SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No.)
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
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[ ] Soliciting Material Pursuant to Section.240-14a-11(c) or Section.240-
14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
Franklin Managed Trust
(Name of Registrant as Specified In Its Charter)
Franklin Managed Trust
(Name of Person(s) Filing Proxy Statement)
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(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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[ ] Fee paid previously with preliminary material.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
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paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
[LOGO](R)
FRANKLIN(R)TEMPLETON(R)
FRANKLIN MANAGED TRUST
IMPORTANT SHAREHOLDER INFORMATION
These materials request your input on several important matters that will
affect your Fund. They are for a special shareholders' meeting scheduled for
October 26, 1999 at 10:00 a.m. Pacific time. They discuss the proposals to
be voted on at the meeting, and contain your proxy statement and proxy card.
A proxy card is, in essence, a ballot. When you vote your proxy, it tells us
how you wish to vote on important issues relating to your Fund. If you
complete and sign the proxy, we'll vote it exactly as you tell us. If you
simply sign the proxy, we'll vote it in accordance with the Trustees'
recommendations on page 1 of the proxy statement.
WE URGE YOU TO SPEND A FEW MINUTES REVIEWING THE PROPOSALS IN THE PROXY
STATEMENT. THEN, FILL OUT THE PROXY CARD AND RETURN IT TO US SO THAT WE KNOW
HOW YOU WOULD LIKE TO VOTE. WHEN SHAREHOLDERS RETURN THEIR PROXIES PROMPTLY,
THE FUND MAY BE ABLE TO SAVE MONEY BY NOT HAVING TO CONDUCT ADDITIONAL
MAILINGS.
WE WELCOME YOUR COMMENTS. IF YOU HAVE ANY QUESTIONS, CALL FUND INFORMATION
AT 1-800/DIAL BEN(R) (1-800/342-5236).
TELEPHONE AND INTERNET VOTING
FOR YOUR CONVENIENCE, IF YOUR ACCOUNT IS ELIGIBLE, A CONTROL NUMBER AND
SEPARATE INSTRUCTIONS ARE ENCLOSED WHICH WILL ENABLE YOU TO VOTE BY TELEPHONE
OR THROUGH THE INTERNET, 24 HOURS A DAY.
This page intentionally left blank.
A LETTER FROM THE PRESIDENT
Dear Fellow Shareholders:
I am writing to request that you consider seven matters relating to your
investment in Franklin Rising Dividends Fund (the "Fund"), a series of
Franklin Managed Trust (the "Trust"). The Board of Trustees asks that you
cast your vote in favor of:
1. Electing a Board of Trustees;
2. Ratifying the appointment by the Trustees of Tait, Weller & Baker
as the independent auditors for the Trust for the fiscal year
ending September 30, 1999;
3. Modifying the Fund's current criteria for the selection of
portfolio companies related to the issuer's treatment of debt on
its balance sheet, which is fundamental;
4. Amending seven of the Fund's fundamental investment restrictions;
5. Eliminating five of the Fund's fundamental investment restrictions;
6. Reorganizing the Trust from a Massachusetts business trust to a
Delaware business trust; and
7. Granting proxyholders the authority to vote upon any other business
that may properly come before the meeting or any adjournments
thereof.
We urge you to confirm the Board's recommendations by electing the nominated
Trustees and ratifying the selection of the independent auditors.
We have proposed a modification to the Fund's current criteria for the
selection of portfolio companies related to the issuer's treatment of debt on
its balance sheet. If approved, the change would expand the universe of high
quality companies that meet the rising dividends criteria. We have also
proposed amending or eliminating certain fundamental investment
restrictions. We believe that the recommended changes will provide
additional investment opportunities to the Fund, as further described in the
attached proxy statement. We urge you to approve these proposals which are
designed to benefit all shareholders by providing the Fund with greater
flexibility in pursuing its investment objectives. In addition, we have
proposed that the Trust be reorganized as a Delaware business trust because
Delaware law permits a less complicated structure and allows greater
flexibility in a mutual fund's business operations.
The proxy statement includes a question-and-answer format designed to provide
you with a simpler and more concise explanation of certain issues. Although
much of the information in the proxy statement is technical and required by
the various regulations that govern the Trust, we hope that this format will
be helpful to you.
Your vote is important to the Trust. On behalf of the Trustees, thank you in
advance for considering these issues and for promptly returning your proxy
card.
Sincerely,
William J. Lippman
PRESIDENT
[LOGO](R)
FRANKLIN(R)TEMPLETON(R)
FRANKLIN MANAGED TRUST
NOTICE OF SPECIAL SHAREHOLDERS' MEETING
TO BE HELD ON OCTOBER 26, 1999
A Special Shareholders' Meeting (the "Meeting") of Franklin Rising
Dividends Fund (the "Fund"), a series of Franklin Managed Trust (the
"Trust"), will be held at the Trust's office at 777 Mariners Island Boulevard,
San Mateo, California 94404, at 10:00 a.m. (Pacific time), on October 26,
1999.
During the Meeting, shareholders of the Trust will vote on the following
proposals and sub-proposals:
1. To elect a Board of Trustees.
2. To ratify the selection of Tait, Weller & Baker as the Trust's
independent auditors for the Trust's fiscal year ending September
30, 1999.
3. To modify the Fund's current criteria for the selection of
portfolio companies related to the issuer's treatment of debt on
its balance sheet, which is fundamental.
4. To approve amendments to certain of the Fund's fundamental
investment restrictions (includes seven (7) Sub-Proposals).
(a) To amend the Fund's fundamental investment restriction
regarding borrowing;
(b) To amend the Fund's fundamental investment restriction
regarding underwriting;
(c) To amend the Fund's fundamental investment restriction
regarding lending;
(d) To amend the Fund's fundamental investment restriction
regarding investments in real estate and commodities;
(e) To amend the Fund's fundamental investment restriction
regarding issuing senior securities;
(f) To amend the Fund's fundamental investment restriction
regarding industry concentration; and
(g) To amend the Fund's fundamental investment restriction
regarding diversification of investments.
5. To approve the elimination of certain of the Fund's fundamental
investment restrictions.
6. To approve the reorganization of the Trust from a Massachusetts
business trust to a Delaware business trust.
7. To grant the proxyholders authority to vote upon any other
business that may properly come before the Meeting or any
adjournments thereof.
The Board of Trustees has fixed August 30, 1999 as the record date for
determination of shareholders entitled to vote at the Meeting.
Please note that a separate vote is required for each Proposal or Sub-Proposal.
By Order of the Board of Trustees,
Deborah R. Gatzek
Secretary
San Mateo, California
September 13, 1999
- - ----------------------------------------------------------------------
PLEASE SIGN AND RETURN YOUR PROXY CARD IN THE SELF-ADDRESSED
ENVELOPE REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
- - ----------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
PROXY STATEMENT
Questions and Answers...........................................................
Proposal 1: To Elect a Board of Trustees........................................
Proposal 2: To Ratify the Selection of Tait, Weller & Baker as Independent
Auditors for the Trust..............................................
Proposal 3: To Modify the Fund's Current Criteria for the Selection of Portfolio
Companies Related to the Issuer's Treatment of Debt on its Balance
Sheet, which Is Fundamental ........................................
Proposal 4: To Approve Amendments to Certain of the Fund's Fundamental
Investment Restrictions (Includes Seven Sub-Proposals)..............
4a: Borrowing............................................................
4b: Underwriting.........................................................
4c: Lending..............................................................
4d: Real Estate and Commodities..........................................
4e: Issuing Senior Securities............................................
4f: Industry Concentration...............................................
4g: Diversification of Investments.......................................
Proposal 5: To Approve the Elimination of Certain of the Fund's Fundamental
Investment Restrictions.............................................
Proposal 6: To Approve the Reorganization of the Trust From a Massachusetts
Business Trust to a Delaware Business Trust.........................
Proposal 7: Other Business
EXHIBITS
Exhibit A: Current Fundamental Investment Restrictions
Proposed to be Eliminated............................................
Exhibit B: Form of Agreement and Plan of Reorganization.........................
Exhibit C: Comparison and Significant Differences Between Massachusetts
Business Trusts and Delaware Business Trusts.........................
FRANKLIN MANAGED TRUST
PROXY STATEMENT
QUESTIONS AND ANSWERS
INFORMATION ABOUT VOTING
WHO IS ASKING FOR MY VOTE?
The Trustees of Franklin Managed Trust (the "Trust") in connection with the
Special Shareholders' Meeting of Franklin Rising Dividends Fund (the
"Fund"), a series of the Trust to be held October 26, 1999 (the "Meeting"),
have requested your vote on several matters.
WHO IS ELIGIBLE TO VOTE?
Shareholders of record at the close of business on August 30, 1999 are
entitled to vote at the Meeting or any adjourned meeting. Each share of
record is entitled to one vote on each matter presented at the Meeting.
The Notice of Meeting, the proxy card, and the proxy statement were mailed
to shareholders of record on or about September 13, 1999.
ON WHAT ISSUES AM I BEING ASKED TO VOTE?
You are being asked to vote on the following proposals:
1. To elect a Board of Trustees;
2. To ratify the selection of Tait, Weller & Baker as independent auditors
of the Trust for the fiscal year ending September 30, 1999;
3. To modify the Fund's criteria for the selection of portfolio companies
related to the issuer's treatment of debt on its balance sheet, which is
fundamental;
4. To amend certain of the Fund's fundamental investment restrictions;
5. To eliminate certain of the Fund's fundamental investment restrictions;
6. To approve the reorganization of the Trust from a Massachusetts business
trust to a Delaware business trust; and
7. To grant the proxyholders authority to vote upon any other business that
may properly come before the Meeting or any adjournments thereof.
HOW DO THE TRUSTEES RECOMMEND THAT I VOTE?
The Trustees unanimously recommend that you vote:
1. FOR the election of all nominees as Trustees;
2. FOR the ratification of the selection of Tait, Weller & Baker as
independent auditors for the Trust's fiscal year ending September 30,
1999;
3. FOR the modification of the Fund's current criteria for the selection of
portfolio companies related to the issuer's treatment of debt on its
balance sheet, which is fundamental;
4. FOR the amendment of each of the Fund's fundamental investment
restrictions proposed to be amended;
5. FOR the elimination of each of the Fund's fundamental investment
restrictions proposed to be eliminated;
6. FOR the reorganization of the Trust from a Massachusetts business trust
to a Delaware business trust; and
7. FOR the proxyholders to have discretion to vote on any other business
that may properly come before the Meeting or any adjournments thereof.
HOW DO I ENSURE THAT MY VOTE IS ACCURATELY RECORDED?
You may attend the Meeting and vote in person or you may complete and
return the proxy card. If you are eligible to vote by telephone or through
the internet, a control number and separate instructions are enclosed.
Proxy cards that are properly signed, dated and received at or prior to the
Meeting will be voted as specified. If you specify a vote for any of the
Proposals 1 through 6, your proxy will be voted as you indicated. If you
simply sign and date the proxy card, but don't specify a vote for any of
the Proposals 1 through 6, your shares will be voted IN FAVOR of the
nominees for the Board of Trustees (Proposal 1), IN FAVOR of ratifying the
selection of Tait, Weller & Baker as independent auditors (Proposal 2), IN
FAVOR of modifying the Fund's current criteria for the selection of
portfolio companies related to the issuer's treatment of debt on its
balance sheet, which is fundamental (Proposal 3), IN FAVOR of amending
certain of the Fund's fundamental investment restrictions (Sub-Proposals
4a-4g), IN FAVOR of eliminating certain of the Fund's fundamental
investment restrictions, (Proposal 5), IN FAVOR of the reorganization of
the Trust from a Massachusetts business trust to a Delaware business trust
(Proposal 6), and/or IN ACCORDANCE with the discretion of the persons named
in the proxy card as to any other matters that properly may come before the
Meeting (Proposal 7).
CAN I REVOKE MY PROXY?
You may revoke your proxy at any time before it is voted by forwarding a
written revocation or later-dated proxy card to the Fund that is received
at or prior to the Meeting, or attending the Meeting and voting in person.
THE PROPOSALS
PROPOSAL 1: TO ELECT A BOARD OF TRUSTEES
WHO ARE THE NOMINEES FOR THE BOARD OF TRUSTEES?
The Board of Trustees consists of four (4) persons. 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 quarterly and review the Trust's performance. The Trustees
also oversee the services provided to the Trust by the investment advisor
and the Trust's other service providers.
The nominees for election to the Board of Trustees are: Frank T. Crohn,
William J. Lippman, Charles Rubens II, and Leonard Rubin (collectively, the
"Nominees") who presently comprise the entire Board. All of the Trustees
are directors and/or trustees of other investment companies in the Franklin
Group of Funds(R) or the Templeton Group of Funds (collectively, the
"Franklin Templeton Group of Funds"). In addition, Mr. Lippman is a senior
officer of Franklin Resources, Inc. ("Resources") and its affiliates.
Resources is a publicly owned holding company. The principal shareholders
are Charles B. Johnson and Rupert H. Johnson, Jr., who own approximately
19% and 15%, respectively, of Resources' outstanding shares. Resources,
through its various subsidiaries, is primarily engaged in providing
investment management, share distribution, transfer agent and
administrative services to a family of investment companies. Resources is
a New York Stock Exchange, Inc. ("NYSE") listed holding company (NYSE: BEN).
Each nominee is currently eligible and has consented to serve if elected.
If elected, the Trustees will hold office without limit in time until
death, resignation, retirement or removal, or until the next meeting of
shareholders to elect Trustees, and the election and qualification of their
successors. Election of a Trustee is by a plurality vote, which means that
the four individuals receiving the greatest number of votes at the Meeting
will be deemed to be elected. If any of the nominees should become
unavailable, the persons named in the proxy will vote in their discretion
for another person or other persons who may be nominated as Trustees.
Listed below for each Nominee, is a brief description of his recent
professional experience and ownership of shares of the Trust and shares of
all of the investment companies in the Franklin Templeton Group of Funds.
Shares
Beneficially
Trust Shares Owned in the
Owned Franklin
Name and Principal Occupation Beneficially Templeton
During Past Five Years and Age and % of Group of
Total Funds
Outstanding (including
on July 30, the Trust)
1999 as of July
30, 1999
- - ----------------------------------------------------------------------
Frank T. Crohn (75) 4,223** 17,766
P.O. Box 810516
Boca Raton, FL 33481
TRUSTEE SINCE 1986
Chairman, Eastport Lobster & Fish
Company; Director, Unity Mutual Life
Insurance Company; trustee of two of
the investment companies in the
Franklin Templeton Group of Funds; and
FORMERLY, Chairman, Financial Benefit
Life Insurance Company (until 1996) and
Director, AmVestors Financial
Corporation (until 1997).
William J. Lippman* (74) 23,219** 77,134
PRESIDENT SINCE 1986, CHIEF EXECUTIVE
OFFICER SINCE 1991 AND TRUSTEE SINCE
1986
Senior Vice President, Franklin
Resources, Inc. and Franklin
Management, Inc.; President, Franklin
Advisory Services, LLC; and officer
and/or director or trustee, as the case
may be, of six of the investment
companies in the Franklin Templeton
Group of Funds.
Charles Rubens II (69) None 14,906
TRUSTEE SINCE 1986
Private investor; and trustee or
director, as the case may be, of three
of the investment companies of the
Franklin Templeton Group of Funds.
Leonard Rubin (73) 7,097** 54,888
TRUSTEE SINCE 1986
Partner in LDR Equities, LLC (manages
various personal investments); Vice
President, Trimtex Co., Inc.
(manufactures and markets specialty
fabrics); director or trustee, as the
case may be, of three of the investment
companies in the Franklin Templeton
Group of Funds; and FORMERLY, Chairman
of the Board, Carolace Embroidery Co.,
Inc. (until 1996) and President, F.N.C.
Textiles, Inc..
* William J. Lippman is an "interested person" of the Trust as defined in
the Investment Company Act of 1940, as amended (the "1940 Act"). The 1940
Act limits the percentage of interested persons that can comprise a fund's
board of trustees. Mr. Lippman is an interested person due to his employment
affiliation with Resources and with Franklin Advisory Services, LLC, the
Trust's investment adviser. The remaining Trustees ("noninterested Trustees")
are not interested persons of the Trust.
** Less than 1% of the outstanding shares of the Fund.
HOW OFTEN DO THE TRUSTEES MEET AND WHAT ARE THEY PAID?
The Trustees anticipate meeting at least five times during the fiscal year
ended September 30, 1999 to review the operations of the Trust and Trust's
investment performance. The Trustees also oversee the investment
management services furnished to the Trust by Franklin Advisory Services,
LLC ("Advisory Services") and various other service providers. Advisory
Services is wholly owned by Resources. The Trust pays the noninterested
Trustees $1,800 per quarter plus $900 per meeting attended.
During the fiscal year ended September 30, 1998 there were five meetings of
the Board. Each of the Trustees attended at least 75% of the total number
of meetings of the Board.
Certain Trustees and executive officers ("Executive Officers") of the Trust
are shareholders of Resources and may be deemed to receive indirect
remuneration due to their participation in the management fees and other
fees received from the Franklin Templeton Group of Funds by Advisory
Services and its affiliates. Advisory Services or its affiliates pay the
salaries and expenses of the Executive Officers. No pension or retirement
benefits are accrued as part of Trust expenses.
The following table shows the fees paid to noninterested Trustees by the
Trust and by the Franklin Templeton Group of Funds.
NAME OF TRUSTEE AGGREGATE NUMBER OF TOTAL FEES
COMPENSATION BOARDS WITHIN THE RECEIVED
FROM THE FRANKLIN TEMPLETON FROM THE
TRUST* GROUP OF FUNDS ON FRANKLIN
WHICH TRUSTEE TEMPLETON
SERVES** GROUP OF
FUNDS***
- - -----------------------------------------------------------------------
Frank T. Crohn $10,800 2 $20,400
Charles Rubens II $11,700 3 $50,400
Leonard Rubin $11,700 3 $84,900
* For the fiscal year ended September 30, 1998.
**We base the number of boards on the number of registered investment
companies in the Franklin Templeton Group of Funds. This number does
not include the total number of series or funds within each investment
company for which the Board members are responsible. The Franklin
Templeton Group of Funds currently includes [54] registered investment
companies, with approximately [163] U.S. based funds or series.
***For the calendar year ended December 31, 1998.
WHO ARE THE EXECUTIVE OFFICERS OF THE TRUST?
Officers of the Trust are appointed by the Trustees and serve at the
pleasure of the Board. Listed below, for each Executive Officer is a brief
description of his or her recent professional experience:
-----------------------------------------------------------------
NAME AND PRINCIPAL OCCUPATION
OFFICES WITH THE TRUST DURING PAST FIVE YEARS AND AGE
-----------------------------------------------------------------
Harmon E. Burns Executive Vice President and
VICE PRESIDENT SINCE 1991 Director, Franklin Resources,
Inc., Franklin Templeton
Distributors, Inc. and
Franklin Templeton Services,
Inc.; Executive Vice
President, Franklin Advisers,
Inc.; Director, Franklin
Investment Advisory Services,
Inc. and Franklin/Templeton
Investor Services, Inc.; and
officer and/or director or
trustee, as the case may be,
of most of the other
subsidiaries of Franklin
Resources, Inc. and of 52 of
the investment companies in
the Franklin Templeton Group
of Funds. Age 54.
-----------------------------------------------------------------
Martin L. Flanagan Senior Vice President and
VICE PRESIDENT AND CHIEF Chief Financial Officer,
FINANCIAL OFFICER SINCE 1995 Franklin Resources, Inc.,
Franklin/Templeton Investor
Services, Inc. and Franklin
Mutual Advisers, LLC;
Executive Vice President,
Chief Financial Officer and
Director, Templeton
Worldwide, Inc.; Executive
Vice President, Chief
Operating Officer and
Director, Templeton
Investment Counsel, Inc.;
Executive Vice President and
Chief Financial Officer,
Franklin Advisers, Inc.;
Chief Financial Officer,
Franklin Advisory Services,
LLC and Franklin Investment
Advisory Services, Inc.;
President and Director,
Franklin Templeton Services,
Inc.; officer and/or director
of some of the other
subsidiaries of Franklin
Resources, Inc.; and officer
and/or director or trustee,
as the case may be, of 52 of
the investment companies in
the Franklin Templeton Group
of Funds. Age 39.
-----------------------------------------------------------------
Deborah R. Gatzek Senior Vice President and
VICE PRESIDENT SINCE 1992 AND General Counsel, Franklin
SECRETARY SINCE 1991 Resources, Inc.; Senior Vice
President, Franklin Templeton
Services, Inc. and Franklin
Templeton Distributors, Inc.;
Executive Vice President,
Franklin Advisers, Inc.; Vice
President, Franklin Advisory
Services, LLC and Franklin
Mutual Advisers, LLC; Vice
President, Chief Legal
Officer and Chief Operating
Officer, Franklin Investment
Advisory Services, Inc.; and
officer of 53 of the
investment companies in the
Franklin Templeton Group of
Funds. Age 50.
-----------------------------------------------------------------
Rupert H. Johnson Executive Vice President and
VICE PRESIDENT SINCE 1991 Director, Franklin Resources,
Inc. and Franklin Templeton
Distributors, Inc.; President
and Director, Franklin
Advisers, Inc. and Franklin
Investment Advisory Services,
Inc.; Senior Vice President,
Franklin Advisory Services,
LLC; Director,
Franklin/Templeton Investor
Services, Inc.; and officer
and/or director or trustee,
as the case may be, of most
of the other subsidiaries of
Franklin Resources, Inc. and
of 52 of the investment
companies in the Franklin
Templeton Group of Funds.
Age 59.
-----------------------------------------------------------------
William J. Lippman See Proposal 1, "Election of
PRESIDENT SINCE 1986 AND CHIEF Trustees."
EXECUTIVE OFFICER SINCE 1991
-----------------------------------------------------------------
Diomedes Loo-Tam Senior Vice President,
TREASURER AND PRINCIPAL Franklin Templeton Services,
ACCOUNTING OFFICER SINCE 1995 Inc.; and officer of 32 of
the investment companies in
the Franklin Templeton Group
of Funds. Age 60.
-----------------------------------------------------------------
Edward V. McVey Senior Vice President and
VICE PRESIDENT SINCE 1991 National Sales Manager,
Franklin Templeton
Distributors, Inc.; and
officer of 28 of the
investment companies in the
Franklin Templeton Group of
Funds. Age 62.
-----------------------------------------------------------------
R. Martin Wiskemann Senior Vice President,
VICE PRESIDENT SINCE 1991 Portfolio Manager and
Director, Franklin Advisers,
Inc.; Senior Vice President,
Franklin Management, Inc.;
Vice President and Director,
ILA Financial Services, Inc.;
and officer and/or director
or trustee, as the case may
be, of 15 of the investment
companies in the Franklin
Templeton Group of Funds.
Age 72.
-----------------------------------------------------------------
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS
THAT YOU APPROVE PROPOSAL 1
PROPOSAL 2: TO RATIFY THE SELECTION OF INDEPENDENT AUDITORS
HOW ARE INDEPENDENT AUDITORS SELECTED?
The Board of Trustees reviews audit procedures and results, and considers
any matters arising from an audit with respect to the accounting of the
Fund, its internal accounting controls, and its operational procedures.
The Board also recommends the selection of independent auditors.
WHICH INDEPENDENT AUDITORS DID THE BOARD SELECT?
For the fiscal year ended September 30, 1999, the Board, including all of
the noninterested Trustees, selected as auditors the firm of Tait, Weller &
Baker, Eight Penn Center Plaza, Suite 800, Philadelphia, PA 19103. Tait,
Weller & Baker has served as the independent auditors for the Trust since
its inception in 1986. Tait, Weller & Baker has examined and reported on
the fiscal year-end financial statements, dated September 30, 1998, and
certain related U.S. Securities and Exchange Commission ("SEC") filings.
The auditors give an opinion on the financial statements in the Trust's
Annual Report to Shareholders. Tait, Weller & Baker has advised the Trust
that neither the firm nor any of its members have any material direct or
indirect financial interest in the Trust.
Representatives of Tait, Weller & Baker are not expected to be present at
the Meeting.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS
THAT YOU APPROVE PROPOSAL 2
PROPOSAL 3: TO MODIFY THE FUND'S CURRENT CRITERIA FOR THE SELECTION OF
PORTFOLIO COMPANIES RELATED TO THE ISSUER'S TREATMENT OF DEBT
ON ITS BALANCE SHEET, WHICH IS FUNDAMENTAL
WHAT IS THE FUND'S CURRENT CRITERIA FOR THE SELECTION OF PORTFOLIO
COMPANIES RELATED TO THE ISSUER'S TREATMENT OF DEBT ON ITS BALANCE SHEET,
AND WHAT IS THE PROPOSED MODIFICATION?
The Fund invests primarily in equity securities of financially sound
companies that have paid consistently rising dividends. At least 65% of
the Fund's assets are invested in securities of companies that have:
i. consistently increased dividends, in at least eight out of
the last ten years, and have not decreased dividends in
that time;
ii. substantially increased dividends (at least 100%) over
the past ten years;
iii. reinvested earnings, and paid out less than 65% of the
current earnings in dividends;
iv. strong balance sheets, with long-term debt representing
no more than 30% of total capitalization; and
v. attractive prices (i.e. prices in the lower half of the
stock's price/earnings ratio range for the last ten years,
or less than the current market price/earnings ratio of the
stocks in the S&P 500 Stock Index).
The above criteria comprise a "fundamental" policy of the Fund which means
that they cannot be changed without shareholder approval.
The proposed modification relates to the fourth criteria listed above.
This criteria selection will be referred to in this Proposal 3 as the
Fund's "Debt Test." The Fund's investment adviser, Advisory Services, has
recommended modifying this Debt Test to require that rising dividends
companies either have: (1) long-term debt that is no more than 50% of
total capitalization; or (2) senior debt that has been rated investment
grade by at least one of the major bond rating agencies.
WHY IS THE BOARD RECOMMENDING THIS MODIFICATION TO THE DEBT TEST?
By modifying the current Debt Test to require either that long-term debt
not exceed 50% of total capitalization, or that senior debt obtain an
investment grade rating, the Board, based on Advisory Services'
recommendation, believes that additional investment opportunities will be
available to the Fund through a greater range of high quality companies
that meet this proposed rising dividends criteria.
In recommending to the Board the change to the Debt Test, Advisory Services
explained that it has identified many attractive rising dividends companies
that have debt in excess of the current 30% limitation. Despite their
possibly higher levels of debt, many of these companies also have the
qualitative characteristics that the rising dividends criteria was designed
to identify. As market interest rates have fallen over the past decade,
the cost of servicing debt has declined. This means that companies can
more comfortably service a higher level of debt with less cash than they
could historically, when the interest rates were much higher. In fact,
Advisory Services has found that companies that meet the Fund's other
rising dividends criteria have increasingly taken advantage of these lower
rates to service higher levels of long-term debt with less cash, and they
have adjusted their capital structures accordingly. Therefore, many of the
companies with the qualitative characteristics that the Fund's five
criteria were originally designed to target carry a higher level of debt
than they may have in the past. Modifying the Debt Test would allow the
Fund to invest in such companies.
As an alternative to an analysis of the percentage of debt on the issuer's
balance sheet, Advisory Services has proposed an alternative prong to the
Debt Test, over and above a straight percentage analysis, which considers
the rating of the issuer's senior debt. Under this alternative test, an
issuer would qualify under the new Debt Test if its senior debt has been
rated investment grade by at least one of the major bond rating agencies.
Historically, the Fund did not consider whether a company's debt was
investment grade, but looked only to the total percentage of debt.
Typically, a wide range of factors is considered in the determination of a
company's debt rating. If the Fund modifies its Debt Test to include a
ratings-based test as an alternative criteria, it would be able to take
advantage of a greater pool of companies eligible to meet the full range of
rising dividends criteria. Advisory Services believes that, generally,
those companies that meet the full range of rising dividends criteria are
likely to have debt rated at least investment grade, if they have long-term
debt outstanding.
As modified, the Fund's Debt Test would include either one of those tests
described above. Under the first prong of the modified Debt Test, the Fund
would be permitted to invest in companies where debt is not rated
investment grade as long as the debt does not exceed 50% of total
capitalization. Under the second prong, the Fund may invest in companies
whose senior debt is rated investment grade, even if such debt exceeds 50%
of total capitalization.
WHAT ARE THE RISKS OF SUCH A MODIFICATION TO THE DEBT TEST?
The proposed modifications are not expected to change the day to day
management of the Fund as it pursues its investment goals. Based on
Advisory Services' recommendation, the Board does not anticipate that the
increase from 30% to 50% in long-term debt exposure will present any
significant degree of increased risk. In addition, none of the other four
rising dividends criteria will be changed, which should further limit the
degree of additional risk to which the Fund will be exposed. However,
since the proposed modification will permit the Fund to invest in companies
with a higher percentage of long-term debt, the Fund theoretically could be
exposed to a slightly higher risk that such companies may not be able to
meet their individual goals, and may default on their debt. If companies
in which the Fund invests default, the value of the Fund's portfolio may
decline.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS
THAT YOU APPROVE PROPOSAL 3
INTRODUCTION TO PROPOSALS 4 AND 5.
WHY IS THE FUND AMENDING OR ELIMINATING CERTAIN OF ITS FUNDAMENTAL
INVESTMENT RESTRICTIONS IN FAVOR OF A STANDARDIZED LIST OF INVESTMENT
RESTRICTIONS?
The Fund is subject to certain investment restrictions which govern the
Fund's investment activities. Under the Investment Company Act of 1940, as
amended (the "1940 Act"), certain investment restrictions are required to
be "fundamental" which means that they can only be changed by a shareholder
vote. An investment company may designate additional restrictions that are
fundamental, and it may also adopt "non-fundamental" restrictions, which
may be changed by the Trustees without shareholder approval.
After the Trust was formed in 1986, certain legal and regulatory
requirements applicable to mutual funds changed. For example, certain
restrictions imposed by state laws and regulations were preempted by the
National Securities Markets Improvement Act of 1996 ("NSMIA") and therefore
are no longer applicable to funds. As a result of NSMIA, the Fund
currently is subject to fundamental investment restrictions that are either
more restrictive than required under current law, or which are no longer
required at all. Accordingly, the Trustees recommend that the Fund's
shareholders approve the amendment or elimination of certain of the Fund's
current fundamental investment restrictions. This will result in the Fund
having a list of fundamental investment restrictions that are standardized
with those of the other funds in the Franklin Templeton Group of Funds.
The proposed standardized restrictions satisfy current federal regulatory
requirements and are written to provide flexibility to respond to future
legal, regulatory, market or technical changes.
By both standardizing and reducing the total number of investment
restrictions that can be changed only by a shareholder vote, the Trustees
believe that the Fund will be able to minimize the costs and delays
associated with holding future shareholder meetings to revise fundamental
policies that become outdated or inappropriate. The Trustees also believe
that the investment adviser's ability to manage the Fund's assets in a
changing investment environment will be enhanced, and that investment
management opportunities will be increased by these changes.
The proposed standardized changes will not affect the Fund's investment
objective. Although the proposed changes in fundamental investment
restrictions will provide the Fund greater flexibility to respond to future
investment opportunities, the Board does not anticipate that the changes,
individually or in the aggregate, will result in a material change in the
level of investment risk associated with investment in the Fund. The Board
does not anticipate that the proposed changes will materially affect the
manner in which the Fund is managed.
The recommended changes are specified below. Shareholders are requested to
vote on each Sub-Proposal in Proposal 4 separately.
PROPOSAL 4: TO APPROVE AMENDMENTS TO CERTAIN OF THE FUND'S FUNDAMENTAL
INVESTMENT RESTRICTIONS (THIS PROPOSAL INVOLVES SEPARATE VOTES
ON SUB-PROPOSALS 4A - 4G)
SUB-PROPOSAL 4A: TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
REGARDING BORROWING.
The 1940 Act requires investment companies to impose certain limitations on
borrowing activities. The limitations on borrowing are generally designed
to protect shareholders and their investment by restricting a fund's
ability to subject its assets to the claims of creditors who might have a
claim to the fund's assets that would take precedence over the claims of
shareholders. A fund's borrowing restriction must be fundamental.
Under the 1940 Act, a fund may borrow from banks up to one-third of their
total assets (including the amount borrowed). In addition, a fund may
borrow up to 5% of its total assets for temporary purposes from any person,
provided that such borrowing is privately arranged. Funds typically borrow
money to meet redemptions in order to avoid forced, unplanned sales of
portfolio securities. This technique allows a fund greater flexibility to
buy and sell portfolio securities for investment or tax considerations,
rather than for cash flow considerations.
WHAT IS THE FUND'S CURRENT BORROWING RESTRICTION?
The Fund's current borrowing restriction states that the Fund may not:
(a) Borrow money, except temporarily for extraordinary or
emergency purposes from a bank and then not in excess of 15%
of its total assets (at the lower of cost or fair market
value) or (b) mortgage, pledge or hypothecate any of its
assets except in connection with any such borrowings. Any
such borrowing will be made only if immediately thereafter
there is an asset coverage of at least 300% of all borrowings,
and no additional investments may be made while any such
borrowings are in excess of 5% of total assets.
WHAT EFFECT WILL STANDARDIZATION OF THE CURRENT BORROWING RESTRICTION HAVE
ON THE FUND?
The Fund is presently limited to borrowing up to 15% of assets, rather than
the 33 1/3% allowed under current law. The proposed restriction would
increase this borrowing limit to the legally permissible limit of 33 1/3%.
In addition, the 1940 Act limits on borrowing historically were interpreted
to prohibit mutual funds from making additional investments while
borrowings exceeded 5% of total assets. However, such a 5% limit is not
required under the 1940 Act and originated from informal regulatory
positions. Accordingly, under the proposed restriction, the Fund would be
permitted to make additional investments, even if borrowings exceed 5% of
total assets.
The proposed restriction also permits the Fund to borrow cash from
affiliated investment companies. The Fund, together with other funds in
the Franklin Templeton Group of Funds, has requested an exemptive order
from the SEC that would permit the Fund to borrow money from affiliated
Franklin and Templeton funds. If this order is approved, the new
restriction would permit the Fund, under certain circumstances, to borrow
money from other Franklin and Templeton funds at rates which are more
favorable than those which the Fund would receive if it borrowed from banks
or other lenders.
The Fund is not required to have a fundamental restriction relating to
mortgaging, pledging or hypothecating Fund assets. Accordingly, the direct
references to these concepts have been removed from the Fund's proposed
borrowing restriction. However, these, and other similar types of
investment activities do raise concerns regarding whether a fund is issuing
senior securities as defined in the 1940 Act. For this reason, these types
of investment activities are encompassed in the proposed restriction
relating to senior securities (see Sub-Proposal 4e).
Finally, the new restriction would help the Fund achieve the goal of
standardizing the language of the investment restrictions among the
Franklin Templeton Group of Funds. Standardization is expected to enable
all Franklin and Templeton funds to operate more efficiently and to more
easily monitor compliance with investment restrictions.
Since the proposed borrowing restriction would provide the Fund with
greater borrowing flexibility, the Fund may be subject to additional costs,
as well as the risks inherent to borrowing, such as reduced total return.
WHAT IS THE FUND'S PROPOSED BORROWING RESTRICTION?
If approved by shareholders, the borrowing restriction will be revised
to state that the Fund may not:
BORROW MONEY, EXCEPT THAT THE FUND MAY BORROW MONEY FROM BANKS
OR AFFILIATED INVESTMENT COMPANIES TO THE EXTENT PERMITTED BY
THE 1940 ACT, OR ANY EXEMPTIONS THEREFROM WHICH MAY BE GRANTED
BY THE U.S. SECURITIES AND EXCHANGE COMMISSION, OR FOR
TEMPORARY OR EMERGENCY PURPOSES AND THEN IN AN AMOUNT NOT
EXCEEDING 33 1/3% OF THE VALUE OF THE FUND'S TOTAL ASSETS
(INCLUDING THE AMOUNT BORROWED).
SUB-PROPOSAL 4B: TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
REGARDING UNDERWRITING.
Under the 1940 Act, the Fund's policy concerning underwriting is required
to be fundamental. Under the federal securities laws, a person or company
generally is considered an underwriter if it participates in the public
distribution of securities of OTHER ISSUERS, usually by purchasing the
securities from the issuer with the intention of re-selling the securities
to the public. From time to time, a mutual fund may purchase a security
for investment purposes which it later sells or redistributes to
institutional investors or others under circumstances where the Fund could
possibly be considered to be an underwriter under the technical definition
of underwriter contained in the securities laws. For example, funds often
purchase securities in private securities transactions where a resale could
raise a question relating to whether or not the fund is technically acting
as an underwriter. However, recent SEC interpretations clarify that
re-sales of privately placed securities by institutional investors do not
make the institutional investor an underwriter in these circumstances. The
proposed restriction encompasses these SEC positions.
WHAT IS THE FUND'S CURRENT UNDERWRITING RESTRICTION?
The Fund's current restriction states that the Fund may not "underwrite
securities."
WHAT EFFECT WILL STANDARDIZATION OF THE CURRENT UNDERWRITING RESTRICTION
HAVE ON THE FUND?
The proposed restriction is substantially similar to the current
restriction. However, the proposed underwriting restriction clarifies that
the Fund may sell its own shares without being deemed an underwriter.
Under the 1940 Act, a mutual fund will not be considered an underwriter if
it sells its own shares pursuant to a written distribution plan that
complies with Rule 12b-1 of the 1940 Act.
The proposed restriction also specifically permits the Fund to resell
restricted securities in those instances where there may be a question as
to whether the Fund is technically acting as an underwriter. Furthermore,
the new restriction would help the Fund achieve the goal of standardizing
the language of the investment restrictions among the Franklin Templeton
Group of Funds. It is not anticipated that adoption of the proposed
restriction would involve any additional risk as the proposed restriction
would not affect the way the Fund is currently managed.
WHAT IS THE FUND'S PROPOSED UNDERWRITING RESTRICTION?
If approved by shareholders, the Fund's underwriting restriction will be
revised to state that the Fund may not:
ACT AS AN UNDERWRITER EXCEPT TO THE EXTENT THE FUND MAY BE
DEEMED TO BE AN UNDERWRITER WHEN DISPOSING OF SECURITIES IT
OWNS OR WHEN SELLING ITS OWN SHARES.
SUB-PROPOSAL 4C: TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
REGARDING LENDING.
Under the 1940 Act, a fund's policy regarding lending must be fundamental.
Certain investment techniques could, under certain circumstances, be
considered to be loans. For example, if the Fund invests in debt
securities, such investments might be considered to be a loan from the Fund
to the issuer of the debt securities. In order to ensure that the Fund may
invest in certain debt securities or repurchase agreements, which could
technically be characterized as the making of loans, the Fund's current
fundamental restriction specifically carves out such policies from its
prohibitions. In addition, the Fund's fundamental policy explicitly
permits the Fund to lend its portfolio securities. Securities lending is a
practice that has become common in the mutual fund industry and involves
the temporary loan of portfolio securities to parties who use the
securities for the settlement of securities transactions. The collateral
delivered to the Fund in connection with such a transaction is then
invested to provide the Fund with additional income it might not otherwise
have. Securities lending involves certain risks if the borrower fails to
return the securities.
WHAT IS THE FUND'S CURRENT LENDING RESTRICTION?
The Fund's lending restriction currently states that the Fund may not:
Make loans to others, except (a) through the purchase of debt
securities in accordance with its investment objectives and
policies, (b) through the lending of its portfolio securities
as described above and in its prospectus, or (c) to the extent
the entry into a repurchase agreement is deemed to be a loan.
WHAT EFFECT WILL STANDARDIZATION OF THE CURRENT LENDING RESTRICTION HAVE ON
THE FUND?
The proposed restriction would provide the Fund with greater lending
flexibility. While the proposed restriction retains the carve-outs in the
existing restriction, it also would permit the Fund to invest in loan
participations and direct corporate loans which recently have become more
common as investments for investment companies. The proposed restriction
also would provide the Fund additional flexibility to make loans to
affiliated investment companies to the extent permitted by exemptions
granted by the SEC. For example, the Franklin Templeton Group of Funds,
including the Fund, has requested an exemptive order from the SEC (the
"Lending Order") that will permit the Fund to lend cash to other Franklin
and Templeton funds. If the Lending Order is approved, the new restriction
would permit the Fund, under certain conditions, to lend cash to other
Franklin or Templeton funds at rates higher than those which the Fund would
receive if the Fund loaned cash to banks through short-term lendings such
as repurchase agreements. The Board anticipates that this additional
flexibility to lend cash to affiliated investment companies would provide
additional investment opportunities, and would enhance the Fund's ability
to respond to changes in market, industry or regulatory conditions.
In addition, the proposed restriction would help the Fund achieve the goal
of standardizing the language of the investment restrictions among the
Franklin Templeton Group of Funds. It is not anticipated that adoption of
the proposed restriction would involve any additional risk as the proposed
restriction would not affect the way the Fund is currently managed.
WHAT IS THE FUND'S PROPOSED LENDING RESTRICTION?
If approved by shareholders, the Fund's underwriting restriction will be
revised to state that the Fund may not:
MAKE LOANS TO OTHER PERSONS EXCEPT (A) THROUGH THE LENDING OF
ITS PORTFOLIO SECURITIES, (B) THROUGH THE PURCHASE OF DEBT
SECURITIES, LOAN PARTICIPATIONS AND/OR ENGAGING IN DIRECT
CORPORATE LOANS IN ACCORDANCE WITH ITS INVESTMENT OBJECTIVES
AND POLICIES, AND (C) TO THE EXTENT THE ENTRY INTO A
REPURCHASE AGREEMENT IS DEEMED TO BE A LOAN. THE FUND MAY ALSO
MAKE LOANS TO AFFILIATED INVESTMENT COMPANIES TO THE EXTENT
PERMITTED BY THE 1940 ACT OR ANY EXEMPTIONS THEREFROM WHICH
MAY BE GRANTED BY THE U.S. SECURITIES AND EXCHANGE COMMISSION.
SUB-PROPOSAL 4D: TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTIONS
REGARDING INVESTMENTS IN REAL ESTATE AND COMMODITIES.
Under the 1940 Act, a fund's restrictions regarding investments in real
estate and commodities must be fundamental. The Fund presently has two
separate investment restrictions that govern the Fund's ability to invest
in real estate and commodities. The proposed standardized restriction
would combine these two restrictions into one, as well as clarify the types
of financial commodities and other instruments in which the Fund may invest.
WHAT IS THE FUND'S CURRENT RESTRICTION REGARDING INVESTMENTS IN REAL ESTATE?
The Fund's current restriction states that the Fund may not: "Buy or sell
interests in...real estate."
WHAT IS THE FUND'S CURRENT RESTRICTION REGARDING INVESTMENTS IN COMMODITIES?
The Fund's current restriction states that the Fund may not: "Purchase or
sell commodities or commodity contracts or invest in put, call, straddle or
spread options."
WHAT EFFECT WILL STANDARDIZATION OF THE REAL ESTATE AND COMMODITIES
RESTRICTIONS HAVE ON THE FUND?
The proposed restriction will combine the limitations on investing in both
real estate and commodities into one restriction.
REAL ESTATE: The proposed investment restriction is designed to standardize
the language of the real estate restriction among the Franklin Templeton
Group of Funds. The proposed restriction also would permit the Fund to
purchase securities of real estate investment trusts ("REITS") to the
extent that an investment in REITS would otherwise meet the Fund's
investment criteria. Investing in REITS has gained in popularity since the
early 1990s, and the number of REITS available for investment also has
increased dramatically. The current restriction could be interpreted as
prohibiting the Fund from purchasing REITs since REITs might be considered
"interests" in real estate. Under the proposed restriction, the Fund will
continue to be prohibited from directly purchasing or selling real estate.
However, it is not anticipated that the proposed restriction will involve
any additional risk to the Fund as the Fund does not currently, and has not
in the past, invested in real estate or interests in real estate.
COMMODITIES: The proposed investment restriction is designed to
standardize the language of the commodities restriction among the Franklin
Templeton Group of Funds. Generally, commodities are considered to be
physical commodities such as wheat, cotton, rice and corn. However,
futures contracts, including financial futures contracts such as those
related to currencies, stock indices or interest rates, are also considered
to be commodities. Funds typically invest in such contracts and options on
contracts for hedging or other investment purposes. The proposed
restriction clarifies that the Fund has the flexibility to invest in
financial futures contracts and related options. The proposed restriction
would permit investment in financial futures instruments for either
investment or hedging purposes. Although the Fund has always had the
ability to invest in options on securities and options on futures, it has
not done so. The Fund does not intend to begin investing in financial
futures contracts and related options. Therefore, it is not anticipated
that the proposed restriction would involve any additional risk. Using
financial futures instruments can involve substantial risks, and will be
utilized only if the investment manager believes such risks are advisable.
WHAT IS THE FUND'S PROPOSED REAL ESTATE AND COMMODITIES RESTRICTION?
If approved by shareholders, the Fund's restriction will be revised to
state that the Fund may not:
PURCHASE OR SELL REAL ESTATE AND COMMODITIES, EXCEPT THAT THE
FUND MAY PURCHASE OR SELL SECURITIES OF REAL ESTATE INVESTMENT
TRUSTS, MAY PURCHASE OR SELL CURRENCIES, MAY ENTER INTO FUTURES
CONTRACTS ON SECURITIES, CURRENCIES, AND OTHER INDICES OR ANY
OTHER FINANCIAL INSTRUMENTS, AND MAY PURCHASE AND SELL OPTIONS
ON SUCH FUTURES CONTRACTS.
SUB-PROPOSAL 4E: TO AMEND THE FUND'S INVESTMENT RESTRICTION REGARDING
ISSUING SENIOR SECURITIES.
Under the 1940 Act, the Fund must have an investment policy describing its
ability to issue senior securities. A "senior security" is an obligation
of a fund with respect to its earnings or assets that takes precedence over
the claims of the fund's shareholders with respect to the same earnings or
assets. The 1940 Act generally prohibits an open-end fund from issuing
senior securities in order to limit the use of leverage. In general, a
fund uses leverage when it borrows money to enter into securities
transactions, or acquires an asset without being required to make payment
until a later time.
SEC staff interpretations allow a fund to engage in a number of types of
transactions which might otherwise be considered to create "senior
securities" or "leverage," so long as the fund meets certain collateral
requirements designed to protect shareholders. For example, some
transactions that may create senior security concerns include short sales,
certain options and futures transactions, reverse repurchase agreements and
securities transactions that obligate the fund to pay money at a future
date (such as when-issued, forward commitment or delayed delivery
transactions). When engaging in such transactions, a fund must mark on its
or its custodian bank's books, or set aside money or securities with its
custodian bank to meet the SEC staff's collateralization requirements.
This procedure effectively eliminates a fund's ability to engage in
leverage for these types of transactions.
WHAT IS THE FUND'S CURRENT RESTRICTION CONCERNING ISSUING SENIOR SECURITIES?
The Fund's current restriction concerning issuing senior securities is
non-fundamental and states that the Fund may not:
Issue senior securities, as defined in the 1940 Act, except
that this restriction shall not be deemed to prohibit any fund
from (a) making any permitted borrowings, mortgages or pledges,
or (b) entering into repurchase transactions.
WHAT EFFECT WILL STANDARDIZATION OF THE RESTRICTION REGARDING ISSUING
SENIOR SECURITIES HAVE ON THE FUND?
The new restriction would permit the Fund to engage in forward contracts
and to make short sales as permitted under the 1940 Act, and any exemptions
available under the 1940 Act. The proposed restriction also would permit
the Fund to engage in permissible types of leveraging transactions.
Essentially, the proposed restriction clarifies the Fund's ability to
engage in those investment transactions (such as repurchase transactions)
which, while appearing to raise senior security concerns, have been
interpreted as not constituting the issuance of senior securities under the
federal securities laws.
Finally, the proposed investment restriction is designed to standardize the
language regarding issuing senior securities among the Franklin Templeton
Group of Funds. The Board does not anticipate that any additional risk to
the Fund will occur as a result of amending the current restriction and
making it fundamental because the Fund has no present intention of changing
its current investment policies or engaging in transactions that may be
interpreted as issuing senior securities.
WHAT IS THE FUND'S PROPOSED RESTRICTION REGARDING ISSUING SENIOR SECURITIES?
If approved by shareholders, the Fund's senior securities restriction will
be a fundamental restriction, and will state that the Fund may not:
ISSUE SECURITIES SENIOR TO THE FUND'S PRESENTLY AUTHORIZED
SHARES OF BENEFICIAL INTEREST. EXCEPT THAT THIS RESTRICTION
SHALL NOT BE DEEMED TO PROHIBIT THE FUND FROM (A) MAKING ANY
PERMITTED BORROWINGS, LOANS, MORTGAGES OR PLEDGES, (B) ENTERING
INTO OPTIONS, FUTURES CONTRACTS, FORWARD CONTRACTS, REPURCHASE
TRANSACTIONS, OR REVERSE REPURCHASE TRANSACTIONS, OR (C) MAKING
SHORT SALES OF SECURITIES TO THE EXTENT PERMITTED BY THE 1940
ACT AND ANY RULE OR ORDER THEREUNDER, OR SEC STAFF
INTERPRETATIONS THEREOF.
SUB-PROPOSAL 4F: TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
REGARDING CONCENTRATION OF THE FUND'S INVESTMENTS IN THE SAME INDUSTRY.
Under the 1940 Act, a fund's policy of concentrating its investments in
securities of companies in the same industry must be fundamental. Under
the federal securities laws, a mutual fund "concentrates" its investments
if it invests more than 25% of its "net" assets (exclusive of certain items
such as cash, U.S. government securities, securities of other investment
companies, and tax-exempt securities) in a particular industry or group of
industries. A fund is not permitted to concentrate its investments in a
particular industry unless it so states.
WHAT IS THE FUND'S CURRENT RESTRICTION REGARDING INDUSTRY CONCENTRATION?
The Fund's current restriction regarding concentration states that the Fund
may not:
Invest more than 25% of the market value of its assets in the
securities of companies engaged in any one industry. (Does not
apply to investment in the securities of the U.S. government,
its agencies or instrumentalities.)
WHAT EFFECT WILL STANDARDIZATION OF THE CURRENT RESTRICTION REGARDING
INDUSTRY CONCENTRATION HAVE ON THE FUND?
The new restriction would help the Fund achieve the goal of standardizing
the language of the investment restrictions among the Franklin Templeton
Group of Funds. The new restriction provides the Fund with marginally
added flexibility because it exempts from the 25% limitation the securities
of other investment companies. This investment flexibility will help the
Fund respond to future legal, regulatory, market or technical changes.
However, adoption of the proposed restriction is not expected to change
materially the way in which the Fund is currently managed as the Fund does
not intend to begin concentrating in shares of other investment companies.
WHAT IS THE FUND'S PROPOSED RESTRICTION REGARDING INDUSTRY CONCENTRATION?
If approved by shareholders, the Fund's restriction relating to
concentration will be revised to state that the Fund may not:
CONCENTRATE (INVEST MORE THAN 25% OF ITS TOTAL ASSETS) IN
SECURITIES OF ISSUERS IN A PARTICULAR INDUSTRY (OTHER THAN
SECURITIES ISSUED OR GUARANTEED BY THE U.S. GOVERNMENT OR ANY
OF ITS AGENCIES OR INSTRUMENTALITIES OR SECURITIES OF OTHER
INVESTMENT COMPANIES).
SUB-PROPOSAL 4G: TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
REGARDING DIVERSIFICATION OF INVESTMENTS.
The 1940 Act prohibits a "diversified" investment company, like the Fund,
from purchasing securities of any one issuer if, at the time of purchase,
as to 75% of the fund's total assets more than 5% of the fund's total
assets would be invested in securities of that issuer, or the fund would
own or hold more than 10% of the outstanding voting securities of that
issuer, except that up to 25% of the fund's total assets may be invested
without regard to these limitations. Under the 1940 Act, these 5% and 10%
limitations do not apply to securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, or to the securities of
other investment companies.
WHAT IS THE FUND'S CURRENT INVESTMENT DIVERSIFICATION RESTRICTION?
The Fund's current diversification restriction states that the Fund may not:
Invest in the securities of any one issuer (other than the
U.S. government and its agencies and instrumentalities), if
immediately after and as a result of such investment (a) more
than 5% of the total assets of the fund would be invested in
such issuer or (b) more than 10% of the outstanding voting
securities of such issuer would be owned by the fund.
Thus, the current restriction applies to 100% of the Fund's total assets
rather than the lower statutorily imposed 75% limit. Further, although the
1940 Act excludes the securities of other investment companies as well as
those of the U.S. government and its agencies and instrumentalities, the
current restriction does not include such a carve-out for the securities of
other investment companies.
WHAT EFFECT WILL STANDARDIZATION OF THE CURRENT INVESTMENT DIVERSIFICATION
RESTRICTION HAVE ON THE FUND?
Amending the Fund's diversification policy would make it consistent with
the definition of a diversified investment company under the 1940 Act, and
would provide the Fund with greater investment flexibility. The proposed
restriction is substantially similar to the current restriction, but would
help the Fund achieve the goal of standardizing the language of the
investment restrictions among the Franklin Templeton Group of Funds.
The proposed investment restriction clarifies that the 5% and 10%
limitations do not apply to 25% of the Fund's total assets. However, it is
not currently anticipated that adoption of the proposed restriction would
materially change the way the Fund is managed.
Another change in the proposed restriction is that it excludes from the 5%
and 10% limitations the purchase by the Fund of the securities of other
investment companies. With this exclusion, the Fund would be able to
invest cash held at the end of the day in money market funds or other
short-term investments without regard to the 5% and 10% investment
limitations. The Fund, together with the other funds in the Franklin
Templeton Group of Funds, has obtained an exemptive order from the SEC (the
"Cash Sweep Order") to permit the Franklin and Templeton funds to invest
their uninvested cash in one or more Franklin or Templeton money market
funds. Amending the Fund's current restriction would permit the Fund to
take advantage of the investment opportunities presented by the Cash Sweep
Order, since the Cash Sweep Order contemplates relief from the 1940 Act
restrictions relating to the permissible percentage investments in other
investment companies.
WHAT IS THE FUND'S PROPOSED INVESTMENT DIVERSIFICATION RESTRICTION?
If approved by shareholders, the Fund's diversification restriction will be
revised to state that the Fund may not:
PURCHASE THE SECURITIES OF ANY ONE ISSUER (OTHER THAN THE U.S.
GOVERNMENT OR ANY OF ITS AGENCIES OR INSTRUMENTALITIES OR
SECURITIES OF OTHER INVESTMENT COMPANIES) IF IMMEDIATELY AFTER
SUCH INVESTMENT (A) MORE THAN 5% OF THE VALUE OF THE FUND'S
TOTAL ASSETS WOULD BE INVESTED IN SUCH ISSUER OR (B) MORE THAN
10% OF THE OUTSTANDING VOTING SECURITIES OF SUCH ISSUER WOULD
BE OWNED BY THE FUND, EXCEPT THAT UP TO 25% OF THE VALUE OF
SUCH FUND'S TOTAL ASSETS MAY BE INVESTED WITHOUT REGARD TO SUCH
5% AND 10% LIMITATIONS.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS
THAT YOU APPROVE SUB-PROPOSALS 4A-4G
PROPOSAL 5: TO APPROVE THE ELIMINATION OF CERTAIN OF THE FUND'S
FUNDAMENTAL INVESTMENT RESTRICTIONS
WHICH FIVE (5) FUNDAMENTAL INVESTMENT RESTRICTIONS IS THE BOARD
RECOMMENDING THAT THE FUND ELIMINATE?
Some of the Fund's fundamental investment restrictions were originally
drafted pursuant to state laws and regulations, which, due to NSMIA, are no
longer in accordance with SEC staff positions since the positions have
either changed or are no longer relevant to the Fund. Since NSMIA
eliminated the states' ability to substantively regulate investment
companies, the Fund is no longer legally required to include current
restrictions 4, 5, 6, 8 and 9 among its fundamental investment
restrictions. Advisory Services has recommended, and the Board has
determined, that all of these current fundamental investment restrictions
should be eliminated.
The exact wording of these five restrictions, (referred to in this Proposal
5 as the "Restrictions") has been included in Exhibit A, which is entitled,
"Current Fundamental Investment Restrictions Proposed to be Eliminated."
SECURITIES ON MARGIN, SHORT SALES, AND JOINT TRADING:
The Fund's current fundamental investment restriction number 4 limits the
Fund's ability to purchase securities on margin, sell securities short, or
participate on a joint or joint and several basis in any securities trading
accounts. This restriction was originally included in response to the
various state law requirements to which mutual funds used to be subject.
As discussed earlier in the introduction, under NSMIA the Fund is no longer
required to retain a fundamental policy regarding all of these types of
investment activities.
As a general matter, elimination of this fundamental restriction relating
to purchasing securities on margin, selling securities short, and
participating in a securities trading account should not have an impact on
the day to day management of the Fund, since the 1940 Act prohibitions on
these types of transactions would continue to apply to the Fund. The
Fund's ability to sell securities short, while no longer required to be
fundamental, raises senior security issues. Accordingly, the Fund's
ability to sell securities short is addressed in the proposed restriction
relating to issuing senior securities (described in Sub-Proposal 4e).
Under the proposed restriction, the Fund would be permitted to sell
securities short to the extent permitted by the 1940 Act, and any rule or
exemptive order granted by the SEC. The Fund's ability to purchase
securities on margin also raises senior security issues and is similarly
prohibited under the 1940 Act. Elimination of the restriction, therefore,
would not affect the Fund's ability to purchase on margin. Further, joint
transactions are generally prohibited under the 1940 Act, and the Fund
would continue to remain subject to the conditions imposed on joint
transactions by the 1940 Act and any exemptions granted by the SEC.
Finally, the Fund has not previously, nor does it currently intend to
engage in these investment activities.
OIL, GAS AND MINERAL INTERESTS:
The Fund's current fundamental investment restriction number 5, which
limits the Fund's ability to buy or sell interests in oil, gas or mineral
exploration or development programs, is no longer required to be
fundamental. These restrictions were originally enacted in response to
various state law requirements, but under NSMIA, the Fund is no longer
legally required to retain such policies as fundamental restrictions.
As a general matter, elimination of these fundamental restrictions should
not have an impact on the day to day management of the Fund as the Fund has
not previously, nor does it currently intend to engage in these types of
investment activities.
MANAGEMENT OWNERSHIP OF SECURITIES:
The Fund's current restriction number 6 limits the Fund's ability to invest
in securities issued by companies whose securities are owned in certain
amounts by Trustees and officers of the Fund, or its investment manager,
Advisory Services. This policy originated many years ago with a now
obsolete state securities law. As a general matter, elimination of this
fundamental restriction should not have an impact on the day to day
management of the Fund, as the 1940 Act restrictions still apply to the
Fund.
ILLIQUID SECURITIES:
The Fund's current fundamental investment restriction number 8 limits the
Fund's ability to invest more than 10% of its assets in illiquid
securities. This restriction arose out of an SEC staff position which is
not required to be fundamental. The SEC recently amended its position to
permit funds to invest up to 15% of their assets in illiquid securities.
However, the Fund may not take advantage of this new SEC position because
its policy relating to investments in illiquid securities is fundamental.
Elimination of this fundamental restriction would permit the Fund to take
advantage of the current SEC position. Although the Fund's policy relating
to illiquid securities would not be fundamental, the Fund would still be
subject to the SEC rules and regulations in this area.
CONTROL OR MANAGEMENT:
The Fund's current fundamental investment restriction number 9 limits the
Fund's ability to invest for purposes of exercising control or management.
This restriction was enacted in response to various state securities laws
and is no longer required under NSMIA. Typically, if a fund acquires a
large percentage of the securities of a single issuer, it will be deemed to
have invested in such issuer for the purposes of exercising control or
management. This restriction was intended to ensure that a mutual fund
would not be engaged in the business of managing another company.
Eliminating this restriction will not have any impact on the day to day
management of the Fund because the Fund has no present intention to invest
in an issuer for the purposes of exercising control or management.
Further, the goal of this restriction, namely to limit a fund's ability to
control another issuer, is embodied in the 1940 Act diversification rule
which is proposed to be incorporated in the proposed investment restriction
relating to diversification (described in Sub-Proposal 4g). The
diversification restriction limits the Fund's ability to own more than a
certain percentage of any one issuer, which acts to limit its ability to
exercise control or management over another company.
WHY IS THE BOARD RECOMMENDING THAT THE RESTRICTIONS BE ELIMINATED, AND WHAT
EFFECT WILL SUCH ELIMINATION HAVE ON THE FUND?
The Board has determined that eliminating the Restrictions is consistent
with the federal securities laws and will conform the Fund's list of
fundamental restrictions with standardized investment restrictions adopted
by other Franklin and Templeton funds. By both standardizing and reducing
the total number of investment restrictions that can be changed only by a
shareholder vote, the Board believes that the Fund will be able to minimize
the costs and delays associated with holding future shareholder meetings to
revise fundamental policies that become outdated or inappropriate. The
Board believes that eliminating the Restrictions is in the best interest of
the Fund's shareholders as it will provide the Fund with increased
flexibility to pursue its investment goals.
WHAT ARE THE RISKS, IF ANY, IN ELIMINATING THE RESTRICTIONS?
The Board does not anticipate that eliminating the Restrictions will result
in any additional risk to the Fund. Although the Fund's current
Restrictions, as drafted, are no longer legally required, the Fund's
ability to invest in these five areas will continue to be subject to the
limitations of the 1940 Act, and any exemptive orders granted under the
1940 Act. Further, the Fund has no current intention to change its present
investment practices as a result of eliminating these Restrictions.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS
THAT YOU APPROVE PROPOSAL 5
PROPOSAL 6: TO APPROVE THE REORGANIZATION OF THE TRUST FROM A
MASSACHUSETTS BUSINESS TRUST TO A DELAWARE BUSINESS TRUST
WHAT WILL THE REORGANIZATION MEAN FOR THE TRUST AND ITS SHAREHOLDERS?
The Trustees recommend that you approve a change in the place of
organization of the Trust from a Massachusetts business trust to a Delaware
business trust. This proposed change will be referred to in this proxy
statement as the "Reorganization." The Board of Trustees has approved an
Agreement and Plan of Reorganization (the "Plan"), substantially in the
form attached to this proxy statement as Exhibit B. The Plan provides for
the Reorganization, which involves the continuation of the Trust, (referred
to in this Proposal 6 as the "Massachusetts Trust") in the form of a newly
created Delaware business trust, also named "Franklin Managed Trust" (and
referred to in this Proposal 6 as the "Delaware Trust"). As of the
effective date of the Reorganization, the Delaware Trust will have one
series, the "Franklin Rising Dividends Fund" (referred to in this Proposal
6 as the "Rising Dividends - DE") that will correspond to the current
Franklin Rising Dividends Fund of the Massachusetts Trust. For ease of
reference and comparison, the current Rising Dividends Series will be
referred to in this Proposal 6 as the "Rising Dividends - MA."
Rising Dividends-DE will have the same investment objective, policies and
restrictions as Rising Dividends-MA. This means that Rising Dividends-DE's
fundamental investment policies and restrictions will reflect the results
of the shareholders' vote on Proposals 3, 4 and 5 of this proxy statement.
The Trustees, officers and employees will be the same, and will operate the
Delaware Trust in the same manner as they previously operated the
Massachusetts Trust. On the closing date of the Reorganization, you will
hold an interest in the Delaware Trust that is equivalent to your interest
in the Massachusetts Trust. Essentially, your investment will not change,
and the Reorganization will have no material impact on your economic
interests as a shareholder.
WHY ARE THE TRUSTEES RECOMMENDING THAT I APPROVE THE REORGANIZATION?
The Trustees have determined that mutual funds formed as Delaware business
trusts have certain advantages over those funds organized as Massachusetts
business trusts. Delaware law contains provisions specifically designed
for mutual funds, which take into account their unique structure and
operations. Under Delaware law, funds are able to simplify their
operations by reducing administrative burdens. The Delaware law 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. Delaware law also provides favorable state tax treatment.
Furthermore, there is a well-established body of corporate legal precedent
that may be relevant in deciding issues pertaining to the Delaware Trust.
A comparison of the Delaware business trust law and the Massachusetts
business trust law, as well as a comparison of the relevant provisions of
the governing documents of the Delaware Trust and the Massachusetts Trust,
is included in Exhibit C, which is entitled, "Comparison and Significant
Differences Between Delaware Trusts and Massachusetts Trusts."
The Reorganization also would increase uniformity among the Franklin
Templeton Group of Funds, since many of the funds are already organized as
Delaware business trusts, and the Delaware trust form has been chosen for
new Franklin and Templeton funds that have been created over the past few
years. Increased uniformity among the funds, many of which share common
trustees, officers and service providers, is expected to reduce the costs
and resources needed to comply with state corporate laws, and also reduce
administrative burdens.
For these reasons, the Trustees believe that it is in the best interests of
the shareholders to approve the Reorganization.
WHAT ARE THE CONSEQUENCES AND PROCEDURES OF THE REORGANIZATION?
Upon completion of the Reorganization, the Delaware Trust will continue the
business of the Massachusetts Trust with the same investment objective and
policies of Rising Dividends-MA as exist on the date of the Reorganization,
and will hold the same portfolio of securities previously held by the
Massachusetts Trust on behalf of Rising Dividends-MA. The Delaware Trust
will be operated under substantially identical overall management,
investment management, distribution and administrative arrangements as
those of the Massachusetts Trust. As the successor to the Massachusetts
Trust's operations, the Delaware Trust will adopt the Massachusetts Trust's
registration statement with amendments to show the new Delaware business
trust structure.
The Delaware Trust was created solely for the purpose of becoming the
successor organization to, and carrying on the business of, the
Massachusetts Trust. To accomplish the Reorganization, the Plan provides
that the Massachusetts Trust will transfer all of the portfolio securities
of Rising Dividends-Mass and any other assets, subject to its related
liabilities, to the Delaware Trust. In exchange for these assets and
liabilities, the Delaware Trust will issue its own shares to the
Massachusetts Trust, which will then distribute those shares pro rata to
you as a shareholder of the Massachusetts Trust. Through this procedure
you will receive exactly the same number and dollar amount of shares of
Rising Dividends-DE as you previously held in Rising Dividends-MA. The net
asset value of each share of Rising Dividends-DE will be the same as that
of Rising Dividends-MA on the date of the Reorganization. You will retain
the right to any declared but undistributed dividends or other
distributions payable on the shares of the Rising Dividends-MA that you may
have had as of the effective date of the Reorganization. As soon as
practicable after the date of the Reorganization, the Massachusetts Trust
will be dissolved and will go out of existence.
The Trustees may terminate the Plan and abandon the Reorganization at any
time prior to the effective date of the Reorganization if they determine
that such actions are in the best interests of the Massachusetts Trust's
shareholders. If the Reorganization is not approved, or if the Trustees
abandon the Reorganization, the Massachusetts Trust will continue to
operate as a Massachusetts business trust.
WHAT EFFECT WILL THE REORGANIZATION HAVE ON THE CURRENT INVESTMENT ADVISORY
AGREEMENT?
As a result of the Reorganization, Rising Dividends-DE will be subject to a
new investment advisory agreement between the Delaware Trust, on behalf of
Rising Dividends-DE, and Advisory Services. The new advisory agreement
will be substantially identical to the current advisory agreement between
Advisory Services, and the Massachusetts Trust on behalf of Rising
Dividends-MA It is anticipated that there will be no material change to
the investment advisory agreement as a result of the Reorganization.
WHAT EFFECT WILL THE REORGANIZATION HAVE ON THE SHAREHOLDER SERVICING
AGREEMENTS AND DISTRIBUTION PLANS?
The Delaware Trust will enter into agreements with Franklin/Templeton
Investor Services, Inc. for transfer agency, dividend disbursing,
shareholder servicing and fund accounting services that are substantially
identical to the agreements currently in place for the Massachusetts
Trust. Franklin Templeton Distributors, Inc. will serve as the distributor
for the shares of the Delaware Trust under a separate distribution
agreement that is substantially identical to the distribution agreement
currently in effect for the Massachusetts Trust.
As of the effective date of the Reorganization, Rising Dividends-DE will
have distribution plans under Rule 12b-1 of the 1940 Act relating to the
distribution of the classes of shares that are substantially identical to
the distribution plans currently in place for the corresponding classes of
shares of Rising Dividends-MA. It is anticipated that there will be no
material change to the distribution plans as a result of the Reorganization.
WHAT IS THE EFFECT OF SHAREHOLDER APPROVAL OF THE REORGANIZATION?
Under the 1940 Act, the shareholders of a mutual fund must vote on the
following: (1) election of trustees; (2) selection of the independent
auditors; and (3) approval of initial investment management agreement for
the fund.
Theoretically, if the Reorganization is approved, the shareholders would
need to vote on these three items for the Delaware Trust. In fact, the
Delaware Trust must have shareholder approval of these issues or else it
will not comply with the 1940 Act. However, the Trustees have determined
that it is in the best interests of the shareholders to avoid the
considerable expense of another shareholder meeting to obtain these
approvals after the Reorganization. Therefore, the Trustees have determined
that approval of the Reorganization also will constitute the requisite
shareholder approval for the Plan contained in Exhibit B, and also, for
purposes of the 1940 Act, constitute shareholder approval of: (1) the
election of the Trustees of the Massachusetts Trust who are in office at
the time of the Reorganization as Trustees for the Delaware Trust; (2) the
selection of Tait, Weller & Baker as independent auditors for the Delaware
Trust; and (3) a new investment advisory agreement between the Delaware
Trust on behalf of Rising Dividends-DE and Advisory Services, which is
substantially identical to the agreement currently in place for the
Massachusetts Trust on behalf of Rising Dividends-MA.
Prior to the Reorganization, the officers will cause the Massachusetts
Trust, as the sole shareholder of the Delaware Trust, to vote its shares
FOR the matters specified above. This action will enable the Delaware
Trust to satisfy the requirements of the 1940 Act without involving the
time and expense of another shareholder meeting.
WHAT IS THE CAPITALIZATION AND STRUCTURE OF THE DELAWARE TRUST?
The Delaware Trust was created on July 7, 1999 pursuant to Delaware law.
The Delaware Trust has an unlimited number of shares of beneficial interest
with a par value of $0.01 per share. On the date of the Reorganization, an
unlimited number of shares will be allocated to the Rising Dividends-DE
The shares of the Delaware Trust will be further allocated into three
classes to correspond to the current three classes of shares of Rising
Dividends-MA of the Massachusetts Trust.
As of the effective date of the Reorganization, shares of the respective
classes of Rising Dividends-MA of the Massachusetts Trust and Rising
Dividends-DE of the Delaware Trust will have equal dividend and redemption
rights, will be fully paid, non-assessable, freely transferable, have the
same conversion rights, and have no preemptive or subscription rights.
Shares of the respective classes of both the Delaware Trust and the
Massachusetts Trust will have equal voting and liquidation rights and have
one vote per share. The Delaware Trust also will have the same fiscal year
as the Massachusetts Trust.
WHO WILL BEAR THE EXPENSES OF THE REORGANIZATION?
Since the Reorganization will benefit the Massachusetts Trust and its
shareholders, the Board has authorized that the expenses incurred in the
Reorganization shall be paid by the Massachusetts Trust, whether or not the
Reorganization is approved by shareholders.
ARE THERE ANY TAX CONSEQUENCES FOR SHAREHOLDERS?
The Reorganization is designed to be tax free for federal income tax
purposes so that you will not experience a taxable gain or loss when the
Reorganization is completed. Generally, the basis and holding period of
your shares in Rising Dividends-DE will be the same as the basis and
holding period of your shares in Rising Dividends-MA.
WHAT IF I CHOOSE TO SELL MY SHARES AT ANY TIME?
A request to sell Massachusetts Trust shares that is received and processed
prior to the Reorganization will be treated as a redemption of shares of
the Massachusetts Trust. A request to sell shares that is received and
processed after the Reorganization will be treated as a request for the
redemption of the same number of shares of the Delaware Trust.
WHAT IS THE EFFECT OF MY "YES" VOTE?
By voting "YES" to the Reorganization, you will be agreeing to become a
shareholder of a mutual fund organized as a Delaware trust, with its
Trustees, independent auditors, investment management agreement and
distribution plans already in place, and all such arrangements that are
substantially identical to those of the Massachusetts Trust.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS
THAT YOU APPROVE PROPOSAL 6
PROPOSAL 7: OTHER BUSINESS
The Trustees do not intend to bring any matters before the Meeting other
than Proposals 1, 2, 3, 4, 5, and 6 and are not aware of any other matters
to be brought before the Meeting by others. If any other matters do
properly come before the Meeting, the persons named in the enclosed proxy
will use their best judgment in voting on such matters.
INFORMATION ABOUT THE TRUST
THE INVESTMENT MANAGER. Franklin Advisory Services, LLC ("Advisory
Services"), 777 Mariners Island Blvd., San Mateo, California 94404 serves
as the Trust's investment manager. Advisory Services is wholly owned by
Resources.
THE TRUST ADMINISTRATOR. Under an agreement with Advisory Services,
Franklin Templeton Services, Inc. ("FT Services"), whose principal address
is also 777 Mariners Island Blvd., San Mateo, CA 94404, provides certain
administrative services and facilities for the Trust. FT Services is a
wholly owned subsidiary of Resources and is an affiliate of Advisory
Services and the Trust's principal underwriter.
THE UNDERWRITER. The underwriter for the Trust is Franklin Templeton
Distributors, Inc., 777 Mariners Island Blvd., San Mateo, California 94404.
THE TRANSFER AGENT. The transfer agent, registrar and dividend
disbursement agent for the Trust is Franklin/Templeton Investor Services,
Inc., 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, California
94403-7777.
THE CUSTODIAN. The Bank of New York, Mutual Funds Division, 90 Washington
Street, New York, NY 10286, acts as custodian of the Trust's securities and
other assets.
REPORTS TO SHAREHOLDERS AND FINANCIAL STATEMENTS. The Trust's last audited
financial statements and annual report, for the fiscal year ended September
30, 1998, and its semi-annual report dated March 31, 1999, are available
free of charge. To obtain a copy, please call 1-800/DIAL BEN(R) or forward a
written request to Franklin/Templeton Investor Services, Inc., 777 Mariners
Island Blvd., P.O. Box 7777, San Mateo, CA 94403-7777.
PRINCIPAL SHAREHOLDERS. As of August 30, 1999, the Trust had
______________ shares outstanding and total net assets of $____________.
From time to time, the number of shares held in "street name" accounts of
various securities dealers for the benefit of their clients may exceed 5%
of the total shares outstanding. To the knowledge of the Trust's
management, as of August 30, 1999, there were no other entities holding
beneficially or of record more than 5% of the Trust's outstanding shares.
In addition, to the knowledge of the Trust's management, as of July 30,
1999, no Trustee of the Trust owned 1% or more of the outstanding shares of
the Trust, and the Officers and Trustees of the Trust owned, as a group,
less than 1% of the outstanding shares of the Trust.
FURTHER INFORMATION ABOUT VOTING AND THE MEETING
SOLICITATION OF PROXIES. The cost of soliciting these proxies will be
borne by the Trust. The Trust reimburses brokerage firms and others for
their expenses in forwarding proxy material to the beneficial owners and
soliciting them to execute proxies. The Trust has engaged _________ to
solicit proxies from brokers, banks, other institutional holders and
individual shareholders for an approximate fee, including out-of-pocket
expenses, ranging between $_____ and $______. The Trust expects that the
solicitation will be primarily by mail, but also may include telephone,
telecopy or oral solicitations. The Trust does not reimburse Trustees and
officers of the Trust, or regular employees and agents of Advisory Services
involved in the solicitation of proxies. The Trust intends to pay all
costs associated with the solicitation and the Meeting.
In addition to solicitations by mail, some of the Executive Officers and
employees of the Trust, Advisory Services and its affiliates, without extra
compensation, may conduct additional solicitations by telephone, personal
interviews and other means.
VOTING BY BROKER-DEALERS. The Trust expects that, before the Meeting,
broker-dealer firms holding shares of the Trust in "street name" for their
customers will request voting instructions from their customers and
beneficial owners. If these instructions are not received by the date
specified in the broker-dealer firms' proxy solicitation materials, the
Trust understands that NYSE Rules permit the broker-dealers to vote on the
items to be considered at the Meeting on behalf of their customers and
beneficial owners. Certain broker-dealers may exercise discretion over
shares held in their name for which no instructions are received by voting
those shares in the same proportion as they vote shares for which they
received instructions.
QUORUM. Forty percent of the shares entitled to vote, present in person or
represented by proxy, constitutes a quorum at the Meeting. The shares over
which broker-dealers have discretionary voting power, the shares that
represent "broker non-votes" (i.e., shares held by brokers or nominees as
to which: (i) instructions have not been received from the beneficial
owners or persons entitled to vote; and (ii) the broker or nominee does not
have discretionary voting power on a particular matter), and the shares
whose proxies reflect an abstention on any item are all counted as shares
present and entitled to vote for purposes of determining whether the
required quorum of shares exists.
REQUIRED VOTE. Provided that a quorum is present, Proposal 1, the election
of Trustees, requires that the four nominees receiving the greatest number
of votes cast at the Meeting will be elected. All voting rights are
non-cumulative, which means that the holders of more than 50% of the shares
voting for the election of Trustees can elect 100% of such Trustees if they
choose to do so, and in such event, the holders of the remaining shares
voting will not be able to elect any Trustees. Proposal 2, ratification of
the selection of independent auditors, requires the affirmative vote of a
majority of the Trust's shares present and voting on the Proposal at the
Meeting. Proposal 3, modification of the Fund's current criteria for the
selection of portfolio companies related to the issuer's treatment of debt
on its balance sheet, requires the affirmative vote of a majority of the
Trust's shares present and voting on the Proposal at the Meeting.
Proposals 4 and 5, amendments to, or elimination of, fundamental investment
restrictions, require the affirmative vote of the lesser of: (i) more than
50% of the outstanding voting securities of the Trust; or (ii) 67% or more
of the voting securities of the Trust present at the Meeting, if the
holders of more than 50% of the outstanding voting securities are present
or represented by proxy. Proposal 6, the reorganization of the Trust from
a Massachusetts business trust to a Delaware business trust, requires the
affirmative vote of a majority of the Trust's shares present and voting on
the Proposal at the Meeting. Proposal 7, the transaction of any other
business, is expected to require the affirmative vote of a majority of the
Trust's shares present and voting on the Proposal at the Meeting.
Abstentions and broker non-votes will be treated as votes not cast and,
therefore, will not be counted for purposes of obtaining approval of each
Proposal.
OTHER MATTERS AND DISCRETION OF ATTORNEYS NAMED IN THE PROXY. The Trust is
not required, and does not intend, to hold regular annual meetings of
shareholders. Shareholders wishing to submit proposals for consideration
for inclusion in a proxy statement for the next meeting of shareholders
should send their written proposals to the Trust's offices, 777 Mariners
Island Blvd., San Mateo, CA 94404, so they are received within a
reasonable time before any such meeting. No business other than the
matters described above is expected to come before the Meeting, but should
any other matter requiring a vote of shareholders arise, including any
question as to an adjournment or postponement of the Meeting, the persons
named on the enclosed proxy card will vote on such matters according to
their best judgment in the interests of the Trust.
By order of the Board of Trustees,
Deborah R. Gatzek
SECRETARY
Dated: September 13, 1999
San Mateo, California
EXHIBIT A
CURRENT FUNDAMENTAL INVESTMENT RESTRICTIONS PROPOSED TO BE ELIMINATED
Five of the Fund's current fundamental investment restrictions have been
proposed to be eliminated, and are listed in the table below.
- - -----------------------------------------------------------------------
SUBJECT CURRENT INVESTMENT RESTRICTION STATES THAT THE FUND
MAY NOT:
- - -----------------------------------------------------------------------
Purchase 4. Purchase securities on margin, sell securities
Securities on short, participate on a joint or joint and several
Margin; Sell basis in any securities trading account . . . .
Securities (Does not preclude a fund from obtaining such
Short; Joint short-term credit as may be necessary for the
Trading clearance of purchases and sales of its portfolio
securities.)
- - -----------------------------------------------------------------------
Oil/Gas/Mineral 5. Buy or sell interests in oil, gas or mineral
Interests exploration or development programs . . . . (Does
not preclude investments in marketable securities
of companies engaged in such activities.)
- - -----------------------------------------------------------------------
Ownership by 6. Purchase or hold securities of any issuer if,
Management at the time of purchase or thereafter, any of the
trustees or officers of the trust or the manager
own beneficially more than one-half of 1%, and all
such trustees or officers holding more than
one-half of 1% together own beneficially more than
5% of the issuer's securities.
- - -----------------------------------------------------------------------
Illiquid 8. Invest more than 10% of its assets in
Securities securities with legal or contractual restrictions
on resale, securities which are not readily
marketable, and repurchase agreements with more
than seven days to maturity.
- - -----------------------------------------------------------------------
Control or 9. Invest in any issuer for purposes of exercising
Management control or management.
- - -----------------------------------------------------------------------
EXHIBIT B
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made
this __ day of ______________, 1999 by and between Franklin Managed Trust, a
business trust created under the laws of the Commonwealth of Massachusetts
(the "Massachusetts Trust"), and Franklin Managed Trust, a business trust
created under the laws of the State of Delaware (the "Delaware Trust").
In consideration of the mutual promises contained herein, and
intending to be legally bound, the parties hereto agree as follows:
1. PLAN OF REORGANIZATION.
(a) Upon satisfaction of the conditions precedent described in
Section 3 hereof, the Massachusetts Trust will convey, transfer and
deliver to the Delaware Trust, on behalf of its Franklin Rising
Dividends Fund series (the "New Fund"), at the closing provided for
in Section 2 (hereinafter referred to as the "Closing") all of its
then-existing assets, including the assets underlying its single
series of shares designated as the Franklin Rising Dividends Fund
series (the "Fund"). In consideration thereof, the Delaware Trust
agrees at the Closing (i) to assume and pay, to the extent that
they exist on or after the Effective Date of the Reorganization (as
defined in Section 2 hereof), all of the Massachusetts Trust's
obligations and liabilities, whether absolute, accrued, contingent
or otherwise, including all fees and expenses in connection with
the Agreement, including without limitation costs of legal advice,
accounting, printing, mailing, proxy solicitation and transfer
taxes, if any, the obligations and liabilities allocated to the
Massachusetts Trust to become the obligations and liabilities of
the Delaware Trust, and (ii) to deliver to the Massachusetts Trust
full and fractional shares of the New Fund equal in number to the
number of full and fractional shares outstanding of the Fund. The
transactions contemplated hereby are intended to qualify as a
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended ("Code").
(b) The Delaware Trust will effect such delivery by establishing
an open account for each shareholder of the Fund and by crediting
to such account, the exact number of full and fractional shares of
the appropriate class of the New Fund such shareholder held in the
corresponding class of the Fund on the Effective Date of the
Reorganization. Fractional shares of the New Fund will be carried
to the third decimal place. On the Effective Date of the
Reorganization, the net asset value per share of beneficial
interest of each class of the New Fund shall be deemed to be the
same as the net asset value per share of each corresponding class
of the Fund. On such date, each certificate representing shares of
a class of the Fund will represent the same number of shares of the
corresponding class of the New Fund. Each shareholder of the Fund
will have the right to exchange his (her) share certificates for
share certificates of the corresponding class of the New Fund.
However, a shareholder need not make this exchange of certificates
unless he (she) so desires. Simultaneously with the crediting of
the shares of the New Fund to the shareholders of record of the
Fund, the shares of the Fund held by such shareholder shall be
canceled.
(c) As soon as practicable after the Effective Date of the
Reorganization, the Massachusetts Trust shall take all necessary
steps under Massachusetts law to terminate the Massachusetts Trust.
2. CLOSING AND EFFECTIVE DATE OF THE REORGANIZATION. The Closing
shall commence at ________ Pacific time on _________, 1999 or on such
later date as the parties may agree, and shall be effective on the
business day following the commencement of the Closing (the "Effective
Date"). The Closing will take place at the principal offices of the
Massachusetts and Delaware Trusts at 777 Mariners Island Boulevard, San
Mateo, CA 94404.
3. CONDITIONS PRECEDENT. The obligations of the Massachusetts Trust
and the Delaware Trust to effectuate the Reorganization hereunder shall
be subject to the satisfaction of each of the following conditions:
(a) Such authority and orders from the Securities and Exchange
Commission (the "Commission") and state securities commissions as
may be necessary to permit the parties to carry out the
transactions contemplated by this Agreement shall have been
received;
(b) One or more post-effective amendments to the Massachusetts
Trust's Registration Statement on Form N-1A under the Securities
Act of 1933 and the Investment Company Act of 1940, containing (i)
such amendments to such Registration Statement as are determined by
the Trustees of the Massachusetts Trust to be necessary and
appropriate as a result of the Agreement, and (ii) the adoption by
the Delaware Trust as its own of such Registration Statement, as so
amended, shall have been filed with the Commission, and such
post-effective amendment or amendments to the Massachusetts Trust's
Registration Statement shall have become effective, and no stop
order suspending the effectiveness of the Registration Statement
shall have been issued, and no proceeding for that purpose shall
have been initiated or threatened by the Commission (other than any
such stop order, proceeding or threatened proceeding which shall
have been withdrawn or terminated);
(c) Confirmation shall have been received from the Commission or
the Staff thereof that the Delaware Trust shall, effective upon or
before the Effective Date of the Reorganization, be duly registered
as an open-end management investment company under the Investment
Company Act of 1940, as amended;
(d) Each party shall have received a ruling from the Internal
Revenue Service or an opinion from Messrs. Stradley, Ronon, Stevens
& Young, LLP, Philadelphia, Pennsylvania, to the effect that the
reorganization contemplated by this Agreement qualifies as a
"reorganization" under Section 368(a) of the Code, and, thus, will
not give rise to the recognition of income, gain or loss for
federal income tax purposes to the Massachusetts Trust, the
Delaware Trust or shareholders of the Massachusetts Trust or the
Delaware Trust;
(e) The Massachusetts Trust shall have received an opinion from
Messrs. Stradley, Ronon, Stevens & Young, LLP, addressed to and in
form and substance satisfactory to it, to the effect that (i) this
Agreement and the reorganization provided for herein, and the
execution of this Agreement, has been duly authorized and approved
by the Delaware Trust and constitutes a legal, valid and binding
agreement of the Delaware Trust in accordance with its terms; (ii)
the shares of the Delaware Trust 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 non-assessable by the Delaware
Trust; and (iii) the Delaware Trust is duly organized and validly
existing under the laws of the State of Delaware;
(f) The Delaware Trust shall have received an opinion from Messrs.
Stradley, Ronon, Stevens & Young, LLP, Philadelphia, PA, addressed
to and in form and substance satisfactory to it, to the effect that
(i) this Agreement and the reorganization provided herein, and the
execution of this Agreement, has been duly authorized and approved
by the Massachusetts Trust and constitutes a legal, valid and
binding agreement of the Massachusetts Trust in accordance with its
terms; and (ii) the Massachusetts Trust is duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Massachusetts.
(g) The shares of the New Fund shall have been duly qualified for
offering to the public in all states of the United States, the
Commonwealth of Puerto Rico and the District of Columbia so as to
permit the transfers contemplated by this Agreement to be
consummated;
(h) This Agreement and the reorganization contemplated hereby
shall have been adopted by an affirmative vote of at least a
majority the outstanding voting securities of the Massachusetts
Trust at a meeting of shareholders of such trust;
(i) The shareholders of the Massachusetts Trust shall have voted
to direct the Massachusetts Trust to vote, and the Massachusetts
Trust shall have voted, as sole shareholder of each class of the
Delaware Trust, to:
(1) Elect as Trustees of the Delaware Trust (the "Trustees")
the following individuals: Messrs. Lippman, Crohn, Rubens II
and Rubin;
(2) Select Tait, Weller & Baker as the independent public
accountants for the Delaware Trust for the fiscal year ending
September 30, 2000; and
(3) Approve a new investment management agreement between the
Delaware Trust on behalf of the New Fund, and Franklin
Advisory Services, LLC, which is substantially identical to
the current investment management agreement between the
Massachusetts Trust on behalf of the Fund, and Franklin
Advisory Services, LLC
(j) The Trustees shall have taken the following action at a
meeting duly called for such purposes:
(1) Approval of the Delaware Trust's Custodian Agreement;
(2) Selection of Tait, Weller & Baker as the Delaware Trust's
independent public accountants for the fiscal year ending
September 30, [____];
(3) Approval of the investment management agreement between
the Delaware Trust on behalf of the New Fund, and Franklin
Advisory Services, LLC, which is substantially identical to
the current investment management agreement between the
Massachusetts Trust on behalf of the Fund, and Franklin
Advisory Services, LLC;
(4) Authorization of the issuance by the Delaware Trust,
prior to the Effective Date of the Reorganization, of one
share of each class of the New Fund, to the Massachusetts
Trust in consideration for the payment of the current public
offering price of each corresponding class of the Fund, for
the purpose of enabling the Massachusetts Trust to vote on
matters referred to in paragraph (i) of this Section 3;
(5) Submission of the matters referred to in paragraph (i) of
this Section 3 to the Massachusetts Trust as sole shareholder
of the Delaware Trust; and
(6) Authorization of the issuance by the Delaware Trust of
shares of the New Fund on the Effective Date of the
Reorganization in exchange for the assets of the Fund pursuant
to the terms and provisions of this Agreement.
At any time prior to the Closing, any of the foregoing conditions
may be waived by the Board of Trustees of the Massachusetts Trust if, in
the judgment of the Trustees, such waiver will not have a material
adverse effect on the benefits intended under this Agreement to the
shareholders of the Massachusetts Trust.
4. TERMINATION. The Board of Trustees of the Massachusetts Trust may
terminate this Agreement and abandon the reorganization contemplated
hereby, notwithstanding approval thereof by the shareholders of the
Fund, at any time prior to the Effective Date of the Reorganization if,
in the judgment of the Trustees, the facts and circumstances make
proceeding with the Agreement inadvisable.
5. ENTIRE AGREEMENT. This Agreement embodies the entire agreement
between the parties and there are no agreements, understandings,
restrictions or warranties among the parties other than those set forth
herein or herein provided for.
6. FURTHER ASSURANCES. The Massachusetts Trust and the Delaware Trust
shall take such further action as may be necessary or desirable and
proper to consummate the transactions contemplated hereby.
7. COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but all
of which shall constitute one and the same instrument.
8. GOVERNING LAW. This Agreement and the transactions contemplated
hereby shall be governed by and construed and enforced in accordance
with the laws of the State of Delaware.
IN WITNESS WHEREOF, the Massachusetts Trust and the Delaware Trust
have each caused this Agreement and Plan of Reorganization to be executed on
its behalf by its ____________ and its seal to be affixed hereto and attested
by its ____________, all as of the day and year first-above written.
Attest: Franklin Managed Trust
(a Delaware business trust)
By: By:
Attest: Franklin Managed Trust
(a Massachusetts business trust)
By: By:
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EXHIBIT C
COMPARISON AND SIGNIFICANT DIFFERENCES BETWEEN
DELAWARE BUSINESS TRUSTS AND MASSACHUSETTS BUSINESS TRUSTS
DELAWARE BUSINESS TRUST MASSACHUSETTS BUSINESS TRUST
<S> <C> <C>
GOVERNING A Delaware Business Trust (a "DBT") is A Massachusetts Business Trust (a "MBT")
DOCUMENTS created by a governing instrument (which is created by filing a declaration of
may consist of one or more instruments, trust with the Secretary of State of
including an agreement and declaration Massachusetts and by filing with the
of trust and By-Laws) and a Certificate clerk of every city or town where the
of Trust, which must be filed with the trust has a usual place of business.
Delaware Secretary of State. The law
governing DBTs is referred to in this
chart as the "Delaware Act."
A DBT is an unincorporated association A MBT is an unincorporated association
organized under the Delaware Act which organized under the Massachusetts
operates similar to a typical statute (the "Massachusetts Statute")
corporation. A DBT's operations are which operates similar to a typical
governed by a trust instrument and corporation. A MBT's operations are
By-Laws. The business and affairs of a governed by a trust instrument and
DBT are managed by or under the By-Laws. The business and affairs of a
direction of a Board of Trustees. MBT are managed by or under the
direction of a Board of Trustees.
A DBT organized as an open-end A MBT organized as an open-end
investment company is subject to the investment company is subject to the
Investment Company Act of 1940, as 1940 Act. Shareholders own shares of
amended (the "1940 Act"). Shareholders "beneficial interest" as compared to the
own shares of "beneficial interest" as shares of "common stock" issued by
compared to the shares of "common stock" corporations.
issued by corporations.
As described in this chart, DBTs are MBTs are also granted a significant
granted a significant amount of amount of organizational and operational
organizational and operational flexibility. The Massachusetts Statute
flexibility. Delaware law makes it is silent on most of the salient
easier to obtain needed shareholder features of MBTs, thereby allowing the
approvals, and also permits management MBT to freely structure the trust.
of a DBT to take various actions without
being required to make state filings or
obtain shareholder approval. The
Delaware Act also contains favorable
limitations on shareholder and Trustee
liability, and provides for
indemnification out of trust property
for any shareholder or Trustee that may
be held personally liable for the
obligations of a DBT.
MULTIPLE SERIES Under the Delaware Act, a declaration of The Massachusetts Statute permits a
AND CLASSES trust may provide for classes, groups or business trust to issue one or more
series of shares, or classes, groups or series or classes of beneficial
series of shareholders, having such interest. The Massachusetts Statute is
relative rights, powers and duties as largely silent as to any requirements
the declaration of trust may provide. for the creation of such series or
The series and classes of a DBT may be classes, although the trust documents
described in the declaration of trust or creating a MBT may provide methods or
in resolutions adopted by the Board of authority to create such series or
Trustees. Neither state filings nor classes without seeking shareholder
shareholder approval is required to approval. The Massachusetts Statute
create series or classes. The Trustees does not specify what information must
of Franklin Managed Trust have proposed be contained in the declaration of
to reorganize the Trust from a trust, nor does it require a registered
Massachusetts business trust (the officer or agent for service of
"Massachusetts Trust") into a Delaware process. The Massachusetts Trust's
business trust (the "Delaware Trust"). Declaration of Trust authorizes the
The Delaware Trust's Declaration of division of the shares into an unlimited
Trust permits the creation of multiple number of shares which may be further
series and classes and establishes the divided into separate series or classes.
provisions relating to shares.
The Delaware Act explicitly provides for The Massachusetts Statute does not
a reciprocal limitation of inter-series contain statutory provisions addressing
liability. The debts, liabilities, series liability with respect to a
obligations and expenses incurred, multiple series investment company.
contracted for or otherwise existing Therefore, unless otherwise provided in
with respect to a particular series of a the declaration of trust for a MBT, the
multiple series investment company debts, liabilities, obligations and
registered under the 1940 Act are expenses incurred, contracted for or
enforceable only against the assets of otherwise existing with respect to a
such series, and not against the assets particular series may be enforceable
of the trust, or any other series, against the assets of the business trust
generally, provided that: generally.
(i) the governing instrument creates
one or more series;
(ii) separate and distinct records
are maintained for any such series;
(iii) the series' assets are held
and accounted for separately from the
trust's other assets or any series
thereof;
(iv) notice of the limitation on
liabilities of the series is set
forth in the certificate of trust; and
(v) the governing instrument so
provides.
The Declaration of Trust for the The Massachusetts Trust's Declaration of
Delaware Trust provides that each of its Trust explicitly limits the liability of
series shall not be charged with the each series and states that under no
liabilities of any other series. circumstances shall the assets allocated
Further, it states that any general or belonging to a particular series be
assets or liabilities not readily charged with liabilities attributable to
identifiable as to a particular series any other series. Further, it states
will be allocated or charged by the that third parties shall look only to
Trustees of the Franklin DE Trust to and the assets of a particular series for
among any one or more series in such payment of any credit, claim or
manner, and on such basis, as the contract. Although these provisions
Trustees deem fair and equitable in serve to put third parties on notice,
their sole discretion. since there is no support in the
Massachusetts Statute to limit
liability, there remains the possibility
that a court may not uphold the
limitations of a MBT's governing
document.
A court applying federal securities law A court applying federal securities law
may not respect provisions that serve to may not respect provisions that serve to
limit the liability of one series of an limit the liability of one series of an
investment company's shares for the investment company's shares for the
liabilities of another series. liabilities of another series.
Accordingly, provisions relating to Accordingly, provisions relating to
series liability contained in the series liability contained in the
declaration of trust may be preempted by declaration of trust may be preempted by
the way in which the courts interpret the way in which the courts interpret
the 1940 Act. the 1940 Act.
SHAREHOLDER The governing instrument determines There is no provision in the
VOTING RIGHTS shareholders' rights. The Declaration Massachusetts Statute addressing voting
AND PROXY of Trust for the Franklin DE Trust by the shareholders of a MBT. The
REQUIREMENTS provides that shareholders of record of declaration of trust of a MBT, however,
each share are entitled to one vote for may specify matters on which
each full share, and a fractional vote shareholders are entitled to vote. The
for each fractional share. In addition, Massachusetts Trust's Declaration of
shareholders are not entitled to Trust provides that shareholders are
cumulative voting for electing a entitled to one vote for each full
Trustee(s). The Franklin DE Trust's share, and each fractional share shall
Declaration of Trust further provides be entitled to a proportionate
that voting will occur separately by fractional vote. Further, it provides
series, and if applicable, by class, that all shares of the Trust entitled to
subject to: (1) requirements of the 1940 vote on a matter shall vote separately
Act where shares of the Trust must be by series, subject to: (1) requirements
voted in the aggregate without reference of the 1940 Act where shares of the
to series or class, and (2) where the Trust to be voted in the aggregate
matter affects only a particular series without differentiation between the
or class. separate series, and (2) where the
matter affects only a particular series
or class.
The Delaware Act and By-Laws for the The Massachusetts Trust's By-Laws
Franklin DE Trust also permit the Trust permits the Trust to accept written
to accept proxies by any electronic, proxies signed by the shareholder. A
telephonic, computerized proxy shall be deemed signed if the
telecommunications or other reasonable shareholder's name is placed (whether by
alternative to the execution of a manual signature, typewriting,
written instrument authorizing the proxy telegraphic transmission or otherwise)
to act, provided such authorization is by the shareholder. No proxy shall be
received within eleven (11) months valid after the expiration of eleven
before the meeting. (11) months from the date of the proxy
unless otherwise provided in the proxy.
SHAREHOLDERS' The Delaware Act permits special The Declaration of Trust for the
MEETINGS shareholder meetings to be called for Massachusetts Trust specifies the
any purpose. However, the governing matters on which beneficial owners are
instrument determines beneficial owners' entitled, but not necessarily required,
rights to call meetings. The to vote. The Declaration of Trust
Declaration of Trust for the Franklin DE provides Trustees with a great deal of
Trust provides that the Board of latitude as to which matters are to be
Trustees shall call shareholder meetings submitted to a vote of the beneficial
for the purpose of (1) electing owners. Specifically, a shareholder has
Trustees, (2) for such other purposes as the power to vote only: (1) for the
may be prescribed by law, the election of Trustees, (2) to the same
Declaration of Trust or the By-Laws, and extent as shareholders of a
(3) taking action upon any other matter Massachusetts business corporation as to
deemed by the Trustees to be necessary whether or not a court action,
or desirable. The By-Laws further proceeding or claim should be brought or
provide that a special meeting may be maintained derivatively or as a class
called at any time by the Board of action, (3) for the termination of the
Trustees, by the Chairperson of the trust or any series, or (4) with respect
Board, or by the President or any Vice to such additional matters required by
President or the Secretary and any two the Declaration of Trust, the By-Laws,
(2) Trustees. An annual shareholders' the Massachusetts Statute, or as the
meeting is not required by either the Trustees consider necessary or
Delaware Act, the Declaration of Trust, desirable. An annual shareholders'
or the By-Laws. meeting is not required by Massachusetts
law, the Declaration of Trust or the
By-Laws.
QUORUM Except when a larger quorum is required Unless a larger quorum is required by
REQUIREMENT by applicable law, the By-Laws, or the applicable law, the By-Laws, or the
Declaration of Trust, the Franklin DE Declaration of Trust, the Massachusetts
Trust's Declaration of Trust provides Trust's Declaration of Trust provides
that forty percent (40%) of the shares that forty percent (40%) of the shares
entitled to vote shall constitute a entitled to vote on a matter shall
quorum at a shareholder's meeting. constitute a quorum at a shareholders'
Further, the Declaration of Trust meeting. Further, the Declaration of
provides that when a quorum is present, Trust provides that when a quorum is
a majority of the votes cast shall present at any meeting, a majority of
decide any issues and a plurality shall the shares voted shall decide any
elect a Trustee, unless a larger vote is questions and a plurality shall elect a
required by the Declaration of Trust, Trustee, unless a larger vote is
the By-Laws or by applicable law. required by the Declaration of Trust,
the By-Laws or by applicable law.
ACTION WITHOUT Delaware law permits the governing The Massachusetts Trust's Declaration of
SHAREHOLDERS' instrument to set forth the procedure Trust provides that any action taken by
MEETING whereby action required to be approved shareholders may be taken without a
by shareholders at a meeting may be done meeting if shareholders holding a
by consent. The Franklin DE Trust's majority of the shares entitled to vote
Declaration of Trust provides that any on the matter (or such larger proportion
action taken by shareholders may be thereof as shall be required by any
taken without a meeting if shareholders express provision of the Declaration of
holding a majority of the shares Trust or By-Laws) and holding a majority
entitled to vote on the matter (or such (or such larger proportion as aforesaid)
larger proportion thereof as shall be of the shares of any series entitled to
required by any express provision of the vote separately on the matter consent to
Declaration of Trust or By-Laws) and the action in writing.
holding a majority (or such larger
proportion as aforesaid) of the shares
of any series (or class) entitled to
vote separately on the matter consent to
the action in writing.
AMENDMENTS TO The Delaware Act provides broad The Massachusetts Statute provides that
GOVERNING flexibility with respect to amendments the Trustees shall, within thirty (30)
DOCUMENTS to the governing documents of a DBT. days after the adoption of any amendment
to the declaration of trust, file a copy
with the Secretary of State of
Massachusetts and with the clerk of
every city or town where the trust has a
usual place of business.
The Franklin DE Trust's Declaration of The Massachusetts Trust's Declaration of
Trust provides that the Declaration of Trust may be amended at any time by an
Trust may be restated and/or amended at instrument in writing signed by a
any time by an instrument in writing majority of the Trustees.
signed by a majority of the then
Trustees, and if required, by approval
of such amendment by shareholders in
accordance with the quorum and required
voting requirements as set forth in the
Declaration of Trust.
The By-Laws may be amended or repealed The By-Laws may be amended or repealed
by the affirmative vote or written by a majority of the outstanding shares
consent of a majority of the outstanding entitled to vote, or by the Board of
shares entitled to vote, or by the Board Trustees subject to the rights of the
of Trustees subject to the rights of the shareholders.
shareholders.
MATTERS The Delaware Act affords Trustees the The Massachusetts Trust's Declaration of
REQUIRING ability to easily adapt a DBT to future Trust provides Trustees with a great
SHAREHOLDER contingencies. For example, Trustees deal of latitude as to which matters are
APPROVAL have the authority to incorporate a DBT, to be submitted to a vote of the
to merge or consolidate with another beneficial owners. Specifically, a
entity, to cause multiple series of a shareholder has the power to vote only:
DBT to become separate trusts, to change
the domicile or to liquidate a DBT, all (1) for the election of Trustees;
without having to obtain a shareholder
vote. More importantly, in cases where (2) to the same extent as shareholders
funds are required or do elect to seek of a Massachusetts business
shareholder approval for transactions, corporation as to whether or not a
the Delaware Act provides great court action, proceeding or claim
flexibility with respect to the quorum should be brought or maintained
and voting requirements for approval of derivatively or as a class action;
such transactions.
(3) for the termination of the Trust
or any series; or
(4) with respect to such additional
matters required by the Declaration of
Trust, the By-Laws, the Massachusetts
Statute, or as the Trustees consider
necessary or desirable.
The Declaration of Trust for the
Franklin DE Trust, consistent with the
Delaware Act, affords shareholders the
power to vote on the following matters:
(1) the election or removal of
Trustees;
(2) as required by the Declaration
of Trust, the By-Laws, the 1940 Act
or the Franklin DE Trust's
registration statement; and
(3) other matters deemed by the Board
of Trustees to be necessary or
desirable.
The Franklin DE Trust's Declaration of The Massachusetts Trust's Declaration of
Trust provides that when a quorum is Trust provides that when a quorum is
present, a majority of votes cast shall present at any meeting, a majority of
decide any issues, and a plurality shall the shares voted shall decide any
elect a Trustee(s), unless a different questions and a plurality shall elect a
vote is required by the Declaration of Trustee(s), unless a larger vote is
Trust, By-Laws, or applicable law. required by the Declaration of Trust,
the By-Laws, or applicable law.
RECORD The Delaware Act permits a governing There is no comparable record date
DATE/NOTICE instrument to provide for the provision in the Massachusetts Statute.
establishment of record dates for
determining voting rights.
The Declaration of Trust for the The Declaration of Trust and the By-Laws
Franklin DE Trust provides that the of the Massachusetts Trust permit the
Board of Trustees may fix in advance a Trustees from time to time to set the
record date which shall not be more than record date for shareholder meeting to
ninety (90) days, nor less than seven be not more than ninety (90) days, nor
(7) days, before the date of any such less than seven (7) days, before the
meeting. date of any shareholder meeting.
The Declaration of Trust provides that The By-Laws provide that the record date
the record date for determining for determining shareholders entitled to
shareholders entitled to give consent to give consent to action in writing
action in writing without a meeting is without a meeting is determined in the
determined in the following manner: (i) following manner: (i) when the Board of
when the Board of Trustees has not taken Trustees has not taken prior action, the
prior action, the record date will be record date will be set on the day on
set on the day on which the first which the first written consent is
written consent is given; or (ii) when given; or (ii) when the Board of
the Board of Trustees has taken prior Trustees has taken prior action, the
action, the record date will be set at record date will be set at the close of
the close of business on the day on business on the day on which the Board
which the Board of Trustees adopts the of Trustees adopts the resolution
resolution relating to that action or relating to that action or the
the seventy-fifty (75th) day before the seventy-fifty (75th) day before the date
date of such other action, whichever is of such other action, whichever is later.
later.
The By-Laws for the Franklin DE Trust The By-Laws for the Massachusetts Trust
provide that all notices of shareholder also provide that all notices of
meetings shall be sent or otherwise shareholder meetings shall be sent to
given to shareholders not less than shareholders not less than seven (7)
seven (7) days nor more than days nor more than seventy-five (75)
seventy-five (75) days before the date days before the date of the meeting.
of the meeting.
REMOVAL OF The Delaware Act is silent with respect The Massachusetts Statute is also silent
TRUSTEES to the removal of Trustees. However, with respect to the removal of
the Franklin DE Trust's Declaration of Trustees. The Massachusetts Trust's
Trust states that the Board of Trustees, Declaration of Trust provides that the
by action of a majority of the then Board of Trustees, by action of a
Trustees at a duly constituted meeting, majority of the then Trustees at a duly
may fill vacancies in the Board of constituted meeting, may fill vacancies
Trustees or remove Trustees with or or remove Trustees with or without cause.
without cause.
SHAREHOLDER The Delaware Act sets forth the rights The Massachusetts Trust's By-Laws
RIGHTS OF of shareholders to gain access to and provides that the minutes and accounting
INSPECTION receive copies of certain Trust books and records shall be open for
documents and records. This right is inspection upon the written demand of
qualified by the extent otherwise any shareholder or holder of a voting
provided in the governing instrument of trust certificate at any reasonable time
the Trust as well as a reasonable demand during usual business hours for a
standard related to the shareholder's purpose reasonably related to the
interest as an owner of the DBT. holder's interests as a shareholder or
as the holder of a voting trust
certificate. The inspection may be made
in person or by an agent or attorney and
shall include the right to copy and make
extracts.
Consistent with Delaware law, the
By-Laws of the Franklin DE Trust
provides that the minutes and accounting
books and records shall be open to
inspection upon the written demand of
any shareholder or holder of a voting
trust certificate at any reasonable time
during usual business hours for a
purpose reasonably related to the
holder's interest as a shareholder or as
the holder a voting trust certificate.
The inspection may be made in person or
by an agent or attorney and shall
include the right to copy and make
extracts.
SHAREHOLDER Personal liability is limited by the The Massachusetts Statute does not
LIABILITY Delaware Act to the amount of investment include an express provision relating to
in the trust, and may be further limited the limitation of liability of the
or restricted by the governing beneficial owners of a business trust.
instrument. Therefore, the owners of a MBT could
potentially be liable for obligations of
the trust, notwithstanding an express
provision in the governing instrument
stating that the beneficial owners are
not personally liable in connection with
trust property or the acts, obligations
or affairs of the trust.
Consistent with the Delaware Act, the The Massachusetts Trust's Declaration of
Declaration of Trust for the Franklin DE Trust provides that neither the Trust
Trust provides that its Trustees, nor the Trustees, nor any officer,
officers, employees, and agents do not employee or agent of the Trust shall
have the power to personally bind a have any power to bind personally any
shareholder. Shareholders of the DBT shareholder.
are entitled to the same limitation of
personal liability extended to
stockholders of a private corporation
organized for profit under the general
corporation law of the State of Delaware.
TRUSTEE LIABILITY Subject to the declaration of trust, the The Massachusetts Statute does not
Delaware Act provides that a Trustee, include an express provision limiting
when acting in such capacity, may not be the liability of the Trustees of a MBT.
held personally liable to any person The Trustees of a MBT could potentially
other than the DBT or a beneficial owner be held personally liable for the
for any act, omission or obligation of obligations of the trust.
the DBT or any Trustee. A Trustee's
duties and liabilities to the DBT and
its beneficial owners may be expanded or
restricted by the provisions of the
Declaration of Trust.
The Declaration of Trust for the The Massachusetts Trust's Declaration of
Franklin DE Trust provides that the Trust does provide that the Trustees
Trustees shall not be liable or shall not be responsible for any neglect
responsible for any neglect or or wrong-doing of any officer, agent or
wrongdoing of any officer, agent, employee, manager, or principal
employee, manager or principal underwriter of the Trust, nor for the
underwriter of the Franklin DE Trust, act or omission of another Trustee.
nor shall any Trustee be responsible for However, nothing in the Declaration of
the act or omission of any other Trust protects a Trustee against any
Trustee. Trustees and officers of the liability for which the Trustee would
Franklin DE Trust may be held liable to otherwise be subject by reason of
the Trust and/or shareholders solely for willful misfeasance, bad faith, gross
such Trustee's or officer's own willful negligence or reckless disregard of the
misfeasance, bad faith, gross negligence duties involved in the conduct of the
or reckless disregard of the duties office of Trustee.
involved in the conduct of the office of
such Trustee or officer, and may not be
held liable for errors of judgment or
mistakes of fact or law. In addition,
the Declaration of Trust also provides
that the Trustees acting in their
capacity as Trustees, shall not be
personally liable for acts done by or on
behalf of the Franklin DE Trust.
INDEMNIFICATION The Delaware Act permits a DBT to Although the Massachusetts Statute is
indemnify and hold harmless any Trustee, silent as to the indemnification of
beneficial owner or agent from and Trustees, officers and shareholders,
against any and all claims and demands. indemnification is expressly provided
Consistent with the Delaware Act, the for in the Massachusetts Trust's
Declaration of Trust for the Franklin DE Declaration of Trust and By-Laws. The
Trust provides for the indemnification Declaration of Trust provides that
of officers and Trustees from and Trustees shall be entitled and empowered
against any and all claims and demands to the fullest extent permitted by law
arising out of or related to the to provide by resolution or in the
performance of their duties as an By-Laws for indemnification out of the
officer or Trustee. The Franklin DE Trust's assets for liability and for all
Trust will not indemnify, hold harmless expenses reasonably incurred or paid or
or relieve from liability any Trustees expected to be paid by a Trustee or
or officers for those acts or omissions officer in connection with any claim,
for which they are liable if such action, suit or proceeding. However,
conduct constitutes willful misfeasance, the Declaration of Trust of the
bad faith, gross negligence or reckless Massachusetts Trust excludes
disregard of their duties. indemnification for willful misfeasance,
bad faith, and gross negligence or
reckless disregard of one's duties.
The Declaration of Trust of the Franklin The Massachusetts Statute does not have
DE Trust also provides that any a specific provision permitting
shareholder or former shareholder that indemnification of shareholders. The
is exposed to liability by reason of a Massachusetts Trust's Declaration of
claim or demand related to having been a Trust, however, does provide for
shareholder, and not because of his or indemnification of a shareholder or
her acts or omissions, shall be entitled former shareholder
or be held harmless and indemnified out
of the assets of the Franklin DE Trust.
INSURANCE The Delaware Act does not contain a There is no provision in the
provision specifically related to Massachusetts statute relating to
insurance. The Franklin DE Trust's insurance. The Massachusetts Trust's
Declaration of Trust provides that the Declaration of Trust permits the
Trustees shall be entitled and empowered purchase of liability insurance out of
to the fullest extent permitted by law the Massachusetts Trust's assets on
to purchase with the Franklin DE Trust's behalf of the Trustees, officers and
assets insurance for liability and for agents of the Massachusetts Trust.
all expenses reasonably incurred or paid Insurance may be maintained for any
or expected to be paid by a Trustee or agent of the Massachusetts Trust only to
officer in connection with any claim or the extent that the Massachusetts Trust
proceeding in which he or she becomes would have the power to indemnify the
involved by virtue of his or her agent against such liability.
capacity (or former capacity) with the
Franklin DE Trust, whether or not the
Franklin DE Trust would have the power
to indemnify against such liability.
The By-Laws of the Franklin DE Trust The By-Laws of the Massachusetts Trust
permit insurance coverage only to the permit insurance coverage only to the
extent that the Franklin DE Trust would extent that the Massachusetts Trust
have the power to indemnify against such would have the power to indemnify the
liability. agent against such liability.
</TABLE>
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
IMPORTANT: PLEASE SIGN AND MAIL IN YOUR PROXY...TODAY
PROXY PROXY
SPECIAL SHAREHOLDERS' MEETING OF
FRANKLIN RISING DIVIDENDS FUND
OCTOBER 26, 1999
The undersigned hereby revokes all previous proxies for his or her shares and
appoints Rupert H. Johnson, Jr., Harmon E. Burns, Deborah R. Gatzek, and Leiann
Nuzum, and each of them, proxies of the undersigned with full power of
substitution to vote all shares of Franklin Rising Dividends Fund (the "Fund")
that the undersigned is entitled to vote at the Fund's Special Meeting to be
held at 777 Mariners Island Boulevard, San Mateo, CA 94404 at 10:00 a.m.,
Pacific time on October 26, 1999, including any adjournments thereof, upon such
business as may properly be brought before the Meeting.
IMPORTANT: PLEASE SEND IN YOUR PROXY TODAY.
YOU ARE URGED TO DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY. THIS WILL SAVE
THE EXPENSE OF FOLLOW-UP LETTERS TO SHAREHOLDERS WHO HAVE NOT RESPONDED.
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.
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Signature
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Signature
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Date
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PLEASE SIGN AND PROMPTLY RETURN IN THE ACCOMPANYING ENVELOPE. NO POSTAGE
REQUIRED IF MAILED IN THE U.S.
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(Please see reverse side)
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
IMPORTANT: PLEASE SIGN AND MAIL IN YOUR PROXY...TODAY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF FRANKLIN MANAGED
TRUST, ON BEHALF OF ITS SERIES, FRANKLIN RISING DIVIDENDS FUND (THE "FUND"). IT
WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THIS PROXY SHALL BE
VOTED IN FAVOR OF PROPOSALS 1 (INCLUDING ALL NOMINEES FOR TRUSTEE), 2, 3, 4
(INCLUDING ALL SUB-PROPOSALS), 5, AND 6. IF ANY OTHER MATTERS PROPERLY COME
BEFORE THE MEETING ABOUT WHICH THE PROXYHOLDERS WERE NOT AWARE PRIOR TO THE TIME
OF THE SOLICITATION, AUTHORIZATION IS GIVEN THE PROXYHOLDERS TO VOTE IN
ACCORDANCE WITH THE VIEWS OF MANAGEMENT ON SUCH MATTERS. MANAGEMENT IS NOT AWARE
OF ANY SUCH MATTERS.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF PROPOSALS
1 - 6.
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1. Election of Trustees. To withhold FOR all Vote FOR all
authority to vote for any individual nominees withheld for nominees
nominee, strike a line through the all (except
nominee's name in the list below. as marked
to the
contrary)
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Frank T. Crohn
Charles Rubens II
William J. Lippman
Leonard Rubin
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FOR AGAINST ABSTAIN
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2. To ratify the selection of Tait, Weller
& Baker as the Trust's independent
auditors for the Trust's fiscal year
ending September 30, 1999.
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3. To modify the Fund's current criteria
for the selection of portfolio companies
related to the issuer's treatment of debt
on its balance sheet, which is fundamental.
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FOR all AGAINST all FOR all
Sub-Proposal Sub-Proposals Sub-Proposals
(except
as marked
to the
contrary)
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4. To approve amendments to certain of
the Fund's fundamental investment
restrictions (includes seven (7)
Sub-Proposals).
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FOR AGAINST ABSTAIN
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4(a) To amend the Fund's fundamental
investment restriction regarding borrowing.
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4(b) To amend the Fund's fundamental
investment restriction regarding
underwriting.
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4(c) To amend the Fund's fundamental
investment restriction regarding lending.
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4(d) To amend the Fund's fundamental
investment restriction regarding
investments in real estate and commodities.
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4(e) To amend the Fund's fundamental
investment restriction regarding issuing
senior securities.
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4(f) To amend the Fund's fundamental
investment restriction regarding industry
concentration.
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4(g) To amend the Fund's fundamental
investment restriction regarding
diversification of investments.
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5. To approve the elimination of certain
of the Fund's fundamental investment
restrictions.
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6. To approve the reorganization of the
Trust from a Massachusetts business trust
to a Delaware business trust.
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GRANT WITHHOLD ABSTAIN
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7. To grant the proxyholders the
authority to vote upon any other business
that may properly come before the Meeting
or any adjournments thereof.
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