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Rating:Text of Franklin Templeton Response to Harvard Not Rated 4.0 Email Routing List Email & Route  Print Print
Wednesday, December 11, 2002

Text of Franklin Templeton Response to Harvard

by: Sean Hanna, Editor in Chief

"Franklin Templeton Investments strongly opposes the Harvard College President and Fellows' proposal. Templeton Asset Management's primary job is to manage the Fund's assets, and it has achieved strong relative performance -- a fact Harvard does not dispute. Based on Harvard's statements and on conversations that Fund management has had with Harvard representatives, we believe Harvard's proposal is a tactic aimed at imposing a self-serving, short-term agenda on the Fund by trying to influence the Board of Directors of the Fund to pursue open-ending or to take other actions which would benefit Harvard, but could deplete the Fund's assets to the detriment of the Fund's long-term investors."

"According to Lipper Analytical Services, the Fund was the top ranked Pacific Region fund of the six in its Lipper category based on both market price and net asset value for the six-month, year-to-date, one- and three-year periods ended November 30, 2002. It ranked second out of six funds based on market price for the five-year period ended November 30, 2002, and third for the period since its September 1994 inception. We find it troubling that the President and Fellows of Harvard College want to remove the investment manager who is producing these solid results."

"Harvard's complaint about the manager is that the Fund's shares trade at a discount to net asset value. However, as we have pointed out, the manager's primary focus must be on managing the Fund's investment portfolio, not on trying to eliminate the discount, which is the result of market forces not within the manager's control. Based on Harvard's statements and on conversations between Fund management and Harvard representatives, we see the Harvard College President and Fellows' proposal as a pressure tactic to cause the Fund to open-end or to engage in substantial share buy-backs at net asset value in order to reduce the discount and give Harvard greater liquidity in the short-term, regardless of the cost to long-term shareholders. Our view is further supported by the fact that Harvard has acquired substantial shareholdings at, we believe, significant discounts to net asset value in at least four other closed-end emerging markets funds and later made, or threatened to make, proposals to terminate the investment management agreement, citing in certain instances the 'discount' as a reason for its actions."

"Although conversion to an open-end fund or substantial share buy-backs, at or near net asset value, could eliminate or produce a short-term narrowing of the discount, the Board of the Fund must consider whether these actions may be more in the interests of shareholders seeking short-term profits than those seeking long-term capital appreciation. In less liquid markets, a closed-end fund can be managed with a view toward achieving long-term portfolio returns without the need to provide short-term liquidity in its investments, which is one of the key advantages of a closed-end fund."

"The Fund's Board of Directors, in addition to overseeing the manager's strong relative investment performance, is also focused on the market price. For instance, early this year the Board announced two tender offers to provide liquidity and to address the discount, one of which has been completed. These actions followed an open-market share repurchase program instituted in 1997 and a managed distribution policy implemented in 1998. The discount now has lessened considerably and stood at 10.10% on December 10, 2002. This amount is within the range of those experienced by the Fund's Lipper peer group."

"The Board of Directors of the Templeton Dragon Fund has informed Franklin Templeton that it also strongly opposes the Harvard College President and Fellows' proposal to terminate the Fund's investment management agreement and remains committed to pursuing the best interests of all of the Fund's shareholders in accordance with the Fund's stated investment objective."  

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