SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
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TEMPLETON CHINA WORLD FUND, INC.
--------------------------------
(Name of Registrant as Specified In Its Charter)
PRESIDENT AND FELLOWS OF HARVARD COLLEGE
----------------------------------------
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[VERITAS] HARVARD
MANAGEMENT
COMPANY, INC.
________________________________________________________________________________
600 Atlantic Avenue (617) 523-4400
Boston, MA 02210-2203 Telex # 62-189780
December 13, 2002
An open letter to the independent
Directors of Templeton China World Fund, Inc. (TCH)
and Templeton Dragon Fund, Inc. (TDF):
On Wednesday, Templeton Asset Management Ltd. issued a public statement
criticizing Harvard for its actions toward the Funds. This letter is intended to
make several points. First, we respond to accusations Templeton makes against
Harvard. Second, we point out Templeton's lack of adequate solutions. Third, we
reiterate what we believe is the optimal solution. Lastly, we call upon the
independent directors of the China Fund and the Dragon Fund to fulfill their
fiduciary duties to the Funds and their shareholders.
Response to the Accusations against Harvard
Templeton has accused Harvard of pursuing a "short-term agenda." This
is puzzling since Harvard has been a continuous shareholder of each Fund for
over four years. During the last two years, Harvard has corresponded several
times with both Boards and Templeton and urged actions that would improve
shareholder value. In February 2001, Harvard suggested several specific actions
that would enhance value. (See Attachment.)
Templeton has accused Harvard of not representing the interests of
shareholders generally. This is wrong on two counts. First, Harvard is the
largest shareholder in the Funds. Second, the chronic discount itself is
evidence of overall investor dissatisfaction with Templeton. As Dr. Mark Mobius,
the portfolio manager for both Funds, wrote in his book, The Investor's Guide to
Emerging Markets (Pitman Publishing 1995) on page 224:
"Emerging markets closed-end funds have generally tended to trade at
discounts to their net asset value . . . A continuous discount
indicates investor perception that the manager of the fund is not
adding value to the fund, while a premium indicates that investors
believe the fund manager's efforts enhance the value of the fund
assets." (Emphasis supplied.)
Harvard is a value investor and has invested in literally hundreds of
companies that trade at a discount to fair value. In the large majority of
cases, Harvard invests passively with the expectation that management will act
appropriately in the interests of the company and its shareholders. In a handful
of cases, where management is either incapable or unwilling to take steps to
enhance shareholder value, it may be necessary for Harvard to become active.
Templeton, as an advocate of shareholder rights, should certainly understand
this approach.
Templeton's Lack of Adequate Solutions
Templeton recently made a raft of statements that are both internally
inconsistent and contradictory to the Board's statements. For example, on
November 13, the China Fund Board approved, on Templeton's advice, conversion to
an open-end investment company. On November 19, Greg Johnson, Franklin Resources
President, stated at an investment conference, "...we brought out closed-end
country funds because those markets are not ready to have an open-end fund. In
the case of China, we still don't think it's appropriate." On Wednesday of this
week, Johnson contradicted his own November 19 pronouncement, stating in an
interview that open-ending is an appropriate step for the China Fund because of
its small size and "trigger" provision for open-ending. Yet, in the same
interview Johnson states, "we believe open-ending the closed-end structure
really disfranchises small investors' ability to access these fast growing
markets."
Templeton asserts that Harvard's concentrated ownership makes
open-ending unattractive. Why then, did Templeton choose to recommend
open-ending at all? Perhaps, facing next year's trigger provision, Templeton
chose to accelerate an alternative it believed inferior for shareholders, rather
than propose the correct solution now.
The Optimal Solution
If both Templeton and the Board truly believed open-ending both Funds
were appropriate and were fully committed to its implementation in a manner
designed to enhance shareholder value, then Harvard would support such a
proposal.
Open-ending is not the optimal solution. Templeton, not Harvard,
proposed open-ending. Harvard has consistently sought a better alternative to
open-ending: merging the two Funds and implementing an interval fund program as
outlined in our February 2001 letter. This is the optimal solution for the two
Funds.
Independence
The independent members of the Board must resolve the issues outlined
above without regard to the financial benefits Templeton or they enjoy from
their association with the Franklin Templeton Group of mutual funds.
Templeton obviously has a strong motivation to see both Funds continue
their business as usual - since Templeton gets paid on the basis of the Funds'
net asset values, not on the basis of the Funds' market prices. Although
Templeton takes credit for the recent discount narrowing, it is fair to say that
Harvard's public efforts have been the catalyst. We believe that Templeton is,
in fact, a stumbling block to shareholders' realizing the full value of their
investments. The Directors must recognize that shareholders of the Funds will be
best served if Templeton is terminated and the Board takes measured and
effective steps to simultaneously increase liquidity and minimize the discount
of both Funds.
Very truly yours,
/s/ Steven Alperin
Steven Alperin
Vice President, Emerging Markets
The Independent Directors of
Templeton China World Fund, Inc. and
Templeton Dragon Fund, Inc.:
Harris J Ashton
Frank J. Crothers
S. Joseph Fortunato
Andrew H. Hines, Jr.
Edith E. Holiday
Betty P. Krahmer
Gordon S. Macklin
Fred R. Millsaps
Constantine D. Tseretopoulos
[VERITAS] HARVARD
MANAGEMENT
COMPANY, INC.
________________________________________________________________________________
600 Atlantic Avenue (617) 752-3400
Boston, MA 02210-2203 Telex # 62-189780
February 23, 2001
Dr. J. Mark Mobius
Chairman
Board of Directors
Templeton Dragon Fund, Inc.
Templeton China World Fund, Inc.
777 Mariners Island Blvd.
San Mateo, CA 94404
Dear Dr. Mobius:
We remain disappointed with the Board of Director's failure to employ any remedy
for the persistent discounts and performance of the Templeton Dragon Fund
("Dragon Fund") and the Templeton China World Fund ("China Fund"). In light of
the Board's inaction, we have voted against the proposed Board of Directors in
the most recent proxy.
Dr. Mobius, you have proven to be a strong advocate for shareholder rights and
we are extremely displeased that the discounts and performance of the
above-mentioned Funds have not been addressed or remedied by you or the Boards
of these Funds. Time and time again we have discussed possible alternatives for
the Funds or actions that the Board could undertake. We have yet to see any
developments that show promise for the reduction of the discounts or improved
performance.
There are a number of obvious steps that the Board can take immediately to both
narrow the discount and clearly demonstrate that it is operating in the best
interests of the Fund and its shareholders. First, the Board should commit
publicly to narrowing the discount. Then, as soon as possible, the Board should
undertake a comprehensive effort to narrow the discount to NAV. Among the
measures the Board should consider:
o Convert the Fund to interval status and allow periodic redemption of a portion
of the holdings at NAV.
o Hold a one time tender for a significant portion of the Fund and cancel the
repurchased shares.
o Hold periodic tenders for Fund shares triggered by discount levels. For
example, buy back (and cancel) 20% of the Fund if it trades at a 10% discount.
The Board should consider some of the above suggestions as well as the possible
merger of the Dragon Fund and the China Fund and a tender for the shares of the
merged Fund.
As you know we have had regular discussions with you regarding our issues with
these Funds and have previously sent you written correspondence. We hope this
will be our final letter. We would be happy to discuss with you any of the above
suggestions at your earliest convenience. Please feel free to contact me to
arrange a conference time.
Regards,
/s/ Steven Alperin
Steven Alperin
Vice President
Emerging Markets
* * *
Information concerning the participants in any solicitation by President and
Fellows of Harvard College of proxies with respect to Templeton China World
Fund, Inc.'s 2003 annual meeting, and their direct or indirect interests, can be
found in a Schedule 14A filed by Harvard on December 13, 2002 with the
Securities and Exchange Commission pursuant to Rule 14a-12.
In connection with any solicitation by Harvard of proxies with respect to the
Fund's 2003 annual meeting, Harvard would file with the Securities and Exchange
Commission (the "SEC"), and furnish to security holders of the Fund, a proxy
statement, which security holders would be advised to read because it would
contain important information. Security holders would be able to obtain a free
copy of any such proxy statement (when available) and other related documents
that may be filed with the SEC by Harvard and the Fund at the SEC's website at
www.sec.gov.
PRESIDENT AND FELLOWS OF HARVARD COLLEGE
Information Concerning the Participants
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The following persons are or may be deemed participants in any
solicitation of proxies by President and Fellows of Harvard College ("Harvard")
with respect to the 2003 annual meeting of stockholders of Templeton China World
Fund, Inc. (the "Fund").
o President and Fellows of Harvard College. Harvard is the beneficial owner
of 4,934,600 shares of common stock, par value $.01 per share (the "Common
Stock") of the Fund. Other than its interest as a stockholder of the Fund,
Harvard has no direct or indirect interest in any matter expected to be
acted upon at the Fund's 2003 annual meeting.
o Harvard Management Company, Inc. Harvard Management Company, Inc. acts as
investment advisor to Harvard and to certain other persons affiliated with
Harvard University. Neither Harvard Management Company, Inc. nor any of its
clients (other than Harvard) owns beneficially or of record any shares of
Common Stock. Other than the foregoing interests, Harvard Management
Company, Inc. has no direct or indirect interest in any matter expected to
be acted upon at the Fund's 2003 annual meeting.