ThZeal - The Zeal

DEF 14A 1 dmtprox802.txt DMT SPECIAL S/H MEETING 8/26/02 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 DEVELOPING MARKETS TRUST ------------------------------------------------ (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 DEVELOPING MARKETS TRUST IMPORTANT SHAREHOLDER INFORMATION These materials are for a Special Meeting of Shareholders scheduled for August 26, 2002 at 1:00 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 Developing Markets Trust. If you specify a vote for all 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, 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 and Sign 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 DEVELOPING MARKETS TRUST NOTICE OF SPECIAL MEETING OF SHAREHOLDERS A Special Meeting of Shareholders (the "Meeting") of Templeton Developing Markets Trust (the "Fund"), will be held at the Fund's offices, 500 East Broward Boulevard, 12th Floor, Fort Lauderdale, Florida 33394-3091 on August 26, 2002 at 1:00 p.m. Eastern time. During the Meeting, shareholders of the Fund will vote on the following Proposals and Sub-Proposals: 1. To elect a Board of Trustees. 2. To approve an Agreement and Plan of Reorganization that provides for the reorganization of the Fund from a Massachusetts business trust to a Delaware business trust. 3. To approve amendments to certain of the Fund's fundamental investment restrictions (includes eight (8) Sub-Proposals): (a) To amend the Fund's fundamental investment restriction regarding borrowing; (b) To amend the Fund's fundamental investment restriction regarding underwriting; (c) To amend the Fund's fundamental investment restriction regarding lending; (d) To amend the Fund's fundamental investment restriction regarding investments in commodities; (e) To amend the Fund's fundamental investment restriction regarding investments in real estate; (f) To amend the Fund's fundamental investment restriction regarding issuing senior securities, purchasing on margin and making short sales; (g) To amend the Fund's fundamental investment restriction regarding industry concentration; and (h) To amend the Fund's fundamental investment restriction regarding diversification of investments. 4. To approve the elimination of certain of the Fund's fundamental investment restrictions. By Order of the Board of Trustees, Barbara J. Green Secretary July 8, 2002 ------------------------------------------------------------------------------ Many shareholders hold shares in more than one Templeton fund and will receive proxy materials for each fund owned. Please sign and promptly return each proxy card in the self-addressed envelopes provided regardless of the number of shares you own. ------------------------------------------------------------------------------ PROXY STATEMENT TABLE OF CONTENTS

i TEMPLETON DEVELOPING MARKETS TRUST PROXY STATEMENT INFORMATION ABOUT VOTING Who is Asking for My Vote? The Trustees of Templeton Developing Markets Trust (the "Fund"), in connection with the Special Meeting of Shareholders of the Fund to be held on August 26, 2002 (the "Meeting"), have requested your vote on several matters. Who is Eligible to Vote? Shareholders of record at the close of business on June 14, 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, and each fractional share is entitled to a proportionate fractional 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 8, 2002. On What Issues Am I Being Asked to Vote? You are being asked to vote on four Proposals: 1. To elect a Board of Trustees; 2. To approve an Agreement and Plan of Reorganization that provides for the reorganization of the Fund from a Massachusetts business trust to a Delaware business trust; 3. To approve amendments to certain of the Fund's fundamental investment restrictions (includes eight (8) Sub-Proposals); and 4. To approve the elimination of certain of the Fund's fundamental investment restrictions. How Do the Fund's Trustees Recommend That I Vote? The Trustees unanimously recommend that you vote: 1. FOR the election of all nominees as Trustees; 2. FOR the approval of an Agreement and Plan of Reorganization that provides for the reorganization of the Fund from a Massachusetts business trust 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 FOR the 1 election of all nominees as Trustees (Proposal 1); FOR the approval of an Agreement and Plan of Reorganization that provides for the reorganization of the Fund from a Massachusetts business trust 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-3h); 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 by the Fund at or prior to the Meeting, or by attending the Meeting and voting in person. THE PROPOSALS PROPOSAL 1: TO ELECT A BOARD OF TRUSTEES HOW ARE NOMINEES SELECTED? The Board of Trustees of the Fund (the "Board" or the "Trustees") has a Nominating and Compensation Committee (the "Committee") consisting of Frank J. Crothers, Andrew H. Hines, Jr., Edith E. Holiday and Gordon S. Macklin, none of whom is an "interested person" of the Fund, as defined by the Investment Company Act of 1940, as amended (the "1940 Act"). Trustees who are not interested persons of the Fund are referred to as the "Independent Trustees." The Committee is responsible for the selection and nomination of candidates to serve as Trustees 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 FOR TRUSTEE? All of the nominees nominated by the Committee are currently members of the Board. The terms of all nominees will continue until their successors are duly elected and qualified. In addition, all of the current nominees are also directors or trustees of other Franklin(R) funds and/or Templeton(R) funds (collectively, the "funds in Franklin Templeton Investments"). Among these Trustees, Nicholas F. Brady, Charles B. Johnson and Charles E. Johnson are deemed to be an "interested person" for purposes of the 1940 Act. Trustees who are "interested persons" are referred to as the "Interested Trustees." Certain Trustees of the Fund hold director and 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, a Trustee and Vice President of the Fund, is the son and nephew, respectively, of brothers Charles B. Johnson, Chairman of the Board, Trustee 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 nominees for Trustee. Each nominee currently is available and has consented to serve if elected. If any of the nominees should become unavailable before the Meeting, the designated proxy holders will vote in their discretion for another person or persons who may be nominated as Trustees. 2 Listed below, for each nominee, 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 funds in the Franklin Templeton Investments fund complex that they oversee, and any other directorships held by the Trustee. NOMINEES FOR INDEPENDENT TRUSTEE:

NOMINEES FOR INTERESTED TRUSTEE: **NICHOLAS F. BRADY (72) Trustee 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). ---------------------------------------------------------------------------------------------------------

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NUMBER OF PORTFOLIOS IN FRANKLIN TEMPLETON INVESTMENTS FUND COMPLEX LENGTH OF OVERSEEN BY NAME, AGE AND ADDRESS POSITION TIME SERVED TRUSTEE* OTHER DIRECTORSHIPS HELD --------------------- ----------- -------------- ------------- ------------------------ **CHARLES B. JOHNSON (69) Chairman of Chairman and 133 None One Franklin Parkway the Board, Trustee since San Mateo, CA Trustee and 1995 and Vice 94403-1906 Vice President 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. ------------------------------------------------------------------------------------------------------ **CHARLES E. JOHNSON (46) Trustee and Trustee since 34 None One Franklin Parkway Vice President 1993 and San Mateo, CA Vice President 94403-1906 since 1996 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.; 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. ------------------------------------------------------------------------------------------------------
-------- * 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, Charles B. Johnson and Charles E. Johnson, each an Interested Trustee, 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 trustees. Mr. Charles B. 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 distributor, and his position with the Fund. Mr. Charles E. Johnson is considered an interested person of the Fund due to his position as 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 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 are Independent Trustees. 6 The following tables provide the dollar range of equity securities of the Fund and of funds in Franklin Templeton Investments beneficially owned by the Fund's Trustees as of March 31, 2002. INDEPENDENT TRUSTEES:
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES IN ALL FUNDS DOLLAR RANGE OF OVERSEEN BY THE TRUSTEE IN THE EQUITY SECURITIES FRANKLIN TEMPLETON NAME OF TRUSTEE IN THE FUND INVESTMENTS FUND COMPLEX --------------- ----------------- ------------------------------ Harris J. Ashton........................ $10,001-$50,000 Over $100,000 Frank J. Crothers....................... $10,001-$50,000 Over $100,000 S. Joseph Fortunato..................... $10,001-$50,000 Over $100,000 Andrew H. Hines, Jr..................... $10,001-$50,000 Over $100,000 Edith E. Holiday........................ $10,001-$50,000 Over $100,000 Betty P. Krahmer........................ Over $100,000 Over $100,000 Gordon S. Macklin....................... None Over $100,000 Fred R. Millsaps........................ Over $100,000 Over $100,000 Constantine D. Tseretopoulos............ Over $100,000 Over $100,000
INTERESTED TRUSTEES:
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES IN ALL FUNDS DOLLAR RANGE OF OVERSEEN BY THE TRUSTEE IN THE EQUITY SECURITIES FRANKLIN TEMPLETON NAME OF TRUSTEE IN THE FUND INVESTMENTS FUND COMPLEX --------------- ----------------- ------------------------------ Nicholas F. Brady....................... None Over $100,000 Charles B. Johnson...................... Over $100,000 Over $100,000 Charles E. Johnson...................... $1-$10,000 Over $100,000
HOW OFTEN DO THE TRUSTEES MEET AND WHAT ARE THEY PAID? The role of the Trustees is to provide general oversight of the Fund's business, and to ensure that the Fund is operated for the benefit of shareholders. The Trustees 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 Trustees also oversee the services furnished to the Fund by Templeton Asset Management Ltd., the Fund's investment manager (the "Investment Manager"), and various other service providers. The Fund currently pays the Independent Trustees and Mr. Brady an annual retainer of $12,000 and a fee of $900 per Board meeting attended. Trustees 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 December 31, 2001, there were five meetings of the Board, three meetings of the Audit Committee, and three meetings of the Nominating and Compensation Committee. Each Trustee then in office attended at least 75% of the total number of meetings of the Board and the total number of meetings held by all committee(s) of the Board on which the Trustee served. Certain Trustees 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. 7
TOTAL FEES RECEIVED NUMBER OF BOARDS IN FROM FRANKLIN FRANKLIN TEMPLETON TOTAL FEES TEMPLETON INVESTMENTS FUND RECEIVED INVESTMENTS FUND COMPLEX ON WHICH NAME OF TRUSTEE FROM THE FUND* COMPLEX** TRUSTEE SERVES*** --------------- -------------- ------------------- ------------------- Harris J. Ashton............ $16,500 $353,221 48 Nicholas F. Brady........... 16,500 134,500 18 Frank J. Crothers........... 16,783 92,000 14 S. Joseph Fortunato......... 16,500 352,380 49 Andrew H. Hines, Jr......... 16,732 201,500 19 Edith E. Holiday............ 16,500 254,670 28 Betty P. Krahmer............ 16,500 134,500 18 Gordon S. Macklin........... 16,500 353,221 48 Fred R. Millsaps............ 16,732 201,500 19 Constantine D. Tseretopoulos 16,926 94,500 15
-------- * Compensation received for the fiscal year ended December 31, 2001. ** For the calendar year ended December 31, 2001. *** We base the number of boards on the number of 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 Trustees by the Fund individually, and by all of the funds in Franklin Templeton Investments. These Trustees also serve as directors or trustees of other funds in Franklin Templeton Investments, many of which hold meetings at different dates and times. The Trustees 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 Trustees 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 Trustees and serve at the pleasure of the Board. Listed below for each Executive Officer are their name, age and address, as well as their position and length of service with the Fund, and principal occupation during the past five years. In addition to their service on the Board, Charles B. Johnson and Charles E. Johnson serve as Vice Presidents of the Fund.
NAME, AGE AND ADDRESS POSITION LENGTH OF TIME SERVED --------------------- -------- --------------------- CHARLES B. JOHNSON Chairman of the Board, Chairman and Trustee Trustee and Vice President since 1995 and Vice President since 1992 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Please refer to the table "Nominees for Interested Trustees" for information about Mr. Charles B. Johnson. -------------------------------------------------------------------------------- MARK MOBIUS (65) President Since 1991 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. Vice President Since 1996 (61) 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. --------------------------------------------------------------------------------
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NAME, AGE AND ADDRESS POSITION LENGTH OF TIME SERVED --------------------- -------- --------------------- HARMON E. BURNS (57) 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.; Executive Vice President, Franklin Advisers, Inc.; Director, Franklin Investment Advisory Services, Inc.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 51 of the investment companies in Franklin Templeton Investments. -------------------------------------------------------------------------------- CHARLES E. JOHNSON Trustee and Vice President Trustee since 1993 and Vice President since 1996 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Please refer to the table "Nominees for Interested Trustees" for information about Mr. Charles E. Johnson. -------------------------------------------------------------------------------- MARTIN L. FLANAGAN (41) Vice President Since 1991 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. -------------------------------------------------------------------------------- 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). --------------------------------------------------------------------------------
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NAME, AGE AND ADDRESS POSITION LENGTH OF TIME SERVED --------------------- -------- --------------------- 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. -------------------------------------------------------------------------------- MURRAY L. SIMPSON (65) 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 since San Mateo, CA 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). --------------------------------------------------------------------------------
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NAME, AGE AND ADDRESS POSITION LENGTH OF TIME SERVED --------------------- -------- --------------------- MICHAEL O. MAGDOL (65) Vice President--AML Since May 2002 600 5th Avenue 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; 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. --------------------------------------------------------------------------------
PROPOSAL 2: TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION THAT PROVIDES FOR THE REORGANIZATION OF THE FUND FROM A MASSACHUSETTS BUSINESS TRUST TO A DELAWARE BUSINESS TRUST The Trustees 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 of organization of the Fund. This proposed change calls for the reorganization of the Fund from a Massachusetts business trust 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 Trustees 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 Developing Markets Trust" (the "DE 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 DE Trust would have the same investment objective, policies and restrictions as the Fund (including, if approved by shareholders at the Meeting, any amended or eliminated fundamental investment restrictions described in Proposals 3 and 4 in this Proxy Statement). The Board, including any persons elected under Proposal 1, and officers of the DE Trust would be the same as those of the Fund, and would operate the DE 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 DE 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 TRUSTEES RECOMMENDING APPROVAL OF THE DBT PLAN AND THE DBT REORGANIZATION? The Trustees have determined that investment companies formed as Delaware business trusts have certain advantages over investment companies organized as Massachusetts business trusts. Under Delaware law, investment companies are able to simplify their operations by reducing administrative burdens. For example, Delaware law does not require that the Declaration of Trust and any amendments to the Declaration of Trust be filed with the State of Delaware while Massachusetts law requires that the Declaration of Trust and any 12 amendments to the Declaration of Trust be filed with the Commonwealth of Massachusetts and the clerk of the city in Massachusetts in which the Fund has a usual place of business. In addition, the simpler Delaware procedures allow the DE Trust to file a one-page Certificate of Trust with the State of Delaware, which rarely needs to be amended. Massachusetts business trusts, like the Fund, are required to file an Officer's Certificate with the Commonwealth of Massachusetts with resolutions adopted by the Board of Trustees of the Fund each time that the Board determines to designate and create additional classes of shares of the Fund or to change or eliminate classes of shares of the Fund. The filings are required to be made because the resolutions constitute amendments to the Fund's Declaration of Trust. Such filings are not required in Delaware. Another advantage of Delaware business trusts is greater certainty regarding limiting the liability of shareholders for obligations of the business trust or its trustees. Furthermore, as described below, in Delaware 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 DE Trust. This could benefit the DE Trust and its shareholders by, for example, making litigation involving the interpretation of provisions in the DE Trust's governing documents less likely or, if litigation should be initiated, less burdensome or expensive. Accordingly, the Trustees believe that it is in the best interests of the shareholders to approve the DBT Plan. HOW DO THE MASSACHUSETTS BUSINESS TRUST LAW AND THE FUND'S GOVERNING DOCUMENTS COMPARE TO THE DELAWARE BUSINESS TRUST LAW AND THE DE TRUST'S GOVERNING DOCUMENTS? Reorganizing the Fund from a Massachusetts business trust to a Delaware business trust is expected to provide benefits to the Fund and its shareholders, some of which are discussed above. Most of the funds in Franklin Templeton Investments are now or are likely to become Delaware business trusts. To the extent that the boards and management of funds in Franklin Templeton Investments, including the Board and management of the Fund, have to deal with the law of a single state, rather than the laws of many states, efficiencies may be achieved, both in terms of reduced costs in determining the requirements of law in unique circumstances and the certainty of operating routinely in a familiar regulatory environment. Moreover, to the extent provisions in the DE 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 DE Trust's Declaration of Trust and By-Laws. Applying this body of law to the operation of the DE 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 DE Trust. These legal advantages make more certain the resolution of legal controversies and help to reduce legal costs resulting from uncertainty in the law. A comparison of the Delaware business trust law and the Massachusetts business trust law, and a comparison of the relevant provisions of the governing documents of the DE Trust and the Fund, are included in Exhibit B to this Proxy Statement, which is entitled "A Comparison of Governing Documents and State Law." WHAT ARE THE PROCEDURES AND CONSEQUENCES OF THE REORGANIZATION? Upon completion of the DBT Reorganization, the DE Trust will continue the business of the Fund with the same investment objective and policies as those existing on the date of the DBT Reorganization, and will hold the same portfolio of securities previously held by the Fund. The DE Trust will be operated under substantially identical overall management, investment management, distribution and administrative arrangements as those of the Fund. As the successor to the Fund's operations, the DE Trust will adopt the Fund's registration statement under the federal securities laws with amendments to show the new Delaware business trust structure. 13 The DE Trust was created solely for the purpose of becoming the successor organization to, and carrying on the business of, the Fund. 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 related liabilities, to the DE Trust. In exchange for these assets and liabilities, the DE Trust will issue its own shares to the Fund, which will then distribute those shares pro rata to you as a shareholder of the Fund. Through this procedure, you will receive exactly the same number and dollar amount of shares of the DE Trust as you held in the Fund on the date of the DBT Reorganization. The net asset value of each share of the DE Trust will be the same as that of the Fund on the date of the DBT Reorganization. You will retain the right to any declared but undistributed dividends or other distributions payable on the shares of the Fund that you may have had as of the effective date of the DBT Reorganization. As soon as practicable after the date of the DBT Reorganization, the Fund will be dissolved and will cease its existence. The Trustees 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 proceeding with the DBT Reorganization is inadvisable. If the DBT Reorganization is not approved, or if the Trustees abandon the DBT Reorganization, the Fund will continue to operate as a Massachusetts business trust. 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? As a result of the DBT Reorganization, the DE Trust will be subject to a new investment management agreement between the DE Trust and the Investment Manager. The new management agreement will be substantially identical to the current management agreement between the Investment Manager and the Fund. WHAT EFFECT WILL THE DBT REORGANIZATION HAVE ON THE SHAREHOLDER SERVICING AGREEMENTS AND DISTRIBUTION PLANS? The DE Trust will enter into agreements with Franklin Templeton Investor Services, LLC for transfer agency, dividend disbursing, shareholder servicing and fund accounting services that are substantially identical to the agreements currently in place for the Fund. Franklin Templeton Distributors, Inc. will serve as the distributor for the shares of the DE Trust under a separate distribution agreement that is substantially identical to the distribution agreement currently in effect for the Fund. As of the effective date of the DBT Reorganization, the DE Trust will have distribution plans under Rule 12b-1 of the 1940 Act relating to the distribution of the classes of shares that are substantially identical to the distribution plans currently in place for the corresponding classes of shares of the Fund. It is anticipated that there will be no material change to the distribution plans as a result of the DBT Reorganization. WHAT IS THE EFFECT OF SHAREHOLDER APPROVAL OF THE DBT PLAN? Under the 1940 Act, the shareholders of a mutual fund must elect Trustees and approve the initial investment management agreement for a fund. Theoretically, if the DBT Plan is approved and the Fund is reorganized to a Delaware business trust, the shareholders would need to vote on these two items for the DE Trust. In fact, the DE Trust must obtain shareholder approval of these items or it will not comply with the 1940 Act. However, the Trustees 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 after the DBT Reorganization. Therefore, the Trustees have determined that approval of the DBT Plan also will constitute, for purposes of the 1940 Act, shareholder approval of: (1) the election of the Trustees of the Fund who are in office at the time of the DBT Reorganization as Trustees of the DE Trust/1/; and (2) a new investment management agreement between the DE Trust and the Investment Manager, which is substantially identical to the investment management agreement currently in place for the Fund. -------- /1/ The Directors of a Delaware business trust are referred to as Trustees. 14 Prior to the DBT Reorganization, if the transaction is approved by shareholders, the officers will cause the Fund, as the sole shareholder of the DE Trust, to vote its shares FOR the matters specified above. This action will enable the DE Trust to satisfy the requirements of the 1940 Act without involving the time and expense of another shareholder meeting. WHAT IS THE CAPITALIZATION AND STRUCTURE OF THE TRUST? The DE Trust was formed as a Delaware business trust on May 7, 2002 pursuant to Delaware law. The DE Trust has an unlimited number of shares of beneficial interest with no par value. The shares of the DE Trust will be allocated into five classes to correspond to the current five classes of shares of the Fund. As of the effective date of the DBT Reorganization, shares of the respective classes of the Fund and the DE Trust will have similar distribution and redemption rights; will be fully paid, non-assessable, and freely transferable; will have similar conversion rights; and will have no preemptive or subscription rights. Shares of the respective classes of both the DE Trust and the Fund will have similar voting and liquidation rights and have one vote per share and a proportionate fractional vote for each fractional share. Neither the DE Trust nor the Fund provides for cumulative voting in the election of its Trustees. The DE Trust also will have the same fiscal year as the Fund. WHO WILL BEAR THE EXPENSES OF THE REORGANIZATION? Since the DBT Reorganization will benefit the Fund and its shareholders, the Board has authorized that the expenses incurred in the DBT Reorganization, exclusive of the costs associated with soliciting proxies, shall be paid by the Fund, whether or not the DBT Reorganization is approved by shareholders. The costs of soliciting proxies will be shared one-quarter by the Investment Manager and three-quarters by the Fund. 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 DE 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 DE 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 DE Trust, the transfer of such shares to the shareholders of the Fund, and the 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 DE Trust, or either of their shareholders. WHAT IF I CHOOSE TO SELL MY SHARES AT ANY TIME? A request to sell Fund shares that is received and processed prior to the effective date of the DBT Reorganization will be treated as a redemption of shares of the Fund. A request to sell shares that is received and processed after the effective date of the DBT Reorganization will be treated as a request for the redemption of the same number of shares of the DE Trust. 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 a mutual fund organized as a Delaware business trust, with Trustees, an investment management agreement, distribution plans and other service arrangements that are substantially identical to those in place for the Fund. THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL 2 15 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 Massachusetts business trust in 1991, 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 is required under current law, or which are no longer required at all. For this reason, the Board is recommending that the Fund's shareholders approve the amendment or elimination of certain of the Fund's current fundamental investment restrictions in order to provide the Fund with a more modernized list of restrictions that will enable the Fund to operate more efficiently, and to more easily monitor compliance with its investment restrictions. The Board does not anticipate that the proposed amendments to, or the elimination of, certain of the Fund's investment restrictions, individually or in the aggregate, will materially affect the way the Fund is currently managed. 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. In addition, the Fund has entered into an Agreement and Plan of Acquisition with the Templeton Vietnam and Southeast Asia Fund, Inc./2/ ("Vietnam SEA Fund"), whereby the Fund would acquire the assets of Vietnam SEA Fund in exchange solely for Advisor Class shares of the Fund (the "Acquisition"), upon the satisfaction of certain conditions, including the approval of the Acquisition by Vietnam SEA Fund's shareholders. Vietnam SEA Fund is a closed-end fund with approximately $42.4 million in assets as of March 31, 2002, and those assets are invested primarily in Singapore, Vietnam, Thailand, Indonesia, South Korea, Hong Kong, and the Philippines. The Fund has also entered into an Agreement and Plan of Acquisition with Templeton Emerging Markets Appreciation Fund, Inc. whereby the Fund will acquire the assets of such fund in exchange solely for Advisor Class shares of the Fund, upon the satisfaction of certain conditions. Although the investment policies and restrictions of Vietnam SEA Fund are similar to the Fund's, two of the Fund's current fundamental investment restrictions require relatively modest changes to permit the Fund to acquire certain Vietnam SEA Fund assets. The two fundamental investment restrictions that must be modified relate to investments by the Fund in real estate and the lending activities of the Fund. Therefore, the Trustees are also recommending shareholder approval of the Proposals to amend such current investment restrictions in order to facilitate the Acquisition. -------- /2/ On April 23, 1998, shareholders of Vietnam SEA Fund approved a change in that fund's name. Prior to that date, Vietnam SEA Fund was "Templeton Vietnam Opportunities Fund, Inc." 16 Although the proposed changes in fundamental investment restrictions will provide the Fund greater flexibility to respond to possible future investment opportunities and to facilitate the Acquisition, the Board has been advised that the Investment Manager does not anticipate that the changes, individually or in the aggregate, will materially impact the way the Fund is managed on a day-to-day basis. PROPOSAL 3: TO APPROVE AMENDMENTS TO CERTAIN OF THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTIONS (this Proposal involves separate votes on Sub-Proposals 3a - 3h) The Fund's existing investment restrictions, together with the recommended changes to the investment 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-Proposals that are approved by shareholders will be effective immediately upon such approval. SUB-PROPOSAL 3A: TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION REGARDING BORROWING. The 1940 Act requires investment companies to impose certain limitations on borrowing activities and a fund's borrowing limitations must be fundamental. The limitations on borrowing are generally designed to protect shareholders and their investment by restricting a fund's ability to subject its assets to the claims of creditors who, under certain circumstances, might have a claim to the fund's assets that would take precedence over the claims of shareholders. Under the 1940 Act, a fund may borrow up to 33 1/3% of its total assets (including the amount borrowed) from banks and may borrow up to 5% of its total assets for temporary purposes from any other person. Generally, a loan is considered temporary if it is repaid within sixty days. Funds typically borrow money to meet redemptions or other short-term cash needs in order to avoid forced, unplanned sales of portfolio securities. This technique allows a fund greater flexibility by allowing its investment manager to buy and sell portfolio securities primarily for investment or tax considerations, rather than for cash flow considerations. WHAT EFFECT WILL AMENDING THE CURRENT BORROWING RESTRICTION HAVE ON THE FUND? The Fund's current investment restriction relating to borrowing prohibits the Fund from borrowing money, except that the Fund may borrow money from banks in an amount not exceeding 33 1/3% of the value of the Fund's total assets, including the amount borrowed. In addition to this fundamental restriction, the Fund's Statement of Additional Information (the "SAI") states that the Fund may borrow up to 5% of the value of its total assets to meet redemptions and for other temporary purposes. The Fund's current investment restriction on borrowing also limits the Fund's ability to pledge, mortgage or hypothecate its assets. Currently, the Fund may not pledge, mortgage or hypothecate its assets for any purposes, except in order to secure borrowings and then only to an extent not greater than 15% of the Fund's total assets. The 1940 Act does not require this type of fundamental investment restriction. The proposed investment restriction would prohibit borrowing money, except to the extent permitted by the 1940 Act or any rule, exemption or interpretation thereunder issued by the U.S. Securities and Exchange Commission (the "SEC"), and would eliminate the restriction regarding the Fund's ability to pledge, mortgage or hypothecate its assets. In addition, the Fund's policy that the Fund may borrow up to 5% to meet redemptions or for other temporary purposes would be eliminated to avoid unnecessarily limiting the Investment Manager if the Investment Manager determines that borrowing is in the best interests of the Fund and its shareholders. As a general matter, section 18 of the 1940 Act limits the Fund's borrowings to not more than 33 1/3% of the Fund's total assets, as is provided in the Fund's current investment restriction. 17 Unlike the current investment restriction, though, the proposed restriction would permit the Fund to borrow money from affiliated investment companies or other affiliated entities, such as the Fund's manager. In September 1999, the SEC granted an exemptive order to the Fund, together with other funds in Franklin Templeton Investments, permitting the Fund to borrow money from other funds in Franklin Templeton Investments (the "Inter-Fund Lending and Borrowing Order"). The proposed borrowing restriction would permit the Fund, under certain circumstances and in accordance with the Inter-Fund Lending and Borrowing Order, to borrow money from other funds in Franklin Templeton Investments at rates that are more favorable than the rates that the Fund would receive if it borrowed from banks or other lenders. The proposed borrowing restriction would also permit the Fund to borrow from other affiliated entities, such as the Investment Manager, under emergency market conditions should the SEC permit investment companies to engage in such borrowing in the future, such as it recently did in response to the emergency market conditions that existed immediately after the events of September 11, 2001. Because the proposed borrowing restriction would provide the Fund with additional borrowing flexibility, to the extent that the Fund uses such flexibility, the Fund may be subject to additional costs and risks inherent to borrowing, such as reduced total return. The additional costs and risks to which the Fund may be exposed are limited, however, by the borrowing limitations imposed by the 1940 Act or any rule, exemption or interpretation thereof that may be applicable. SUB-PROPOSAL 3B: TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION REGARDING UNDERWRITING. Under the 1940 Act, the Fund's policy concerning underwriting is required to be fundamental. Under the federal securities laws, a person or company generally is considered to be an underwriter if the person or company participates in the public distribution of securities of other issuers, which involves purchasing the securities from another issuer with the intention of re-selling the securities to the public. From time to time, a mutual fund may purchase securities in a private transaction for investment purposes and later sell or redistribute the securities to institutional investors. Under these or other circumstances, the Fund could possibly be considered to be within the technical definition of an underwriter under the federal securities laws. Recent SEC interpretations clarify, however, that re-sales of privately placed securities by institutional investors, such as the Fund, do not make the institutional investor an underwriter in these circumstances. In addition, it is unclear whether the Fund itself would be deemed to be an underwriter of its own securities as a result of technical non-compliance with certain provisions under the 1940 Act. The proposed restriction incorporates these SEC interpretations and would clarify any ambiguity regarding the Fund's ability to sell its own shares. WHAT EFFECT WILL AMENDING THE CURRENT UNDERWRITING RESTRICTION HAVE ON THE FUND? The Fund's current fundamental investment restriction relating to underwriting prohibits the Fund from acting as an underwriter. The current investment restriction does not provide any clarification regarding whether the Fund may sell securities that the Fund owns or whether the Fund may sell its own shares in those limited circumstances where the Fund might be deemed to be an underwriter. The proposed investment restriction relating to underwriting is substantially similar to the Fund's current investment restriction by generally prohibiting the Fund from engaging in underwriting. The proposed investment restriction, however, clarifies that the Fund may re-sell securities that the Fund owns and that it may also sell its own shares. The Fund's current fundamental investment restriction relating to underwriting is combined with a restriction relating to issuing senior securities. The adoption of this Sub-Proposal would result in the separation of the Fund's underwriting restriction from the Fund's investment restriction relating to issuing senior securities. (See Sub-Proposal 3f below.) The proposed fundamental investment restriction merely clarifies the types of transactions in which the Fund may permissibly engage. It is not anticipated that the adoption of the proposed investment restriction would involve any additional material risk to the Fund or affect the way the Fund is currently managed. 18 SUB-PROPOSAL 3C: 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. In addition to a loan of cash, the term "loans" may, under certain circumstances, be deemed to include certain 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. If a fund adopts a fundamental policy that prohibits lending, the fund may still invest in debt securities and enter into securities lending transactions if it provides an exception from the general prohibition. Under SEC staff interpretations, lending by an investment company, under certain circumstances, may also give rise to issues relating to the issuance of senior securities. To the extent that the Fund enters into lending transactions under these limited circumstances, the Fund will continue to be subject to the limitations imposed under the 1940 Act regarding the issuance of senior securities. (See Proposal 3f below.) WHAT EFFECT WILL AMENDING THE CURRENT LENDING RESTRICTION HAVE ON THE FUND? The Fund's current investment restriction regarding lending prohibits the Fund from loaning money, except that the Fund may purchase a portion of an issue of publicly distributed bonds, debentures, notes and other evidences of indebtedness. Repurchase agreements and securities lending are specifically excluded from this limitation. Although the Fund's current investment restriction permits the purchase of certain debt securities, the Fund is only permitted to purchase publicly distributed debt securities and may not invest in certain types of private placement debt securities or engage in direct corporate loans, even if such investments would otherwise be consistent with the Fund's investment objective and policies. The proposed fundamental investment restriction is similar to the Fund's current investment restriction regarding lending; however, the proposed investment restriction provides the Fund with greater lending flexibility by permitting the Fund to invest in non-publicly distributed debt securities, loan participations, and direct corporate loans. The proposed investment restriction also would provide the Fund with additional flexibility to make loans to affiliated investment companies. The portion of the proposed fundamental investment restriction on lending that permits the Fund to invest in private placement debt obligations and to engage in direct corporate loans would allow the Fund to accept and to retain, in connection with the Acquisition, certain assets of Vietnam SEA Fund. Vietnam SEA Fund currently holds certain real estate mortgage loans and promissory notes, which are considered to be debt obligations that are not publicly distributed. Under the applicable law in Vietnam, loan financing of certain enterprises offers certain advantages over equity investments, especially for foreign investors. In Vietnam, loan financing may be more flexible than equity investments because the equity capital contributed by foreign investors is fixed and may not be changed without regulatory approvals. Moreover, loan interest and principal payments are sometimes entitled to priority of repayment and may not be subject to withholding taxes. In addition, the proceeds of loan payments are sometimes more easily converted into a foreign currency than dividend distributions. The approximate value of the non-publicly distributed debt securities currently held by Vietnam SEA Fund is $3.4 million, which is currently equal to approximately 0.2% of the Fund's total assets. Approval of the proposed fundamental investment restriction on lending would permit the non-publicly distributed debt securities held by Vietnam SEA Fund to be transferred to the Fund, assuming that the shareholders of Vietnam SEA Fund approve the Acquisition. The proposed investment restriction would also permit the Fund to take advantage of the Inter-Fund Lending and Borrowing Order described above. These lending transactions may include terms that are more favorable than those which would otherwise be available from lending institutions. The proposed restriction would permit the Fund, under certain conditions, to lend cash to other Franklin Templeton funds at rates higher than those that the Fund would receive if the Fund loaned cash to banks or other financial institutions through short-term lending transactions, such as repurchase agreements. The Board anticipates that this additional 19 flexibility to lend cash to affiliated investment companies would allow additional investment opportunities, and could 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 non-publicly distributed debt securities, loan participations, and other direct corporate loans, including certain securities currently held by Vietnam SEA Fund, the Fund may be exposed to additional risks associated with such securities, including general illiquidity, greater price volatility and the possible lack of publicly available information about issuers of privately placed debt obligations and loan counterparties. However, the Board has adopted a non-fundamental investment restriction that limits any such investments, in the aggregate, including such Vietnam SEA Fund assets, to no more than 5% of the Fund's total assets (measured at the time of investment). Any loans made pursuant to the Inter-Fund Lending and Borrowing Order are excluded from this 5% investment restriction. Thus, the Investment Manager believes that the risks posed by these investments should be relatively modest. Moreover, the Fund has no current intention of exercising this expanded authority beyond the receipt of Vietnam SEA Fund assets in the Acquisition. Because real estate mortgage loans are loans secured by real estate, the Fund's real estate restriction is also proposed to be amended to permit the Fund to acquire these investments. (See Sub-Proposal 3e.) SUB-PROPOSAL 3D: 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 most common types of commodities are physical commodities such as wheat, cotton, rice and corn. Under the federal securities and commodities laws, certain financial instruments such as futures contracts and options thereon, including currency futures, stock index futures or interest rate futures, may, under limited circumstances, also be considered to be commodities. Funds typically invest in such futures contracts and options on these and other types of commodity contracts for hedging purposes, to implement a tax or cash management strategy, or to enhance returns. WHAT EFFECT WILL AMENDING THE COMMODITIES RESTRICTION HAVE ON THE FUND? The current fundamental investment restriction on commodities states that the Fund may not purchase or sell commodity contracts except futures contracts as described in the Fund's prospectus or the SAI. Other than referring to the prospectus and SAI, the current investment restriction does not clarify the types of futures contracts that the Fund may purchase or sell. The Fund's current fundamental investment restriction relating to commodities is combined with a fundamental investment restriction relating to investments in real estate, investments in other investment companies, and investments in oil, gas, and other mineral development programs. The adoption of this Sub-Proposal would result in separating the Fund's restriction regarding commodity contracts from these other fundamental investment restrictions. The Fund is proposing to eliminate the restriction on investing in other investment companies and the restriction on investing in oil, gas, and mineral development programs. (See Proposal 4 below.) The proposed investment restriction relating to commodities clarifies that the Fund has the ability to engage in futures contracts and related options. Notwithstanding the flexibility provided by the proposed fundamental investment restriction, the Fund is subject to guidelines established by the Board of Trustees relating to the Fund's use of derivative investments. Under these guidelines, currently not more than 5% of the Fund's assets may be invested in, or exposed to, options and swap agreements (as measured at the time of investment). Thus, the Fund's guidelines at this time do not contemplate, and the Fund has no present intention of engaging in, the purchase or sale of currency futures contracts, stock index futures contracts or interest rate futures contracts by the Fund. The use of futures contracts can involve substantial risks and, therefore, the Fund would only invest in such futures contracts where the Investment Manager believes such investments are advisable and then, only to the extent the guidelines established by the Board of Trustees were so modified to include futures contracts. There is no current intention to modify the Fund's guidelines with respect to derivatives to include futures 20 contracts and related options. Thus, it is not anticipated that the proposed amendments to the investment restriction relating to commodities would involve any additional risk. Should the Board in the future modify the Fund's guidelines to permit futures contracts, the Fund will accordingly amend its Prospectus and SAI to disclose the use of this investment strategy. SUB-PROPOSAL 3E: TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION REGARDING INVESTMENT IN REAL ESTATE. Under the 1940 Act, a fund's restriction regarding investment in real estate must be fundamental. The 1940 Act does not prohibit an investment company from investing in real estate, either directly or indirectly. As noted above, the Fund's current fundamental investment restriction relating to real estate is combined with the Fund's fundamental investment restriction relating to investment in commodities, investment in other investment companies, and investment in oil, gas, and mineral development programs. The adoption of this Sub-Proposal would result in the creation of a separate real estate restriction and a separate restriction for commodities. (See Sub-Proposal 3d above.) WHAT EFFECT WILL AMENDING THE REAL ESTATE RESTRICTION HAVE ON THE FUND? The Fund's current fundamental investment restriction relating to real estate prohibits the Fund from investing in real estate or mortgages on real estate, with two limited exceptions. The first exception permits the Fund to invest in marketable securities secured by real estate or interests therein. The second exception permits the Fund to invest in marketable securities issued by companies or investment trusts that invest in real estate or interests therein. The Board is proposing to modify the current investment restriction to provide the Investment Manager with increased flexibility with respect to real estate related investments. The proposed restriction would permit the Fund to continue to invest in the two types of real estate investments in which the Fund may currently invest; however, the Fund would not be limited to investing solely in marketable securities secured by real estate or interests in real estate. The proposed restriction would also permit the Fund to make or purchase real estate loans. In addition, the proposed restriction would permit the Fund to hold and sell real estate acquired by the Fund as a result of owning a security or other instrument and to make direct investments in real estate through partnerships and other special purpose entities that own or develop real estate. With respect to such direct investments in real estate, the Board has adopted a non-fundamental investment restriction limiting the Fund's direct investments in real estate to not more than 5% of the Fund's total assets (measured at the time of investment). The Board is proposing the changes to the Fund's real estate investment restriction, in part, to facilitate the Acquisition and permit the Fund to receive certain assets currently held by Vietnam SEA Fund. Approval of the proposed fundamental investment restriction relating to real estate would permit the real estate-related assets held by Vietnam SEA Fund to be transferred to the Fund if the shareholders of Vietnam SEA Fund approve the Acquisition. Pursuant to guidance from the SEC, an open-end investment company is generally prohibited from investing more than 15% of its net assets in illiquid securities, which would include the real estate-related assets currently held by Vietnam SEA Fund. As of March 31, 2002, the total value of the direct equity real estate-related assets proposed to be acquired by the Fund in the Acquisition is equal to approximately 0.21% of the Fund's net assets. The Fund's other illiquid assets are equal to 0.19% of the Fund's net assets as of that date. Therefore, if the proposed fundamental investment restriction relating to real estate is approved, and the Acquisition is approved by Vietnam SEA Fund shareholders, the receipt by the Fund of Vietnam SEA Fund's real-estate related assets in the Acquisition would not result in a significant increase in the Fund's illiquid holdings. In addition, the Fund has no current intention of exercising this expanded authority with respect to real estate beyond the receipt of Vietnam SEA Fund's real estate-related assets in the Acquisition. However, the Fund may make additional direct investments in real estate in the future, subject to the 5% non-fundamental restriction described above, should attractive opportunities become available. 21 Modifying the Fund's real estate restriction may expose the Fund to certain risks inherent to these investments. Like all real estate-related investments, Vietnam SEA Fund's investments that are secured by real estate in Vietnam are subject to risks such as relative illiquidity, difficulties in valuation, and greater price volatility. In addition, like other investments of this kind in developing countries, these investments are subject to risk of forfeiture due to governmental action. Further, under Vietnamese law, the ability of lenders to obtain complete and enforceable security interests in real estate is still unsettled. The real estate-related joint venture enterprises currently held by Vietnam SEA Fund that would be acquired by the Fund in the Acquisition generally involve the acquisition by the joint venture of leasehold interests in property, as necessary to carry on specific business enterprises. This involves the risk of adverse claims against a legal right to occupy a property for business purposes, as well as the risk that such a right may be disturbed by capricious governmental action or other challenges. Furthermore, the fact that the judicial system in Vietnam is still developing may also impede the ability of joint ventures to enforce an interest in real estate. In particular, the principles of limited liability for investors in an enterprise in Vietnam are not settled and, therefore, the liability of a foreign investor, such as the Fund, may not be limited to the amount of the investment. In addition, transfers of leasehold interests in Vietnam are generally subject to governmental approval and, as such, there can be no assurance of due process in connection with these approvals. The proposed restriction would permit the Fund to make direct investments in real estate beyond what is necessary to complete the Acquisition. However, pursuant to the non-fundamental investment restriction adopted by the Board, such investments by the Fund, in the aggregate, including the assets to be acquired from Vietnam SEA Fund in the Acquisition, must be limited at the time of investment to no more than 5% of the Fund's total assets. Thus, the risks associated with these investment activities are expected to be relatively modest. Moreover, as described above, the Fund currently does not expect to exercise this expanded authority beyond the receipt of Vietnam SEA Fund's assets in the Acquisition. SUB-PROPOSAL 3F: TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION REGARDING ISSUING SENIOR SECURITIES, PURCHASING ON MARGIN AND MAKING SHORT SALES. Under the 1940 Act, the Fund must have an investment policy describing its ability to issue senior securities. The 1940 Act does not, however, require the Fund to adopt a fundamental investment restriction regarding purchasing on margin or making short sales, except to the extent that these transactions may result in senior securities. A "senior security" is an obligation of a fund, with respect to its earnings or assets, that takes precedence over the claims of the fund's shareholders with respect to the same earnings or assets. The 1940 Act generally prohibits a fund from issuing senior securities in order to limit the fund's ability to use leverage. In general, leverage occurs when a fund borrows money to enter into securities transactions or acquires an asset without being required to make payment until a later time. SEC staff interpretations allow a fund under certain conditions to engage in a number of types of transactions that might otherwise be considered to create "senior securities," for example, short sales, certain options and futures transactions, reverse repurchase agreements and securities transactions that obligate the fund to pay money at a future date (such as when-issued, forward commitment or delayed delivery transactions). According to SEC staff interpretations, when engaging in these types of transactions, a fund must mark on its books, or set aside in a segregated account with its custodian bank, cash or other liquid securities to cover its future obligations, in order to avoid the creation of a senior security. This procedure limits the amount of a fund's assets that may be invested in these types of transactions and the fund's exposure to the risks associated with senior securities. WHAT EFFECT WILL AMENDING THE RESTRICTION REGARDING ISSUING SENIOR SECURITIES, SHORT SALES AND PURCHASING ON MARGIN HAVE ON THE FUND? The current fundamental investment restriction relating to senior securities prohibits the Fund from issuing senior securities, except as provided in the Fund's current fundamental restrictions on borrowing. The current 22 fundamental investment restriction also prohibits the Fund from purchasing securities on margin or engaging in short sales of securities, but does permit the Fund to make margin payments in connection with options on securities or securities indices, foreign currencies, futures contracts and related options, and forward contracts and related options. The proposed restriction would amend the Fund's current fundamental investment restriction by eliminating the references to short sales and purchasing on margin, and would permit the Fund to issue senior securities as permitted under the 1940 Act and any relevant rule, exemption, or interpretation issued by the SEC. Because the 1940 Act already contains provisions limiting the ability of the Fund to engage in short sales and purchase securities on margin, the elimination of the references to such investment techniques is expected to have no impact on the manner in which the Fund is currently managed. The proposed restriction also would clarify that the Fund may, provided that certain conditions are met, engage in those types of transactions that have been interpreted by the SEC staff as not constituting senior securities, such as repurchase transactions. The Fund has no present intention of changing its current investment strategies regarding transactions that may be interpreted as resulting in the issuance of senior securities nor engaging in short sales or purchasing securities on margin. Therefore, the Board does not anticipate that any additional material risk to the Fund will occur as a result of amending the current restriction. However, the Fund may initiate the use of these strategies in the future, as described in the proposed new restriction. SUB-PROPOSAL 3G: TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION REGARDING INDUSTRY CONCENTRATION. Under the 1940 Act, a fund's policy regarding concentration of investments in the securities of companies in any particular industry must be fundamental. The SEC staff takes the position that a mutual fund "concentrates" its investments if it invests more than 25% of its "net" assets (exclusive of certain items such as cash, U.S. government securities, securities of other investment companies, and tax-exempt securities) in any particular industry or group of industries. An investment company is not permitted to concentrate its investments in any particular industry or group of industries unless it discloses its intention to do so. WHAT EFFECT WILL AMENDING THE CURRENT RESTRICTION REGARDING INDUSTRY CONCENTRATION HAVE ON THE FUND? The proposed concentration policy is substantially the same as the Fund's current policy, except that (i) it modifies the Fund's asset measure (from "total assets" to "net assets") by which concentration is assessed; and (ii) it expressly references, in a manner consistent with current SEC staff policy, the categories of investments that are excepted from coverage of the restriction. The proposed restriction reflects a more modernized approach to industry concentration, and provides the Fund with investment flexibility that ultimately is expected to help the Fund respond to future legal, regulatory, market or technical changes. In addition, the Board may from time to time establish guidelines regarding industry classifications. The proposed restriction would expressly exempt from the 25% limitation those securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities, and the securities of other investment companies, consistent with SEC staff policy. The proposed restriction thus clarifies the types of U.S. government securities in which the Fund may invest. In addition, although the Fund has always been permitted to invest in other investment companies in accordance with the terms of its prospectus, the proposed restriction now makes explicit that such investments are exempted from the Fund's concentration policy. Even with this modified restriction, however, the Fund would continue to remain subject to the limitations on investments in other investment companies as set forth in the 1940 Act, its prospectus and any exemptive orders issued by the SEC. In brief, absent such rules or orders 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 investing more than 10% of its total assets in other investment companies overall. 23 SUB-PROPOSAL 3H: TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION REGARDING DIVERSIFICATION OF INVESTMENTS. The 1940 Act prohibits a "diversified" investment company, like the Fund, from purchasing securities of any one issuer if, at the time of purchase, with respect to 75% of the fund's total assets, more than 5% of total assets would be invested in the securities of that issuer, or the fund would own or hold more than 10% of the outstanding voting securities of that issuer. Up to 25% of a fund's total assets may be invested without regard to these limitations. Under the 1940 Act, these 5% and 10% limitations do not apply to securities issued or guaranteed by the U.S. government, its agencies or instrumentalities, or to the securities of other investment companies. WHAT EFFECT WILL AMENDING THE CURRENT INVESTMENT DIVERSIFICATION RESTRICTION HAVE ON THE FUND? The Fund's current fundamental investment restriction relating to diversification states that, as to 75% of the Fund's total assets, the Fund may not purchase any security, other than obligations of the U.S. government, its agencies or instrumentalities, if, as a result of the investment, the Fund would have more than 5% of its total assets invested in a single issuer or the Fund would own more than 10% of the voting securities of any single issuer. The current investment restriction does not exclude securities of other investment companies from the diversification requirements, as permitted by the 1940 Act. The proposed fundamental investment restriction would exclude from the 5% and 10% limitations securities issued by other investment companies (whether registered or unregistered under certain SEC rules or orders). Under the amended investment restriction, the Fund would be able to invest cash held at the end of the day in money market funds or other short-term investments (such as unregistered money market funds) without regard to the 5% and 10% investment limitations. The Fund, together with the other funds in Franklin Templeton Investments, obtained an exemptive order from the SEC (the "Cash Sweep Order") that permits the funds in Franklin Templeton Investments to invest their uninvested cash in one or more registered Franklin Templeton money market funds. The funds in Franklin Templeton Investments have also filed an application for an exemptive order seeking to amend the Cash Sweep Order to permit the funds in Franklin Templeton Investments, consistent with current SEC positions, to invest their uninvested cash in unregistered money market funds sponsored by Franklin Templeton Investments. Amending the Fund's current investment restriction regarding diversification would enable the Fund to take advantage of the investment opportunities presented by the Cash Sweep Order and, to the extent granted by the SEC, any amendment to the Cash Sweep Order permitting investment of uninvested cash balances in an unregistered money market fund sponsored by Franklin Templeton Investments. The proposed fundamental investment restriction on diversification is consistent with the definition of a diversified investment company under the 1940 Act and the Cash Sweep Order issued by the SEC. In addition, the proposed investment restriction would provide the Fund with greater investment flexibility consistent with the provisions of the 1940 Act and future rules or SEC interpretations. However, it is not currently anticipated that the adoption of the proposed restriction would materially change the way the Fund is managed. THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" SUB-PROPOSALS 3a-3h PROPOSAL 4: TO APPROVE THE ELIMINATION OF CERTAIN OF THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTIONS The Fund's existing investment restrictions, together with those recommended 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, the elimination of such investment restrictions will be effective immediately upon such approval. 24 WHY IS THE BOARD RECOMMENDING THAT CERTAIN FUNDAMENTAL INVESTMENT RESTRICTIONS BE ELIMINATED, AND WHAT EFFECT WILL THEIR ELIMINATION HAVE ON THE FUND? Some of the Fund's fundamental investment restrictions were originally adopted to comply with state securities laws and regulations. Due to the passage of NSMIA, and changes in SEC staff positions, these fundamental restrictions are either no longer required by law or are no longer relevant to the operation of the Fund. Since NSMIA eliminated the states' ability to substantively regulate investment companies, the Fund is no longer legally required to adopt or maintain investment restrictions relating to (i) investments in companies with less than three years of continuous operation; (ii) management ownership of securities; (iii) warrants; and (iv) oil and gas programs. Certain other fundamental investment restrictions of the Fund are restatements of restrictions that are already included within the 1940 Act or were former interpretations of the SEC staff. In some instances, these SEC staff interpretations have been updated or superseded entirely. These restrictions include those relating to (i) restricted securities; (ii) investments in other investment companies; and (iii) participation in joint trading accounts. The remaining fundamental investment restrictions relating to unlisted foreign securities and defaulted debt securities do not represent current SEC staff positions and, as described more fully below, are effectively limited by the Fund's limitation on investments in illiquid securities. The Board has determined that eliminating these eight 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 EIGHT (8) RESTRICTIONS IS THE BOARD RECOMMENDING THAT THE FUND ELIMINATE? The Fund currently is subject to eight Restrictions that are no longer required by law and were adopted primarily in response to regulatory, business or industry conditions that no longer exist. Accordingly, the Investment Manager has recommended, and the Board has determined, that the Restrictions be eliminated. Elimination of the Restrictions would enable the Fund to be managed in accordance with the current requirements of the 1940 Act, without being constrained by additional and unnecessary limitations. The Trustees believe that the Investment Manager's ability to manage the Fund's assets in a changing investment environment will be enhanced, and that investment management opportunities may 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." UNLISTED FOREIGN SECURITIES AND RESTRICTED SECURITIES: The fundamental investment restriction on unlisted foreign securities and restricted securities limits the Fund from investing more than 15% of its total assets in securities of foreign issuers that are not listed on a recognized U.S. or foreign securities exchange. To the extent that unlisted foreign securities are not readily marketable at a price that is approximately equal to the value placed on such assets by the Fund, these types of securities may be considered illiquid. The Fund remains subject to the limitations imposed by the SEC staff on an open-end fund's ability to invest in illiquid securities, which is currently limited to 15% of its net assets. As a result of the proposed elimination of the Fund's current investment restrictions that relate to restricted and illiquid securities, the Fund's Board has adopted a non-fundamental investment restriction, consistent with the SEC staff's current position on illiquid securities, which would prohibit the Fund from investing more than 15% of its net assets in illiquid securities (the "Illiquid Securities Restriction"). Thus, the Fund is already prohibited from investing more than 15% of its net assets in illiquid securities, including foreign securities that are not listed on a U.S. or foreign securities exchange and are not otherwise readily marketable. 25 The Fund's current fundamental investment restriction also limits the Fund's ability to invest in restricted securities to no more than 10% of the Fund's total assets. With some exceptions, restricted securities generally include securities that have not been registered under the Securities Act of 1933, as amended, and therefore may only be resold to certain institutional investors under certain circumstances, and securities that are subject to other contractual restrictions on resale. To the extent that a restricted security is not readily marketable, such a security may also be considered illiquid. The Fund's current fundamental investment restriction on restricted securities was based upon state law restrictions on the purchase of unregistered securities, as well as an SEC staff position relating to illiquid securities. The state law provision has been pre-empted by NSMIA and the SEC staff, which does not require investment companies to adopt the position as a fundamental restriction, has subsequently amended its position to permit investment companies to invest up to 15% of their net assets in illiquid securities. As described above, the Fund's Board has adopted the Illiquid Securities Restriction in recognition of the SEC staff position and, therefore, is recommending that the current fundamental investment restriction on unlisted foreign securities and restricted securities be eliminated. The Fund's Board also has eliminated a related non-fundamental investment restriction that limited the Fund to investing up to 10% of its total assets in restricted securities and securities with a limited trading market. THREE YEARS OF CONTINUOUS OPERATION: The Fund's current fundamental investment restriction relating to investments in newer companies limits the Fund's ability to invest more than 5% of the value of its total assets in the securities of companies, including their predecessors, that have a record of less than three years continuous operation. This restriction was based upon state securities laws which have been pre-empted by NSMIA. Therefore, the Board proposes that the restriction be eliminated. INVESTMENT IN OTHER INVESTMENT COMPANIES: The Fund's current fundamental investment restriction regarding investments in other investment companies is based, in part, on state laws, which have been preempted by NSMIA. The Fund's current fundamental restriction prohibits the Fund from investing in other open-end investment companies, except as permitted by the 1940 Act. The 1940 Act, however, does not require a fund to adopt such a provision as a fundamental investment restriction. Upon elimination of this restriction, the Fund would remain subject to the restrictions under Section 12(d) of the 1940 Act relating to the Fund's ability to invest in other investment companies, except where the Fund has received an exemption from such restrictions. The 1940 Act restrictions generally specify that the Fund may not purchase more than 3% of another fund's total outstanding voting stock, commit more than 5% of its assets to the purchase of another fund's securities, or have more than 10% of its total assets invested in securities of all other funds. In addition, eliminating the Fund's current restriction would permit the Fund to take advantage of the investment opportunities presented by the Cash Sweep Order (discussed in Sub-Proposal 3h), since the Cash Sweep Order contemplates relief from the 1940 Act restrictions relating to investments in other investment companies in certain limited circumstances. Therefore, the Board is recommending that the restriction be eliminated. In addition, certain Vietnam SEA Fund assets are held indirectly by Vietnam SEA Fund through certain wholly owned foreign holding companies. Because such foreign holding companies may be deemed to be "investment companies," Vietnam SEA Fund sought and received from the SEC staff no-action assurances that such Fund could own 100% of such foreign holding companies' outstanding securities notwithstanding the 3% restriction of Section 12(d) described above. The Fund intends to rely upon such no-action relief in connection with Vietnam SEA Fund assets to be received in the Acquisition. MANAGEMENT OWNERSHIP OF SECURITIES: The Fund's current fundamental investment restriction prohibits the Fund from investing in companies in which certain affiliated persons of the Fund have an ownership interest. This restriction was based on state law 26 provisions that have been pre-empted by NSMIA. In addition, the 1940 Act provisions addressing conflicts of interest would continue to apply to the Fund. Therefore, the Board is recommending that the restriction be eliminated. WARRANTS: The Fund's fundamental investment restriction relating to warrants limits the Fund's investments in warrants to 5% of the Fund's total assets whether or not the warrant is listed on the New York Stock Exchange or the American Stock Exchange, including no more than 2% of its total assets which may be invested in warrants that are not listed on these exchanges. A warrant entitles an investor to purchase a specified amount of stock at a specified price and is effective for a period of time normally ranging from a number of years to perpetuity. The Fund's fundamental restriction on warrants was based on state securities laws that have since been pre-empted by NSMIA. Accordingly, the Board proposes that the restriction be eliminated. JOINT TRADING ACCOUNT: The Fund's fundamental investment restriction relating to joint trading accounts prohibits the Fund's participation on a joint or a joint and several basis in such an account. Because section 12(a)(2) of the 1940 Act prohibits a mutual fund from participating in a joint trading account unless allowed by rule or exemptive order, the current fundamental restriction is unnecessary. Therefore, the Board is recommending that the restriction be eliminated. DEFAULTED DEBT SECURITIES: The Fund has a fundamental investment restriction that prohibits the Fund from investing more than 10% of the Fund's total assets in defaulted debt securities. The 1940 Act does not require a fund to adopt such a policy as a fundamental investment restriction. In addition, the 1940 Act does not restrict a fund from investing in such securities, except to the extent that such securities may be considered illiquid, in which case a fund may invest up to 15% of its net assets in such securities. Because this current fundamental investment restriction is not required and the Board has adopted the Illiquid Securities Restriction, the Board recommends that the fundamental investment restriction relating to defaulted debt securities be eliminated. OIL AND GAS PROGRAMS: The Fund has a fundamental investment restriction that prohibits the Fund from investing in interests (other than debentures or equity stock interests) in oil, gas or other mineral exploration or development programs. The Fund's fundamental investment restriction regarding oil and gas programs was based on state securities laws that had been adopted by a few jurisdictions, but have since been pre-empted by NSMIA. Accordingly, the Board proposes that the restriction be eliminated. WHAT ARE THE RISKS, IF ANY, IN ELIMINATING THE RESTRICTIONS? The Board does not anticipate that eliminating the Restrictions will result in any significant additional risk to the Fund. Although the Fund's Restrictions, as drafted, are no longer legally required, the Fund's ability to invest in these eight areas will continue to be subject to the limitations of the 1940 Act, or any rule, SEC staff interpretation, or exemptive orders granted under the 1940 Act. Moreover, the Fund does not currently intend to change its present investment practices as a result of eliminating the Restrictions. THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL 4 27 INFORMATION ABOUT THE FUND THE INVESTMENT MANAGER. The Investment Manager of the Fund is Templeton Asset Management Ltd.--Hong Kong Branch, a Singapore company, whose principal office is located at 7 Temasek Blvd., Suntec Tower One, #38-03, Singapore 03987, 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. 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 and an affiliate of the Fund's principal underwriter. Pursuant to an administration agreement, FT Services provides certain administrative functions for the Fund. THE UNDERWRITER. The underwriter for the Fund is Franklin Templeton Distributors, Inc., One Franklin Parkway, San Mateo, California 94403-1906. THE TRANSFER AGENT. The transfer agent and dividend-paying agent for the Fund is Franklin Templeton Investor Services, LLC, 100 Fountain Parkway, St. Petersburg, Florida 33716-1205. 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 December 31, 2001, are available free of charge. To obtain a copy, please call 1-800/DIAL BEN(R) (1-800-342-5236) or forward a written request to Franklin Templeton Investor Services, LLC, P.O. Box 33030, St. Petersburg, Florida 33733-8030. AUDIT COMMITTEE AND INDEPENDENT AUDITORS. The Fund's Audit Committee is responsible for recommending the selection of the Fund's independent auditors, including evaluating their independence and meeting with such accountants to consider and review matters relating to the Fund's financial reports and internal accounting. The Audit Committee is comprised of the following Independent Trustees of the Fund: Fred R. Millsaps (Chairman), Frank J. Crothers, Andrew H. Hines, Jr., and Constantine D. Tseretopoulos. Upon the recommendation of the Audit Committee, the Board selected the firm of PricewaterhouseCoopers LLP ("PwC") as independent auditors of the Fund for the current fiscal year. Representatives of PwC are not expected to be present at the Meeting, but will have the opportunity to make a statement if they wish, and will be available should any matter arise requiring their presence. AUDIT FEES. The aggregate fees paid to PwC in connection with the annual audit of the Fund's financial statements for the fiscal year ended December 31, 2001 were $116,100. FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. PwC did not render any services with respect to financial information systems design and implementation during the fiscal year ended December 31, 2001 to the Fund or entities affiliated with the Fund that provide services to the Fund. ALL OTHER FEES. The aggregate fees billed for all other non-audit services, including fees for tax-related services, rendered by PwC to the Fund or entities affiliated with the Fund that provide services to the Fund for the fiscal year ended December 31, 2001 were $142,204. The Audit Committee of the Fund has determined that provision of these non-audit services is compatible with maintaining the independence of PwC. PRINCIPAL SHAREHOLDERS. As of June 14, 2002, the Fund had total net assets of $1,621,836,173 and a total of 147,874,050.199 shares of beneficial interest, $0.01 par value ("shares"), outstanding divided among five separate classes of shares as follows: 123,706,559.402 Class A shares, 1,262,206.601 Class B shares, 13,868,174.929 Class C shares, 9,909.327 Class R shares and 9,027,199.940 Advisor Class shares. 28 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 June 14, 2002 the only other entities owning beneficially more than 5% of the outstanding shares of any class of the Fund were:
AMOUNT AND PERCENTAGE OF NATURE OF OUTSTANDING BENEFICIAL SHARES OF THE NAME AND ADDRESS SHARE CLASS OWNERSHIP CLASS (%) ---------------- ----------- ------------- ------------- Franklin Advisers, Inc. Advisor 1,271,841.353 14.088% One Franklin Parkway San Mateo, CA 94403-1906 FTB&T TTEE for Defined Contribution Svcs Advisor 948,036.841/(1)/ 10.502%/(1)/ Franklin Templeton 401(k) P.O. Box 2438 Rancho Cordova, CA 95741-2438 CNA TTEE for the 401(k) Plan of R 2,487.603 25.103% Southeast Steel Sales Company P.O. Box 5024 Costa Mesa, CA 92628-5024 FTB&T Cust. For the Rollover IRA of R 1,812.292 18.288% Nancy V. Bannon c/o Retirement Services P.O. Box 33033 St. Petersburg, FL 33733-8033 FTB&T Cust. For the Rollover IRA of R 1,324.464 13.365% Paul M. Zipp c/o Retirement Services P.O. Box 33033 St. Petersburg, FL 33733-8033 Franklin Advisers, Inc. R 1,007.049 10.162% One Franklin Parkway San Mateo, CA 94403-1906 Chase Manhattan Bank NA R 869.153 8.771% FBO USA Track and Field 401A M Money Purchase Plan One Chase Square Rochester, NY 14643 FTB&T Cust. For the Rollover IRA of R 687.835 6.941% Charlotte L. Yoder c/o Retirement Services P.O. Box 33033 St. Petersburg, FL 33733-8033
-------- (1) Charles B. Johnson, who is Chairman of the Board, Trustee and an officer of the Fund, and Rupert H. Johnson, Jr., Harmon E. Burns and Martin L. Flanagan, who are officers of the Fund, serve on the administrative committee of the Franklin Templeton Profit Sharing and 401(k) Plan, which owns shares of the Fund. In that capacity, they participate in the voting of such shares. Charles B. Johnson, Rupert H. Johnson, Jr., Harmon E. Burns and Martin L. Flanagan disclaim beneficial ownership of any shares of the Fund owned by the Franklin Templeton Profit Sharing and 401(k) Plan. Charles B. Johnson and Rupert H. Johnson, Jr., may be considered beneficial holders of the Fund shares held by Franklin Advisers, Inc. ("Advisers"). As principal shareholders of Resources, they may be able to control the voting of Advisers' shares of the Fund. 29 In addition, to the knowledge of the Fund's management, as of June 14, 2002, the Trustees and officers of the Fund, as a group, owned of record and beneficially 1.39% of the Fund's Advisor Class shares and less than 1% of the outstanding shares of the Fund in the aggregate and of any other class of the Fund. FURTHER INFORMATION ABOUT VOTING AND THE MEETING SOLICITATION OF PROXIES. Your vote is being solicited by the Board of Trustees of the Fund. The cost of soliciting proxies, including the fees of a proxy soliciting agent, will be shared one-quarter by the Investment Manager and three-quarters by the Fund. The Fund reimburses brokerage firms and others for their expenses in forwarding proxy material to the beneficial owners and soliciting them to execute proxies. The Fund has engaged Georgeson Shareholder Communications, Inc. to solicit proxies from brokers, banks, other institutional holders and individual shareholders at an anticipated cost of approximately $91,000 to $110,000, 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 Communications asking you to vote. The Fund does not reimburse Trustees and officers of the Fund or regular employees and agents of the Investment Manager involved in the solicitation of proxies. 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. If these instructions are not received by the date specified in the broker-dealer firms' or such depositories' proxy solicitation materials, the Fund understands that the broker-dealers may vote on Proposal 1 on behalf of their customers. 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 outstanding shares of the Fund--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 for purposes of determining whether the required quorum of shares exists. METHODS OF TABULATION. Proposal 1, the election of Trustees, requires the affirmative vote of the holders of a plurality of the Fund's shares present and voting at the Meeting. Proposal 2, to approve an Agreement and Plan of Reorganization that provides for the reorganization of the Fund from a Massachusetts business trust to a Delaware business trust; Proposal 3, to approve amendments to certain of the Fund's fundamental investment restrictions (including eight (8) Sub-Proposals); and Proposal 4, to approve the elimination of certain of the Fund's fundamental investment restrictions, each require the affirmative vote of the lesser of: (i) more than 50% of the outstanding shares of the Fund; or (ii) 67% or more of the outstanding shares of the Fund present at the Meeting, if the holders of more than 50% of the outstanding shares 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-3h, 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 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 Massachusetts law and the Fund's Declaration of Trust, as restated and amended, and By-Laws. Unless otherwise instructed by a shareholder granting a proxy, the persons designated as proxies may use their discretionary authority to vote on questions of adjournment. 30 SHAREHOLDER PROPOSALS. The Fund is not required, and does not intend, to hold regular annual shareholders' meetings. Shareholders wishing to submit proposals for consideration for inclusion in a proxy statement for the next shareholders' meeting should send their written proposals to the Fund's offices, 500 East Broward Boulevard, Suite 2100, Fort Lauderdale, Florida 33394-3091, so they are received within a reasonable time before any such meeting. A shareholder proposal may be presented at a 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 Fund's proxy statement or presented at the meeting. No business other than the matters described above is expected to come before the Meeting, but should any other matter requiring a vote of shareholders arise, including any question as to an adjournment or postponement of the Meeting, the persons designated as proxies named on the enclosed proxy card will vote on such matters in accordance with the views of management. By Order of the Board of Trustees, Barbara J. Green Secretary Dated: July 8, 2002 31 EXHIBIT A AGREEMENT AND PLAN OF REORGANIZATION BETWEEN TEMPLETON DEVELOPING MARKETS TRUST (A MASSACHUSETTS BUSINESS TRUST) AND TEMPLETON DEVELOPING MARKETS TRUST (A DELAWARE BUSINESS TRUST) This Agreement and Plan of Reorganization ("Agreement") is made as of this 10th day of May, 2002 by and between Templeton Developing Markets Trust, a Delaware business trust (the "Delaware Trust"), and Templeton Developing Markets Trust, a Massachusetts business trust (the "Massachusetts Trust") (the Delaware Trust and the Massachusetts Trust 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 Massachusetts Trust will convey, transfer and deliver to the Delaware Trust at the closing provided for in Section 2 (hereinafter referred to as the "Closing") all of the Massachusetts Trust's then-existing assets. In consideration thereof, the Delaware Trust agrees at the Closing (i) to assume and pay when due, to the extent that there exist Massachusetts Trust 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 Massachusetts Trust to become the obligations and liabilities of the Delaware Trust; and (ii) to deliver, in accordance with paragraph (b) of this Section 1, full and fractional shares of each class of shares of beneficial interest, without par value, of the Delaware Trust, equal in number to the number of full and fractional shares of the corresponding class of shares of beneficial interest, $.01 par value per share, of the Massachusetts Trust 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 Massachusetts Trust shall distribute to its shareholders the shares of the Delaware Trust in accordance with this Agreement and the resolutions of the Board of Trustees of the Massachusetts Trust authorizing the transactions contemplated by this Agreement. (b) In order to effect the delivery of shares described in Section 1(a)(ii) hereof, the Delaware Trust will establish an open account for each shareholder of the Massachusetts Trust 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 Delaware Trust equal to the number of full and fractional shares of beneficial interest such shareholder holds in the Massachusetts Trust at the close of regular trading on the New York Stock Exchange ("NYSE") on the business day immediately preceding the Effective Date of the Reorganization. Fractional shares of the Delaware Trust will be carried to the third decimal place. At the close of regular trading on the NYSE on the business day immediately preceding the Effective Date of the Reorganization, the net asset value per share of shares of the Delaware Trust shall be deemed to be the same as the net asset value per share of shares of the Massachusetts Trust. On the Effective Date of the Reorganization, each certificate representing shares of the Massachusetts Trust will be deemed to represent the same number of shares of the Delaware Trust. Simultaneously with the crediting of the shares of the Delaware Trust to the shareholders of record of the Massachusetts Trust, the shares of the Massachusetts Trust held by such shareholder shall be cancelled. Each shareholder of the Massachusetts Trust will have the right to deliver their share certificates of the Massachusetts Trust in exchange for share certificates of the Delaware Trust. However, a shareholder need not deliver such certificates to the Delaware Trust unless the shareholder so desires. A-1 (c) As soon as practicable after the Effective Date of the Reorganization, the Massachusetts Trust shall take all necessary steps under Massachusetts law to effect a complete dissolution of the Massachusetts Trust. (d) The expenses of entering into and carrying out the Agreement will be borne by the Massachusetts Trust. 2. CLOSING AND EFFECTIVE DATE OF THE REORGANIZATION. The Closing shall consist of (i) the conveyance, transfer and delivery of the Massachusetts Trust's assets to the Delaware Trust, in exchange for the assumption and payment, when due, by the Delaware Trust of the Massachusetts Trust's obligations and liabilities; and (ii) the issuance and delivery of the Delaware 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 Massachusetts Trust 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 Massachusetts Trust and the Delaware Trust to effectuate the transactions hereunder shall be subject to the satisfaction of each of the following conditions: (a) Such authority and orders from the U.S. Securities and Exchange Commission (the "Commission") and state securities commissions as may be necessary to permit the parties to carry out the transactions contemplated by this Agreement shall have been received; (b) (i) One or more post-effective amendments to the Massachusetts Trust's Registration Statement on Form N-1A ("Registration Statement") under the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended ("1940 Act"), containing such amendments to such Registration Statement as are determined under the supervision of the Trustees of the Massachusetts Trust to be necessary and appropriate as a result of this Agreement, shall have been filed with the Commission; (ii) the Delaware Trust shall have adopted as its own such Registration Statement, as so amended; (iii) the most recent post-effective amendment or amendments to the Massachusetts Trust's Registration Statement shall have become effective, and no stop order suspending the effectiveness of the 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); and (iv) an amendment of the Form N-8A Notification of Registration filed pursuant to Section 8(a) of the 1940 Act ("Form N-8A") reflecting the change in legal form of the Massachusetts Trust to a Delaware business trust shall have been filed with the Commission and the Massachusetts Trust shall have expressly adopted such amended Form N-8A as its own for purposes of the 1940 Act; (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 State of Delaware and the Commonwealth of Massachusetts, 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 Massachusetts Trust, the Delaware Trust or the shareholders of the Massachusetts Trust or the Delaware Trust; (d) The Massachusetts Trust 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 Massachusetts Trust, to the effect that (i) the Delaware Trust is duly formed as a business trust under the laws of the State of Delaware; (ii) this Agreement and the transactions contemplated thereby A-2 and the execution and delivery of this Agreement have been duly authorized and approved by all requisite action of the Delaware Trust and this Agreement has been duly executed and delivered by the Delaware Trust and is a legal, valid and binding agreement of the Delaware Trust in accordance with its terms; and (iii) the shares of the Delaware 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 Delaware Trust; (e) The Delaware 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 Delaware Trust, to the effect that: (i) the Massachusetts Trust is duly organized and validly existing under the laws of the Commonwealth of Massachusetts; (ii) the Massachusetts Trust is an open-end investment company of the management type registered under the 1940 Act; and (iii) this Agreement and the transactions contemplated hereby and the execution and delivery of this Agreement have been duly authorized and approved by all requisite action of the Massachusetts Trust and this Agreement has been duly executed and delivered by the Massachusetts Trust and is a legal, valid and binding agreement of the Massachusetts Trust in accordance with its terms; (f) The shares of the Delaware Trust are eligible for offering to the public in those states of the United States and jurisdictions in which the shares of the Massachusetts Trust are currently eligible for offering to the public so as to permit the issuance and delivery by the Delaware 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 trustees of the Massachusetts Trust (the "Board of Trustees") and the shareholders of the Massachusetts Trust; (h) The shareholders of the Massachusetts Trust shall have voted to direct the Massachusetts Trust to vote, and the Massachusetts Trust shall have voted, as sole shareholder of the Delaware Trust, to: (1) Elect as Trustees of the Delaware Trust the following individuals: Harris J. Ashton, Nicholas F. Brady, Frank J. Crothers, S. Joseph Fortunato, Andrew H. Hines, Jr., Edith E. Holiday, Charles B. Johnson, Charles E. Johnson, Betty P. Krahmer, Gordon S. Macklin, Fred R. Millsaps and Constantine D. Tseretopoulos; and (2) Approve an Investment Management Agreement between Templeton Asset Management Ltd. ("TAML") and the Delaware Trust, which is substantially identical to the then-current Investment Management Agreement between TAML and the Massachusetts Trust; (i) The Trustees of the Delaware 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 Delaware Trust; (2) Approval of the assignment to the Delaware Trust of the Massachusetts Trust's Custody Agreement dated October 16, 1991 (the "Custody Agreement"), with The Chase Manhattan Bank, N.A. (now JPMorgan Chase Bank), including the Amendment to the Custody Agreement, dated March 2, 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 Delaware Trust's independent auditors for the fiscal year ending December 31, 2002; (4) Approval of an Administration Agreement between the Delaware Trust and Franklin Templeton Services, LLC; (5) Approval of a Distribution Agreement between the Delaware Trust and Franklin Templeton Distributors, Inc.; A-3 (6) Approval of a Form of Dealer Agreement between the Delaware Trust and Franklin/Templeton Distributors, Inc. and securities dealers dated March 1, 1998, including the Amendment to the Form of Dealer Agreement, dated May 15, 1998; (7) Approval of the following Distribution Plans by the Delaware Trust pursuant to Rule 12b-1 under the 1940 Act: (i) Class A Distribution Plan pursuant to Rule 12b-1; (ii) Class B Distribution Plan pursuant to Rule 12b-1; (iii) Class C Distribution Plan pursuant to Rule 12b-1; (iv) Class R Distribution Plan pursuant to Rule 12b-1; and (v) Multiple Class Plan pursuant to Rule 18f-3; (8) Approval of a Transfer Agency Agreement between the Delaware Trust and Franklin Templeton Investor Services, LLC; (9) Approval of a Sub-Accounting Services Agreement for the Delaware Trust; (10) Approval of a Sub-Transfer Agent Agreement for the Delaware Trust; (11) Authorization of the issuance by the Delaware Trust, prior to the Effective Date of the Reorganization, of one share of each class of shares of beneficial interest of the Delaware Trust to the Massachusetts Trust in consideration for the payment of $1.00 for each such share for the purpose of enabling the Massachusetts Trust to vote on the matters referred to in paragraph (h) of this Section 3 hereof; (12) Submission of the matters referred to in paragraph (h) of this Section 3 to the Massachusetts Trust as sole shareholder of the Delaware Trust; and (13) Authorization of the issuance and delivery by the Delaware Trust of its shares on the Effective Date of the Reorganization and the assumption by the Delaware Trust of the obligations and liabilities of the Massachusetts Trust in exchange for the assets of the Massachusetts Trust 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 Trustees of the Massachusetts Trust, 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 Massachusetts Trust under this Agreement. 4. DISSOLUTION OF THE MASSACHUSETTS TRUST. Promptly following the consummation of the distribution of the Delaware Trust shares to holders of Massachusetts Trust shares under this Agreement, the officers of the Massachusetts Trust shall take all steps necessary under Massachusetts law to effect its dissolution as a business trust, including publication of any necessary notices to creditors, receipt of any necessary pre-dissolution clearances from the Commonwealth of Massachusetts, and filing for record with the Secretary of the Commonwealth of Massachusetts of the termination of Trust. 5. TERMINATION. The Board of Trustees may terminate this Agreement and abandon the reorganization contemplated hereby, notwithstanding approval thereof by the shareholders of the Massachusetts Trust, 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. A-4 7. FURTHER ASSURANCES. The Massachusetts Trust and the Delaware 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. IN WITNESS WHEREOF, the Delaware Trust and the Massachusetts Trust 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. Attest: TEMPLETON DEVELOPING MARKETS TRUST (a Massachusetts business trust) By /s/ LORI A. WEBER By /s/ DAVID P. GOSS ---------------------------------- ----------------------------------- Name: Lori A. Weber Name: David P. Goss Title: Assistant Secretary Title: Vice President Attest: TEMPLETON DEVELOPING MARKETS TRUST (a Delaware business trust) By /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 DEVELOPING MARKETS TRUST, A DELAWARE BUSINESS TRUST, UNDER SUCH LAW, THE LAW GOVERNING MASSACHUSETTS BUSINESS TRUSTS AND THE CHARTER DOCUMENTS OF TEMPLETON DEVELOPING MARKETS TRUST, A MASSACHUSETTS BUSINESS TRUST, UNDER SUCH LAW
DELAWARE BUSINESS TRUST MASSACHUSETTS BUSINESS TRUST ----------------------- ---------------------------- GOVERNING A Delaware statutory business trust (a "DBT") is formed by A Massachusetts business trust (an "MBT") is DOCUMENTS/ a governing instrument and the filing of a certificate of trust created by filing a declaration of trust with the GOVERNING with the Delaware Secretary of State ("Secretary of State"). Secretary of State of Massachusetts and with the BODY The Delaware law governing a DBT is referred to in this clerk of every city or town in Massachusetts where analysis as the "Delaware Act." the trust has a usual place of business. A DBT is an unincorporated association organized under the An MBT is an unincorporated association organized Delaware Act whose operations are governed by its under the Massachusetts statute governing business governing instrument (which may consist of one or more trusts (the "Massachusetts Statute") and is instruments). Its business and affairs are managed by or considered to be a hybrid, having characteristics of under the direction of one or more trustees. both corporations and common law trusts. An MBT's operations are governed by a trust instrument and by-laws. The business and affairs of an MBT are managed by or under the direction of a board of trustees. As described in this chart, DBTs are granted a significant MBTs are also granted a significant amount of amount of organizational and operational flexibility. organizational and operational flexibility. The Delaware law makes it easy to obtain needed shareholder Massachusetts Statute is silent on most of the approvals, and also permits management of a DBT to take salietn features of MBTs, thereby allowing the various actions without being required to make state filings trustees of the MBT to freely structure the MBT. The or obtain shareholder approval. Massachusetts Statute does not specify what information must be contained in the declaration of trust, nor does it require a registered officer or agent for service of process. The governing instrument for the DBT, Templeton The governing instrument for the MBT, Templeton Developing Markets Trust (the "Delaware Business Trust"), Developing Markets Trust ("Developing Markets is comprised of an agreement and declaration of trust Trust"), is comprised of an Amended and Restated ("Declaration") and by-laws ("By-Laws"). The Delaware Declaration of Trust ("MA Declaration") and by- Business Trust's governing body is a board of trustees (the laws ("MA By-Laws"). The Developing Markets "board" or "board of trustees" or collectively, the Trust's governing body is a board of trustees (the "trustees"). "board" or "board of trustees" or collectively, the "trustees"). Each trustee of the Delaware Business Trust shall hold Each trustee of Developing Markets Trust shall hold office for the lifetime of the Delaware Business Trust or, if office for the lifetime of Developing Markets Trust earlier, until the next meeting of shareholders called for the or, if earlier, until the next meeting of share- purpose of electing trustees or consent of shareholders in holders called for the purpose of electing trustees lieu thereof for the election of trustees and until the or consent of shareholders in lieu thereof for the election and qualification of his or her successor. election of trustees and until the election and qualification of his or her successor.
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DELAWARE BUSINESS TRUST MASSACHUSETTS BUSINESS TRUST ---------------------------- ---------------------------------- OWNERSHIP Under the Delaware Act, the ownership interests in a DBT Under the Massachusetts Statute, the ownership SHARES are denominated as "beneficial interests" and are held by interests in an MBT are denominated as "beneficial OR "beneficial owners." However, there is flexibility as to how interests" and are held by "beneficial owners." INTERESTS a governing instrument refers to "beneficial interests" and However, there is flexibility as to how a governing "beneficial owners" and the governing instrument may instrument refers to "beneficial interests" and identify "beneficial interests" and "beneficial owners" as "beneficial owners" and the governing instrument "shares" and "shareholders," respectively. may identify "beneficial interests" and "beneficial owners" as "shares" and "shareholders," respectively. The Delaware Business Trust's beneficial interests, without The Developing Markets Trust's units of beneficial par value, are designated as "shares" and its beneficial interests, par value $0.01 per unit, are designated as owners are designated as "shareholders." This analysis will "shares" and its beneficial owners are designated as use the "share" and "shareholder" terminology. "shareholders." This analysis will use the "share" and "shareholder" terminology. SERIES AND Under the Delaware Act, the governing instrument may The Massachusetts Statute permits an MBT to issue CLASSES provide for classes, groups or series of shares, shareholders one or more series or classes of beneficial interest. or trustees, having such relative rights, powers and duties as The Massachusetts Statute is largely silent as to any set forth in the governing instrument. Such series, classes or requirements for the creation of such series or groups may be described in the DBT's governing instrument classes, although the trust documents creating an or in resolutions adopted by its trustees. No state filing is MBT may provide methods or authority to create necessary and, unless required by the governing instrument, such series or classes without seeking shareholder shareholder approval is not needed. approval. The Declaration authorizes the board of trustees to divide The MA Declaration authorizes an unlimited number the Delaware Business Trust's shares into separate and of shares, which may be further divided into separate distinct series and to divide a series into separate classes series or classes. of shares as permitted by the Delaware Act. Such series and classes will have the rights, powers and duties set forth in the Declaration unless otherwise provided in the resolution of the board establishing such series or class. AMENDMENTS The Delaware Act provides broad flexibility as to the The Massachusetts Statute provides broad flexibility TO manner of amending and/or restating the governing as to the manner of amending and/or restating the GOVERNING instrument of a DBT. Amendments to the Declaration that governing instrument of an MBT. The DOCUMENTS do not change the information in the DBT's certificate of Massachusetts Statute provides that the trustees trust are not required to be filed with the Secretary of State. shall, within thirty (30) days after the adoption of any amendment to the declaration of trust, file a copy with the Secretary of State of Massachusetts and with the clerk of every city or town in Massachusetts where the trust has a usual place of business.
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DELAWARE BUSINESS TRUST MASSACHUSETTS BUSINESS TRUST ------------------------ ------------------------------- DECLARATION OF TRUST DECLARATION OF TRUST The Declaration may be restated and/or amended at any The MA Declaration may be amended by a vote of time by a written instrument signed by a majority of the the holders of a majority of the shares outstanding board of trustees and, if required by the Declaration, the and entitled to vote or by an instrument in writing, Investment Company Act of 1940, as amended (the "1940 without a meeting, signed by a majority of the Act"), or any securities exchange on which outstanding trustees and consented to by the holders of a majority shares are listed for trading, by approval of such amendment of the shares outstanding and entitled to vote. by the shareholders, by the affirmative "vote of a majority of the outstanding voting securities" (as defined in the 1940 The trustees may amend the MA Declaration in their Act) of the Delaware Business Trust entitled to vote at a sole discretion, without the need for shareholder shareholders' meeting at which a quorum is present, subject action, to add, delete, or modify any provisions to Article III, Section 6 of the Declaration relating to voting relating to the shares of Developing Markets Trust if by series and classes. the trustees determine that such action is "consistent with the fair and equitable treatment of all [s]hareholders or [Sic] that shareholder approval is not otherwise required by applicable law," including, but not limited to: (1) creating one or more series of shares with such rights and preferences as the trustees determine and reclassifying outstand- ing shares as shares of particular series; (2) amending the series designation section of the MA Declaration; (3) changing eligibility requirements for investment in shares of any series; or (4)changing the method of allocating dividends among various series. The trustees may also amend the MA Declaration without the vote or consent of shareholders to change the name of Developing Markets Trust, to supply any omission, to cure, correct or supplement any ambiguous, defective or inconsistent provision hereof, or if they deem it necessary to conform the MA Declaration to the requirements of applicable federal laws or regulations. See Shareholder Vote on Certain Transactions for the shareholder vote required to make certain amendments to the MA Declaration. BY-LAWS BY-LAWS The By-Laws may be amended, restated or repealed or new The MA By-Laws may be amended, added to or By-Laws may be adopted by the affirmative vote of a repealed by a majority of the outstanding shares majority of the outstanding shares entitled to vote. The By- entitled to vote, or by the board of trustees, but Laws may also be amended, restated or repealed or new By- the board of trustees may not take such action, if Laws may be adopted by the board of trustees, by the vote such action requires, under applicable law, the MA of not less than a majority of the trustees present at a Declaration or the MA By-Laws, a vote of the meeting at which a quorum is present. shareholders. CERTIFICATE OF TRUST Pursuant to the Declaration, amendments and/or restatements of the certificate of trust shall be made at any time by the board of trustees, without approval of the shareholders, to correct any inaccuracy contained therein. Any such amendments/restatements of the certificate of trust must be executed by at least one (1) trustee and filed with the Secretary of State in order to become effective. PREEMPTIVE Under the Delaware Act, a governing instrument may Under the Massachusetts Statute, a governing RIGHTS contain any provision relating to the rights, duties and instrument may contain any provision relating to the AND obligations of the shareholders. rights, duties and obligations of the shareholders. REDEMPITON OF SHARES
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DELAWARE BUSINESS TRUST MASSACHUSETTS BUSINESS TRUST ------------------------ ------------------------------- The Declaration provides that no shareholder shall have the The MA Declaration provides that no shareholder preemptive or other right to subscribe for new or additional shall have any preference, appraisal, conversion or shares or other securities issued by the Delaware Business exchange rights or any preemptive or other right to Trust or any series thereof. subscribe for new or additional shares or other securities issued by Developing Markets Trust or any series thereof. Unless otherwise provided in the Delaware Business Trust's All shares are redeemable at net asset value per prospectus relating to the outstanding shares, as such share at the request of the shareholder, under the prospectus may be amended from time to time, the terms specified in Developing Markets Trust's then Delaware Business Trust shall purchase the outstanding effective prospectus or registration statement. shares offered by any shareholder for redemption upon such shareholder's compliance with the procedures set forth in the Declaration and/or such other procedures as the board may authorize. The Delaware Business Trust shall pay the net asset value Payment for such shares may be made in cash or in for such outstanding shares, in accordance with the property of the relevant series as specified in Declaration, the By-Laws, the 1940 Act and other Developing Markets Trust's then effective applicable law. The Delaware Business Trust's payments prospectus or registration statement. The Developing for such outstanding shares shall be made in cash, but may, Markets Trust may repurchase shares by agreement at the option of the board of trustees or an authorized with the owner and has the right at any time to officer, be made in kind or partially in cash and partially in redeem shares of any shareholder pursuant to kind. In addition, at the option of the board of trustees the applicable law, subject to terms and conditions Delaware Business Trust may, from time to time, without approved by the trustees. To meet federal tax the vote of the shareholders, but subject to the 1940 Act, requirements, the trustees may, as they deem redeem outstanding shares or authorize the closing of any equitable, call for redemption by a shareholder of shareholder account, subject to such conditions as may be any number of shares and refuse to transfer or issue established by the board of trustees. shares to any person. DISSOLUTION The Delaware Business Trust shall be dissolved upon the Pursuant to the MA Declaration the following action AND first to occur of the following: (i) upon the vote of the requires the affirmative vote of the holders of two- TERMINATION holders of a majority of the outstanding shares of the thirds of the shares outstanding and entitled to vote, EVENTS Delaware Business Trust entitled to vote; (ii) at the a written consent by such percentage of shares or discretion of the board of trustees at any time there are no such other vote established by the trustees with shares outstanding of the Delaware Business Trust; (iii) respect to a series of shares, except that if the upon the sale, conveyance and transfer of all of the assets of action is recommended by the trustees, the affirmative the Delaware Business Trust to another entity; or (iv) upon vote or written consent of a majority of the shares the occurrence of a dissolution or termination event outstanding and entitled to vote, or other vote pursuant to any provision of the Delaware Act. established by the trustees with respect to a series of shares, is sufficient for termination of Developing A particular series shall be dissolved upon the first to occur Markets Trust or any series of Developing Markets of the following: (i) upon the vote of the holders of a Trust. majority of the outstanding shares of that series entitled to vote; (ii) at the discretion of the board of trustees at any time there are no shares outstanding of that series; (iii) upon any event that causes the dissolution of the Delaware Business Trust; or (iv) upon the occurrence of a dissolution or termination event pursuant to any provision of the Delaware Act. A particular class shall be terminated upon the first to occur of the following: (i) upon the vote of the holders of a majority of the outstanding shares of that class entitled to vote; (ii) at the discretion of the board of trustees at any time there are no shares outstanding of that class; or (iii) upon the dissolution of the series of which the class is a part.
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DELAWARE BUSINESS TRUST MASSACHUSETTS BUSINESS TRUST ------------------------ ------------------------------- LIQUIDATION Under the Delaware Act, a DBT that has dissolved shall Under the Massachusetts Statute, there are no UPON first pay or make reasonable provision to pay all known provisions as to the liquidation of an MBT. DISSOLUTION claims and obligations, including those that are contingent, conditional and unmatured, and all known claims and obligations for which the claimant is unknown. Any remaining assets shall be distributed to the shareholders or as otherwise provided in the governing instrument. Under the Delaware Act, a series that has dissolved shall first pay or make reasonable provision to pay all known claims and obligations of the series, including those that are contingent, conditional and unmatured, and all known claims and obligations of the series for which the claimant is unknown. Any remaining assets of the series shall be distributed to the shareholders of such series or as otherwise provided in the governing instrument. The Declaration provides that any remaining assets of the The MA Declaration provides that Developing dissolved Delaware Business Trust and/or each series Markets Trust, upon dissolution, must first pay or thereof (or the particular dissolved series, as the case may make provision to pay all liabilities and obtain be) shall be distributed to the shareholders of the Delaware releases, indemnities and refunding agreements Business Trust and/or each series thereof (or the particular which the trustees deem necessary for their dissolved series, as the case may be) ratably according to the protection. Any remaining assets shall be distributed number of outstanding shares of the Delaware Business in cash or in kind to the shareholders according to Trust and/or such series thereof (or the particular dissolved their respective rights. series, as the case may be) held of record by the several shareholders on the date for such dissolution distribution; provided, however, that if the outstanding shares of a series are divided into classes, any remaining assets held with respect to such series shall be distributed to each class of such series according to the net asset value computed for such class and within such particular class, shall be distributed ratably to the shareholders of such class according to the number of outstanding shares of such class held of record by the several shareholders on the date for such dissolution distribution. VOTING Under the Delaware Act, the governing instrument may set There is no provision in the Massachusetts Statute RIGHTS, forth any provision relating to trustee and shareholder addressing voting by the shareholders of an MBT. MEETINGS, voting rights, including the withholding of such rights from The declaration of trust of an MBT, however, may NOTICE, certain trustees or shareholders. If voting rights are granted, specify matters on which shareholders are entitled to QUORUM, the governing instrument may contain any provision relating vote. RECORD to meetings, notice requirements, written consents, record DATES AND dates, quorum requirements, voting by proxy and any other PROXIES matter pertaining to the exercise of voting rights. The governing instrument may also provide for the establishment of record dates for allocations and distributions by the DBT. ONE VOTE PER SHARE ONE VOTE PER SHARE Subject to Article III, Section 6 of the Declaration relating The MA Declaration provides that shareholders are to voting by series and classes, the Declaration provides that entitled to one vote for each full share, and each each outstanding share is entitled to one vote and each fractional share shall be entitled to a proportionate outstanding fractional share is entitled to a fractional vote. fractional vote.
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DELAWARE BUSINESS TRUST MASSACHUSETTS BUSINESS TRUST ----------------------- ---------------------------- VOTING BY SERIES VOTING BY SERIES In addition, the Declaration provides that all outstanding The MA Declaration provides that in conjunction shares of the Delaware Business Trust entitled to vote on a with the establishment of any series or class of matter shall vote on the matter, separately by series and, if shares, the trustees may establish conditions under applicable, by class, provided that: (1) where the 1940 Act which the several series or classes shall have requires all outstanding shares of the Delaware Business separate voting rights or no voting rights. This Trust to be voted in the aggregate without differentiation provisions is subject to the requirements of the 1940 between the separate series or classes, then all of the Act where: (1) shares of Developing Markets Trust Delaware Business Trust's outstanding shares shall vote in to be voted in the aggregate without differentiation the aggregate; and (2) if any matter affects only the interests between the separate series or classes, and (2) the of some but not all series or classes, then only the matter affects only a particular series or class. shareholders of such affected series or classes shall be entitled to vote on the matter. SHAREHOLDERS' MEETINGS SHAREHOLDERS' MEETINGS The Delaware Act does not mandate annual shareholders' An annual shareholders' meeting is not required by meetings. the Massachusetts Statute. The By-Laws authorize the calling of a shareholders' An annual shareholders' meeting is not required meeting (i) when deemed necessary or desirable by the either by the MA Declaration or the MA By-Laws. board of trustees, the chairperson of the board or the The MA Declaration provides that the board of president of the Delaware Business Trust; or (ii) to the trustees may call a shareholders' meeting for any extent permitted by the 1940 Act, a meeting for the purpose purposes specified by the trustees. In addition, the of electing trustees may also be called by the chairperson of registration statement for the Developing Markets the board, or at the request of holders of 10% of the Trust provides that the board of trustees will call a outstanding shares if such shareholders pay the reasonably meeting to consider the removal of a board member estimated cost of preparing and mailing the notice thereof, if requested in writing by shareholders holding at for the purpose of electing trustees. However, no meeting least 10% of the outstanding shares. may be called at the request of shareholders to consider any matter that is substantially the same as a matter voted upon at a shareholders' meeting held during the preceding twelve (12) months, unless requested by holders of a majority of all outstanding shares entitled to vote at such meeting. RECORD DATES RECORD DATES As stated above, under the Delaware Act, the governing There is no record date provision in the instrument may provide for record dates. Massachusetts Statute. In order to determine the shareholders entitled to notice of, The MA By-Laws permit the trustees from time to and to vote at, a shareholders' meeting, the Declaration time to close the transfer books for a period not authorizes the board of trustees to fix a record date. The exceeding 30 days, or without closing the transfer record date may not precede the date on which it is fixed by books, to set the record date for a shareholders' the board and it may not be more than one hundred and meeting or "for the purpose of any other action" to twenty (120) days, nor less than ten (10) days, before the be not more than 90 days, before the date of any date of the shareholders' meeting. The By-Laws provide shareholder meeting or other action. The MA By- that notice of a shareholders' meeting shall be given to Laws also provide that all notices of shareholders' shareholders entitled to vote at such meeting not less than meetings shall be sent to shareholders not less than ten (10) nor more than one hundred and twenty (120) days ten days nor more than 60 days before the date of the before the date of the meeting. meeting. Only the business stated in the notice of the meeting may be considered at the meeting. To determine the shareholders entitled to vote on any action without a meeting, the Declaration authorizes the board of trustees to fix a record date. The record date may not precede the date on which it is fixed by the board nor may it be more than thirty (30) days after the date on which it is fixed by the board.
B-6
DELAWARE BUSINESS TRUST MASSACHUSETTS BUSINESS TRUST ----------------------- ------------------------------ To determine the shareholders of the Delaware Business Trust or any series or class thereof entitled to a dividend or any other distribution of assets of the Delaware Business Trust or any series or class thereof, the Declaration authorizes the board of trustees to fix a record date. The record date may not precede the date on which it is fixed by the board nor may it be more than sixty (60) days before the date such dividend or distribution is to be paid. The board may set different record dates for different series or classes. Pursuant to the Declaration, if the board of trustees does not fix a record date: (a) the record date for determining shareholders entitled to notice of, and to vote at, a meeting will be the day before the date on which notice is given or, if notice is waived, on the day before the date of the meeting; (b) the record date 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 Delaware Business 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 SHAREHOLDERS' MEETING To transact business at a shareholders' meeting, the The MA By-Laws, provide that a majority of the Declaration provides that forty percent (40%) of the outstanding shares present, in person or by proxy outstanding shares entitled to vote at the meeting, which are shall constitute a quorum at a shareholders' meeting. present in person or represented by proxy, shall constitute a Furthermore, the MA Declaration provides that quorum at such meeting, except when a larger quorum is when a quorum is present at any meeting called for required by the Declaration, the By-Laws, applicable law or the purpose, a plurality shall elect a trustee. any securities exchange on which such shares are listed for trading, in which case such quorum shall comply with such requirements. When a separate vote by one or more series or classes is required, forty percent (40%) of the outstanding shares of each such series or class entitled to vote at a shareholders' meeting of such series or class, which are present in person or represented by proxy, shall constitute a quorum at such series or class meeting, except when a larger quorum is required by the Declaration, the By-Laws, applicable law or the requirements of any securities exchange on which outstanding shares of such series or class are listed for trading, in which case such quorum shall comply with such requirements.
B-7
DELAWARE BUSINESS TRUST MASSACHUSETTS BUSINESS TRUST ----------------------- ---------------------------- SHAREHOLDER VOTE SHAREHOLDER VOTE The Declaration provides that, subject to any provision of The MA Declaration and MA By-Laws specify the the Declaration, the By-Laws, the 1940 Act or other matters on which beneficial owners are entitled, but applicable law that requires a different vote: (i) in all not necessarily required, to vote. The MA matters other than the election of trustees, the affirmative Declaration provides trustees with a great deal of "vote of a majority of the outstanding voting securities" (as latitude as to which matters are to be submitted to a defined in the 1940 Act) of the Delaware Business Trust vote of the beneficial owners. Specifically, a entitled to vote at a shareholders' meeting at which a shareholder has the power to vote only: (1) for the quorum is present, shall be the act of the shareholders; and election of trustees, (2) to the same extent as (ii) trustees shall be elected by a plurality of the votes cast shareholders of a Massachusetts business of the holders of outstanding shares entitled to vote present corporation as to whether or not a court action, in person or represented by proxy at a shareholders' meeting proceeding or claim should be brought or maintained at which a quorum is present. Pursuant to the Declaration, derivatively or as a class action, (3) for the where a separate vote by series and, if applicable, by classes termination of Developing Markets Trust, (4) is required, the preceding sentence shall apply to such regarding any investment advisory contract, (5) separate votes by series and classes. regarding certain amendments of the MA Declaration, (6) regarding mergers, consolidations or sale of substantially all the assets of Developing Markets Trust, (7) regarding incorporation of Developing Markets Trust or a series, or (8) with respect to such additional matters required by the MA Declaration, the MA By-Laws, the registration of Developing Markets Trust as an investment company under the 1940 Act, or as the trustees consider necessary or desirable. SHAREHOLDER VOTE ON CERTAIN TRANSACTIONS SHAREHOLDER VOTE ON CERTAIN TRANSACTIONS Pursuant to the Declaration, the board of trustees, by vote of No amendment of the MA Declaration that would a majority of the trustees, may cause the merger, change the rights of shareholders regarding the consolidation, conversion, share exchange or reorganization amount of payments in liquidation or diminishing or of the Delaware Business Trust, or the conversion, share eliminating any related voting rights may be made exchange or reorganization of any series of the Delaware without the vote or consent of the holders of two- Business Trust, without the vote of the shareholders of the thirds of the shares outstanding and entitled to vote Delaware Business Trust or such series, as applicable, or other vote established by the trustees regarding unless such vote is required by the 1940 Act; provided any series of shares. however, that the board of trustees shall provide 30 days' prior written notice to the shareholders of the Delaware Pursuant to the MA Declaration the following Business Trust or such series, as applicable, of such merger, actions require the affirmative vote of the holders of consolidation, conversion, share exchange or reorganization. two-thirds of the shares outstanding and entitled to vote, a written consent by such percentage of shares If permitted by the 1940 Act, the board of trustees, by vote or such other vote established by the trustees with of a majority of the trustees, and without a shareholder vote, respect to a series of shares, except that if the may cause the Delaware Business Trust to convert to a action is recommended by the trustees, the affirmative master feeder structure and thereby cause series of the vote or written consent of a majority of the shares Delaware Business Trust to either become feeders into a outstanding and entitled to vote, or other vote master fund, or to become master funds into which other established by the trustees with respect to a series funds are feeders. of shares, is sufficient: (1) a merger, consolidation or sale, lease or exchange of all or substantially all of the property of Developing Markets Trust; or (2) termination of Developing Markets Trust or any series of Developing Markets Trust. The trustees may cause Developing Markets Trust to be incorporated or transfer all the assets of Developing Markets Trust to a corporation with the approval of a majority of the shares outstanding and entitled to vote or other vote established by the trustees with respect to any series of shares.
B-8
DELAWARE BUSINESS TRUST MASSACHUSETTS BUSINESS TRUST ----------------------- ---------------------------- CUMULATIVE VOTING CUMULATIVE VOTING The Declaration provides that shareholders are not entitled The MA Declaration provides that shareholders are to cumulate their votes on any matter. not entitled to cumulate their votes on any matter. PROXIES PROXIES The By-Laws permit a shareholder to authorize another The MA By-Laws permit Developing Markets Trust person to act as proxy by the following methods: execution to accept written proxies signed by the shareholder of a written instrument or by electronic, telephonic, or shareholders (for jointly held shares) and filed computerized, telecommunications or another reasonable with the Secretary of Developing Markets Trust or alternative to the execution of a written instrument. Unless a the Secretary's designee. A proxy shall be deemed proxy provides otherwise, it is not valid more than 11 valid unless challenged at or prior to its exercise months after its date. In addition, the By-Laws provide that and the burden of proving invalidity rests on the the revocability of a proxy that states on its face that it is challenger. irrevocable shall be governed by the provisions of the general corporation law of the State of Delaware. ACTION BY WRITTEN CONSENT ACTION BY WRITTEN CONSENT The Declaration authorizes shareholders to take action The MA Declaration provides that any action taken without a meeting and without prior notice if written by shareholders may be taken without a meeting if consents setting forth the action taken are signed by the shareholders holding a majority of the shares entitled holders of all outstanding shares entitled to vote on that to vote on the matter (or such larger proportion action. thereof as shall be required by law, the MA Declaration or MA By-Laws) consent to the action The Declaration also authorizes the board of trustees or any in writing and the written consent is filed with the committee of the board of trustees to take action without a shareholders' meetings records. meeting and without prior written notice if written consents setting forth the action taken are executed by trustees having the number of votes necessary to take that action at a meeting at which the entire board of trustees or any committee thereof, as applicable, is present and voting. REMOVAL OF The governing instrument of a DBT may contain any The governing instrument of an MBT may contain TRUSTEES/ provision relating to the removal of trustees; provided any provision relating to the removal of trustees; DIRECTORS however, that there shall at all times be at least one trustee provided, however, that there shall at all times be of the DBT. at least one trustee of the MBT. Under the Declaration, any trustee may be removed, with or The MA Declaration provides that the board of without cause, by the board of trustees, by action of a trustees, by action of two-thirds of the remaining majority of the trustees. Shareholders shall have the power trustees (except that 3 trustees must remain in office to remove a trustee only to the extent provided by the 1940 after the removal) or by vote of holders of two-thirds Act. of the outstanding shares at a meeting called for such purpose, may remove trustees with cause. VACANCIES Vacancies on the board of trustees may be filled by a Vacancies on the board of trustees may be filled by a ON majority vote of the trustee(s) then in office, regardless of majority vote of the trustee(s) then in office, BOARD OF the number and even if less than a quorum. However, a regardless of the number and even if less than a TRUSTEES/ shareholders' meeting shall be called to elect trustees if quorum. However, a shareholders' meeting shall be DIRECTORS required by the 1940 Act. called to elect trustees if required by the 1940 Act. In the event all trustee offices become vacant, the investment adviser shall serve as the sole remaining trustee, subject to the provisions of the 1940 Act, and shall, as soon as practicable, fill all of the vacancies on the board. Thereupon, the investment adviser shall resign as trustee and a shareholders' meeting shall be called to elect trustees.
B-9
DELAWARE BUSINESS TRUST MASSACHUSETTS BUSINESS TRUST ----------------------- ---------------------------- LIMITATION The Delaware Act explicitly authorizes limitation on The Massachusetts Statute does not contain statutory ON interseries liability so that the debts, liabilities, provisions addressing series or class liability with INTERSERIES obligations and expenses incurred, contracted for or otherwise respect to a multiple series or class investment LIABILITY existing with respect to a particular series of a multiple company. Therefore, unless otherwise provided in series DBT will be enforceable only against the assets of the declaration of trust for an MBT, the debts, such series,and not against the general assets of the DBT or liabilities, obligations and expenses incurred, any other series, and, unless otherwise provided in the contracted for or otherwise existing with respect to a governing instrument of the DBT, none of the debts, particular series or class may be enforceable against liabilities, obligations and expenses incurred, contracted for the assets of the business trust generally. or otherwise existing with respect to the DBT generally or any other series thereof will be enforceable against the assets of such series. This protection will be afforded if (i) the DBT separately maintains the records and the assets of such series; (ii) notice of the limitation on liabilities of the series is set forth in the certificate of trust; and (iii) the governing instrument so provides. The Declaration and certificate of trust of the Delaware The MA Declaration explicitly limits the assets and Business Trust provide for limitation on interseries liability. liabilities of each series and states that under no circumstances shall the assets allocated or belonging to a particular series be charged with liabilities attributable to any other series. The MA Declaration in like manner limits the liabilities attributed to a class of shares to such class and no other class of a series may be charged with liabilities of such class. Furthermore, it states that third parties shall look only to the assets of a particular series or class for payment of any credit, claim or contract. Although these provisions serve to put third parties on notice since there is no support in the Massachusetts Statute to limit liability, there remains the possibility that a court may not uphold the limitations set forth in the MA Declaration. SHAREHOLDER Under the Delaware Act, except to the extent otherwise The Massachusetts Statute does not include an LIABILITY provided in the governing instrument of a DBT, express provision relating to the limitation of shareholders of a DBT are entitled to the same limitation of liability of the beneficial owners of a business personal liability extended to shareholders of a private trust. Therefore, the owners of an MBT could corporation organized for profit under the General potenitally be liable for obligations of the trust, Corporation Law of the State of Delaware. notwithstanding an express provision in the governing instrument stating that the beneficial owners are not personally liable in connection with trust property or the acts, obligations or affairs of the trust. Under the Declaration, shareholders are entitled to the same The MA Declaration provides that no shareholder limitation of personal liability as that extended to shall be subject to any personal liability whatsoever shareholders of a private corporation organized for profit to any person in connection with property of under the General Corporation Law of the State of Developing Markets Trust or the acts, obligations or Delaware. However, the board of trustees may cause any affairs of Developing Markets Trust. shareholder to pay for charges of the Delaware Business Trust's custodian or transfer, dividend disbursing, shareholder servicing or similar agent for services provided to such shareholder.
B-10
Delaware Business Trust Massachusetts Business Trust ----------------------- ---------------------------- TRUSTEE/ Subject to the provisions in the governing instrument, The Massachusetts Statute does not include an DIRECTOR the Delaware Act provides that a trustee or any other express provision limiting the liability of the LIABILITY person managing the DBT, when acting in such capacity, trustees of an MBT. The trustees of an MBT could will not be personally liable to any person other than potentially be held personally liable for the the DBT or a shareholder of the DBT for any act, obligations of the trust. omission or obligation of the DBT or any trustee. To the extent that at law or in equity, a trustee has duties (including fiduciary duties) and liabilities to the DBT and its shareholders, such duties and liabilities may be expanded or restricted by the governing instrument. The Declaration provides that any person who is or was The MA Declaration provides that no trustee, a trustee, officer, employee or other agent of the officer, employee, or agent shall be subject to any Delaware Business Trust or is or was serving at the personal liability whatsoever to any person other request of the Delaware Business Trust as a trustee, than Developing Markets Trust and its shareholders, director, officer, employee or other agent of another in connection with Trust property or affairs, except corporation, partnership, joint venture, trust or that arising from bad faith, willful misfeasance, other enterprise (an "Agent") will be liable to the gross negligence or reckless disregard for duties to Delaware Business Trust and to any shareholder solely Developing Markets Trust. No trustee, officer, for such Agent's own willful misfeasance, bad faith, employee, or agent shall be responsible for any gross negligence or reckless disregard of the duties neglect or wrong-doing of any officer, agent or involved in the conduct of such Agent (such conduct employee, service provider of Developing Markets referred to as "Disqualifying Conduct"). Subject to Trust, nor for the act or omission of another such the preceding sentence, Agents will not be liable for person. However, nothing in the MA Declaration any act or omission of any other Agent or any protects such person against any liability for which investment adviser or principal underwriter of the the person would otherwise be subject by reason of Delaware Business Trust. No Agent, when acting in such willful misfeasance, bad faith, gross negligence or capacity, shall be personally liable to any person reckless disregard of the person's duties involving (other than the Delaware Business Trust or its Developing Markets Trust. shareholders as described above) for any act, omission or obligation of the Delaware Business Trust or any trustee. INDEMN- Subject to such standards and restrictions contained Although the Massachusetts Statute is silent as to IFICATION in the governing instrument of a DBT, the Delaware Act the indemnification of trustees, officers and authorizes a DBT to indemnify and hold harmless any shareholders, indemnification is expressly provided trustee, shareholder or other person from and against for in the MA Declaration. any and all claims and demands. Pursuant to the Declaration, the Delaware Business The MA Declaration provides that shareholders, Trust will indemnify any Agent who was or is a party trustees and officers shall be entitled and empowered or is threatened to be made a party to any proceeding to the fullest extent permitted by law to provide for by reason of such Agent's capacity, against attorneys' indemnification out of Developing Markets Trust's fees and other certain expenses, judgments, fines, assets for liability and for all expenses reasonably settlements and other amounts incurred in connection incurred or paid or expected to be paid by a with such proceeding if such Agent acted in good faith shareholder, trustee or officer in connection with any or in the case of a criminal proceeding, had no claim, action, suit or proceeding arising from being reasonable cause to believe such Agent's conduct was or having been a shareholder, trustee or officer, unlawful. However, there is no right to respectively. However, the MA Declaration excludes indemnification for any liability arising from the indemnification for trustees and officers for willful Agent's Disqualifying Conduct. As to any matter for misfeasance, bad faith, and gross negligence or which such Agent is found to be liable in the reckless disregard of one's duties. Note that the performance of such Agent's duty to the Delaware 1933 Act, in the opinion of the SEC, and the 1940 Act Business Trust or its shareholders indemnification also limit the ability of Developing Markets Trust to will be made only to the extent that the court in indemnify such persons. which that action was brought determines that in view of all the circumstances of the case, the Agent was not liable by reason of such Agent's Disqualifying Conduct. Note that the Securities Act of 1933, as amended (the "1933 Act"), in the opinion of the Securities and Exchange Commission ("SEC"), and the 1940 Act also limit the ability of the Delaware Business Trust to indemnify an Agent.
B-11
DELAWARE BUSINESS TRUST MASSACHUSETTS BUSINESS TRUST ----------------------- ---------------------------- Expenses incurred by an Agent in defending any proceeding may be advanced by the Delaware Business Trust before the final disposition of the proceeding on receipt of an undertaking by or on behalf of the Agent to repay the amount of the advance if it is ultimately determined that the Agent is not entitled to indemnification by the Delaware Business Trust. INSURANCE The Delaware Act is silent as to the right of a DBT to There is no provision in the Massachusetts Statute purchase insurance on behalf of its trustees or other persons. relating to insurance. However, as the policy of the Delaware Act is to give The MA Declaration permits the purchase of maximum effect to the principle of freedom of contract and liability insurance out of Developing Markets to the enforceability of governing instruments, the Trust's assets on behalf of the trustees, officers and Declaration authorizes the board of trustees, to the fullest agents of Developing Markets Trust. Insurance may extent permitted by applicable law, to purchase with be maintained for any agent of Developing Markets Delaware Business Trust assets, insurance for liability and Trust only to the extent that Developing Markets for all expenses of an Agent in connection with any Trust would have the power to indemnify the trustee, proceeding in which such Agent becomes involved by virtue officer or agent against such liability. of such Agent's actions, or omissions to act, in its capacity or former capacity with the Delaware Business Trust, whether or not the Delaware Business Trust would have the power to indemnify such Agent against such liability. SHAREHOLDER Under the Delaware Act, except to the extent otherwise There is no provision in the Massachusetts Statute RIGHT OF provided in the governing instrument and subject to relating to shareholder inspection rights. INSPECTION reasonable standards established by the trustees, each shareholder has the right, upon reasonable demand for any purpose reasonably related to the shareholder's interest as a shareholder, to obtain from the DBT certain information regarding the governance and affairs of the DBT. Under the Declaration, a shareholder, upon reasonable The MA By-Laws provide that the trustees shall written demand to the Delaware Business Trust for any determine whether and to what extent, and at what purpose reasonably related to such shareholder's interest as times and places, the minutes and accounting books a shareholder, may inspect certain information as to the and records shall be open for inspection by any governance and affairs of the Delaware Business Trust shareholder and no shareholder has the right to during regular business hours to the extent permitted by inspect such books and records except as conferred Delaware law. However, reasonable standards governing, by law or authorized by the trustees or by the vote without limitation, the information and documents to be or consent of the shareholders. furnished and the time and location of furnishing the same, will be established by the board or any officer to whom such power is delegated in the By-Laws. In addition, as permitted by the Delaware 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 Delaware Business Trust to disclose or that could damage the Delaware Business Trust or that the Delaware Business Trust is required by law or by agreement with a third party to keep confidential.
B-12
DELAWARE BUSINESS TRUST MASSACHUSETTS BUSINESS TRUST ----------------------- ---------------------------- DERIVATIVE Under the Delaware Act, a shareholder may bring a There is no provision under the Massachusetts ACTIONS derivative action if trustees with authority to do so Statute regarding derivative actions. have refused to bring the action or if a demand upon the trustees to bring the action is not likely to succeed. A shareholder may bring a derivative action only if the shareholder is a shareholder at the time the action is brought and: (i) was a shareholder at the time of the transaction complained about or (ii) acquired the status of shareholder by operation of law or pursuant to the governing instrument from a person who was a shareholder at the time of the transaction. A shareholder's right to bring a derivative action may be subject to such additional standards and restrictions, if any, as are set forth in the governing instrument. The Declaration provides that, subject to the The MA Declaration has a provision regarding requirements set forth in the Delaware Act, a shareholder voting regarding derivative actions as shareholder may bring a derivative action on behalf of described above. the Delaware Business Trust only if the shareholder first makes a pre-suit demand upon the board of trustees to bring the subject action unless an effort to cause the board of trustees to bring such action is excused. A demand on the board of trustees shall only be excused if a majority of the board of trustees, or a majority of any committee established to consider the merits of such action, has a material personal financial interest in the action at issue. A trustee shall not be deemed to have a material personal financial interest in an action or otherwise be disqualified from ruling on a shareholder demand by virtue of the fact that such trustee receives remuneration from his service on the board of trustees of the Delaware Business Trust or on the boards of one or more investment companies with the same or an affiliated investment advisor or underwriter. MANAGEMENT The Delaware Business Trust is an open-end management Developing Markets Trust is an open-end INVESTMENT investment company under the 1940 Act (i.e., a management investment company under the 1940 COMPANY management investment company whose securities are Act (i.e., a management investment company whose CLASSIFI- redeemable). securities are redeemable). CATION
B-13 EXHIBIT C FUNDAMENTAL INVESTMENT RESTRICTIONS PROPOSED TO BE AMENDED OR ELIMINATED
CURRENT INVESTMENT CURRENT FUNDAMENTAL PROPOSED FUNDAMENTAL PROPOSAL OR RESTRICTION INVESTMENT RESTRICTION INVESTMENT RESTRICTION SUB-PROPOSAL NUMBER & SUBJECT The Fund may not: The Fund may not: ------------ ---------------- ---------------------------------- ----------------------------------- 3e 1. (Real Estate) Invest in real estate or mortgages Purchase or sell real estate unless on real estate (although the Fund acquired as a result of ownership may invest in marketable of securities or other instruments securities secured by real estate and provided that this restriction or interests therein or issued by does not prevent the Fund from companies or investment trusts (i) purchasing or selling which invest in real estate or securities secured by real estate interests therein); or interests therein or securities issued by companies that invest, deal or otherwise engage in transactions in real estate or interests therein, (ii) making, purchasing or selling real estate mortgage loans, and (iii) purchasing or selling direct investments in real estate through partnerships and other special purpose entities that own or develop real estate. 4 1. (Oil and Gas invest in interests (other than Proposed to be Eliminated Programs) debentures or equity stock interests) in oil, gas or other mineral exploration or development programs; 3d 1. (Commodities) purchase or sell commodity Purchase or sell commodities as contracts (except futures defined in the Commodity contracts as described in the Exchange Act, as amended, and Fund's prospectus or statement the rules and regulations of additional information); thereunder, unless acquired as a result of ownership of securities or other instruments and provided 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
CURRENT INVESTMENT CURRENT FUNDAMENTAL PROPOSED FUNDAMENTAL PROPOSAL OR RESTRICTION INVESTMENT RESTRICTION INVESTMENT RESTRICTION SUB-PROPOSAL NUMBER & SUBJECT The Fund may not: The Fund may not: ------------ ------------------- ----------------------------------- --------------------------------- 4 1. (Investment in [or] invest in other open-end Proposed to be Eliminated Other Investment investment companies except as Companies) permitted by the 1940 Act. Note: The Fund will still be subject to the restrictions of (S)12(d) of the 1940 Act, or any rules or exemptions or interpretations thereunder that may be adopted, granted or issued by the SEC, which restrict an investment company's investments in other investment companies. 4 2. (Management Purchase or retain securities of Proposed to be Eliminated Ownership of any company in which trustees Securities) or officers of the Fund or of the manager, individually own more than 1/2 of 1% of the securities of such company or, in the aggregate, own more than 5% of the securities of such company. 3h 3. (Diversification Purchase any security (other than Purchase the securities of any of Investments) obligations of the U.S. one issuer (other than the U.S. government, its agencies and government or any of its instrumentalities) if, as a result, agencies or instrumentalities or as to 75% of the Fund's total securities of other investment assets (i) more than 5% of the companies, whether registered or Fund's total assets would be excluded from registration under invested in securities of any Section 3(c) of the 1940 Act) if single issuer, or (ii) the Fund immediately after such would then own more than 10% investment (a) more than 5% of of the voting securities of any the value of the Fund's total single issuer. assets would be invested in such issuer or (b) more than 10% of the outstanding voting securities of such issuer would be owned by the Fund, except that up to 25% of the value of the Fund's total assets may be invested without regard to such 5% and 10% limitations. 3b 4. (Underwriting) Act as an underwriter; Act as an underwriter except to the extent the Fund may be deemed to be an underwriter when disposing of securities it owns or when selling its own shares.
C-2
CURRENT INVESTMENT CURRENT FUNDAMENTAL PROPOSED FUNDAMENTAL PROPOSAL OR RESTRICTION INVESTMENT RESTRICTION INVESTMENT RESTRICTION SUB-PROPOSAL NUMBER & SUBJECT The Fund may not: The Fund may not: ------------ ------------------ ----------------------------------- ----------------------------------- 3f 4. (Senior issue senior securities except as Issue senior securities, except to Securities, Margin set forth in investment restriction the extent permitted by the 1940 Accounts and Short 6 below; or purchase on margin Act or any rules, exemptions or Sales) or sell short (but the Fund may interpretations thereunder that make margin payments in may be adopted, granted or connection with options on issued by the SEC. securities or securities indices, foreign currencies, futures contracts and related options, and forward contracts and related options). 3c 5. (Lending) Loan money, apart from the Make loans to other persons purchase of a portion of an issue except (a) through the lending of of publicly distributed bonds, its portfolio securities, debentures, notes and other (b) through the purchase of debt evidences of indebtedness, securities, loan participations although the Fund may enter into and/or engaging in direct repurchase agreements and lend corporate loans in accordance its portfolio securities. 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 rules or exemptions or interpretations thereunder that may be adopted, granted or issued by the SEC. 3a 6. (Borrowing) Borrow money, except that the Borrow money, except to the Fund may borrow money from extent permitted by the 1940 Act banks in an amount not or any rules, exemptions or exceeding 33 1/3% of the value of interpretations thereunder that the Fund's total assets (including may be adopted, granted or the amount borrowed), or issued by the SEC. pledge, mortgage or hypothecate its assets for any purposes, except to secure borrowings and then only to an extent not greater than 15% of the Fund's total assets. Arrangements with respect to margin for futures contracts, forward contracts and related options are not deemed to be a pledge of assets.
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CURRENT INVESTMENT CURRENT FUNDAMENTAL PROPOSED FUNDAMENTAL PROPOSAL OR RESTRICTION INVESTMENT RESTRICTION INVESTMENT RESTRICTION SUB-PROPOSAL NUMBER & SUBJECT The Fund may not: The Fund may not: ------------ ------------------ ----------------------------------- ---------------------------------- 4 7. (Three Years of Invest more than 5% of the value Proposed to be Eliminated Company Operation) of the Fund's total assets in securities of issuers, including their predecessors, which have been in continuous operation less than three years. 4 8. (Warrants) Invest more than 5% of the Proposed to be Eliminated Fund's total assets in warrants, whether or not listed on the New York Stock Exchange (NYSE) or the American Stock Exchange, including no more than 2% of its total assets which may be invested in warrants that are not listed on those exchanges. Warrants acquired by the Fund in units or attached to securities are not included in this restriction. 3g 9. (Industry Invest more than 25% of the Invest more than 25% of its net Concentration) Fund's total assets in a single assets in securities of issuers in industry. any one industry (other than securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities or securities of other investment companies). 4 10. (Joint Trading Participate on a joint or a joint Proposed to be Eliminated Account) and several basis in any trading account in securities. 4 11. (Unlisted Invest more than 15% of the Proposed to be Eliminated Foreign Securities Fund's total assets in securities and Restricted of foreign issuers that are not Note: The current fundamental Securities) listed on a recognized U.S. or policy will be replaced with a foreign securities exchange, non-fundamental investment including no more than 10% of policy that limits the Fund's its total assets in restricted investment in illiquid securities securities, securities that are not to 15% of the Fund's net assets. readily marketable, repurchase agreements having more than seven days to maturity, and over- the-counter options purchased by the Fund. Assets used as cover for over-the-counter options written by the Fund are considered not readily marketable.
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CURRENT INVESTMENT CURRENT FUNDAMENTAL PROPOSED FUNDAMENTAL PROPOSAL OR RESTRICTION INVESTMENT RESTRICTION INVESTMENT RESTRICTION SUB-PROPOSAL NUMBER & SUBJECT The Fund may not: The Fund may not: ------------ ---------------- ---------------------------------- ------------------------- 4 Unnumbered. . . . invest more than 10% of its Proposed to be Eliminated (Defaulted Debt total assets (at the time of Securities) purchase) in defaulted debt securities, which may be illiquid.
C-5 711 PROXY 07/02 PROXY PROXY TEMPLETON DEVELOPING MARKETS TRUST SPECIAL SHAREHOLDERS' MEETING - 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 Developing Markets Trust (the "Fund") that the undersigned is entitled to vote at the Fund's Special Shareholders' Meeting (the "Meeting") to be held at 500 East Broward Blvd., 12th Floor, Fort Lauderdale, Florida 33394 at 1:00 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 TRUSTEES. IT WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THIS PROXY SHALL BE VOTED FOR PROPOSALS 1 (INCLUDING ALL NOMINEES FOR TRUSTEES), 2, 3 (INCLUDING 8 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. VOTE VIA THE INTERNET: www.franklintempleton.com VOTE VIA THE TELEPHONE: 1-800/597-7836 ------------------------------------------------ CONTROL NUMBER: 999 9999 9999 999 ------------------------------------------------ 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. ------------------------------------------------ Signature ------------------------------------------------ Signature , 2002 ------------------------------------------------- Dated TDM_12531 I PLAN TO ATTEND THE MEETING. YES NO [ ] [ ] (Continued on the other side) THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSALS 1 THROUGH 4. PROPOSAL 1 - To elect a Board of Trustees: 01 Harris J. Ashton 05 Edith E. Holiday 09 Constantine D. Tseretopoulos 02 Frank J. Crothers 06 Betty P. Krahmer 10 Nicholas F. Brady 03 S. Joseph Fortunato 07 Gordon S. Macklin 11 Charles B. Johnson 04 Andrew H.Hines, Jr. 08 Fred R. Millsaps 12 Charles E. Johnson FOR WITHHOLD All nominees AUTHORITY to vote listed (except for all nominees as marked below) listed [ ] [ ] TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE THAT NOMINEE'S NAME ON THE LINE BELOW.
------------------------------------------------------------------------------ FOR AGAINST ABSTAIN PROPOSAL 2 - To approve an Agreement and Plan of Reorganization that provides [ ] [ ] [ ] for the Reorganization of the Fund from a Massachusetts business trust to a Delaware business trust. PROPOSAL 3 - To approve amendments to certain of the Fund's fundamental investment restrictions (includes eight (8) Sub-Proposals): PROPOSAL 3a To amend the Fund's fundamental investment restriction [ ] [ ] [ ] regarding borrowing. PROPOSAL 3b To amend the Fund's fundamental investment restriction [ ] [ ] [ ] regarding underwriting. PROPOSAL 3c To amend the Fund's fundamental investment restriction [ ] [ ] [ ] regarding lending. PROPOSAL 3d To amend the Fund's fundamental investment restriction [ ] [ ] [ ] regarding investments in commodities. PROPOSAL 3e To amend the Fund's fundamental investment restriction [ ] [ ] [ ] regarding investments in real estate. PROPOSAL 3f To amend the Fund's fundamental investment restriction [ ] [ ] [ ] regarding issuing senior securities, purchasing on margin and making short sales. PROPOSAL 3g To amend the Fund's fundamental investment restriction [ ] [ ] [ ] regarding industry concentration. PROPOSAL 3h To amend the Fund's fundamental investment restriction [ ] [ ] [ ] regarding diversification of investments. PROPOSAL 4 - To approve the elimination of certain of the Fund's fundamental [ ] [ ] [ ] investment restrictions.
IMPORTANT: PLEASE SIGN, DATE AND MAIL IN YOUR PROXY....TODAY