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Proposal 3:
Declassification of Duke Energy’s Board of Directors

The Board of Directors recommends a vote AGAINST this shareholder proposal.

A shareholder has informed Duke Energy that it intends to submit the following proposal at the 2004 annual meeting of shareholders. Upon oral or written request, we will promptly furnish the name and address of the shareholder submitting this proposal, as well as the number of shares the shareholder held at the time the proposal was submitted.

The shareholder's proposal is as follows:

RESOLVED, That the shareholders of Duke Energy Corporation ("the Company") urge that the Board of Directors take the necessary steps to declassify the Board of Directors for the purpose of establishing annual elections for directors. The Board of Directors declassification shall be done in a manner that does not affect the unexpired terms of directors previously elected.

Stockholder's Statement of Support

The election of corporate directors is a primary avenue for shareholders to influence corporate affairs and ensure management is accountable to the Company's shareholders. However, under the classified voting system at the Company, individual directors face election only once every three years, and shareholders only vote on roughly one-third of the Board of Directors each year. In our opinion, such a system serves to insulate the Board of Directors and management from shareholder input and the consequences of poor financial performance.

By eliminating the classified Board of Directors, we believe shareholders can register their views annually on the performance of the Board of Directors and each individual director. We feel this will promote a culture of responsiveness and dynamism at the Company, qualities necessary to meet the challenge of increasing shareholder value.

We submit that by introducing annual elections and eliminating the classified Board of Directors at the Company, management and the Board of Directors will be more accountable to shareholders.

We believe that by aligning the interest of the Board of Directors and management with the interests of shareholders, our Company will be better equipped to enhance shareholder value.

For the above reasons, we urge a vote FOR the resolution.

Opposing Statement of the Board of Directors

In 1991, Duke Energy's shareholders approved amendments to Duke Energy's Articles of Incorporation and By-Laws classifying the Board into three classes of directors serving staggered three-year terms, with each class being as nearly as possible equal to one-third of the total directors. The amendments were approved with the affirmative vote of holders of over 80% of the then outstanding Duke Energy Common Stock. In order to declassify the Board of Directors, the Restated Articles of Incorporation would need to be amended by the affirmative vote of holders of at least 80% of the combined voting power of the then outstanding Duke Energy Common Stock and any other classes of capital stock then outstanding at a subsequent annual or special meeting of the shareholders.

As explained when originally approved by the shareholders, the general purpose of the classified Board is to assure the continuity and stability of Duke Energy's management and policies. It ensures that a majority of directors at any given time will have prior experience with and in-depth knowledge of Duke Energy. Directors who have experience with Duke Energy and are familiar with its policies, strategies and businesses are a valuable resource and are better positioned to make decisions that are best for Duke Energy and its shareholders.

The classified Board also serves to protect Duke Energy against unfair treatment of Duke Energy's shareholders in takeover situations, by making it more difficult and time-consuming to take control of the Board of Directors. By preventing third parties from replacing a majority of the Board at any given time, and thus eliminating the threat of abrupt removal, the Board can evaluate takeover proposals with the diligence required, appropriately consider alternatives and negotiate effectively, all in the best interests of the shareholders.

The Board of Directors believes that its interests and those of management are specifically aligned with shareholders' interests, through the fiduciary duty owed by Board members and management to act in shareholders' best interests. In addition, directors and executives are compensated partially in the form of Duke Energy Common Stock, and are required to own prescribed amounts of Duke Energy Common Stock, specifically in order to align their financial interests with those of shareholders. The Board also strives to be responsive to input from shareholders through the annual shareholders meeting, and through Duke Energy's Investor Relations Department.

The Board does not believe that declassification of the Board is necessary to achieve the goals of accountability to shareholders and alignment with their interests. The Board also believes that it is important to retain the classified Board structure for the same reasons that it was originally approved by the shareholders, namely to preserve the continuity and experience of Board members and to allow Duke Energy a level of protection against unfair treatment in takeover situations.

The Board of Directors recommends a vote AGAINST this proposal for the reasons set forth above.