Company Name: Templeton Dragon Fund, Inc.
Public Availability Date: 06-11-1997[INQUIRY LETTER 1]
DECHERT PRICE & RHOADS
1500 K STREET, N.W.
WASHINGTON, D.C. 20005
TELEPHONE(202) 626-3300 April 03, 1997
HAND DELIVERED - FILING DESK Securities and Exchange Commission
450 5th St., N.W.
Washington, D.C. 20549
Attention: Jeremiah J. DeMichaelis
Branch Chief
Room 10119
Mail Stop 10-3 Re: Templeton Dragon Fund, Inc.
File No. 33-76050 Ladies and Gentlemen: By letter dated January 27, 1997, to Charles B. Johnson, Chairman of the Board
of Directors of Templeton Dragon Fund, Inc. (the "Fund"), Newgate Management
Associates (the "Proponent") notified the Fund of its intention to propose, at
the Fund's next annual meeting, that the shareholders adopt a resolution
recommending that the Fund's Board of Directors establish a fundamental policy
requiring the Fund to make annual offers to repurchase at least 5 percent, and
up to 25 percent, of its outstanding shares at net asset value, commencing with
an initial repurchase of 25 percent of its outstanding shares (the "Proposal").
The Proponent demands that the Proposal be included for consideration by the
shareholders in the proxy statement for that meeting. Six copies of the
Proponent's letter with the Proposal and supporting statement are enclosed. This
letter is written on behalf of the Fund, which we represent. Pursuant to paragraph (d) of Rule 14a-8 (the "Rule") under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), the Fund hereby asserts that
the Proposal and supporting statement submitted by the Proponent properly may be
omitted from its proxy statement and form of proxy in reliance on paragraphs
(c)(3) and (c)(7) of the Rule, for the reasons set forth below. We would
appreciate the staff's concurrence in this conclusion. I. RULE 14a-8(c)(3) Paragraph (c)(3) of the Rule permits the omission of a stockholder proposal or
supporting statement if either is contrary to any of the SEC's proxy rules and
regulations. The Fund believes that the Proposal and supporting statement
submitted by the Proponent properly may be omitted from the Fund's proxy
materials pursuant to paragraph (c)(3) of the Rule for the reasons specified
below. A. Proposal The Fund, which is incorporated under the laws of the State of Maryland and is
registered with the SEC under the Investment Company Act of 1940, as amended
(the "1940 Act"), believes that the Proponent's Proposal properly may be omitted
from the Fund's proxy materials pursuant to paragraph (c)(3) of the Rule because
it contains statements that are misleading in material respects, contrary to
Rule 14a-9 of the 1934 Act. The Proposal recommends that the Fund's Board "establish a fundamental policy
requiring the Fund to make annual offers to repurchase at least 5%, and up to
25% of its outstanding shares at net asset value commencing with an initial
repurchase of 25% of its outstanding shares." In the supporting statement, the
Proponent references Rule 23c-3 of the 1940 Act. Presumably, the Proponent is
advocating that the Fund convert to an "interval" fund. If so, the Proposal and
supporting statement fail to specify that establishing a fundamental policy
requiring the Fund to make annual repurchase offers will require the Fund to
convert from a closed-end fund to an interval fund. This is material information
that shareholders should understand before voting on the Proposal. The omission
of this information, particularly in light of the specific limitations imposed
on an interval fund by Rule 23c-3 of the 1940 Act, renders the Proposal
misleading. Consequently, the Proposal properly may be omitted from the Fund's
proxy materials. B. 500 Word Limit Paragraph (b)(1) of the Rule, specifies that a stockholder proposal and its
supporting statement, in the aggregate, cannot exceed 500 words. The Proponent's
Proposal, together with the supporting statement, exceed the 500 word limit,
contrary to paragraph (b)(1) of the Rule, and therefore can be omitted from the
Fund's proxy materials, pursuant to Rule 14a-8(c)(3). Additionally, the Proponent wishes to include a chart in the supporting
statement. Paragraph (b)(1) of the Rule, however, specifies that a proponent
shall furnish its supporting statement to the registrant at the time that the
proposal is furnished. At the time the Proponent furnished its Proposal and
supporting statement to the Fund, it did not provide the Fund with a copy of the
chart it proposes to include in its supporting statement. Consequently, the
chart may be excluded pursuant to paragraph (b)(1) of the Rule. Even if inclusion of a chart prepared by the Proponent were permissible at this
time, to the extent that the chart contains words or numbers, those words or
numbers should be included in the total word count for purposes of paragraph
(b)(1), pursuant to Aetna Life and Casualty Company (pub. avail. Jan. 18, 1995).
As the Proponent's Proposal currently stands, the Proposal and supporting
statement, without the inclusion of the chart, exceed the 500 word limit. C. Supporting Statement The Fund believes that the Proponent's supporting statement properly may be
omitted from the Fund's proxy materials pursuant to paragraph (c)(3) of the Rule
because it contains statements that are false or misleading in material respects
and omits to state material facts necessary in order to make it not false or
misleading, contrary to Rule 14a-9 of the 1934 Act. 1. Paragraph 2 of the supporting statement declares: "DESPITE THE FACT THAT THE
FUND HAS TRADED AT AN AVERAGE DISCOUNT OF 16.4% FOR THE PAST 52 WEEKS AND AN
AVERAGE DISCOUNT OF 14.7% SINCE THE FUND'S INCEPTION THROUGH JANUARY 7, 1997,
THE BOARD OF DIRECTORS HAS NOT ATTEMPTED TO REDUCE THIS DISCOUNT EITHER THROUGH
SHARE BUYBACKS OR TENDER OFFERS OR THE CONVERSION OF THE FUND TO OPEN-END
STATUS." (Emphasis in original.) This paragraph is misleading because it implies
that the discount at which the Fund has been traded is unusual in light of
market conditions. The Fund's prospectus specified that, after March 31, 1996,
at its quarterly meetings, the Board will consider any average discount at which
the Fund's shares have traded from their net asset value and that if the
discount, in light of the prevailing market conditions at the time, 1 is deemed
to be substantial, the Board will consider whether actions to address the
discount should be undertaken. The supporting statement does not reference the
fact that other closed-end funds in the Fund's peer group trade at a similar
discount, a relevant market condition that impacts the substance of the
discount. 2 It is also the Board's view that other market conditions, such as
the recent death of Deng Xiaoping and Hong Kong's imminent transfer to become
part of China, are relevant prevailing market conditions that may render share
repurchases, tender offers or conversion to open-end status inadvisable at this
time. The Proponent's omissions concerning these relevant market conditions
render the statement misleading, thereby allowing the Fund to omit it from its
proxy materials. Further, this paragraph is misleading because it suggests that the Board has
failed to consider the advisability of implementing share "buybacks" (i.e.,
repurchases), tender offers or an open-end conversion, and/or that the Board has
declined to implement these policies without a proper basis for the decision. In
fact, the Board monitors the Fund's performance (including any trading discounts
or premiums to net asset value) and market price relative to its net asset value
and considers, at each quarterly Board meeting, the advisability of taking
various steps to address the trading price discount, including share
repurchases, tender offers and conversion to open-end status. In monitoring the
Fund's performance and market price, the Board reviews detailed information
concerning the market price of the shares, their net asset value, the premium or
discount to net asset value, and the performance of the Fund relative to other
comparable funds. To date, the Board has determined not to take any action with
respect to share repurchases, tender offers or conversion to open-end status
after considering numerous factors, including, among others, the costs
associated with these strategies, as well as their anticipated effects on
portfolio management and on the Fund's expense ratio. Finally, the Fund's management has not been able to verify the accuracy of the
statistics set forth by the Proponent in this paragraph of the supporting
statement. The Fund believes that the Proponent should disclose the source of
the statistics in order to show that they are not false and misleading. 2. Paragraph 5 (first bullet) of the supporting statement states that "[a]doption
of this policy [requiring the Fund to make annual offers to repurchase a
percentage of its outstanding shares] would assure shareholders an annual
opportunity to obtain net asset value for at least some of their shares." This
sentence is false and misleading, and therefore properly can be omitted from the
proxy statement pursuant to Rule 14a-8(c)(3), because it does not take into
account the possibility that a repurchase offer may be suspended or postponed by
the Board in certain instances, as enumerated in Rule 23c-3(b)(3) of the 1940
Act. Thus, adoption of the policy would not necessarily assure shareholders the
opportunity to obtain net asset value for their shares. Further, the Board may
place certain conditions and limitations on repurchase offers as may be
permitted pursuant to Rule 23c-3 or SEC order. Consequently, adoption of the
policy would not "assure shareholders an annual opportunity to obtain net asset
value" for their shares. This sentence further is misleading and properly may be omitted in that it
specifies that adoption of the policy will allow shareholders to obtain "net
asset value" for the shares the Fund repurchases. Rule 23c-3(b)(1) of the 1940
Act contemplates that a fund repurchasing its shares at stated intervals may
deduct from the repurchase proceeds a repurchase fee, not to exceed two percent
of the proceeds. Deduction of this fee would render the price at which
shareholders sell their shares to the Fund less than net asset value. 3. Paragraph 5 (second bullet) of the supporting statement states that "[t]he
certainty of an annual tender offer by the Fund for a portion of its shares may
reduce the discount to net asset value at which shares of the Fund have
historically traded on the NYSE." This statement is false and misleading
because, as noted above, the offer to repurchase shares may be suspended or
postponed in enumerated instances, pursuant to Rule 23c-3(b)(3) of the 1940 Act.
Thus, the annual "tender offer" contemplated by this paragraph would not be a
"certainty." 4. Paragraph 5 (third bullet) of the supporting statement states that the policy
of permitting partial redemption of shares "promotes stable portfolio management
and maintains the Fund as a viable investment vehicle for its long-term
shareholders." This statement is false and misleading and may be omitted in that
the proposed policy would actually undermine stable portfolio management and the
maintenance of the Fund as a viable investment vehicle for long-term
shareholders. The structure proposed by the policy is much less stable than a
closed-end fund. In order to comply with the liquidity requirements of Rule
23c-3(b)(10), the Fund would have to maintain a large percentage of its
portfolio in liquid securities. Alternatively, the Fund could seek to comply
with the liquidity requirements of Rule 23c-3(b)(10) by assuming it could
quickly liquidate portions of the portfolio prior to a repurchase offer. This
would, however, subject the Fund to the risk that it would have to liquidate
portions of the portfolio at an inopportune time. In view of the limited
liquidity of the securities in which the Fund is designed to invest, either of
these approaches would serve to decrease the stability of portfolio management
and would be contrary to the shareholders' best interests. Finally, if the Fund
decreases in size as a result of repurchase offers and is unable to bring in
offsetting new assets, the Fund's expense ratio would likely increase, thereby
potentially harming long-term shareholders and undermining the Fund's long-term
viability. For the reasons set forth above, the Fund may exclude the supporting statement
pursuant to paragraph (c)(3) of the Rule because it contains assertions and
implications so misleading as to violate the SEC's rules prohibiting misleading
statements in proxy soliciting materials. II. Rule 14a-8(c)(7) Paragraph (c)(7) of the Rule permits the omission of a shareholder proposal that
"deals with a matter relating to the conduct of the ordinary business operations
of the registrant." The Proposal recommends that the Board establish a
fundamental policy requiring the Fund to make annual offers to repurchase a
percentage of its outstanding shares, commencing with an initial repurchase of
25 percent of its outstanding shares. Although an offer to repurchase shares
pursuant to Rule 23c-3 of the 1940 Act does not necessarily relate to the
conduct of the ordinary business operations of the Fund, proposing to set the
interval at which to offer to repurchase shares at 12 months (as opposed to at
three or six months, as also is contemplated by Rule 23c-3) does relate to such
conduct. Rule 14a-8(c)(7) permits exclusion of proposals dealing with business
matters that "do not involve any substantial policy or other considerations."
See Cargill Financial Markets PLC (pub. avail. March 15, 1996) (citations
omitted). Determining the interval at which to offer to repurchase shares does
not rise to a substantial policy question and falls within the ambit of ordinary
business operations. The Proposal also specifies that the initial repurchase offer should commence
with an initial repurchase of 25 percent of the Fund's outstanding shares.
Pursuant to Rule 23c-3(a)(3), the determination of each repurchase offer amount
should be made by the Board. Thus, it is the Fund's belief that the
determination of the repurchase offer amount relates to the conduct of the
ordinary business operations of the Fund and that the Proposal may be omitted
from the Fund's proxy statement and form of proxy. * * * * * * * As required by paragraph (d) of the Rule, we have enclosed five additional
copies of this letter and the attachments hereto. Paragraph (d)(4) of the Rule
provides that, where the statement of the reasons supporting the intended
omission are based on matters of law, the statement must be accompanied by a
supporting opinion of counsel. Accordingly, as counsel to the Fund, it is our
view that the proposal and supporting statement are legally insufficient and,
for this reason, may be omitted. Please direct any questions or comments regarding this matter to me at (202)
626-3310 or to Karen L. Anderberg of this office at (202) 626-3384. Please acknowledge receipt of this filing by date stamping the enclosed copy of
this letter and returning it to our messenger. Sincerely, Allan S. Mostoff cc: George Foot, Newgate Management Associates
Jack Vaughn, Esq., Hertzog, Calamari & Gleason [Footnotes]1Emphasis added. 2For the period April 14, 1996 through March 27, 1997, the Fund's average
discount was 18.0%. By comparison, the average discount of the Greater China
Fund, Jardine Fleming China Fund, and Templeton China World Fund was 16.2%,
15.7%, and 16.3%, respectively. In prior correspondence with the Fund, the
Proponent identified these funds as comparable to the Fund. [INQUIRY LETTER 2]
NEWGATE MANAGEMENT ASSOCIATES
80 FIELD POINT ROAD
GREENWICH, CT 06830
TELEPHONE(203) 661-0700 April 29, 1997
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549
Attention: Peter Bonanno
Mail Stop 10-5 Templeton Dragon Fund, Inc.
File No. 33-76050 Dear Mr. Bonanno: By letter, dated January 27, 1997, Newgate Management Associates ("Newgate")
notified Templeton Dragon Fund, Inc. (the "Fund") of Newgate's intention to
present a proposal (the "Proposal") for action at the 1997 Annual Meeting of the
Fund. In a letter (the "No-Action Request") to the Securities and Exchange
Commission (the "SEC"), dated April 3, 1997, Mr.Mostoff of Dechert Price &
Rhoads, attorneys for the Fund, requested, on behalf of the Fund, that the SEC
Staff concur with the Fund's conclusion that the Proposal may be omitted from
the Fund's proxy statement for the Annual Meeting. Except for a copy of the
No-Action Request, Newgate has received no communications from the Fund,
including any request from the Fund to revise the Proposal. Mr. Mostoff's
request for no-action relief from the SEC is typical of the contempt many
closed-end funds demonstrate with respect to any shareholder proposal regarding
open-ending. Unfortunately, what should have been a relatively simple and
inexpensive process in discussing and revising the proposal and supporting
statement now involves unnecessary legal expense and unwarranted SEC review.
Unfortunately, as it is all too often the case, without a strong response by the
SEC, shareholders experience incredible difficulty in being heard. Newgate notes for your consideration the following with respect to the No-Action
Request. Rule 14a-8(c)(3) Newgate is willing to revise the Proposal and the supporting statement to
address the Fund's assertions that they omit certain material information and
include certain false or misleading information, respectively. Pursuant to Rule 14a-8(a)(4), Newgate is willing to reduce the length of its
proposal to comply with the 500 word limit. Newgate also still would like to
include a chart in the supporting statement, [which chart was inadvertently
omitted from its original submission,] and agrees that words or numbers included
in the chart should count for purposes of the 500 word limit (see Aetna Life and
Casualty Company, avail. January 18, 1995; cf. Ferrofluidics Corporation, avail.
September 18, 1992). Rule 14a-8(c)(7) Mr. Mostoff's reliance on Cargill Financial Markets PLC (avail. March 15, 1996)
is misplaced, as Cargill runs counter to the Fund's position that the Proposal
should be excluded from the proxy statement. In Cargill, the Staff clearly
stated that the proposal in question could not be excluded under Rule
14a-8(c)(3). For the reasons in Cargill and on the basis of that no-action
letter and the additional no-action letters cited therein, it is Newgate's
belief that the Proposal does not deal with a matter relating to the conduct of
the ordinary business operations of the Fund and cannot be excluded on that
basis. Further, we note that the Proposal is in the form of a recommendation to the
Board of Directors of the Fund (as opposed to the mandatory requirements of the
proposal which was the subject of the Cargill letter), and that the power to
make final determinations would, following approval of the Proposal, still rest
with the Board. Accordingly, we would request that the Commission reject the Fund's request to
the extent that it relies on Rule 14a-8(c)(7) and, as it customarily does,
require the Fund to afford Newgate the opportunity to revise its proposal and
supporting statement to address the Fund's other objections. We regret that it
is necessary to burden the SEC with what should have been an otherwise more
efficient process. If you have any questions or comments regarding these matters, please contact me
at (212) 496-2400. Very truly yours, George Foot [INQUIRY LETTER 3]
NEWGATE MANAGEMENT ASSOCIATES
1995 BROADWAY, 12TH FLOOR
NEW YORK, NY 10023
TELEPHONE(212) 496-2400 January 27, 1997
Mr. Charles B. Johnson
Chairman of the Board
Templeton Dragon Fund, Inc.
700 Central Avenue
St. Petersburg, FL 33701-3628 BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED Dear Mr. Johnson: Pursuant to Rule 14a-8 promulgated under the Securities Exchange Act of 1934
(the "Act"), the undersigned hereby notifies Templeton Dragon Fund, Inc. (the
"Fund") of its intention to present a proposal for action at the upcoming Annual
Meeting of the Fund in 1997 (the "Annual Meeting"). By this notice, the
undersigned hereby demands that the Fund set forth the proposal described below
in its proxy statement to be distributed to the holders of the Fund's Shares of
common stock (the "Common Stock") in connection with the Annual Meeting,
identify the proposal in the form of proxy accompanying such proxy statement and
provide means by which such holders can make the specification required by Rule
14a-4(b) under the Act. The undersigned is a beneficial owner of approximately 420,000 Shares of Common
Stock (the "Shares"), has so owned such Shares for over one year and intends to
continue to own such Shares through the date of the Annual Meeting. As such, the
undersigned is eligible, pursuant to Rule 14a-8(a)(1)under the Act, to submit a
proposal. The undersigned is prepared, upon proper request therefor, to provide
documentary support of its above-described claim of ownership. Pursuant to Rule 14a-8(a)(2) under the Act, the undersigned hereby asserts that
its name and address are Newgate Management Associates, 1995 Broadway, New York,
New York 10023. Set forth on Exhibit A attached hereto is a schedule setting
forth the respective dates on which the undersigned acquired beneficial
ownership of the Shares. The undersigned also provides herewith a copy of a
Schedule 13F, filed January 16, 1997, for the quarter ending December 31, 1996,
filed pursuant to Rule 13f-1 under the Act as appropriate documentary support
for its claim of beneficial ownership of the Shares. The undersigned presently
expects that one of its representatives will present the proposal discussed
below at the Annual Meeting. The undersigned is submitting this proposal for action at the Annual Meeting
based on its present understanding that the Fund is not intending to hold a
special meeting prior to the Annual Meeting. If the Fund determines to hold such
a special meeting, the undersigned hereby demands that the Fund set forth the
proposal described below in its proxy statement to be distributed to the holders
of the Common Stock in connection with the special meeting. In such connection,
the undersigned states that the information provided above in respect of the
Annual meeting applies with the same effect in respect of any such special
meeting. Set forth below is the proposal and supporting statement of the undersigned, as
provided in accordance with Rule 14a-8(b)(1) under the Act. RESOLVED, that the holders of the common stock of Templeton Dragon Fund, Inc.
(the "Fund"), assembled at an annual meeting in person and by proxy, hereby
recommend that the Fund's Board of Directors establish a fundamental policy
requiring the Fund to make annual offers to repurchase at least 5%, and up to
25% of its outstanding shares at net asset value commencing with an initial
repurchase of 25% of its outstanding shares. Supporting Statement The prospectus, dated September 21, 1994, pursuant to which the Fund offered its
Common Stock to the public states, that: "After March 31, 1996, the Board of
Directors of the Fund will consider at its regularly scheduled quarterly
meetings any average discount (calculated on the basis of the closing price as
of the last day of trading each week during the fiscal quarters) from the net
asset value at which the Fund's common stock have traded during the previous
three fiscal quarters. If any such discount, in light of prevailing market
conditions at that time, is deemed to be substantial, then the Board will
consider whether or not any actions to address such discount should be
undertaken. If it is determined that action should be taken, alternatives to
address such discount may include but will not be limited to the repurchases of
Shares in any existing secondary trading market for the Shares or repurchase
offers to all Shareholders or tender offers to purchase Shares from all Shares
at a price equal to the net asset value of the Fund." DESPITE THE FACT THAT THE FUND HAS TRADED AT AN AVERAGE DISCOUNT OF 16.4% FOR
THE PAST 52 WEEKS AND AN AVERAGE DISCOUNT OF 14.7% SINCE THE FUND'S INCEPTION
THROUGH JANUARY 7, 1997, THE BOARD OF DIRECTORS HAS NOT ATTEMPTED TO REDUCE THIS
DISCOUNT EITHER THROUGH SHARE BUYBACKS OR TENDER OFFERS OR THE CONVERSION OF THE
FUND TO OPEN-END STATUS. (Discount/Price Chart) Rule 23c-3, under the Investment Company Act of 1940, provides that closed-end
management investment companies such as the Fund may make periodic and certain
discretionary repurchases of their securities at net asset value. Periodic
repurchases, which may be for between 5% and 25% of the Fund's outstanding
shares must be made pursuant to a fundamental policy approved by shareholders. The provisions of Rule 23c-3 allowing for periodic repurchase offers are
intended to allow closed-end investment companies to provide investors with a
limited ability to resell their shares to the companies at approximately net
asset value, a manner of sale that traditionally has been available only to
open-end investment companies shareholders. Adoption of this policy would assure shareholders an annual opportunity to
obtain net asset value for at least some of their shares. The certainty of an annual tender offer by the Fund for a portion of its shares
may reduce the discount to net asset value at which shares of the Fund have
historically traded on the NYSE. While permitting partial redemption of shares, this policy also promotes stable
portfolio management and maintains the Fund as a viable investment vehicle for
its long-term shareholders. FOR ALL OF THE FOREGOING REASONS, THE PROPONENT STRONGLY RECOMMENDS THAT
SHAREHOLDERS VOTE FOR THIS PROPOSAL. [End of Supporting Statement]The undersigned hereby requests that, if management of the Fund intends to
oppose the foregoing proposal, the Fund include the name and address of the
undersigned, together with the number of Shares beneficially owned by it, in the
proxy statement distributed to the Fund's shareholders. If you have any questions with respect to any of the foregoing, please contact
me immediately at (212) 496-2400. NEWGATE MANAGEMENT ASSOCIATES By: George Foot
Partner Copy to: Jack Vaughn, Esquire
Hertzog, Calamari & Gleason
100 Park Avenue
New York, NY 10017
[STAFF REPLY LETTER]
June 11, 1997 Allan S. Mostoff, Esq.
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005 Re: Shareholder Proposal of Newgate Management Associates for Consideration at
the 1997 Annual Meeting for the Templeton Dragon Fund Dear Mr. Mostoff: By letter dated April 3, 1997, you request that the staff of the Division of
Investment Management concur with your view that Templeton Dragon Fund, Inc.
("Fund"), a registered closed-end management investment company, may omit from
its proxy statement a shareholder proposal and supporting statement submitted by
Newgate Management Associates. 1 Newgate submitted the following shareholder
proposal to the Fund: RESOLVED, that the holders of the common stock of Templeton Dragon Fund, Inc. .
. . assembled at an annual meeting in person and by proxy, hereby recommend that
the Fund's Board of Directors establish a fundamental policy requiring the Fund
to make annual offers to repurchase at least 5%, and up to 25% of its
outstanding shares at net asset value commencing with an initial repurchase of
25% of its outstanding shares. You believe that Newgate's proposal and supporting statement may be excluded
under Rule 14a-8(c)(3) of the Securities and Exchange Act of 1934 ("1934 Act").
Paragraph (c)(3) permits exclusion where the proposal or supporting statement is
contrary to any of the Commission's proxy rules and regulations, including Rule
14a-9, which prohibits false and misleading statements in soliciting materials.
Additionally, you believe that the Fund may exclude the proposal under Rule
14a-8(c)(7) of the 1934 Act because aspects of the proposal deal with matters
relating to the "conduct of the ordinary business operations of the registrant." A. Rule 14a-8(c)(3) 1. Omission of Material Information Regarding Interval Funds Because Newgate references Rule 23c-3 under the Investment Company Act of 1940
in the supporting statement, you believe that Newgate is advocating that the
Fund convert to an interval fund. 2 If so, you believe that the proposal and
supporting statement fail to state that, if the Fund establishes a fundamental
policy that requires the Fund to make annual repurchase offers, then the Fund
will convert from a closed-end fund to an interval fund. You argue that omission
of this information, particularly in light of the specific limitations imposed
on interval funds by Rule 23c-3, renders the proposal misleading. Therefore, you
argue that the Fund may omit the proposal in reliance on Rule 14a-8(c)(3). We disagree. We believe that the proposal and its supporting statement capture
the substance of Newgate's proposed fundamental policy to conduct periodic
repurchases of Fund shares. To the extent that there are other details that the
Fund believes to be relevant, the Fund may include these in its statement about
the proposal. 2. Untimely Submission of Chart in the Supporting Statement You state that Newgate wishes to include a chart in the supporting statement,
but that the chart was not included in the initial submission to the Fund. You
argue that the chart may be excluded in reliance on Rule 14a-8(b)(1) because it
was not furnished to the Fund at the time the proposal was submitted. Newgate
has acknowledged that the chart was "inadvertently omitted" from its original
version of the supporting statement. Because it appears that Newgate did not
submit the chart in a timely manner, we would not recommend enforcement action
to the Commission if the Fund excludes the chart from the supporting statement.
3 3. Violation of the 500-Word Limit You maintain that Newgate's proposal and supporting statement, in the aggregate,
exceed the 500-word limit for shareholder proposals set out in Rule 14a-8(b)(1).
Newgate does not dispute this assertion. If Newgate does not revise its proposal
to meet the 500-word limitation, then the staff would not recommend enforcement
action to the Commission if the Fund excludes the proposal under Rule
14a-8(c)(3). 4. False and Misleading Representations Contained in the Supporting Statement You argue that several paragraphs of the supporting statement may be excluded
under Rule 14a-8(c)(3) as false and misleading within the meaning of Rule 14a-9.
Except for the portions of the supporting statement specifically discussed
below, we do not agree that there is a sufficient basis for the Fund to exclude
the remaining portions of the supporting statement in reliance on Rule
14a-8(c)(3). Paragraph 5 (first bullet): This sentence states that the proposed policy "would
assure shareholders an annual opportunity to obtain net asset value for at least
some of their shares." There is some basis for your view that this statement is
false and misleading because there is no assurance that shareholders will obtain
net asset value from the Fund under the repurchase program. Therefore, unless
Newgate revises the sentence to indicate that the repurchase program may be
subject to certain limitations, the staff would not recommend enforcement action
to the Commission if the Fund excludes this statement under Rule 14a-8(c)(3). Paragraph 5 (second bullet): This sentence states that "[t]he certainty of an
annual tender offer by the Fund for a portion of its shares may reduce the
discount to net asset value at which shares of the Fund have historically traded
on the NYSE." You believe that it is false and misleading to refer to the
repurchase offer as a "certainty." There is some basis for your position that
referring to the repurchase program in this manner is false and misleading.
Accordingly, unless Newgate removes the reference to "certainty" from this
sentence, the staff would not recommend enforcement action to the Commission if
the Fund excludes this statement under Rule 14a-8(c)(3). Paragraph 5 (third bullet): This sentence describes the repurchase program as
"promot[ing] stable portfolio management and maintain[ing] the Fund as a viable
investment vehicle for its long-term shareholders." You argue that this
description of the program is false and misleading because the proposed policy
would undermine stable portfolio management and the maintenance of the Fund as a
viable investment vehicle for long-term shareholders. There may be some basis
for your view that this sentence is false and misleading. Accordingly, unless
Newgate revises the statement to indicate that these assertions are Newgate's
opinion, the staff would not recommend enforcement action to the Commission if
the Fund excludes this sentence. B. Rule 14a-8(c)(7) Although you acknowledge that the adoption of an interval repurchase policy
would not necessarily be a matter of ordinary fund business, you argue that the
Fund may exclude the proposal in its entirety pursuant to Rule 14a-8(c)(7)
because, by setting the interval at which the repurchases are to occur
(annually) and by establishing the initial amount of shares to be repurchased
(25%), the proposal involves matters of ordinary fund business. We do not agree
that the Fund may exclude the entire proposal in reliance on paragraph (c)(7). While we believe that the adoption of the repurchase program constitutes a
"substantial policy determination," there appears to be some basis for excluding
the parts of the proposal relating to the interval between repurchase offers and
the amount of the initial repurchase offer. 4 Accordingly, if Newgate does not
delete the portions of the proposal relating to the interval between repurchase
offers and the initial percentage of shares to be repurchased, then the staff
would not recommend enforcement action to the Commission if the Fund excludes
the proposal in reliance on Rule 14a-8(c)(7). * * * * * In summary, there appear to be several bases on which the Fund may exclude all
or part of Newgate's proposal and supporting statement in their present form. If
Newgate revises the proposal and supporting statement in a manner consistent
with the terms of this letter within seven calendar days, however, we cannot
assure you that we would not recommend enforcement action to the Commission
should the Fund exclude the proposal and supporting statement from its proxy
materials. Sincerely, Peter V. Bonanno
Attorney cc: George Foot
Newgate Management Associates
1995 Broadway, 12th Floor
New York, NY 10023 [Footnotes]1 We also received and considered an April 29, 1997 letter from Newgate opposing
your request to exclude its proposal and supporting statement. 2 Rule 23c-3 permits closed-end investment companies, subject to the conditions
provided in the rule, to repurchase outstanding shares of common stock from its
shareholders on a periodic basis. 3 Our response would differ, however, if Newgate had submitted the chart to the
Fund at least 120 days prior to the date on which the Fund expects to issue the
proxy materials to shareholders. See Rule 14a-8(a)(3) of the 1934 Act.
4 See Substantive Bases for Omission of Proposals - Rule 14a-8(c)(1) and (7) in
Securities Exchange Act Release Nos. 12999 (Nov. 22, 1976) and 12598 (July 7,
1976).
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