against a change in the Fund's structure. 5. THE LEVEL OF THE FUND'S
DISCOUNT TO NET ASSET VALUE IS NOT UNUSUAL AND IS <F1> IN THE SAME RANGE AS THAT
OF COMPARABLE CLOSED-END FUNDS.*
* Premium/discount information provided by Lipper Analytical Services, July,
1997. Although the Fund's shares have traded at a discount since the fourth
calendar quarter of 1994, the Fund is trading at a discount comparable to other
closed-end funds investing in the China region. As of July 25, 1997, among U.S.
registered closed-end funds that primarily invest in China, discounts ranged
from -22.0% to -19.8%. The Fund's discount as of that date was -21.0%. Since the
Fund's inception, the premium/discount from net asset value has ranged from a
low of -22.0% on April 25, 1997 to a high of +6.7% on September 30, 1994. The
average weekly discount to net asset value from inception to July 25, 1997 was
- -15.4%. Since inception, the net asset value per share has ranged from a low of
$13.31 to a high of $20.21, with an average weekly net asset value per share of
$16.06. The market value per
23
<PAGE>
SHARE FROM INCEPTION HAS RANGED FROM A LOW OF $11.25 ON DECEMBER 9, 1994 TO A
HIGH OF $16.63 ON JANUARY 17, 1997, WITH AN AVERAGE WEEKLY MARKET VALUE PER
SHARE OF $13.53. FURTHERMORE, ALTHOUGH ACTIONS TO REDUCE THE DISCOUNT MAY
PROVIDE SELLING SHAREHOLDERS A TEMPORARY INCREASE IN THE VALUE OF THEIR SHARES,
ACTION AGAINST THE DISCOUNT MAY NOT INCREASE LONG-TERM SHAREHOLDER VALUE. IN
ORDER TO BUY BACK SHARES, THE FUND MAY HAVE TO SELL STRATEGIC INVESTMENTS AT
UNFAVORABLE TIMES, INCREASING COSTS AND DISRUPTING LONG-TERM VALUE INVESTING.
BUYING BACK SHARES ALSO REDUCES THE AMOUNT OF ASSETS AVAILABLE FOR INVESTMENT IN
ACCORDANCE WITH THE FUND'S INVESTMENT PROGRAM. MOREOVER, THERE IS NO CERTAINTY
THAT CONVERSION TO AN INTERVAL FUND WILL REDUCE THE DISCOUNT. ACCORDINGLY, THE
BOARD DOES NOT BELIEVE THAT THE MERE POSSIBILITY OF REDUCING THE DISCOUNT FROM
NET ASSET VALUE JUSTIFIES THE SIGNIFICANT CHANGES TO THE FUND'S MANAGEMENT AND
OPERATIONS THAT WOULD BE REQUIRED IF THE FUND WERE TO CONVERT TO AN INTERVAL
FUND. THE DIRECTORS CONTINUALLY REVIEW WHETHER THE FUND IS MANAGED AND OPERATED
IN A MANNER CONSISTENT WITH THE BEST INTERESTS OF THE FUND AND ITS SHAREHOLDERS.
THIS REVIEW INCLUDES PERIODIC CONSIDERATION OF MEASURES TO REDUCE THE DISCOUNT,
SUCH AS THE POSSIBILITY OF SHARE BUY-BACKS, TENDER OFFERS, AND CONVERSION OF THE
FUND INTO AN OPEN-END FUND. BECAUSE THESE MEASURES WOULD HAVE A NEGATIVE IMPACT
ON THE FUND'S PORTFOLIO MANAGEMENT AND EXPENSE RATIO, THE BOARD HAS NOT ADOPTED
ANY OF THESE MEASURES TO DATE. 6. SIGNIFICANT TAX CONSEQUENCES MAY RESULT FROM
CONVERSION TO AN INTERVAL FUND. As an interval fund, the Fund may be required to
sell securities to meet buy-back requests. Selling appreciated securities would
result in the Fund realizing and distributing to shareholders capital and/or
ordinary gains, while selling depreciated securities would result in a loss that
would reduce the amounts distributable to shareholders. Moreover, repurchase
payments may be characterized for tax purposes as dividends, causing
shareholders to pay taxes on any gains at ordinary income rates, rather than at
lower capital gains rates. In addition, the IRS could contend that shareholders
who do not redeem all of their shares should be treated as having received
dividends (even though they have received no cash or Fund stock). If the
shareholder proposal is approved, it may be necessary to seek interpretive
relief from the IRS on these points, as well as others, including assurance that
the Fund's operation as an interval fund would be consistent with its continued
treatment as a Regulated Investment Company. For more information on the tax
effects of interval fund repurchases, see Appendix A, "Summary of Rule 23c-3."
24
<PAGE>
7. THE FUND'S EXPENSES ARE LIKELY TO INCREASE IF THE FUND IS CONVERTED TO AN
INTERVAL FUND. Because an interval fund must periodically buy back its shares,
the size of an interval fund decreases as more shares are bought back. Although
interval funds may continually offer and sell new shares, unless the Fund's
principal underwriter or "distributor" is able to sell enough new shares to
offset the buy-backs, the Fund would shrink in size. Because certain of the
Fund's operating expenses are fixed, shrinking in size would increase the ratio
of the Fund's operating expenses to its income and net assets. The ongoing costs
of operating as an interval fund can also be expected to increase. The annual
costs would include possible distribution costs, the costs of notifying
shareholders about repurchase offers, the costs of maintaining a current
prospectus, and the costs of preparing and filing the requisite documents with
the SEC. Further, as an interval fund, the Fund could subject shareholders
seeking to take advantage of share repurchases to additional expenses. Under SEC
rules, the Fund may deduct from the repurchase offer a fee, not to exceed 2% of
the buy-back amount, to compensate the Fund for expenses and costs related to
the repurchase. Although the Board has not concluded that a fee would be
necessary, a fee may be imposed if the conversion occurs. 8. THE FUND MAY HAVE
TO BORROW TO RAISE THE MONEY NECESSARY TO REPURCHASE FUND SHARES. As an interval
fund, the Fund may have to borrow money to raise the cash necessary to
repurchase Fund shares. For example, in cases where the Fund wishes to avoid
selling securities at inopportune times, the Fund could be forced to borrow
money to pay for the buy-backs. Borrowing under these circumstances could create
additional investment risks for shareholders that include: (i) the cost of
borrowing may exceed the income generated from securities held by the Fund, (ii)
unless certain asset coverage for the borrowing is maintained, the Fund would be
prohibited from making distributions to shareholders, (iii) a failure to make
distributions could result in the Fund ceasing to qualify as a Regulated
Investment Company under the Internal Revenue Code; (iv) if the asset coverage
for preferred stock or debt securities declines to less than certain levels, the
Fund may be required to pay back the debt, selling a portion of its investments
when it may be disadvantageous to do so; and (v) if assets of the Fund are used
as security for the borrowing and the Fund is unable to meet its obligations,
those assets may be forfeited. All the costs associated with borrowing to
repurchase shares will be borne by the Fund, and thus ultimately by its
shareholders.
25
<PAGE>
WHAT ADDITIONAL MEASURES WOULD NEED TO BE TAKEN IN CONNECTION WITH CONVERSION TO
INTERVAL FUND STATUS? If the shareholder proposal is approved, the Board of
Directors will consider the proposal to convert the Fund from a closed-end fund
to an interval fund in light of their fiduciary obligations to shareholders and
the shareholder votes cast. However, adoption of a policy to convert the Fund to
an interval fund would require approval by the Fund's shareholders. Accordingly,
if the Directors conclude that conversion of the Fund to an interval fund is
consistent with the best interests of the Fund and its shareholders, the Board
will submit the proposal to shareholders for consideration at a future meeting.
If, however, the Board determines that conversion would not be consistent with
the best interests of the Fund and its shareholders, no further action would be
taken. In the event that the Board decides to submit the proposal to
shareholders, the Board may also conclude that conversion to an interval fund
would require other changes to the Fund's investment objectives and policies,
which may or may not require shareholder approval. Finally, the Board may need
to approve other changes in the Fund's administration and structure to
facilitate operation as an interval fund. THE DIRECTORS BELIEVE THAT THE
CONTINUED OPERATION OF THE FUND AS A CLOSED-END FUND IS IN YOUR BEST LONG-TERM
INTEREST, AND UNANIMOUSLY RECOMMEND A VOTE AGAINST THIS PROPOSAL.
4. OTHER BUSINESS:
The Directors know of no other business to be presented at the Meeting. However,
if any additional matters should be properly presented, proxies will be voted as
specified. Proxies reflecting no specification will be voted in accordance with
the judgment of the persons named in the proxy.
26
<PAGE>
INFORMATION ABOUT THE FUND:
The Fund's last audited financial statements and annual report, dated March 31,
1997, are available free of charge. To obtain a copy, please call 1-800/DIAL BEN
or forward a written request to Franklin Templeton Investor Services, Inc., P.O.
Box 33030, St. Petersburg, Florida 33733-8030. As of May 31, 1997, the Fund had
54,007,093 shares outstanding and assets of $1,082,129,842.71. The Fund's shares
are listed on the NYSE (symbol: TDF) and on the Osaka Stock Exchange (symbol:
8683). From time to time, the number of shares held in "street name" accounts of
various securities dealers for the benefit of their clients may exceed 5% of the
total shares outstanding. To the knowledge of the Fund's management, as of May
31, 1997, there are 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, 1997, no nominee or Director of the Fund owned
1% or more of the outstanding shares of the Fund, and the Officers and Directors
of the Fund owned, as a group, less than 1% of the outstanding shares of the
Fund. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE. U.S. securities
laws require that the Fund's shareholders owning more than 10% of outstanding
shares, Directors and Officers, as well as affiliated persons of its investment
manager, report their ownership of the Fund's shares and any changes in that
ownership. During the fiscal year ended March 31, 1997, the filing requirements
for these reports were met. In making this disclosure, the Fund relied upon the
written representations of the persons affected and copies of their relevant
filings. 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 amended and restated as of November 23, 1995, the Investment Manager
manages the investment and reinvestment of Fund assets. The Investment Manager
is an indirect, wholly-owned subsidiary of Resources.
27
<PAGE>
THE FUND ADMINISTRATOR. The administrator of the Fund is Franklin Templeton
Services, Inc. ("FT Services") with offices at Broward Financial Center, 500
East Broward Boulevard, Suite 2100, Ft. Lauderdale, Florida 33394-3091. FT
Services is an indirect, wholly-owned subsidiary of Resources. Pursuant to an
administration agreement, FT Services performs certain administrative functions
for the Fund. Prior to October 1, 1996, the Fund's administrator was Templeton
Global Investors, Inc. In addition, FT Services has entered into a Japanese
shareholder servicing and administration agreement with Nomura Capital
Management, Inc. ("Nomura") with offices at 180 Maiden Lane, Suite 2903, New
York, New York 10038, an affiliate of the initial underwriter, Nomura
International (Hong Kong) Limited, under which Nomura performs certain
administrative functions in Japan, subject to FT Services' supervision. THE
TRANSFER AGENT. The transfer agent, registrar and dividend disbursement agent
for the Fund is ChaseMellon Shareholder Services, L.L.C., 120 Broadway, New
York, New York 10271, pursuant to a service agreement dated September 20, 1994.
THE CUSTODIAN. The custodian for the Fund is The Chase Manhattan Bank, 1 Chase
Manhattan Plaza, New York, New York 10081, pursuant to a custody agreement dated
August 30, 1994.
28
<PAGE>
FURTHER INFORMATION ABOUT VOTING AND THE SHAREHOLDERS MEETING: SOLICITATION OF
PROXIES. The cost of soliciting proxies, including the fees of a proxy
soliciting agent, are 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. In addition, the Fund may retain a
professional proxy solicitation firm to assist with any necessary solicitation
of proxies. The Fund expects that the solicitation would be primarily by mail,
but also may include telephone, telecopy or oral solicitations. If the Fund does
not receive your proxy by a certain time, you may receive a telephone call from
the professional proxy solicitation firm asking you to vote. If professional
proxy solicitors are retained, it is expected that soliciting fees and expenses
would be approximately $25,000. The Fund does not reimburse Directors and
Officers of the Fund and regular employees of the Investment Manager involved in
the solicitation of proxies. The Fund intends to pay all costs related to the
solicitation and the Meeting. If you wish to participate in the Meeting, but do
not wish to give your proxy by telephone, you may still submit the proxy card
originally sent with your proxy statement or attend in person. Any proxy given
by you, whether in writing or by telephone, is revocable. 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 and clients, as
well as the Japan Securities Clearing Corporation ("JSCC") holding shares of the
Fund for its beneficial shareholders, will request voting instructions from
their customers, clients and beneficial shareholders. If these instructions are
not received by the date specified in the broker-dealer firms' or JSCC's proxy
solicitation materials, the Fund understands that broker-dealers and JSCC may
vote on behalf of their customers, clients, and beneficial shareholders only
with regard to Proposals 1 and 2.
29
<PAGE>
QUORUM. A majority of the shares entitled to vote--present in person or
represented by proxy--constitutes a quorum at the Meeting. The shares over which
broker-dealers and JSCC have discretionary voting power, the shares that
represent "broker non-votes" (i.e. shares held by brokers or nominees as to
which (i) instructions have not been received from the beneficial owners or
persons entitled to vote and (ii) the broker or nominee does not have
discretionary voting power on a particular matter) and the shares whose proxies
reflect an abstention on any item are all 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, ratification of the
selection of the independent auditors, requires the affirmative vote of a
majority of the Fund's shares present and voting on the Proposal at the Meeting.
Proposal 3, the shareholder proposal that the Board of Directors consider
approving, and submitting for shareholder approval, a proposal to convert the
Fund from a closed-end fund to an interval fund, requires the affirmative vote
of a majority of the Fund's shares present and voting on the Proposal at the
Meeting. Proposal 4, the transaction of any other business, is expected to
require the affirmative vote of a majority of the Fund's shares present and
voting on the Proposal at the Meeting. Abstentions and broker "non-votes" will
be treated as votes not cast and, therefore, will not be counted for purposes of
obtaining approval of Proposals 1, 2, 3, and 4. ADJOURNMENT. If a sufficient
number of votes in favor of the proposals contained in the Notice of Annual
Meeting and Proxy Statement is not received by the time scheduled for the
Meeting, the persons named in the proxy may propose one or more adjournments of
the Meeting to a date not more than 120 days after the original record date to
permit further solicitation of proxies with respect to any such proposals. Any
proposed adjournment requires the affirmative vote of a majority of shares
present and voting at the Meeting. Abstentions and "broker non-votes" will not
be voted for or against any adjournment to permit further solicitation of
proxies. Proxies will be voted as specified. Those proxies reflecting no
specification will be voted in accordance with the judgment of the persons named
in the proxy.
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SHAREHOLDER PROPOSALS. The Fund anticipates that its next annual meeting will
be held in July, 1998. Shareholder proposals to be presented at the next
annual meeting must be received at the Fund's offices, 500 East Broward
Boulevard, 12th Floor, Ft. Lauderdale, Florida 33394-3091, no later than
April 3, 1998.
By order of the Board of Directors,
Barbara J. Green,
Secretary
August 1, 1997
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APPENDIX A
SUMMARY OF RULE 23C-3
Rule 23c-3 under the 1940 Act provides that closed-end funds may make
periodic repurchases of their securities at net asset value. These type of funds
are generally called "interval funds." Periodic repurchases, which may be for
between 5% and 25% of a fund's outstanding shares, must be made pursuant to a
fundamental policy approved by shareholders. The fundamental policy must
specify, among other things, a periodic interval of three, six, or twelve
months. Repurchases. An interval fund repurchases its shares, in cash, at the
net asset value determined on the repurchase pricing date, the date on which an
interval fund determines the net asset value applicable to the repurchase of the
securities. The repurchase pricing date must be no later than the fourteenth day
after the repurchase request deadline (or the next business day if the
"fourteenth" day is not a business day). The repurchase request deadline is the
date by which an interval fund must receive repurchase requests in response to
the offer or in modification of the repurchase request. An earlier repurchase
pricing date may be used if, on or immediately following the repurchase request
deadline, it appears that the use of an earlier repurchase pricing date is not
likely to result in significant dilution of the net asset value of either shares
that are tendered for repurchase or shares that are not tendered. Payment for
any shares repurchased pursuant to an offer must be made within seven days after
the repurchase pricing date. An interval fund may deduct from the repurchase
proceeds only a repurchase fee, not to exceed 2% of the proceeds, that is paid
to the interval fund and is reasonably intended to compensate the interval fund
for expenses directly related to the repurchase. This fee would be retained by
the interval fund. There is a risk of decline in net asset value as a result of
the delay between the repurchase request deadline and the repurchase pricing
date, due to declines, among other things, in prices of securities held by an
interval fund and fluctuations in the currencies in which the securities are
denominated relative to the U.S. dollar. Repurchases in Excess of the Repurchase
Offer Amount; Proration; Repurchase Fee. An interval fund may, but is not
obligated to, purchase up to an additional 2% of its shares outstanding on a
repurchase request deadline if the acceptances under the offer exceed the
repurchase offer amount. If an interval fund determines not to repurchase more
than the repurchase offer amount, or if shareholders tender shares in an amount
exceeding the repurchase offer amount plus 2% of the shares outstanding on the
repurchase request
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deadline, the interval fund shall repurchase the shares tendered on a pro rata
basis, except that an interval fund may accept (1) all shares tendered by
shareholders who own fewer than 100 shares and who tender all their shares,
before prorating shares tendered by others and (2) by lot all shares tendered by
shareholders who tender all shares held by them and who, when tendering their
shares, elect to have either all or none, or a minimum or none, accepted, so
long as the interval fund first accepts all shares tendered by shareholders who
do not so elect. If an offer is oversubscribed, shareholders may be unable to
liquidate all or a given percentage of their shares at net asset value during
the repurchase period. The risk also exists that, because of the potential for
proration, some shareholders may tender more shares than they wish to have
repurchased in order to ensure the repurchase of a specific number of shares.
Notification. At least 21 days and no more than 42 days before the repurchase
request deadlines, an interval fund must send notification containing specified
information to each holder of record and to each beneficial owner of shares that
are the subject of the repurchase offer. The information provided must include,
among other things, the repurchase offer amount, the repurchase request deadline
and the applicable repurchase fee. Notification also must include the procedures
for shareholders to tender their shares, procedures for modifying or withdrawing
tenders, procedures under which the interval fund may repurchase shares on a pro
rata basis, and the circumstances under which the interval fund may suspend or
postpone the offer. An interval fund must provide the net asset value of the
shares, which must be computed not more than seven days before the date of
notification, the market price of the shares on the date on which the net asset
value was computed, and the means by which shareholders may ascertain the net
asset value and market price thereafter. Source of Funds. From the time the
interval fund sends a notification of a repurchase offer to shareholders until
the repurchase pricing date, the interval fund is required to maintain liquid
assets in an amount equal to at least 100% of the repurchase offer amount.
Portfolio management techniques would be modified accordingly. Withdrawal
Rights. Tenders made pursuant to an offer are irrevocable after the repurchase
request deadline. However, shareholders may modify the number of shares being
tendered or withdraw shares tendered at any time up to the repurchase request
deadline. Tax Consequences of Offers. The following discussion summarizes the
federal income tax consequences to a shareholder of a tender of shares pursuant
to an offer. You should consult
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your own tax advisor regarding specific tax consequences, including state and
local tax consequences of a tender of shares by you. If accepted, a tender of
shares pursuant to an offer by an interval fund is a taxable transaction for
federal income tax purposes. In general, the transaction is treated as a sale or
exchange of the shares (resulting in capital gain or loss treatment if the
shares are held as capital assets) rather than as a dividend if the tender (1)
completely terminates the shareholder's interest in the interval fund, (2) is
"substantially disproportionate" with respect to the shareholder, or (3) is "not
essentially equivalent to a dividend." A complete termination of a shareholder's
interest generally requires that the shareholder dispose of all shares directly
or constructively owned by him or her. A "substantially disproportionate"
distribution generally requires a reduction of more than 20% in the
shareholder's proportionate interest in the fund after all shares are tendered.
A distribution is "not essentially equivalent to a dividend" if the shareholder
has a minimal interest in the fund, exercises no control over fund affairs and
there is a "meaningful reduction" in the shareholder's proportionate ownership
interest in the fund. If a repurchase transaction is not treated as a sale or
exchange of shares, a tendering shareholder might be treated as having received
a dividend distribution (to the extent there are available earnings and profits)
instead of a payment in exchange for the shareholder's shares. In that event, it
also is possible that non-tendering shareholders could be treated as having
received "deemed dividends"--i.e., taxable stock distributions due to their
increase in percentage ownership of the interval fund resulting from the
interval fund's repurchase of shares of tendering shareholders. The Fund is
required to withhold 31% of the gross proceeds paid to an individual or certain
other non-corporate shareholders or other payees pursuant to an offer if the
Fund has not been provided with the shareholder's taxpayer identification number
(which, for an individual, is usually the social security number) and certain
related certifications required under IRS regulations. Foreign shareholders are
required to provide the Fund with a completed IRS Form W-8. Foreign shareholders
may be subject to withholding of 30% (or a lower treaty rate) on any portion of
proceeds received from a repurchase that is deemed to constitute a dividend.
Suspension and Postponement of Offers. An interval fund may suspend or postpone
an offer by vote of a majority of the members of its board of directors
(including a majority of the
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members who are not "interested persons," as that term is defined in the 1940
Act, of the interval fund), but only (1) if repurchases pursuant to the offer
would impair the interval fund's status as a Regulated Investment Company under
the Internal Revenue Code; (2) if repurchases pursuant to the offer would cause
the shares to be neither listed on any national securities exchange nor quoted
on any inter-dealer quotation system of a national securities association; (3)
for any period during which the NYSE or any other market in which the securities
owned by the interval fund are principally traded is closed, other than
customary week-end and holiday closings, or during which trading in the market
is restricted; (4) for any period during which an emergency exists as a result
of which disposal by the interval fund of securities owned by it is not
reasonably practicable, or during which it is not reasonably practicable for the
interval fund fairly to determine its net asset value; or (5) for such other
periods as the SEC may by order permit for the protection of shareholders of the
interval fund. If an offer is suspended or postponed, an interval fund must
provide notice thereof to shareholders. If an interval fund renews a suspended
offer or re-institutes a postponed offer, the interval fund must send a new
notification to all shareholders.
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PROXY
TEMPLETON DRAGON FUND, INC.
ANNUAL MEETING OF SHAREHOLDERS - SEPTEMBER 23, 1997
The undersigned hereby evokes all previous proxies for his shares
and appoints BARBARA J. GREEN, JAMES R. BAIO and JOHN R. KAY, and each of them,
proxies of the undersigned with full power of substitution to vote for share of
Templeton Dragon Fund, Inc. (the "Fund") which the undersigned is entitled to
vote at the Fund's Annual Meeting to be held at 500 East Broward Blvd., 12th
Floor, Ft. Lauderdale, Florida at 2:00 p.m.., EDT, on the 23rd day of September
1997, including any adjournment thereof, upon the matters
set forth below.
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 DIRECTORS) AND 2, AGAINST THE PROPOSAL
3, AND WITHIN THE DISCRETION OF THE PROXYHOLDERS AS TO ANY OTHER MATTER
PURSUANT TO PROPOSAL 4.
CONTINUED AND TO SIGN ON REVERSE SIDE SEE REVERSE SIDE
FOLD AND DETACH HERE
<PAGE>
X PLEASE MARK YOUR VOTES AS INDICATED IN THIS EXAMPLE
1 - Election of Directors
Nominees: John Wm. Galbraith, Betty P. Krahmer, Gordon S. Macklin, Fred R.
Millsaps and Edith E. Holiday.
FOR all nominees WITHHOLD
listed (except as AUTHORITY
marked to the right) to vote for all
nominees listed
above
------------------------------------------------------------
For all nominees except as noted above.
2 - Ratification of the selection of McGladrey & Pullen, LLP, Certified
Public Accountants, as the independent auditors for the Fund for the fiscal
year ending March 31, 1998.
FOR AGAINST ABSTAIN
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE AGAINST PROPOSAL 3.
3 - To request and recommend that the Board of Directors consider approving
and submitting for shareholders approval, a propopsal to convert the Fund from
a closed-end fund to an interval fund.
FOR AGAINST ABSTAIN
4 - To vote upon any other busienss which may legally come before the Meeting.
GRANT WITHHOLD
YES NO
I PLAN TO ATTEND THE MEETING.
PLEASE SIGN AND PROMPTLY RETURN IN THE ACCOMPANYING ENVELOPE. NO POSTAGE
REQUIRED IF MAILED IN THE U.S.
NOTE: Please sign exactly as your name appears on the proxy. If signing for
estates, trusts or corporations, title or capacity should be stated. If shares
are held jointly, each holders must sign.
Signature: Date: Signature: Date:
FOLD AND DETACH HERE
TEMPLETON DRAGON FUND, INC.
500 EAST BROWARD BOULEVARD
FT. LAUDERDALE, FLORIDA 33394-3091
August 1, 1997
Dear Shareholder:
We are writing to you to ask for your vote on important questions that affect
your investment in Templeton Dragon Fund, Inc. (the "Fund"). We urge you to
review the attached proxy statement, cast your vote, and return the enclosed
proxy card in the envelope provided.
In addition to electing directors and selecting auditors, you will be asked to
consider and vote on a shareholder proposal requesting that the Board of
Directors consider approving, and submitting for shareholder approval, a
proposal to convert the Fund from a closed-end fund to an interval fund. The
Directors all recommend that you vote "AGAINST" this proposal.
The Directors believe that the best way for the Fund to pursue its investment
objective is as a closed-end fund. The Fund's investment objective is long term
capital appreciation and the Fund pursues this objective by identifying
investments in the China region on a company-by-company basis and holding these
investments for a sufficiently long period of time to allow them to appreciate
in value. This long-term investment philosophy, together with the more volatile
nature of the Chinese securities market, led the Board to originally organize
the Fund as a closed-end fund.
China has only recently begun to open its markets. To fully take advantage of
China's enormous economic potential requires a long term investment strategy. A
short-term investment strategy created for short-term economic gain is
inconsistent with the Fund's long term strategy. The Board and Management
believe that the closed-end arrangement remains the best structure for the Fund.
For these reasons and in light of the additional considerations discussed in the
accompanying proxy statement, the Directors do not now believe that converting
the Fund from a closed-end fund to an interval fund is in the best interests of
the Fund and its shareholders, and the Directors urge you to vote AGAINST
Proposal 3.
We appreciate your participation and prompt response in this matter and thank
you for your continued support.
/s/J. MARK MOBIUS
J. MARK MOBIUS
President
