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:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (section)240-14a-11(c) or
(section)240-14a-12
Franklin Premier Return Fund
(Name of Registrant as Specified In its Charter)
Franklin Premier Return Fund
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2)
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3)
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
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 0-11:1
4) Proposed maximum aggregate value of transaction:
1 Set forth the amount on which the filing fee is calculated and state how it
was determined.
[ ] 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:
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DRAFT 04/19/96
IMPORTANT INFORMATION FOR SHAREHOLDERS
OF FRANKLIN PREMIER RETURN FUND
The attached materials include a proxy statement and your proxy card for
the upcoming shareholders' meeting on July 3, 1996. The proxy card serves
as a ballot, allowing you to express your views regarding certain aspects
of the Fund's operations. Please fill out and sign the proxy card, and
return it in the enclosed postage-prepaid envelope to the Fund and we will
vote the proxy exactly as you tell us at the shareholders' meeting. If you
simply sign and return the proxy card, we will vote as the Directors
recommend as described on page 1.
By returning the proxy card, you reduce the possibility that the Fund will
need to conduct additional or follow-up solicitations of shareholders. If
an insufficient number of shareholders vote and return their proxies, so
that it becomes necessary for the Fund or the Fund's investment adviser to
hire an outside firm to contact shareholders, the additional costs of
soliciting shareholders will be an expense that the Fund will have to
bear.
When you review the proxy statement, you will see that the Fund seeks your
vote on three specific matters, including a change in the Fund's
investment objective, a change in the place and form of organization for
the Fund and a change in the name of the Fund in the event the
Reorganization is not approved by shareholders.
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TABLE OF CONTENTS
A Letter from the Chairman
Notice of Special Meeting of Shareholders
The Proxy Statement....................................................1
Voting and Directors' Recommendations............................1
Proposal I. - Change in Fund's Objective.........................2
Proposal II. - Change in Place and Form of
Fund's Organization................................4
Proposal III. - Change in Fund's Name...........................22
The Proxy Card Follows Appendix B
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A LETTER FROM THE CHAIRMAN
Dear Fellow Shareholders:
My purpose in writing is to request that you consider specific matters
that relate to your ownership of shares in Franklin Premier Return Fund (the
"Fund"). The Board of Directors of the Fund asks that you vote your proxies on
three specific issues:
1. Approving an amendment to the Fund's investment objective.
2. Approving a change in the Fund's place and form of
organization from a California corporation to a Delaware
business trust.
3. Approving a change in the Fund's name to "Franklin Asset
Allocation Fund" in the event the Reorganization is not
approved by shareholders.
As you review the proxy statement for the Special Meeting of Shareholders,
you will discover that it now includes explanatory notes (in italics) that are
designed to provide you with a simpler and more concise explanation of certain
issues. While much of the information that must be furnished in the proxy
statement is technical and required by the Fund's regulator, we hope that the
use of these explanations will be helpful to you.
The vote of each shareholder is important to the Fund. On behalf of the
Directors, thank you in advance for the consideration that I am confident you
will give to these issues as you read the proxy statement and execute your proxy
card. If you have any questions regarding either the proxy statement or the
proposals, do not hesitate to call 1-800/DIAL BEN.
Sincerely,
/s/ Charles B. Johnson
Charles B. Johnson
Chairman
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The Notice, set forth below, constitutes the formal agenda for the special
meeting of shareholders. The Notice specifies what issues will be
considered by shareholders, and the time and location of the meeting.
All shareholders are cordially invited to attend the meeting in person. If
you do not expect to attend the meeting, please indicate your voting
instructions on the proxy card, which appears at the end of these
materials, date and sign it, and return it in the envelope provided, which
is addressed for your convenience and needs no postage if mailed in the
United States. In order to avoid the additional expense to the Fund of
further solicitation, please mail in your executed proxy promptly.
FRANKLIN PREMIER RETURN FUND
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 3, 1996
To the Shareholders of Franklin Premier Return Fund:
Notice is hereby given that a special meeting of shareholders (the
"Meeting") of Franklin Premier Return Fund (the "Fund") will be held at the
offices of the Fund, 777 Mariners Island Boulevard, San Mateo, California 94404,
on July 3, 1996, at 3:00 p.m. Pacific time, for the following purposes:
I. Approving an amendment to the Fund's investment objective.
II. Approving a change of the Fund's place and form of organization
from a California corporation to a Delaware business trust.
III. Approving a change in the name of the Fund to "Franklin Asset
Allocation Fund" in the event the Reorganization is not approved
by shareholders.
IV. To consider and act upon any other business (none known as of the
date of this notice) which may legally come before the Meeting or
any adjournment thereof.
As provided in the Fund's By-Laws, the Board of Directors has fixed the close of
business on May 7, 1996, as the record date for the determination of
shareholders entitled to notice of and to vote at the Meeting. Only shareholders
of record at that time will be entitled to vote at the Meeting or any
adjournment thereof.
By Order of the Board of Directors
DEBORAH R. GATZEK
Secretary
San Mateo, California
Dated: May X, 1996
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PLEASE RETURN YOUR PROXY CARD PROMPTLY
YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN
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The Proxy Statement, which begins below and continues through page 24, is
designed to furnish shareholders with the information necessary to vote on the
matters listed in the Notice on the prior page. Certain information in the Proxy
Statement must be included because of requirements of the Securities and
Exchange Commission (the "SEC"), the Fund's regulator. Some of this information
may be technical. If you have any questions regarding the Proxy Statement, or
any of the proposals which are being submitted for your vote as a shareholder,
contact the Fund at 1-800/DIAL BEN.
FRANKLIN PREMIER RETURN FUND
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
JULY 3, 1996
SOLICITATION, REVOCATION AND VOTING OF PROXIES
The enclosed proxy is solicited by and on behalf of the management of
Franklin Premier Return Fund (the "Fund") in connection with the special meeting
of shareholders of the Fund (the "Meeting") to be held at the offices of the
Fund, 777 Mariners Island Boulevard, San Mateo, California 94404, on July 3,
1996, at 3:00 p.m. Pacific time, and at any and all adjournments thereof. You
may revoke your previously granted proxy at any time before it is exercised by
delivering a written notice to the Fund expressly revoking your proxy, by
signing and forwarding to the Fund a later-dated proxy, or by attending the
Meeting and casting your votes in person.
The Fund will request broker-dealer firms, custodians, nominees and
fiduciaries to forward proxy material to the beneficial owners of the shares of
record by such persons. The Fund may reimburse such broker-dealer firms,
custodians, nominees and fiduciaries for their reasonable expenses incurred in
connection with such proxy solicitation. The cost of soliciting these proxies
will be borne by the Fund. In addition to solicitations by mail, some of the
officers and employees of the Fund and Franklin Advisers, Inc. ("Advisers"),
without any extra compensation, may conduct additional solicitations by
telephone, telegraph and personal interviews. The Fund presently does not intend
to retain an outside firm to aid in the solicitation of proxies, however, if an
outside firm is retained, the costs of such solicitation will be borne by the
Fund. It is expected that this proxy statement will first be mailed to
shareholders on or about May 10, 1996.
DIRECTOR'S RECOMMENDATIONS
THE FUND IS REQUESTING YOUR VOTE ON THREE SPECIFIC MATTERS AT THE
MEETING. THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE:
(1) FOR THE AMENDMENT TO THE FUND'S INVESTMENT OBJECTIVE,
(2) FOR A CHANGE OF THE FUND'S PLACE AND FORM OF ORGANIZATION
FROM A CALIFORNIA CORPORATION TO A DELAWARE BUSINESS TRUST,
AND
(3) FOR A CHANGE IN THE FUND'S NAME TO "FRANKLIN ASSET
ALLOCATION FUND" IN THE EVENT THE REORGANIZATION IS NOT
APPROVED BY SHAREHOLDERS.
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The proxyholders will vote all proxies received. It is the present
intention that, absent contrary instructions, the enclosed proxy will be voted:
FOR the approval of an amendment to the Fund's investment objective; FOR
approval of a change in the Fund's place and form of organization from a
California corporation to a Delaware business trust; FOR approval of the change
in the Fund's name to "Franklin Asset Allocation Fund;" and, in the discretion
of the proxyholders, upon such other business not now known or determined as may
legally come before the Meeting. Under relevant state law and the Fund's
corporate documents, abstentions and broker non-votes will be included for
purposes of determining whether a quorum is present at the Meeting, but will be
treated as votes not cast and, therefore, will not be counted for purposes of
determining whether matters to be voted upon at the Meeting have been approved.
VOTING OF SECURITIES
Only shareholders of record at the close of business on May 7, 1996 are
entitled to vote at the Meeting or any adjournment thereof. On that date, the
number of shares of capital stock of the Fund outstanding was ______________,
each share being entitled to one vote.
On April 15, 1996, the directors and officers as a group beneficially
owned 56,206 shares, representing 1% of the Fund's s outstanding shares as
follows: Mr. Abbott (298 shares), Mr. Fortunato (121 shares), Mr. Charles B.
Johnson (4,199 shares), Mr. Tanaka (42,039 shares), Mr. Wiskemann (9,484
shares), and Mr. McVey (64 shares). The following persons owned 5% or more of
the Fund as of April 15, 1996: Texas Commerce Bank-Avesta, Asset Trading Unit,
P.O. Box 2558, Houston, TX 77252-2258 owned 690,008 shares representing 12.36%
of the Fund, and FTTC TTEE for Valuselect, CAC International Inc., P.O. Box
2438, Rancho Cordova, CA 95741-2438 owned 356,514 shares representing 6.39% of
the Fund.
PROPOSAL I. TO APPROVE AN AMENDMENT TO THE FUND'S
INVESTMENT OBJECTIVE
The Board of Directors unanimously recommends that you approve a change in
the Fund's investment objective. The Fund's investment objective and
related policies control the way in which the Fund's assets are invested
for the benefit of its shareholders. The investment objective is a
fundamental policy, which means that it cannot be changed without first
obtaining shareholder approval.
The proposed changes to the Fund's investment objective are designed to
more effectively express the Fund's investment objective and strategy.
Approval of this proposed change requires the affirmative vote of the
lesser of (1) a majority of the Fund's outstanding shares, or (2) 67% or
more of the shares represented at the Meeting, if more than 50% of the
Fund's outstanding shares are represented.
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The current investment objective of the Fund is "high current return and,
secondarily, relative stability of principal." On January 18, 1996, the Board of
Directors authorized, subject to approval of the Fund's shareholders, a change
to the Fund's investment objective so that it will read as follows:
"The primary investment objective of the Fund is
total return. This is a fundamental policy of the
Fund and may not be changed without shareholder
approval. The Fund places secondary emphasis on
reduced risk over time."
As stated in the Fund's current prospectus, current return is also known
as "total return." With respect to the Fund's investment objective, the phrase
"current return" has the same meaning as the phrase "total return." Management
of the Fund, however, informed the Board of Directors that investors considered
the phrase "current return" to mean "current income." Management proposed to the
Board, and the Board determined, that changing the wording of the Fund's
investment objective by using the phrase "total return" instead of "current
return" would more clearly express the Fund's objective and would help to avoid
investor confusion in this regard.
The Fund's secondary objective is relative stability of principal. In
seeking to provide stability of principal, the Fund seeks to reduce share price
volatility over the long term. In order to more clearly express the way in which
the Fund seeks to achieve this secondary objective, management proposed to the
Board that the phrase "relative stability of principal" should be deleted from
the Fund's investment objective and replaced with the following sentence: "The
Fund places secondary emphasis on reduced risk over time." Also, management
proposed, and the Board concluded, that this secondary objective should not be
considered to be a "fundamental" policy of a mutual fund, such as the Fund,
whose investment objective is that of current or total return.
In reaching its decision to recommend this proposal to shareholders, the
Directors determined that this change in the wording of the Fund's investment
objective would more effectively express its objective, avoid investor confusion
and assist in the Fund's marketing efforts. The Directors also considered that
the types of securities in which the Fund's assets were invested, as well as the
Fund's investment strategy, would not change.
If the proposal is approved by shareholders, the prospectus will be
amended in certain respects to make it consistent with this change in objective.
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PROPOSAL II. TO APPROVE A CHANGE OF THE FUND'S PLACE AND
FORM OF ORGANIZATION FROM A CALIFORNIA
CORPORATION TO A DELAWARE BUSINESS TRUST
SUMMARY OF THE PROPOSAL
The Directors recommend that you approve a change in the place and form of
organization of the Fund from a California corporation to a Delaware business
trust. The proposed change will be referred to in this proxy statement as the
"Reorganization."
o WHAT WILL THE REORGANIZATION MEAN FOR THE FUND AND ITS SHAREHOLDERS?
The Reorganization involves the continuation of the Fund in the form of a newly
created Delaware business trust named "Franklin Asset Allocation Fund" (the
"Trust"). The Trust will have the same investment objective as the Fund, which
will either be the amended objective described in Proposal I if such proposal is
approved by shareholders of the Fund, or the current objective of the Fund if
shareholders do not approve Proposal I.
The Trust will also have the same investment policies and limitations as the
Fund; the existing Fund assets will become assets of the Trust; the Directors of
the Fund are the same as the nominees for the Board of Trustees of the Trust;
the current officers and employees of the Fund are the same as the officers and
employees of the Trust; and each shareholder will own an interest in the Trust
that is equivalent to his or her interest in the Fund at the time of the
Reorganization. In essence, your investment in the Fund will not change for all
practical purposes.
o WHY ARE THE DIRECTORS RECOMMENDING THAT I APPROVE THE REORGANIZATION?
The Directors believe that mutual funds formed as Delaware business trusts have
advantages over funds formed as California corporations. In sum, Delaware law
permits a less complicated structure and allows greater flexibility in a fund's
business operations, as well as favorable state tax treatment.
Delaware law contains provisions specifically designed for mutual funds, which
take into account their unique structure and operations, and allow funds to
simplify their operations by reducing administrative burdens and generally
operate more efficiently.
For example, funds organized as Delaware business trusts are not required to
hold annual shareholder meetings if meetings are not otherwise required by the
federal securities laws, and such funds may create new portfolios (a new
European Fund for example, or a new Bond Fund), without sending a proxy to
shareholders for approval.
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o WHAT IS INVOLVED IN THE PROCESS OF REORGANIZING THE FUND?
The Reorganization involves the merger of the Fund into the Trust. The Trust was
formed to become the Fund's successor and to continue the business of the Fund
for its shareholders. The Trust was formed after the Fund's Directors approved
the Reorganization this past March. At that time, the officers and Directors of
the Fund were appointed as the officers and Trustees of the Trust, and the
Trustees took all the actions necessary so that the Trust now stands ready to
take over the Fund's business.
For example, the Trust entered into an investment management agreement with
Advisers that is substantially identical to the current investment management
agreement between Advisers and the Fund. The Trust also filed an amendment to
the Fund's Prospectus with the SEC, which provides for the name and structure of
the Delaware business trust, and which will become adopted by the Trust as its
own, if shareholders approve the Reorganization.
If shareholders approve the Reorganization, the Fund will merge into the Trust
and the Trust will then be your mutual fund. You will own exactly the same
amount of shares that you owned in the Fund, and they will be worth exactly the
same amount of money on the date of the merger. Afterwards, the Trust will
operate in the same way that the Fund operated.
o WHAT IS THE EFFECT OF MY "YES" VOTE?
By voting "Yes" to the Reorganization, you will be accepting a mutual fund
organized as a Delaware business trust with its Trustees, independent auditors,
investment management agreement and distribution plan already in place, and all
such arrangements are substantially identical to those of the Fund. These are
items which are usually separately approved by shareholders either periodically
or, if there are changes, more often as required by the federal securities laws.
The proxy statement contains detailed information about the Trustees (page 10);
the independent auditors (page 16); the investment manager and management
agreement (page 17); and the distribution plan (page 20).
o ARE THERE ANY TAX CONSEQUENCES FOR SHAREHOLDERS?
The Reorganization is designed to be tax free for federal income tax purposes so
that shareholders do not experience a taxable gain or loss when the
Reorganization is completed.
o WHAT IF I CHOOSE TO SELL MY SHARES AT ANY TIME?
Any request to redeem shares of the Fund received and processed prior to the
Reorganization will be treated as a redemption of shares of the Fund. Any
request to redeem shares received or processed after the Reorganization will be
treated as a request for the redemption of the same number of shares of the
Trust.
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o WHAT VOTE IS REQUIRED TO APPROVE THE REORGANIZATION?
Approval of this proposal requires the vote of the majority of the Fund's shares
represented in person or by proxy, provided a quorum is present.
* * *
At its meeting on March 21, 1996, the Board of Directors of the Fund
approved, subject to the approval of the Fund's shareholders, the concept of the
Reorganization, pursuant to which the Fund's place and form of organization
would be changed from a California corporation to a Delaware business trust. At
the meeting, the Board also approved an Agreement of Merger (the "Merger
Agreement"), in substantially the form attached hereto as Appendix B, which
provides for the Reorganization by means of a merger of the Fund (the "Merger")
into the Trust.
Advisers will be responsible for the investment of the Trust's assets,
subject to supervision by the Trust's Board of Trustees, under an investment
management agreement substantially identical to the current agreement between
the Fund and Advisers. For a discussion of the existing agreement with Advisers,
see page 19. The Trust will enter into an agreement with Franklin/Templeton
Investor Services, Inc. for transfer agency and shareholder servicing which is
substantially identical to the agreement currently in effect for the Fund.
Franklin/Templeton Distributors, Inc. ("Distributors") will act as the Trust's
principal underwriter under a distribution agreement between Distributors and
the Trust, which is substantially identical to the distribution agreement
currently in effect for the Fund. The Trust has adopted a distribution plan
pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act")
that is substantially identical to the plan currently in place for the Fund.
As described below, the proposed Reorganization is intended to allow the
surviving Trust and its shareholders to benefit from the operational flexibility
and other advantages associated with the Delaware business trust structure.
REASONS FOR THE REORGANIZATION
Why are the directors recommending that I approve the reorganization?
The Directors unanimously recommend conversion of the Fund into a Delaware
business trust, because they have determined that Delaware law affords
additional advantages to the operations of a mutual fund as compared to those
available under California law. The Reorganization would also increase
uniformity among the mutual funds within the Franklin Group of Funds,(R) which
currently has several Delaware business trust funds, and for which the Delaware
business trust form has been chosen for new funds over the past five years.
Increased uniformity among the funds, many of which share common trustees,
officers and
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service providers, is expected to reduce the costs and resources devoted to
compliance with varying state corporate laws and also reduce administrative
burdens.
The advantages of the Delaware business trust structure for mutual funds
arise from the fact that the Delaware Business Trust Act (the "Delaware Act")
allows greater operational flexibility and favorable state tax treatment for
mutual funds. The Delaware Act permits a less complicated structure for mutual
funds than most corporate laws, and allows greater flexibility in drafting a
fund's governing documents, which can result in greater efficiencies of
operation and savings for a fund and its shareholders.
The Delaware Act contains certain provisions specifically designed for
mutual funds. For example, as under California law, mutual funds organized as
Delaware business trusts are not required to hold annual meetings of
shareholders, which can result in substantial savings for funds. In addition, a
fund organized as a Delaware business trust is not required to seek and obtain
shareholder approval before taking actions for which shareholder approval would
not be required under the 1940 Act, if the fund's trustees and officers believe
that shareholder approval is not necessary. Unlike California law, this
flexibility under the Delaware Act allows a fund, for example, to issue new
series or classes of its shares or to change its name or the name of one of its
series without seeking a shareholder vote. Of course, shareholder voting is
still required for certain fundamental matters and matters affecting the rights
or interests of particular shareholders.
A comparison of the Delaware Act and the California law applicable to the
Fund and the Trust, as well as a comparison of relevant provisions of the
governing documents of the Trust and the Fund, is included in Appendix A, which
is entitled "DIFFERENCES BETWEEN THE LEGAL STRUCTURE OF A DELAWARE BUSINESS
TRUST AND A CALIFORNIA CORPORATION."
PROCEDURES FOR REORGANIZATION
What is involved in the process of reorganizing the Fund?
Upon completion of the Reorganization, the Trust will continue the Fund's
business with the same investment objective and policies; will hold the same
portfolio of securities previously held by the Fund; and will be operated under
substantially identical overall management, investment management, distribution
and administrative arrangements as that of the Fund. As the successor to the
Fund's operations, the Trust will adopt the Fund's existing registration
statement (which includes its Prospectus) under the Securities Act of 1933 and
the 1940 Act, with amendments to show the new name and Delaware business trust
structure.
On the effective date of the Merger, the net asset value per share of the
Trust shall be deemed to be the same as the net asset value per share of the
Fund. Completion of the Merger, in the opinion of Stradley, Ronon, Stevens &
Young, LLP, counsel to the Fund and Trust, will not result in the recognition of
income, gain or loss for make consistent federal
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income tax purposes to the Fund, the Trust or the Fund's shareholders. See
"FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION."
The Trust was created for the sole purpose of becoming the successor
organization to the Fund. The Merger Agreement provides that on the effective
date of the Merger, shareholders of the Fund will receive shares of the Trust in
exchange for their shares in the Fund. The Trust will establish open accounts on
the share records of the Trust in the names of the shareholders of record of the
Fund as of the close of business on the effective date of the Merger and will
credit to such accounts the exact number of full and fractional shares of the
Trust such shareholders held of the Fund. Fractional shares of beneficial
interest of the Trust will be carried to the third decimal place.
On the effective date of the Merger, each certificate representing shares
of the Fund will represent an identical number of shares of the Trust.
Shareholders will have the right to exchange their certificates of the Fund for
certificates of the Trust. A shareholder, however, is not required to make this
exchange of certificates.
The Merger Agreement provides that on the effective date of the Merger,
the separate existence of the Fund shall cease. All the assets, rights,
privileges and powers of the Fund and all debts due on whatever account to it,
shall be taken and deemed to be transferred to and vested in the Trust without
any further act. All such assets, rights, privileges, powers and franchises are
thereafter completely the property of the Trust as they were of the Fund. The
Trust will become responsible for all the liabilities and obligations of the
Fund and the liabilities of the Fund or of its shareholders, directors, or
officers shall not be affected by the Merger, nor shall the right of the
creditors thereof or any persons dealing with such persons or any liens upon the
property of such persons be impaired by the mergers. The Merger is subject to a
number of conditions which are customary in reorganizations of this kind. The
Merger Agreement may be terminated and the Merger abandoned at any time prior to
the effective date of the Merger by the Board of Directors of the Fund.
At present, it appears that the most advantageous time to complete the
Reorganization is on or before ___________________, 1996. However, if the
Reorganization is approved by shareholders, the Reorganization will be completed
on such date as the Directors deem advisable and in the best interest of
shareholders. If the Reorganization is not approved or if the Directors
determine to terminate or abandon the Reorganization, the Fund will continue to
operate as a California corporation.
EFFECT OF SHAREHOLDER APPROVAL OF THE REORGANIZATION
What is the effect of my "Yes" vote?
An investment company registered under the 1940 Act is required by the
1940 Act to: (1) submit the selection of the company's independent auditors to
the shareholders for their ratification; (2) call a special meeting to elect
directors (trustees) within sixty days if, at any
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time, less than one half of the directors (trustees) holding office have been
elected by the shareholders; (3) submit the investment management agreement for
the company to the shareholders for approval; and (4) submit any plan of
distribution adopted pursuant to Rule 12b-1 under the 1940 Act with respect to
such company to the shareholders for approval.
The Directors of the Fund believe that it is in the interest of the Fund's
shareholders (who will become the Trust's shareholders if the Reorganization is
approved) to avoid the considerable expense of another shareholders' meeting to
take these actions shortly after the Reorganization. The Directors also believe
that it is not in the interest of the shareholders to carry out the
Reorganization if the surviving Trust would not have a board of trustees,
independent auditors, a management agreement or distribution plan complying with
the 1940 Act.
The Directors will, therefore, consider that approval of the
Reorganization by the requisite vote of the shareholders will also constitute,
for the purposes of the 1940 Act: (1) ratification of the selection of Coopers &
Lybrand, L.L.P., previously selected as the Fund's independent auditors, to be
the Trust's independent auditors; (2) election of the Directors of the Fund in
office at the time of the Reorganization as Trustees of the Trust after the
Reorganization; (3) approval of a new investment management agreement between
the Trust and Advisers which is substantially identical to the agreement
currently in place for the Fund; and (4) approval of a distribution plan adopted
pursuant to Rule 12b-1 under the 1940 Act for the Trust, which is substantially
identical to the plan currently in place for the Fund.
The Trust has issued a single share to the Fund, and, assuming shareholder
approval of the Reorganization, the officers of the Fund, prior to the
Reorganization, will cause the Fund, as sole shareholder of the Trust, to vote
the single share "FOR" the matters specified in the above paragraph. The Fund
will then consider the requirements of the 1940 Act referred to above to have
been satisfied.
CAPITALIZATION AND STRUCTURE.
The Fund was originally incorporated in Hawaii on December 5, 1951, and
reincorporated in California on April 27, 1983 pursuant to a statutory merger
with a corporation formed on April 18, 1983. It has authorized capitalization of
5,000,000,000 shares of a single class (referred to as a series in this proxy
statement) of common stock with no par value.
The Trust was created on March 21, 1996 pursuant to the Delaware Act. The
Trust has an unlimited number of shares of beneficial interest authorized, all
of which have a par value of $ .001 per share. A single series (portfolio) of
the Trust has been authorized by the Trustees, and an unlimited number of shares
have been allocated to such series. Shares of the Trust may be divided into
classes (or sub-series) of such series.
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Shares of both the Fund and the Trust have equal dividend rights, are
fully paid, non-assessable, and freely transferable and have no conversion,
preemptive or subscription rights. Shares of both the Fund and the Trust have
equal voting and liquidation rights and have one vote per share. The Trust will
have the same fiscal year as the Fund.
FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION
Are there any tax consequences for shareholders?
It is anticipated that the transaction contemplated by the Merger
Agreement will be tax free for federal income tax purposes. Consummation of the
Reorganization is subject to receipt of an opinion of Messrs. Stradley, Ronon,
Stevens & Young, LLP, counsel to the Trust and the Fund, that under the Internal
Revenue Code of 1986, as amended, the Merger will not give rise to the
recognition of a gain or loss for federal income tax purposes to the Fund, the
Trust or shareholders of the Fund or the Trust. A shareholder's adjusted basis
for tax purposes in the shares of the Trust after the exchange and transfer will
be the same as his adjusted basis for tax purposes in the shares of the Fund
immediately before the exchange. Each shareholder should consult his own tax
adviser with respect to the details of these tax consequences and with respect
to state and local tax consequences of the proposed transaction.
TEMPORARY WAIVER OF CERTAIN INVESTMENT RESTRICTIONS
Certain of the Fund's present investment restrictions would preclude the
Fund from carrying out the Reorganization. Specifically, such investment
restrictions prohibit the Fund from acquiring control of any company or
purchasing more than a certain percentage of ownership of another investment
company or other company. Approval of the Reorganization would be deemed to be a
waiver of these restrictions for the specific purpose of engaging in the
Reorganization.
INFORMATION CONCERNING THE NOMINEES TO THE BOARD OF TRUSTEES OF THE TRUST
If you vote "Yes" to approve the Reorganization, your vote will also have
the effect of electing the current Directors of the Fund as the Trustees
of the Trust. The role of the Trustees is to provide general oversight of
the Trust's business, and to ensure that the Trust is operated for the
benefit of shareholders. The Trustees meet monthly and review the Trust's
investment performance. The Trustees also oversee the services furnished
to the Trust by its investment manager and various other service
providers.
If the Reorganization is approved, the Fund will vote the share of
beneficial interest it holds in the Trust for the election of the nominees set
forth below as Trustees, who are each currently members of the Board of
Directors of the Fund. Each Trustee shall serve as such until the next election
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or until his term is terminated as provided in the Trust's governing instrument.
The nominees and their principal occupations for the past five years are listed
below. Nominees who are considered to be "interested persons" of the Trust, as
defined in the 1940 Act, are indicated by an asterisk.
The principal executive officers of the Trust and their principal
occupations for the past five years are also listed below. All of the principal
executive officers of the Trust currently serve as principal executive officers
of the Fund.
POSITION(S) TO BE PRINCIPAL OCCUPATION(S)
NAME, AGE AND HELD WITH TRUST DURING PAST FIVE YEARS
ADDRESS
Frank H. Abbott, III Trustee President and Director,
Age 75 Abbott Corporation (an
1045 Sansome St. investment company); and
San Francisco, CA 94111 director, trustee or
managing general partner, as
the case may be, of 31 of the
investment companies in the
Franklin Group of Funds.
Director of the Fund since
1978.
S. Joseph Fortunato Trustee Member of the law firm of
Age 63 Pitney, Hardin, Kipp &
Park Avenue at Morris Szuch; Director of
County General Host Corporation;
P.O. Box 1945 director, trustee or
Morristown, NJ 07962-1945 managing general partner,
as the case may be, of 58
of the investment
companies in the Franklin
Templeton Group of Funds.
Director of the Fund
since 1989.
David W. Garbellano Trustee Private Investor;
Age 81 Assistant Secretary/
111 New Montgomery St., Treasurer and Director,
#402 Berkeley Science
San Francisco, CA 94105 Corporation (a venture
capital company); and
director, trustee or managing
general partner, as the case
may be, of 30 of the
investment companies in the
Franklin Group of Funds.
Director of the Fund since
1976.
* Edward B. Jamieson President and Senior Vice President and
Age 47 Trustee Portfolio Manager,
777 Mariners Island Blvd. Advisers, Inc.; and
San Mateo, CA 94404 officer and/or director
or trustee of five of the
investment companies in
the Franklin Group of
Funds. President and
Director of the Fund
since 1993.
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* Charles B. Johnson Chairman of the President and Director,
Age 63 Board and Trustee Franklin Resources, Inc.;
777 Mariners Island Blvd. Chairman of the Board and
San Mateo, CA 94404 Director, Advisers, Inc.
and Franklin Templeton
Distributors, Inc.;
Director,
Franklin/Templeton
Investor Services, Inc.
and General Host
Corporation; and officer
and/or director, trustee
or managing general
partner, as the case may
be, of most other
subsidiaries of Franklin
Resources, Inc. and of 57
of the investment
companies in the Franklin
Templeton Group of
Funds. Chairman of the
Board and Director of the
Fund since 1976.
Hayato Tanaka Trustee Retired; former owner of
Age 78 The Jewel Box Orchids;
277 Haihai Street and director or trustee,
Hilo, HI 96720 as the case may be, of
two of the investment
companies in the Franklin
Group of Funds. Director
of the Fund since 1959.
* R. Martin Wiskemann Vice President Senior Vice President,
Age 69 and Trustee Portfolio Manager and
777 Mariners Island Blvd. Director, Advisers, Inc.;
San Mateo, CA 94404 Senior Vice President,
Franklin Management, Inc.;
Vice President, Treasurer and
Director, ILA Financial
Services, Inc. and Arizona
Life Insurance Company of
America; and officer and/or
director, as the case may be,
of 21 of the investment
companies in the Franklin
Group of Funds. Vice
President and Director of the
Fund since 1976.
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The executive officers of the Trust other than those listed above are:
POSITION(S) TO BE PRINCIPAL OCCUPATION(S)
NAME, AGE AND HELD WITH TRUST DURING PAST FIVE YEARS
ADDRESS
Harmon E. Burns Vice President Executive Vice President,
Age 51 Secretary and Director,
777 Mariners Island Blvd. Franklin Resources, Inc.;
San Mateo, CA 94404 Executive Vice President
and Director, Franklin
Templeton Distributors, Inc.;
Executive Vice President,
Advisers, Inc.; Director,
Franklin/Templeton Investor
Services, Inc.; officer
and/or director, as the case
may be, of other subsidiaries
of Franklin Resources, Inc.;
and officer and/or director
or trustee of 61 of the
investment companies of the
Franklin Templeton Group of
Funds. Vice President of the
Fund since 1986.
Kenneth V. Domingues Vice Senior Vice President,
Age 63 President-FinancialFranklin Resources, Inc.,
777 Mariners Island Blvd. Reporting and Advisers, Inc., and
San Mateo, CA 94404 Accounting Franklin Templeton
Standards Distributors, Inc.;
officer and/or director,
as the case may be, of
other subsidiaries of
Franklin Resources, Inc.,
and officer and/or
managing general partner,
as the case may be, of 37
of the investment
companies in the Franklin
Group of Funds. Vice
President-Financial
Reporting and Accounting
Standards of the Fund
since 1995.
Martin L. Flanagan Vice President Senior Vice President,
Age 35 and Chief Chief Financial Officer
777 Mariners Island Blvd. Financial Officer and Treasurer, Franklin
San Mateo, CA 94404 Resources, Inc.;
Executive Vice President,
Templeton Worldwide, Inc.;
Senior Vice President and
Treasurer, Advisers, Inc. and
Franklin Templeton
Distributors, Inc.; Senior
Vice President,
Franklin/Templeton Investor
Services, Inc.; officer,
director and/or trustee of
most other subsidiaries of
Franklin Resources, Inc.; and
officer, director and/or
trustee of 61 of the
investment companies of the
Franklin Templeton Group of
Funds. Vice President and
Chief Financial Officer of
the Fund since 1995.
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<PAGE>
POSITION(S) TO BE PRINCIPAL OCCUPATION(S)
NAME, AGE AND HELD WITH TRUST DURING PAST FIVE YEARS
ADDRESS
Deborah R. Gatzek Vice President Senior Vice President and
Age 47 and Secretary General Counsel, Franklin
777 Mariners Island Blvd. Resources, Inc. and
San Mateo, CA 94404 Franklin Templeton
Distributors, Inc.; Vice
President, Advisers, Inc.;
and officer of 61 of the
investment companies in the
Franklin Templeton Group of
Funds. Vice President of the
Fund since 1992 and Secretary
of the Fund since 1986.
Rupert H. Johnson, Jr. Vice President Executive Vice President
Age 55 and Director, Franklin
777 Mariners Island Blvd. Resources, Inc. and
San Mateo, CA 94404 Franklin Templeton
Distributors, Inc.; President
and Director, Advisers, Inc.;
Director, Franklin/ Templeton
Investor Services, Inc.; and
officer and/or director,
trustee or managing general
partner, as the case may be,
of most other subsidiaries of
Franklin Resources, Inc. and
of 61 of the investment
companies in the Franklin
Templeton Group of Funds.
Senior Vice President of the
Fund since 1976.
Diomedes Loo-Tam Treasurer and Employee of Advisers,
Age 57 Principal Inc.; and officer of 37
777 Mariners Island Blvd. Accounting Officer of the investment
San Mateo, CA 94404 companies in the Franklin
Group of Funds.
Treasurer and Principal
Accounting Officer of the
Fund since 1995.
Edward V. McVey Vice President Senior Vice
Age 58 President/National Sales
777 Mariners Island Blvd. Manager, Franklin
San Mateo, CA 94404 Templeton Distributors,
Inc.; and officer of 32 of
the investment companies in
the Franklin Group of Funds.
Vice President of the Fund
since 1985.
Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
INFORMATION CONCERNING THE COMPENSATION OF THE DIRECTORS AND THE
TRUSTEES
The nominees for election to the Board of Trustees of the Trust will be
paid a fixed fee from the Trust for serving on the Board. Certain of the
Directors of the Fund and nominees for election to the Board of Trustees
also serve as directors or trustees of other investment companies in the
Franklin Group of Funds(C) and the Templeton Group of Funds. There will be
one committee of the
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Trustees--the Audit Committee--which furnishes the Board with recommendations
regarding the selection of auditors.
Directors not affiliated with Advisers ("nonaffiliated directors") are
currently paid fees of $100 per meeting attended. During the fiscal year ended
December 31, 1995, fees totaling $500 were paid to each nonaffiliated director
of the Fund. The trustees of the Trust who are not affiliated with Advisers
("nonaffiliated trustees") will be compensated in the same manner.
Certain of the Fund's nonaffiliated directors and the nominees for
election to the Board of Trustees of the Trust also serve as directors, trustees
or managing general partners of other investment companies in the Franklin
Templeton Group of Funds from which they may receive fees for their services.
The following table indicates the total fees paid to nonaffiliated directors by
the Fund and by other funds in the Franklin Templeton Group of Funds.
TOTAL
COMPENSATION
AGGREGATE NUMBER OF FROM FRANKLIN
COMPENSATION FRANKLIN TEMPLETON
NAME FROM FUND* TEMPLETON FUNDS FUNDS,
BOARDS INCLUDING
ON WHICH EACH THE FUND**
SERVES
- - -------------------------------------------------------------------------------
Frank H. Abbott, III............... $500 31 $162,420
S. Joseph Fortunato................ 500 58 344,745
David Garbellano................... 500 30 146,100
Hayato Tanaka...................... 500 2 500
*For the fiscal year ended December
31, 1995
**For the calendar year ended
December 31, 1995
The nonaffiliated directors are also reimbursed for expenses incurred in
connection with attending Board meetings, paid pro rata by each fund in the
Franklin Templeton Group of Funds for which they serve as a director. The
nonaffiliated trustees will also be reimbursed in the same manner for expenses
incurred in connection with attending Board meetings.
During the fiscal year ended December 31, 1995, the Fund held five
meetings of the Board of Directors at which all directors were present.
INFORMATION CONCERNING COMMITTEES OF THE BOARD OF TRUSTEES OF THE TRUST AND
THE BOARD OF DIRECTORS OF THE FUND
The Trust and the Fund each have an audit committee. The audit committee
of each Board is composed of Messrs. Frank H. Abbott, III and David Garbellano.
The function of the audit committee is to make recommendations to the full
Boards with respect to the selection of auditors. The Trust and the Fund do not
have a standing nominating or compensation committee of the Board of Trustees or
Directors, respectively. The Fund held two audit committee meetings during its
fiscal year ended December 31, 1995.
INFORMATION CONCERNING THE INDEPENDENT AUDITORS OF THE TRUST
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<PAGE>
If you vote to approve the Reorganization, your vote will also have the
same effect as a vote ratifying the selection of Coopers & Lybrand, L.L.P.
("Coopers") as the independent auditors for the Trust for the current
fiscal year. Coopers is one of the country's preeminent accounting firms,
and presently serves as the independent auditors for the Fund.
At a meeting held on March 21, 1996, the Board of Trustees of the Trust
selected Coopers to serve as the independent auditors to audit the books and
accounts of the Trust for the fiscal year ending December 31, 1996. If this
proposal is approved, the Fund will vote the share of beneficial interest it
holds in the Trust for ratification of the selection of Coopers as the
independent auditors of the Trust. A representative of Coopers is not expected
to be present at the meeting.
INFORMATION CONCERNING ADVISERS AND THE MANAGEMENT AGREEMENTS
If you vote to approve the Reorganization, your vote will also have the
same effect as a vote approving the new investment management agreement
between the Trust and Advisers, WHICH IS SUBSTANTIALLY IDENTICAL TO THE
AGREEMENT CURRENTLY IN PLACE FOR
THE FUND.
The investment management agreement establishes the relationship between a
mutual fund and its investment manager, and outlines the responsibilities
of the manager and the compensation to be paid by the fund for the
management of its assets.
Included below is detailed information about Advisers as well as the
investment management agreements (existing for the Fund and proposed for
the Trust).
If this proposal is approved, the Fund will vote the share of beneficial
interest it holds in the Trust for approval of the management agreement between
the Trust and Advisers.
ADVISERS
Advisers, whose principal address is 777 Mariners Island Boulevard, San
Mateo, California 94404, serves as the investment manager of the Trust and the
Fund. Advisers is a registered investment adviser and a wholly-owned subsidiary
of Franklin Resources, Inc. ("Resources"), whose principal address is 777
Mariners Island Boulevard, San Mateo, California 94404. Through its
subsidiaries, Resources is engaged in various aspects of the financial services
industry.
Advisers also provides advisory and management services to the 36
investment companies (119 separate series) in the Franklin Group of Funds
which collectively have aggregate assets over $81 billion. Charles B.
Johnson is Chairman of the Board of Advisers, Rupert H. Johnson, Jr. is
President and Director of Advisers. Charles B. Johnson and
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<PAGE>
Rupert H. Johnson, Jr. beneficially own approximately 20% and 16%,
respectively, of Resources' outstanding voting securities, whose shares are
traded on the New York Stock Exchange. Charles B. Johnson and Rupert H.
Johnson, Jr. are brothers. See "Information Concerning the Nominees to the
Board of Trustees of the Trust" which sets forth the officers of the Trust
and the Fund who are officers of Advisers. The address of each officer and
director of Advisers is the office of Advisers stated above.
Certain officers and trustees and directors of the Trust and the Fund,
respectively, are shareholders of Resources and may be deemed to receive
indirect remuneration by virtue of their participation in management fees,
underwriting commissions, or 12b-1 distribution fees received or to be received
by Advisers or Distributors, the Fund's principal underwriter. Distributors'
principal address is 777 Mariners Island Boulevard, San Mateo, California 94404.
MANAGEMENT AGREEMENT WITH THE TRUST
Under the management agreement with the Trust, which is substantially
identical to the management agreement currently in effect for the Fund,
Advisers provides investment research and portfolio management services,
including the selection of securities for the Trust to purchase, hold or sell
and the selection of brokers through whom the Trust's portfolio transactions are
executed. Advisers activities are subject to the review and supervision of the
Trust's Board of Trustees to whom Advisers renders periodic reports of the
Trust's investment activities. Advisers, at its own expense, furnishes the Trust
with office space and office furnishings, facilities and equipment reasonably
required for managing the business affairs of the Trust; maintains all internal
bookkeeping, clerical, secretarial and executive personnel and services; and
provides certain telephone and other mechanical services. Advisers is covered by
fidelity insurance on its officers, directors and employees for the protection
of the Trust. The Trust bears all of its expenses not assumed by Advisers.
Pursuant to the management agreement, the Trust is obligated to pay
Advisers a fee computed as of the close of business on the last business day of
each month equal to a monthly rate of 5/96 of 1% (approximately 5/8 of 1% per
year) for the first $100 million of net assets of the Trust; 1/24 of 1%
(approximately 1/2 of 1% per year) on net assets of the Trust in excess of $100
million up to $250 million; and 9/240 of 1% (approximately 45/100 of 1% per
year) of net assets of the Trust in excess of $250 million. The management
agreement specifies that the management fee will be reduced or eliminated to the
extent necessary to comply with the most stringent limits on the expenses which
may be borne by the Trust as prescribed by any state in which the Trust's shares
are registered. The most stringent current limit requires Advisers to reduce or
eliminate its fee to the extent that aggregate operating expenses of the Trust
(excluding interest, taxes, brokerage commissions and extraordinary expenses
such as litigation costs) would otherwise exceed in any fiscal year 2 1/2% of
the first $30 million of average net assets of the Trust, 2% of the next $70
million of average net assets of the Trust and 1 1/2% of average net assets of
the Trust in excess of $100 million. Expense reductions with respect to the Fund
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<PAGE>
have not been necessary based on state requirements.
The management agreement was approved by the Board of Trustees at a meeting held
on March 21, 1996, and, once formalized in connection with the Reorganization
will be in effect for an initial period of more than two years. Thereafter, it
may continue in effect for successive annual periods providing such continuance
is specifically approved at least annually by a vote of the Trust's Board of
Trustees or by a vote of the holders of a majority of the Trust's outstanding
voting securities, and in either event by a majority vote of the Trust's
trustees who are not parties to the management agreement or interested persons
of any such party (other than as trustees of the Trust), cast in person at a
meeting called for that purpose. The management agreement may be terminated
without penalty at any time by the (1) vote of the Board of Trustees of the
Trust or vote of the holders of a majority of the outstanding voting securities
of the Trust, on 60 days' written notice to Advisers or (2) Advisers, on 30
days' written notice and will automatically terminate in the event of its
assignment as defined in the 1940 Act.
MANAGEMENT AGREEMENT WITH THE FUND
The management agreement between the Fund and Advisers, dated May 1, 1986,
was most recently approved by the Board of Directors of the Fund on April 18,
1996, to continue in effect until April 30, 1997, and was last submitted to
shareholders on April 22, 1986 for the purpose of approving a new management
agreement with Advisers. The terms of the Fund's management agreement are the
same in all material respects as the Trust's management agreement with Advisers,
except for its effective and termination dates. The Fund paid management fees to
Advisers for the fiscal year ended December 31, 1995 of $198,598.
SIMILAR FUNDS MANAGED BY ADVISERS
Advisers also serves as the investment manager for the Franklin Equity
Income Fund series ("Franklin Equity Income") of Franklin Investors Securities
Trust. The investment objective of Franklin Equity Income is similar to that of
the Fund and the Trust. The following table provides information about Franklin
Equity Income and summarizes the rate of investment management fees paid to
Advisers by Franklin Equity Income:
ASSET SIZE MANAGEMENT FEE RATE
AS OF BASED ON AVERAGE
FUND NAME 03/31/96 DAILY NET ASSETS
Franklin Equity Income Fund $218,337,918 0.62%*
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<PAGE>
* Advisers voluntarily agreed during the most recent fiscal year of Franklin
Investors Securities Trust to waive a portion of the management fee payable
by Franklin Equity Income, so that the management fees paid to Franklin
Equity Income totaled 0.60% of Franklin Equity Income's average
daily net assets.
For the fiscal year ended December 31, 1995, the fund did not pay any
commissions to any affiliated brokers.
INFORMATION CONCERNING THE TRUST'S DISTRIBUTION PLAN
If you vote to approve the Reorganization, your vote will also have the
same effect as a vote approving the distribution plan pursuant to Rule
12b-1 under the 1940 Act (the "Plan") that was adopted by the Trust, AND
WHICH IS SUBSTANTIALLY IDENTICAL TO THE DISTRIBUTION PLAN CURRENTLY IN
PLACE FOR THE FUND.
The Plan authorizes the Trust to reimburse Distributors or others for
expenses relating to the distribution of the shares of the Trust in
amounts of up to a maximum of 0.25% of the Trust's average daily net
assets per year. Included below is detailed information about the Plan
(and the existing distribution plan currently in place for the Fund), as
well as information about Distributors.
The Plan was approved by the Board of Trustees at a meeting held on March
21, 1996. If this proposal is approved, the Fund will vote its shares of
beneficial interest in the Trust for approval of the Plan.
Under the Plan, Distributors or others will be entitled to be reimbursed
each quarter (up to a maximum of 0.25% per annum) for actual expenses incurred
in the distribution and promotion of the Trust's shares, including, but not
limited to, the printing of prospectuses and reports used for sales purposes,
expenses of preparing and distributing sales literature and related expenses,
advertisements, and other distribution-related expenses, including a prorated
portion of Distributors' overhead expenses attributable to the distribution of
Trust shares, as well as any distribution or service fees paid to securities
dealers or their firms or others who have executed a servicing agreement with
the Trust, Distributors or its affiliates.
In addition to the payments to which Distributors or others are entitled
under the Plan, the Plan also provides that to the extent the Trust, Advisers or
Distributors or other parties on behalf of the Fund, Advisers or Distributors,
make payments that are deemed to be payments for the financing of any activity
primarily intended to result in the sale of shares of the Trust within the
context of Rule 12b-1 under the 1940 Act, then such payments shall be deemed to
have been made pursuant to the Plan. The Plan does not permit unreimbursed
expenses incurred in a particular year to be carried over to or reimbursed in
subsequent years.
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In implementing the Plan, the Board has determined that the annual fees
payable under the Plan will be equal to the sum of: (i) the amount obtained by
multiplying 0.25% by the average daily net assets represented by shares of the
Fund and the Trust that were acquired by investors on or after May 1, 1994, the
effective date of the Fund's distribution plan ("New Assets"), and (ii) the
amount obtained by multiplying 0.15% by the average daily net assets represented
by shares of the Fund that were acquired before the effective date of the Fund's
distribution plan ("Old Assets"). Such fees will be paid to the current
securities dealer of record on the shareholder's account. In addition, until
such time as the maximum payment of 0.25% is reached on a yearly basis, up to an
additional 0.05% will be paid to Distributors under the Plan. The payments to be
made to Distributors will be used by Distributors to defray other marketing
expenses that have been incurred in accordance with the Plan, such as
advertising.
The fee is a Trust expense so that all shareholders regardless of when
they purchased their shares of the Fund or the Trust will bear 12b-1 expenses at
the same rate. That rate initially will be at least 0.20% (0.15% plus 0.05%) of
such average daily net assets and, as Trust shares are sold, will increase over
time. Thus, as the proportion of shares purchased on or after the effective date
of the Fund's distribution plan increases in relation to outstanding Trust
shares, the expenses attributable to payments under the Plan will also increase
(but will not exceed 0.25% of average daily net assets). While this is the
currently anticipated calculation for fees payable under the Plan, the Plan
permits the Trustees of the Trust to allow the Trust to pay a full 0.25% on all
assets at any time. The approval of the Board of Trustees would be required to
change the calculation of the payments to be made under the Plan.
Under the Plan, Distributors is required to report in writing to the Board
of Trustees at least quarterly on the amounts and purpose of any payment made
under the Plan and any related agreements, as well as to furnish the Board of
Trustees with such other information as may be reasonably requested in order to
enable the Board of Trustees to make an informed determination of whether the
Plan should be continued.
The Plan will be in effect for an initial period in excess of one year
from its adoption, and will be renewable annually by a vote of the Trust's Board
of Trustees, including a majority vote of the trustees who are non-interested
persons of the Trust and who have no direct or indirect financial interest in
the operation of the Plan, cast in person at a meeting called for that purpose.
It is also required that the selection and nomination of such trustees be made
by the non-interested trustees. The Plan and any related agreements may be
terminated at any time, without any penalty, by vote of a majority of the
non-interested trustees on not more than 60 days' written notice, by
Distributors on not more than 60 days' written notice, by any act that
constitutes an assignment of the management agreement with Advisers, or by vote
of a majority of the Trust's outstanding shares. Distributors or any dealer or
other firm may also terminate their respective distribution or service agreement
at any time upon written notice.
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The Plan and any related agreements may not be amended to increase
materially the amount to be spent for distribution expenses without approval by
a majority of the Fund's outstanding shares, and all material amendments to the
Plan or any related agreements shall be approved by a vote of the non-interested
trustees, cast in person at a meeting called for the purpose of voting on any
such amendment.
INFORMATION CONCERNING THE FUND'S DISTRIBUTION PLAN
The Fund has also adopted a distribution plan pursuant to Rule 12b-1 under
the 1940 Act. Such plan was adopted on May 1, 1994, and was most recently
approved by the Board of Directors of the Fund on April 18, 1996, to continue in
effect until April 30, 1997. The Fund's distribution plan is the same in all
material respects as the Trust's Plan, including the way in which the annual
fees payable under the Plan are calculated.
For the fiscal year ended December 31, 1995, the amount of distribution
fees paid by the Fund was $59,813 or 0.19% of the Fund's average net assets. For
the fiscal year ended December 31, 1995, Distributors received $4,425 in
distribution fees from the Fund.
FRANKLIN/TEMPLETON INVESTOR SERVICES, INC.
Franklin/Templeton Investor Services, Inc. ("Investor Services"), a
wholly-owned subsidiary of Resources, is the shareholder servicing agent for the
Trust and the Fund and also acts as the transfer agent and dividend-paying agent
for the Trust and the Fund. Investor Services is compensated on the basis of a
fixed fee per account. For the fiscal year ended December 31, 1995, the Fund
paid $27,330 to Investor Services for its services.
PROPOSAL III. TO CHANGE THE NAME OF THE FUND TO
"FRANKLIN ASSET ALLOCATION FUND"
The Directors unanimously recommend that you vote to change the Fund's
name to "Franklin Asset Allocation Fund" in order to more clearly
communicate the Fund's investment strategy to investors. The change in the
name of the Fund will take place in the event that the Reorganization
(Proposal II) is not approved by shareholders. Approval of this proposal
requires the vote of a majority of the Fund's shares, represented in
person or by proxy.
On January 18, 1996, the Board of Directors authorized, subject to
shareholder approval, an amendment to the Fund's Articles of Incorporation to
change the name of the Fund to "Franklin Asset Allocation Fund." As stated in
the Fund's current prospectus, the Fund seeks to achieve its primary objective
of high current return by investing in the following asset classes: common
stocks, investment grade corporate and U.S. government bonds, short-term money
market instruments and securities of foreign issuers. For hedging purposes, in
an effort to stabilize principal fluctuations, the Fund may engage in
transactions in stock options, stock index options, financial futures and
options on financial futures.
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In order to more clearly communicate this investment strategy to dealers
and potential investors, management of the Fund proposed to the Board of
Directors and the Directors authorized, subject to shareholder approval, to
change the name of the Fund to "Franklin Asset Allocation Fund." In authorizing
this change, the Directors considered that investor confusion may be avoided if
the Fund's investment strategy was more clearly communicated to dealers and
investors by changing the name of the Fund. In addition, there may be the
increased potential for attracting additional assets to the Fund if the Fund's
name more closely reflected its investment strategy.
The Reorganization, which was approved by the Board of Directors in March,
1996, if approved by shareholders, will have the same effect as a change in the
name of the Fund, because the surviving Trust will be named "Franklin Asset
Allocation Fund."
PROPOSAL IV. OTHER MATTERS
The Board of Directors of the Fund does not intend to bring any matters
before the Meeting other than Proposals I, II and III described above and is not
aware of any other matters to be brought before the Meeting or any adjournment
thereof by others. If any other matters legally come before the Meeting, it is
intended that the accompanying proxy may be voted on such matters in accordance
with the best judgment of the persons named in this proxy.
In the event that sufficient votes in favor of the proposals set forth in
the Notice are not received by the date of the Meeting, the proxyholders may
propose one or more adjournments of the Meeting for a period or periods of not
more than 45 days in the aggregate to permit further solicitation of proxies,
even though a quorum is present. Any such adjournment will require the
affirmative vote of a majority of the votes cast on the questions, in person or
by proxy, at the session of the Meeting to be adjourned. The costs of any such
additional solicitation and of any adjourned session will be borne by the Fund.
SHAREHOLDER REPORTS
Upon request, shareholders may obtain, without charge, a copy of the
Annual Report and most recent Semi-Annual Report succeeding the Annual Report,
if any, by writing the Fund at the address above, or by calling the Fund at
1-800/DIAL BEN.
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SHAREHOLDER PROPOSALS
The Fund is not required to, nor does it intend to, hold regular annual
meetings of its shareholders. Any shareholder who wishes to submit a proposal
for consideration at the next meeting of shareholders, when and if such a
meeting is called, should submit such proposal promptly to the Fund.
Respectfully Submitted,
DEBORAH R. GATZEK
Secretary
Dated: May X, 1996
San Mateo, California
SHAREHOLDERS WHO ARE UNABLE TO ATTEND THE MEETING IN PERSON ARE REQUESTED TO
FILL IN, DATE AND SIGN THE PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED PRE-PAID
ENVELOPE.
WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN,
PLEASE GIVE YOUR FULL TITLE AS SUCH. WHERE STOCK IS HELD JOINTLY, BOTH
SIGNATURES ARE REQUIRED.
160159.5
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APPENDIX A
DIFFERENCES BETWEEN THE LEGAL STRUCTURE OF A DELAWARE
BUSINESS TRUST AND A CALIFORNIA CORPORATION.
The following discussion summarizes the material differences between the
legal structure of a Delaware business trust, created pursuant to the Delaware
Act, and a corporation organized under the California General Corporation Law
(the "GCL"), by comparing relevant provisions of the respective laws applicable
to such entities, as well as the provisions of the governing instruments of the
Trust and the Fund.
GOVERNING DOCUMENTS
An Agreement and Declaration of Trust ("Declaration of Trust") and By Laws
are the instruments which provide for the governance of the business and affairs
of the Trust. The Trust's By-Laws also contain provisions governing the
operations of the Trust. Under the GCL, the business and affairs of the Fund are
governed by its Articles of Incorporation ("Articles"), and by its By-Laws.
A MULTIPLE SERIES MUTUAL FUND
Mutual funds commonly issue a number of different series of shares of
their stock, each of which has its own investment objective and policies and
represents a different pool of portfolio securities. Investors can purchase
shares of a fund's various series, such as an equity, bond or money market
series, which are generally viewed by shareholders, in effect, as separate
funds.
The Fund currently consists of a single series of common stock, and its
Articles state that it may not issue additional series of stock. The Fund's
Articles, therefore, limit the Fund's choices, because the GCL allows a
California corporation such as the Fund to issue more than one series of shares.
In order to issue additional series, the Fund's Articles would be required to be
amended. The Delaware Act, like the GCL, would allow a fund to issue multiple
series of its shares.
Under the Delaware Act, the debts, liabilities, obligations and expenses
incurred, contracted for or otherwise existing with respect to a particular
series of a multiple series investment company registered under the Investment
company Act of 1940 (the "1940 Act") are enforceable only against the assets of
such series, and not against the assets of the trust generally, provided that
certain requirements are satisfied. The Trust intends to fulfill such
requirements and its Declaration of Trust provides that each of its series shall
not be charged with the liabilities of another series.
The GCL does not contain specific statutory provisions addressing series
liability with respect to a multiple series investment company; however, if the
stock of a corporation is
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divided into series or classes, the GCL provides that no distinction shall exist
between such series or classes, unless differences in voting or other rights,
preferences, privileges and restrictions are stated or authorized in the
company's Articles. Therefore, a stockholder of one series of shares of a
California corporation will not be liable for the obligations of another series
of shares, provided that the charter contains a provision to that effect. The
Fund's Articles do not presently contain provisions limiting the liability of a
particular series from another series, and would have to be amended to provide
such protection.
SHAREHOLDER VOTING RIGHTS AND MEETINGS
Mutual funds organized as either Delaware business trusts or California
corporations are each subject to the voting requirements contained in the 1940
Act in connection with the election and removal of trustees/directors,
ratification of the selection of auditors, approval of investment management
agreements and approval of any plan of distribution. There are differences,
however, in the Delaware Act and the GCL with respect to shareholder voting on
other matters.
Amending Governing Documents. The Delaware Act provides more flexibility,
as compared with the GCL, with respect to procedures for amending a fund's
governing documents. The Trust's Declaration of Trust states that, if shares
have been issued, shareholder approval is required to adopt any amendments to
the Declaration of Trust which would adversely affect to a material degree the
rights and preferences of the shares of any series (or class) or to increase or
decrease the par value of the shares of any series (or class). In addition,
before adopting any amendment to the Declaration of Trust relating to shares
without shareholder approval, the trustees are required to determine that it is:
(i) consistent with the fair and equitable treatment of all shareholders; and
(ii) shareholder approval is not required by the 1940 Act or other applicable
law.
Under the GCL, the Fund's Articles may only be amended if approved by both
the Board of Directors and the majority of the Fund's outstanding shares
entitled to vote (with certain minor exceptions). The practical effect of the
differences between the Delaware Act and the GCL for the Fund is that the Fund
would be required to seek shareholder approval in order to amend its Articles to
allow it to create new series or classes; or change the name of the fund or its
series, while the board of a fund organized as a Delaware business trust could
approve such changes without the expense or delay associated with obtaining
shareholder approval.
General Voting Requirements. The governing documents of the Trust and Fund
contain different requirements with respect to establishing a quorum of
shareholders for purposes of holding a shareholder vote at a meeting of
shareholders. A quorum of shareholders of the Trust is established as long as
40% of shareholders are present, either in person or by proxy, while a majority
of the Fund's shareholders are required to establish a quorum.
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The relevant law and governing instruments of the Trust and the Fund
provide that a majority of the shares entitled to vote on a matter shall decide
any question, except for the election of trustees or directors. Under the
Delaware Act and the Trust's governing instruments, a plurality of shareholder
votes is required to elect a trustee, and the vote of three-quarters of the
shareholders is required for removal of a trustee. A plurality means that
shareholders may vote each one of their shares separately for each candidate,
and that the candidates with the most votes will be elected to the Board.
The Fund's By Laws, consistent with the GCL, allow shareholders to
cumulate their votes for candidates, which means that they can give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which that shareholder's shares are
entitled, or distribute their votes on the same principle among any or all of
the candidates as the shareholders desire.
The Trust's Declaration of Trust provides that all shares of the Trust
entitled to vote on a matter shall vote without differentiations between the
separate series on a one-vote-per-share basis; each whole share shall be
entitled to one vote and each fractional share shall be entitled to a
proportionate fractional vote. If a matter to be voted on does not affect the
interests of all series, then only the shareholders of the affected series shall
be entitled to vote on the matter. The Trust's Declaration of Trust gives the
shareholders the right to vote only: (i) for the election or removal of
trustees; (ii) with respect to any or additional matters relating to the Trust
as may be required by the 1940 Act; and (iii) on such other matters as the
trustees may consider necessary or desirable.
The GCL provides that the holder of each share of stock of the Fund is
entitled to one vote for each share on matters submitted to shareholder vote,
irrespective of the series. The GCL also provides that shares of different
series or classes of such series may have different voting or other rights,
preferences, privileges and restrictions, provided that shares within any
particular series or class carry the same features. Under the Fund's Articles
and Bylaws, consistent with the GCL, on any matter submitted to a stockholder
vote, all shares entitled to vote shall be voted in the aggregate and not by
series or class, except when: (i) expressly provided by the GCL; or (ii)
required by the 1940 Act; or (iii) when the matter does not affect any interest
of a particular series or class which have separate voting rights, in which case
only stockholders of the series or class whose interest may be affected shall be
entitled to vote. Therefore, with respect to matters governed by the 1940 Act
and series voting, the voting requirements applicable to Trust and the Fund are
comparable.
Meetings of Shareholders. Under both the Delaware Act and the GCL, annual
meetings of shareholders of a fund organized as either a business trust or
corporation, respectively, are not required to be held. Although the Delaware
Act does not require any annual meetings, the By-Laws of the Trust provide than
an annual meeting of shareholders will be held if the 1940 Act would
independently require that the election of trustees to be acted upon. The GCL
specifically requires registered investment companies to hold an
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annual meeting when the 1940 Act requires the election of directors to be acted
upon by shareholders.
The Trust's and the Fund's By-Laws provide that a special meeting of
shareholders shall be called by the Secretary upon the written request of the
holders of shares entitled to cast not less than 10% of all votes entitled to be
cast at the meeting.
SHAREHOLDER LIABILITY
The Delaware Act provides that, except to the extent otherwise provided in
the governing instrument, the shareholders of a Delaware business trust shall be
entitled to the same limitation of personal liability extended to stockholders
of a private corporation organized for profit under the general corporation law
of Delaware. There is no specific provision in the Declaration of Trust or
By-Laws of the Trust varying this provision. As a general matter, shareholders
of a California corporation are not personally liable for the obligations of the
corporation.
LIABILITY OF DIRECTORS/TRUSTEES
The Delaware Act provides that a trustee shall not be personally liable to
any person other than the business trust or a beneficial owner for any act,
omission or obligation of the business trust or any trustee. The Delaware Act
also states that the trustee's duties and liabilities to the trust and its
shareholders may be expanded or restricted by provisions in the governing
instrument. In this regard, the Trust's Declaration of Trust provides that the
trustees shall not be responsible or liable in any event for any neglect or
wrongdoing of any officer, agent, employee, manager or principal underwriter of
the Trust, nor shall any trustee be responsible for the act or omission of any
other trustee. In addition, the Declaration of Trust also states that the
trustees, acting in their capacity as trustees, shall not be personally liable
for acts done by or on behalf of the Trust.
The GCL requires a director to perform his or her duties in good faith, in
a manner he or she reasonably believes to be in the best interests of the
corporation and its shareholders and with such care, including reasonable
inquiry, that an ordinarily prudent person in a like position would use under
similar circumstances. A director who performs his or her duties in accordance
with this standard has no liability by reason of being or having been a
director. If it is established that a director did not meet the foregoing
standard, the director, for example, may be personally liable to the corporation
for voting or assenting to a distribution of assets to stockholders which is in
violation of its Articles or the GCL.
INDEMNIFICATION
The Declaration of Trust, consistent with the Delaware Act, provides that
the Trust, subject to its By-Laws, may indemnify, out of its assets, and hold
harmless each and every
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trustee and officer from and against any and all claims, demands, costs, losses,
expenses, and damages, arising out of, or related to, such trustee's performance
of his or her duties as a trustee or officer. Pursuant to the Declaration of
Trust, the Trust will not indemnify any trustee or officer from or against any
liability to the Trust or any shareholder by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office.
The Fund's By Laws provide for indemnification of its directors and
officers, which is consistent with the GCL. Pursuant to the GCL, if the person
acted in good faith, in a manner that the person believed to be in the best
interests of the Fund, and with such care, including reasonable inquiry, as an
ordinarily prudent person in a like position would use under similar
circumstances. Similar to the Trust's Declaration of Trust, under the GCL,
indemnification against reasonable expenses incurred by a director is required
for a director who is successful, on the merits or otherwise, in the defense of
a proceeding.
Similar to the Declaration of Trust, the Fund's charter provides that the
Fund shall not protect any officer or director for any liability arising from
the willful misfeasance, bad faith, gross negligence, or the reckless disregard
of the duties involved in the conduct of such person's duties to the Fund.
The foregoing is only a summary of the differences between the Fund's
charter, its By-Laws and the GCL; and the Trust's Declaration of Trust, its
By-Laws and the Delaware Act. It is not a complete list of differences.
Shareholders should refer to the provisions of such charter, By-Laws, the
Maryland Code, the Declaration of Trust, the Trust's By-Laws and the Delaware
Act directly for a more thorough comparison.
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APPENDIX B
AGREEMENT OF MERGER
BETWEEN
FRANKLIN PREMIER RETURN FUND
(A CALIFORNIA CORPORATION)
AND
FRANKLIN ASSET ALLOCATION FUND
(A DELAWARE BUSINESS TRUST)
AGREEMENT OF MERGER, dated as of the ____ day of ________, 1996
(hereinafter referred to as the "Agreement"), by and between Franklin Premier
Return Fund, a California corporation having its principal office in San Mateo,
California (hereinafter referred to as "Franklin California") and Franklin Asset
Allocation Fund, a Delaware business trust having its principal office in
Wilmington, Delaware (hereinafter referred to as "Franklin Delaware" or the
"Surviving Trust"), said business entities being hereinafter sometimes
collectively referred to as the "Constituent Funds".
BACKGROUND
1.1 Authorized Shares. Franklin Delaware is a business trust duly
organized and existing under the laws of the State of Delaware, having been
formed on _____________, 1996 under Title 12, Delaware Code, Part V, Chapter 38,
the Delaware Business Trust Law (1988), and has authorized an unlimited number
of shares of beneficial interest, par value $.001 per share, which may be
divided into separate series, or separate classes (sub/series) of such series.
Franklin California is a corporation duly organized and existing
under the law of the State of California, having been incorporated in Hawaii on
December 5, 1951, and reincorporated in California on April 27, 1983, pursuant
to a statutory merger with a corporation formed on April 18, 1983. On April 12,
1991, shareholders approved the adoption of the Franklin California's current
name.
1.2 Offices. The principal office of Franklin California in
the State of California is located in San Mateo, California.
The principal office of Franklin Delaware in the State of Delaware
is located in Wilmington, Delaware.
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The address and principal business office of Franklin Delaware
and Franklin California is 777 Mariners Island Boulevard, San Mateo,
California 94403-7777.
1.3 Authorization.
The terms and conditions of the transaction set forth in this
Agreement were advised, authorized, and approved by Franklin California in the
manner and by the vote required by its Articles of Incorporation and the laws of
the State of California and by Franklin Delaware in the manner and by the vote
required by its Agreement and Declaration of Trust and the laws of the State of
Delaware.
The Board of Directors of Franklin California has, by resolutions
duly adopted, approved this Agreement and the merger of Franklin California into
the Surviving Trust as being advisable and in the best interests of Franklin
California and its shareholders and directed the submission of this Agreement to
its shareholders.
The shareholders of Franklin California have approved this Agreement
and the merger of Franklin California into Franklin Delaware.
The Board of Trustees of Franklin Delaware has, by resolution duly
adopted, approved this Agreement and the merger of Franklin California into the
Surviving Trust as being advisable and in the best interests of Franklin
Delaware and its shareholders and directed the submission of this Agreement to
its shareholders.
The shareholders of Franklin Delaware have approved this Agreement
and the merger of Franklin California into Franklin Delaware.
Under the terms of the Merger, as set forth herein, on the Effective
Date of the Merger, Franklin Delaware will distribute its shares of beneficial
interest to the stockholders of Franklin California according to their
corresponding interests in Franklin California.
The Board of Directors of Franklin California and the Board of
Trustees of Franklin Delaware have adopted this Agreement as a Plan of
Reorganization intended to qualify as such under the provisions of Section
368(a)(1) of the Internal Revenue Code of 1986, as amended.
NOW THEREFORE, in consideration of the premises and the mutual
covenants and conditions hereinafter contained, and intending to be legally
bound, the parties hereto agree as follows:
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ARTICLE I - THE MERGER
1.1 Franklin California and Franklin Delaware agree that Franklin
California shall be merged into Franklin Delaware (hereinafter the "Merger").
Franklin Delaware shall be the Surviving Trust and shall be governed by the laws
of the State of Delaware. The terms and conditions of the merger and the mode of
carrying the same into effect are as set forth in this Agreement.
1.2 The Agreement and Declaration of Trust of Franklin Delaware as
it shall exist on the Effective Date of the Merger (as hereinafter defined)
shall constitute the Agreement and Declaration of Trust of the Surviving Trust.
1.3 The Bylaws of Franklin Delaware as they exist on the Effective
Date of the Merger shall constitute the Bylaws of the Surviving Trust.
1.4 The Trustees of Franklin Delaware on the Effective Date of the
Merger shall constitute the Board of Trustees of Franklin Delaware and shall
hold office until their successors are elected and shall qualify.
1.5 Coopers & Lybrand, L.L.P. shall continue as auditors to
report upon the financial statements of the Surviving Trust.
ARTICLE II - CONVERSION OF SHARES AND EXCHANGE RATIO
2.1 Upon the effective date of the Merger, stockholders of Franklin
California will receive shares of Franklin Delaware in exchange for their shares
in Franklin California. The manner and basis of converting the issued and
outstanding shares of the common stock of Franklin California into the shares of
beneficial interest of Franklin Delaware shall be as follows:
(a) Immediately following the Effective Date, as defined in
Article III herein, Franklin Delaware will establish open accounts on its stock
records in the names of the stockholders of record of Franklin California as of
the close of business on the Effective Date and credit to such accounts the
exact number of full and fractional shares of Franklin Delaware such shareholder
held in Franklin California on the Effective Date. Fractional shares of
beneficial interest of Franklin Delaware will be carried to the third decimal
place. On the Effective Date, the net asset value per share of common stock of
Franklin Delaware shall be deemed to be the same as the net asset value per
share of Franklin California. As promptly as practicable after the Effective
Date, each holder of any outstanding certificate or certificates representing
the number of whole and fractional shares of common stock of Franklin California
may surrender the same to a Transfer Agent designated by Franklin Delaware and
request in exchange therefor a certificate or certificates representing the
number of whole and fractional shares of beneficial interest of Franklin
Delaware into which the shares of common stock of Franklin California,
theretofore represented by the certificate or
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certificates so surrendered, shall have been converted. Certificates for
fractional shares for Franklin Delaware will not be issued, however, but shall
continue to be carried for the open account of such shareholder. Until so
surrendered, each outstanding certificate, which prior to the Effective Date
represented common stock of Franklin California, shall be deemed for all
corporate purposes to evidence ownership of the number of shares of beneficial
interest of Franklin Delaware into which the common stock of Franklin California
(which prior to the Effective Date were represented thereby) have been so
converted. Simultaneously with the crediting of the shares of the Franklin
Delaware to the shareholders of record of Franklin California, the shares of
Franklin California held by such shareholders shall be canceled.
(b) On the Effective Date, the sole share of Franklin Delaware
heretofore held by Franklin California shall be redeemed and canceled by
Franklin Delaware.
2.3 On the Effective Date, each share of Franklin California which
has been authorized but is unissued and not outstanding, will become a share of
Franklin Delaware.
ARTICLE III - EFFECTIVE DATE OF THE MERGER
3.1 The Merger shall become effective when, subject to the terms and
conditions hereof, the following actions shall have in all respects been
completed:
(i) this Agreement shall have been adopted by the stockholders
of Franklin California in accordance with the requirements of the laws of the
State of California, which adoption shall have been certified thereon by the
Secretary or an Assistant Secretary of Franklin California;
(ii) this Agreement, certified as aforesaid, shall have been
executed, acknowledged and filed in accordance with the requirements of the law
of the State of California;
(iii) this Agreement shall have been approved and adopted by
Franklin Delaware in accordance with the requirements of the law of the State of
Delaware; and
(iv) Franklin California, as sole shareholder of Franklin
Delaware, shall have elected the Trustees of Franklin Delaware, ratified the
selection of independent auditors of Franklin Delaware, approved the management
agreement for Franklin Delaware and approved the Distribution Plan adopted by
Franklin Delaware pursuant to Rule 12b-1 under the Investment Company Act of
1940 (the "1940 Act").
The effective time of the Merger shall be the close of business of
Franklin Delaware on the date this Agreement is filed in accordance with the
requirements of the law of
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the State of California. The date and time when the Merger shall become
effective as aforesaid is herein referred to as the "Effective Date of the
Merger."
3.2 On the Effective Date of the Merger, the separate existence of
Franklin California shall cease, except to the extent, if any, continued by
statute. All the assets, rights, privileges, powers and franchises of Franklin
California and all debts due on whatever account to it, shall be taken and
deemed to be transferred to and vested in Franklin Delaware without further act
or deed; and all such assets, rights, privileges, powers and franchises shall be
thereafter as completely the property of Franklin Delaware as they were of
Franklin California; and the title to and interest in any real estate vested by
deed, lease or otherwise, unto either of the Constituent Funds, shall not revert
or be in any way impaired. Franklin Delaware shall be responsible for all the
liabilities and obligations of Franklin California, but the liabilities of the
Constituent Funds or of their shareholders, directors, trustees, or officers
shall not be affected by the Merger, nor shall the right of the creditors
thereof or any persons dealing with such business entities, or any liens upon
the property of such business entities, be impaired by the Merger, and any claim
existing or action or proceeding pending by or against either of such business
entities may be prosecuted to judgment as if the Merger had not taken place, or
Franklin Delaware may be proceeded against or substituted in place of Franklin
California. Except as otherwise specifically set forth in this Agreement, the
identity, existence, purposes, powers, franchise, rights, immunities and
liabilities of Franklin Delaware and of Franklin California shall continue
unaffected and unimpaired by the Merger. Unless otherwise agreed to by the
parties thereto, all contractual obligations to which Franklin California is
subject prior to the merger shall become contractual obligations of Franklin
Delaware.
3.3 Prior to the Effective Date of the Merger, the Constituent Funds
shall take such action as shall be necessary or appropriate in order to effect
the Merger. In case at any time after the Effective Date of the Merger, Franklin
Delaware shall determine that any further conveyance, assignment or other
documents or any further action is necessary or desirable to vest in or confirm
to Franklin Delaware full title to all the properties, assets, rights,
privileges, and franchises of the Constituent Funds, the officers, directors and
trustees of the Constituent Funds, at the expense of Franklin Delaware, shall
execute and deliver all such instruments and take all such action as Franklin
Delaware may determine to be necessary or desirable in order to vest in and
confirm to Franklin Delaware title to and possession of all such cash and
securities and other properties, assets, rights, privileges and franchises, and
otherwise to carry out the purpose of this Agreement.
ARTICLE IV - REPRESENTATIONS AND WARRANTIES
4.1 Each of the Constituent Funds represents and warrants to
the other that:
(a) Such fund is duly organized and existing in good standing
under the laws of its jurisdiction of incorporation or organization,
respectively.
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(b) Such fund is duly registered as an open-end management
company under the 1940 Act or in the case of Franklin Delaware, will be so
registered no later than the Effective Date of the Merger.
(c) It has full power and authority to carry on its business
as it is presently being conducted and to enter into the Merger.
(d) There is no suit, action, or legal or administrative
proceeding pending, or to its knowledge threatened, against it which, if
adversely determined, might materially and adversely affect its financial
condition or the conduct of its business.
(e) At the Effective Date of the Merger, consummation of the
transactions contemplated hereby will not result in the breach of or constitute
a default under any agreement or instrument by which it is bound.
(f) All of its presently outstanding shares are validly
issued, fully paid and non-assessable.
(g) Immediately prior to the Effective Date of the Merger,
Franklin California will have valid and unencumbered title to its cash,
securities, and other assets, if any.
(h) The audited financial statements of Franklin California
for its most recent fiscal year, appearing in its registration statement on Form
N-1A fairly present the financial position of such corporation as of the
respective dates indicated thereon, and the results of its operations and
changes in net assets for the respective periods indicated, in conformity with
generally accepted accounting principles applied on a consistent basis.
ARTICLE V - CONDITIONS
5.1 The obligations of each of the Constituent Funds to consummate
the Merger shall be subject to the following conditions:
(a) The representation and warranties of the other Constituent
Fund contained herein shall be true as of and at the Effective Date of the
Merger and with the same effect as though made at such date and such other
Constituent Fund shall have performed all obligations required by this Agreement
to be performed by it prior to the Effective Date;
(b) 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;
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(c) A post-effective amendment to the Registration Statement
of Franklin California on Form N-1A under the Securities Act of 1933, relating
to the shares of Franklin Delaware issuable hereunder, shall have been filed by
Franklin Delaware with the Commission and such 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);
(d) The Commission shall not have issued an unfavorable
advisory report under Section 25(b) of the Investment Company Act of 1940 nor
instituted any proceeding seeking to enjoin consummation of the reorganization
under Section 25(c) of the Investment Company Act of 1940.
(e) Franklin California has mailed to each stockholder of
record of Franklin California entitled to vote at the meeting of stockholders at
which action on this Agreement is to be considered, a Proxy Statement which
complies in all material respects with the applicable provisions of the Federal
securities laws and the rules and regulations thereunder.
(f) Each party shall have received an opinion of Stradley,
Ronon, Stevens & Young, LLP, Philadelphia, Pennsylvania, to the effect that the
Merger contemplated by this Agreement qualifies as a "reorganization" under
Section 368(a)(1) of the Internal Revenue Code of 1986, as amended, and as such:
(1) no gain or loss will be recognized by either Constituent Fund or to the
shareholders thereof; (2) the basis of the shares of beneficial interest of
Franklin Delaware received by Franklin California stockholders will be the same
as the basis of the shares of Franklin California surrendered in exchange
therefor; and (3) the holding period of Franklin Delaware shares of beneficial
interest received by Franklin California stockholders will include the holding
period of Franklin California stock surrendered in exchange therefor, provided
that Franklin California stock was held as a capital asset on the date of the
exchange.
(g) Each party shall have received an opinion from Stradley,
Ronon, Stevens & Young, LLP in form and substance satisfactory to it, relating
to its authority to engage in the transactions contemplated hereby and to the
effect (i) that this Agreement and the merger contemplated thereby and the
execution thereof have been duly authorized and approved by all requisite action
of Franklin California and Franklin Delaware, respectively, and this Agreement
has been duly executed and delivered by Franklin California and Franklin
Delaware, respectively, and is a legal, valid and binding agreement of each such
party in accordance with its terms; (ii) the shares of beneficial interest of
Franklin Delaware to be issued pursuant to the terms of this Agreement, have
been duly authorized and, when issued and delivered as provided in this
Agreement, will have been validly issued and fully paid and will be
nonassessable; (iii) Franklin California is duly organized, validly existing and
in good
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standing under the laws of the State of California and Franklin Delaware is duly
organized and validly existing under the laws of the State of Delaware.
(h) The shares of beneficial interest of Franklin Delaware
shall have been duly qualified for offering to the public in those states of the
United States and jurisdictions in which they are presently qualified, so as to
permit the transfers contemplated by this Agreement to be consummated.
(i) The holders of at least a majority of the outstanding
shares of common stock of Franklin California shall have voted in favor of the
adoption of this Agreement and the Merger at an annual or special meeting or any
adjournment thereof.
ARTICLE VI - COVENANTS
6.1 Franklin California shall distribute all declared but unpaid
dividends to its stockholders prior to the Effective Date of the Merger.
ARTICLE VII - TERMINATION
7.1 Anything contained in this Agreement to the contrary
notwithstanding, this Agreement may be terminated and the Merger abandoned at
any time (whether before or after adoption hereof by the shareholders of the
Constituent Funds) prior to the Effective Date of the Merger:
(a) by mutual consent of the Constituent Funds; or
(b) by either of the Constituent Funds if any condition set
forth in Article V hereof has not been fulfilled or waived by it.
7.2 An election by the Constituent Fund to terminate this Agreement
and abandon the Merger shall be exercised by a majority vote of its Board of
Directors or Board of Trustees, respectively.
7.3 At any time prior to the filing of this Agreement, any of the
terms or conditions of this Agreement may be waived by the Constituent Fund
entitled to the benefit thereof by action taken by its Board of Directors or
Board of Trustees, respectively, or its President if, in the actions, such
waiver will not have a material adverse effect on the benefits intended under
this agreement to the shareholders of the Constituent Fund on behalf of which
such action is taken.
7.4 The respective representations and warranties of the Constituent
Funds contained in Article IV hereof shall expire with, and be terminated by,
the Merger, and neither the respective Constituent Funds nor any of their
directors or trustees, respectively, or officers shall be under any liability
with respect to any such representations or warranties after the
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Effective Date of the Merger. This provision shall not protect any director or
trustee, respectively, or officer of either of the Constituent Funds against any
liability to such Fund or to its shareholders to which he would otherwise be
subject.
ARTICLE VIII - MISCELLANEOUS
8.1 This Agreement constitutes the entire agreement between the
parties and there are no agreements, understandings, restrictions or warranties
between the parties other than those set forth herein or herein provided for.
8.2 This Agreement may be executed in any number of counterparts
each of which shall be deemed to be an original but all of such counterparts
together shall constitute but one instrument.
IN WITNESS THEREOF, each of the Constituent Funds has caused this
Agreement of Merger to be executed on its behalf by its [CHAIRMAN, PRESIDENT OR
VICE PRESIDENT] and Secretary, and its corporate seal to be affixed thereto and
attested by its Secretary all as of the day and year first above written.
Attest: FRANKLIN PREMIER RETURN FUND,
a California corporation
By:
Deborah R. Gatzek, Secretary [,PRESIDENT]
Attest: FRANKLIN ASSET ALLOCATION FUND,
a Delaware business trust
By:
Deborah R. Gatzek, Secretary [,PRESIDENT]
B-9
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PROXY
FRANKLIN PREMIER RETURN FUND
SPECIAL MEETING OF SHAREHOLDERS - JULY 3, 1996
The undersigned hereby revokes all previous proxies for his shares and
appoints Charles B. Johnson, Harmon E. Burns, Deborah R. Gatzek and Larry L.
Greene, and each of them, proxies of the undersigned with full power of
substitution to vote all shares of Franklin Premier Return Fund (the "Fund")
which the undersigned is entitled to vote at the Fund's Special Meeting to be
held at 777 Mariners Island Blvd., San Mateo, California at 3:00 p.m., Pacific
time, on the 3rd day of July 1996, including any adjournment thereof, upon the
matters set forth below.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. IT WILL BE
VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THIS PROXY SHALL BE VOTED FOR
THE PROPOSALS SET FORTH IN ITEMS I, II AND III, AND WITHIN THE DISCRETION OF THE
PROXYHOLDERS AS TO ANY OTHER MATTER PURSUANT TO ITEM IV.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
SEE REVERSE SIDE
X Please mark votes as in this example.
I. Approval of an amendment to the Fund's investment objective.
|_| FOR |_| AGAINST |_| ABSTAIN
II. Approval of a change in the Fund's place and form of organization from
a California corporation to a Delaware business trust.
|_| FOR |_| AGAINST |_| ABSTAIN
III. Approval of a change in name of the Fund to "Franklin Asset Allocation
Fund."
|_| FOR |_| AGAINST |_| ABSTAIN
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IV. To vote upon any other business which may legally come before the
Meeting or any adjournment thereof.
|_| GRANT |_| WITHHOLD
|_| MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT
NOTE: Please sign exactly as your name appears on the proxy. If signing for
estates, trusts or corporations, title or capacity should be stated. If
shares are held jointly, each holder must sign.
PLEASE SIGN AND PROMPTLY RETURN IN THE ACCOMPANYING ENVELOPE. NO POSTAGE
REQUIRED IF MAILED IN THE U.S.
Signature:________________________ Date:____________
Signature:________________________ Date:____________
160159.5
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