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:
[ ] Preliminary Proxy Statement
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] 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 Gold Fund
(Name of Registrant as Specified In Its Charter)
Franklin Gold Fund
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary material.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
FRANKLIN GOLD FUND
IMPORTANT SHAREHOLDER INFORMATION
These materials are for a special shareholders' meeting scheduled for March
14, 2000 at 2:00 p.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 Board of
Directors' 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 Shareholder Services
at 1-800/DIAL BEN(R) (1-800/342-5236).
TELEPHONE AND INTERNET VOTING
For your convenience, you may be able to vote by telephone or through the
internet 24 hours a day. A control number is provided on your proxy card and
separate instructions are enclosed.
A LETTER FROM THE CHAIRMAN
Dear Fellow Shareholders:
I am writing to request that you consider nine matters relating to your
investment in Franklin Gold Fund (the "Fund"). The Board of Directors asks
that you cast your vote in favor of:
1. Electing a Board of Directors;
2. Ratifying the appointment by the Directors of PricewaterhouseCoopers
LLP as the independent auditors for the Fund for the fiscal year
ending July 31, 2000;
3. Modifying the Fund's current investment criteria to include other
precious metals (platinum, palladium and silver), in addition to gold
as the principal investment focus, and amending the Fund's charter to
change the Fund's name to reflect its revised investment focus;
4. Changing the classification of the Fund from a diversified to a
non-diversified fund;
5. Amending five of the Fund's fundamental investment restrictions;
6. Eliminating six of the Fund's fundamental investment restrictions;
7. Reorganizing the Fund from a California corporation to a Delaware
business trust;
8. Amending the Fund's charter to increase the Fund's authorized
capital in the event that Proposal 7 is not approved; and
9. Granting proxyholders the authority to vote upon any other business
that may properly come before the meeting or any adjournment.
We urge you to confirm the Board's recommendations by electing the nominated
Directors and ratifying the selection of the independent auditors.
We have proposed modifying the Fund's investment criteria to include other
precious metals such as platinum, palladium and silver, in addition to gold,
as the Fund's principal investment focus in order to expand the Fund's
ability to invest in a broader range of companies thereby increasing the
Fund's liquidity. The proposed change is intended to allow the Fund to better
manage the volatility of changing market conditions. A change in the Fund's
investment focus also will require amending the Fund's charter to change to
the Fund's name, since gold would no longer be the only metal in which the
Fund would be permitted to invest.
We also have proposed a change to the classification of the Fund from a
diversified to a non-diversified investment company. If approved, the Fund
would be permitted to invest all of its assets in the securities of
relatively few issuers. In addition, we have 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. We
also have proposed that the Fund 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. Finally, in the event
that the proposal to reorganize the Fund from a California corporation to a
Delaware business trust is not approved, you are being asked to approve an
amendment to the Fund's charter to increase the number of shares that the
Fund is authorized to sell. An increase in capital would enable the Fund to
increase its asset size, which would provide the Fund with additional
investment opportunities.
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 Fund, we hope that this format will
be helpful to you.
Your vote is important to the Fund. On behalf of the Directors, thank you in
advance for considering these issues and for promptly returning your proxy
card.
Sincerely,
Charles B. Johnson
Chairman of the Board
FRANKLIN GOLD FUND
NOTICE OF SPECIAL SHAREHOLDERS' MEETING
TO BE HELD ON MARCH 14, 2000
A Special Shareholders' Meeting ("Meeting") of Franklin Gold Fund (the
"Fund"), will be held at the Fund's office at 777 Mariners Island Boulevard,
San Mateo, California 94404, at 2:00 p.m. (Pacific time), on March 14, 2000.
During the Meeting, shareholders of the Fund will vote on the following
Proposals and Sub-Proposals:
1. To elect a Board of Directors.
2. To ratify the selection of PricewaterhouseCoopers LLP as the
independent auditors for the Fund for the fiscal year ending July 31,
2000.
3. To modify the Fund's investment focus and to change the Fund's name
(includes two (2) Sub-Proposals):
(a)To modify the Fund's current investment criteria to include
other precious metals (platinum, palladium and silver), in addition to
gold as the principal investment focus;
(b)To amend the Fund's charter to change the Fund's name to reflect
its new investment focus, in the event that Sub-Proposal 3(a) is
approved.
4. To change the classification of the Fund from a diversified to a
non-diversified fund.
5. To approve amendments to certain of the Fund's fundamental
investment restrictions (includes five (5) 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; and
(e)To amend the Fund's fundamental investment restriction regarding
issuing senior securities.
6. To approve the elimination of certain of the Fund's fundamental
investment restrictions.
7. To approve the reorganization of the Fund from a California
corporation to a Delaware business trust.
8. To amend the Fund's charter to increase the Fund's authorized
capital in the event that Proposal 7 is not approved.
9. To grant the proxyholders authority to vote upon any other business
that may properly come before the Meeting or any adjournment thereof.
The Board of Directors has fixed January 24, 2000 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 Directors,
Deborah R. Gatzek
Secretary
San Mateo, California
February 1, 2000
Please sign and return your proxy card in the self-addressed envelope
regardless of the number of shares you own.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
PROXY STATEMENT
<S> <C> <C>
Question and Answer 1
Proposal 1: To Elect a Board of Directors 3
Proposal 2: To Ratify the Selection of PricewaterhouseCoopers LLP as
Independent Auditors for the Fund 10
Proposal 3: To Modify the Fund's Investment Focus and To Change the Fund's Name
(Includes Two (2) Sub-Proposals) 10
3a: To Modify the Fund's Current Investment Criteria to Include Other
Precious Metals (platinum, palladium and silver) as the
Principal Investment Focus 10
3b: To Amend the Fund's Charter to Change the Fund's Name to
Reflect Its Revised Investment Focus, in the Event that
Sub-Proposal 3a is Approved. 11
Proposal 4: To Change the Classification of the Fund From a Diversified to a
Non-Diversified Fund 12
Proposal 5: To Approve Amendments to Certain of the Fund's
Fundamental Investment Restrictions (Includes Five (5) Sub-Proposals) 15
5a: Borrowing 15
5b: Underwriting 16
5c: Lending 16
5d: Real Estate and Commodities 17
5e: Issuing Senior Securities 18
Proposal 6: To Approve the Elimination of Certain of the Fund's
Fundamental Investment Restrictions 19
Proposal 7: To Approve the Reorganization of the Fund From a
California Corporation to a Delaware Business Trust 22
Proposal 8: To Amend the Fund's Charter to Increase the Fund's Authorized Capital
in the Event that Proposal 7 is Not Approved 26
Proposal 9: Other Business 27
TABLE OF CONTENTS (CONTINUED)
Page
EXHIBITS
Exhibit A: Fundamental Investment Restrictions
Proposed to be Amended or Eliminated 31
Exhibit B: Form of Agreement and Plan of Reorganization 35
Exhibit C: Comparison and Significant Differences Between Delaware Business Trusts
and California Corporations 39
</TABLE>
FRANKLIN GOLD FUND
PROXY STATEMENT
(C) INFORMATION ABOUT VOTING
Who is asking for my vote?
The Board of Directors of Franklin Gold Fund (the "Fund") in connection
with the Special Shareholders' Meeting of the Fund to be held March 14,
2000 (the "Meeting"), have requested your vote on several matters.
Who is eligible to vote?
Shareholders of record at the close of business on January 24, 2000 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 February 1, 2000.
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 Directors;
2. To ratify the selection of PricewaterhouseCoopers LLP as independent
auditors for the Fund for the fiscal year ending July 31, 2000;
3. To modify the Fund's current investment criteria to include other
precious metals (platinum, palladium and silver) in addition to gold as the
principal investment focus; and to amend the Fund's charter to change the
Fund's name to reflect its revised investment focus;
4. To change the classification of the Fund from a diversified to a
non-diversified fund;
5. To amend certain of the Fund's fundamental investment restrictions;
6. To eliminate certain of the Fund's fundamental investment restrictions;
7. To approve the reorganization of the Fund from a California corporation
to a Delaware business trust;
8. To amend the Fund's charter to increase the Fund's authorized capital in
the event that Proposal 7 is not approved; and
9. To grant the proxyholders authority to vote upon any other business that
may properly come before the Meeting or any adjournment thereof.
How do the Directors recommend that I vote?
The Directors unanimously recommend that you vote:
1. FOR the election of all nominees as Directors;
2. FOR the ratification of the selection of PricewaterhouseCoopers LLP as
independent auditors for the Fund for the fiscal year ending July 31, 2000;
3. FOR the modification of the Fund's current investment criteria to
include other precious metals (platinum, palladium and silver) in addition
to gold as the principal investment focus, and FOR the amendment to the
Fund's charter to change the Fund's name to reflect its revised investment
focus;
4. FOR the change of the classification of the Fund from a diversified to a
non-diversified fund;
5. FOR the amendment of each of the Fund's fundamental investment
restrictions proposed to be amended;
6. FOR the elimination of each of the Fund's fundamental investment
restrictions proposed to be eliminated;
7. FOR the reorganization of the Fund from a California corporation to a
Delaware business trust;
8. FOR the amendment to the Fund's charter to increase the Fund's
authorized capital in the event that Proposal 7 is not approved; and
9. FOR the proxyholders to vote, in their discretion, on any other business
as may properly come before the Meeting or any adjournment 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. You may also vote by telephone or through the
internet. A control number is provided on your proxy card 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 9, your proxy will be voted as you indicate. If you
simply sign and date the proxy card, but don't specify a vote for any of
the Proposals 1 through 9, your shares will be voted IN FAVOR of the
nominees for the Board of Directors (Proposal 1), IN FAVOR of ratifying the
selection of PricewaterhouseCoopers LLP as independent auditors (Proposal
2), IN FAVOR of modifying the Fund's current investment policy to include
other precious metals, and amending the Fund's charter to change the Fund's
name to reflect its revised investment focus, (Sub-Proposals 3a-3b), IN
FAVOR of changing the classification of the Fund from a diversified to a
non-diversified fund (Proposal 4), IN FAVOR of amending certain of the
Fund's fundamental investment restrictions (Sub-Proposals 5a-5e), IN FAVOR
of eliminating certain of the Fund's fundamental investment restrictions,
(Proposal 6), IN FAVOR of the reorganization of the Fund from a California
corporation to a Delaware business trust (Proposal 7), IN FAVOR of amending
the Fund's charter to increase the Fund's authorized capital (Proposal 8),
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 9).
May I revoke my proxy?
You may revoke your proxy at any time before it is voted by: (1) delivering
a written revocation to the Secretary of the Fund, (2) forwarding to the
Fund a later-dated proxy card that is received by the Fund at or prior to
the Meeting, or (3) attending the Meeting and voting in person.
THE PROPOSALS
PROPOSAL 1: TO ELECT A BOARD OF DIRECTORS
Who are the nominees for the Board of Directors?
The Board of Directors consists of nine (9) persons. The role of the
Directors is to provide general oversight of the Fund's business, and to
ensure that the Fund is operated for the benefit of shareholders. The
Directors meet monthly and review the Fund's performance. The Directors also
oversee the services provided to the Fund by the investment advisor and the
Fund's other service providers.
The nominees for election to the Board of Directors are: Frank H. Abbott, III,
Harris J. Ashton, Harmon E. Burns, S. Joseph Fortunato, Charles B. Johnson,
Rupert H. Johnson, Jr., Frank W. T. LaHaye, Gordon S. Macklin and R. Martin
Wiskemann (collectively, the "Nominees") who presently comprise the entire
Board. All nine Directors are directors and/or trustees of other investment
companies in the Franklin Group of Funds(R) and/or the Templeton Group of Funds
(collectively, the "Franklin Templeton Group of Funds"). In addition, Harmon E.
Burns, Charles B. Johnson and Rupert H. Johnson, Jr. are senior officers 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 is primarily engaged,
through its various subsidiaries, in providing investment management, share
distribution, transfer agency 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 Directors will hold office without limit in time until death,
resignation, retirement or removal, or until the next meeting of shareholders to
elect Directors, and the election and qualification of their successors.
Election of a Director is by a plurality vote, which means that the nine
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 Directors.
Listed below for each Nominee, is a brief description of his recent
professional experience and ownership of shares of the Fund and shares of all
of the investment companies in the Franklin Templeton Group of Funds.
Shares Beneficially
Owned in the
Fund Shares Franklin Templeton
Owned Beneficially Group of Funds
and % of Total (including the
Name and Principal Occupation Outstanding on Fund) as of
During Past Five Years and Age December 31, 1999 December 31, 1999
Frank H. Abbott, III (78) -0- 923,418.578
1045 Sansome Street
San Francisco, CA 94111
Director since 1968
President and Director, Abbott Corporation (an
investment company); director or trustee, as the
case may be, of 27 of the investment companies in
the Franklin Templeton Group of Funds; and
formerly, Director, MotherLode Gold Mines
Consolidated (gold mining) (until 1996) and
Vacu-Dry Co. (food processing) (until 1996).
Harris J. Ashton (67) -0- 1,509,048.371
191 Clapboard Ridge Road
Greenwich, CT 06830
Director since 1982
Director, RBC Holdings, Inc. (bank holding company)
and Bar-S Foods (meat packing company); director or
trustee, as the case may be, of 47 of the
investment companies in the Franklin Templeton
Group of Funds; and formerly, President, Chief
Executive Officer and Chairman of the Board,
General Host Corporation (nursery and craft
centers) (until 1998).
Harmon E. Burns* (54) -0- 731,593.494
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President since 1986 and Director since 1993
Vice Chairman, Member - Office of the Chairman and
Director, Franklin Resources, Inc.; Executive Vice
President and Director, 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 51
of the investment companies in the Franklin
Templeton Group of Funds.
S. Joseph Fortunato (67) -0- 583,059.442
Park Avenue at Morris County
P.O. Box 1945
Morristown, NJ 07962-1945
Director since 1989
Member of the law firm of Pitney, Hardin, Kipp &
Szuch; and director or trustee, as the case may be,
of 49 of the investment companies in the Franklin
Templeton Group of Funds.
Charles B. Johnson*+ (67) 3,453,543.788** 22,129,667.526
777 Mariners Island Blvd.
San Mateo, CA 94404
Chairman of the Board since 1993 and Director since 1976
Chairman of the Board, Chief Executive Officer,
Member - Office of the Chairman and Director,
Franklin Resources, Inc.; Chairman of the Board and
Director, Franklin Advisers, Inc. and Franklin
Investment Advisory Services, Inc.; Vice President,
Franklin Templeton Distributors, Inc.; Director,
Franklin/Templeton Investor Services, Inc. and Franklin
Templeton Services, Inc.; officer and/or director
or trustee, as the case may be, of most of the
other subsidiaries of Franklin Resources, Inc. and
of 48 of the investment companies in the Franklin
Templeton Group of Funds.
Rupert H. Johnson, Jr.*+ (59) -0- 15,174,056.286
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President since 1973 and Director since 1982
Vice Chairman, Member - Office of the Chairman and
Director, Franklin Resources, Inc.; Executive Vice
President and Director, Franklin Templeton
Distributors, Inc.; 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 51 of the investment companies in the
Franklin Templeton Group of Funds.
Frank W. T. LaHaye (70) 382.398** 1,281,673.248
20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014
Director since 1968
Chairman, Peregrine Venture Management Company
(venture capital); Director, The California Center
for Land Reclamation (redevelopment); director or
trustee, as the case may be, of 27 of the
investment companies in the Franklin Templeton
Group of Funds; and formerly, General Partner,
Miller & LaHaye and Peregrine Associates, the
general partners of Peregrine Venture funds.
Gordon S. Macklin (71) -0- 443,627.510
8212 Burning Tree Road
Bethesda, MD 20817
Director since 1997
Director, Martek Biosciences Corporation, MCI
WorldCom, Inc. (information services), MedImmune,
Inc. (biotechnology), Overstock.com (internet
services), White Mountains Insurance Group, Ltd.
(holding company) and Spacehab, Inc. (aerospace
services); director or trustee, as the case may be,
of 47 of the investment companies in the Franklin
Templeton Group of Funds; and formerly, Chairman,
White River Corporation (financial services) and
Hambrecht & Quist Group (investment banking), and
President, National Association of Securities
Dealers, Inc.
R. Martin Wiskemann* (72) 1,805.246** 13,362,650.244
777 Mariners Island Blvd.
San Mateo, CA 94404
President since 1993 and Director since 1968
Senior Vice President, Portfolio Manager and
Director, Franklin Advisers, Inc.; Senior Vice
President, Franklin Management, 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; and formerly, Vice
President and Director, ILA Financial Services,
Inc. (until 1998).
*This director is an "interested person" of the Fund 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 Directors. Messrs. Burns, Johnson, Johnson, Jr. and Wiskemann are
interested persons due to their employment affiliation with Resources and
with Franklin Advisers, Inc., the Fund's investment manager. The remaining
Directors ("noninterested Directors") are not interested persons of the Fund.
+Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
**Less than 1% of the outstanding shares of the Fund.
How often do the Directors meet and what are they paid?
The Directors anticipate meeting at least 11 times during the current fiscal
year to review the operations of the Fund and the Fund's investment
performance. The Directors also oversee the investment management services
furnished to the Fund by Franklin Advisers, Inc. ("Franklin Advisers") and
various other service providers. Franklin Advisers is wholly owned by
Resources. The Fund pays the noninterested Directors $150 per month plus $150
per meeting attended. Board members who serve on the Audit Committee of the
Fund and other funds in the Franklin Templeton Group of Funds receive a flat
fee of $2,000 per committee meeting attended, a portion of which is allocated
to the Fund. Members of a committee are not compensated for any committee
meeting held on the day of a board meeting.
During the fiscal year ended July 31, 1999 there were 11 meetings of the
Board and two meetings of the Audit Committee. Each of the Directors attended
at least 75% of the total number of meetings of the Board. There was 100%
attendance at the meetings of the Audit Committee.
Certain Directors and executive officers ("Executive Officers") of the Fund are
shareholders of Resources and may be deemed to receive indirect remuneration due
to their participation in the management fees and other fees received from the
Franklin Templeton Group of Funds by Franklin Advisers and its affiliates.
Franklin Advisers or its affiliates pay the salaries and expenses of the
Executive Officers. No pension or retirement benefits are accrued as part of
Fund expenses.
The fees payable to noninterested board members by the Fund are subject to
reductions resulting from fee caps limiting the amount of fees payable to
board members who serve on other boards within the Franklin Templeton Group
of Funds. The following table shows the fees paid to noninterested Directors
by the Fund and by the Franklin Templeton Group of Funds.
<TABLE>
<CAPTION>
Number of Boards in the
Total Fees Received From Franklin Templeton
Total Fees Received the Franklin Templeton Group of Funds on
Name from the Fund1 ($) Group of Funds2 ($) which Each Serves3
<S> <C> <C> <C>
Frank H. Abbott, III 2,345 156,060 27
Harris J. Ashton 2,745 363,165 47
S. Joseph Fortunato 2,560 363,238 49
Frank W.T. LaHaye 2,495 156,060 27
Gordon S. Macklin 2,745 363,165 47
</TABLE>
1. For the fiscal year ended July 31, 1999.
2. For the calendar year ended December 31, 1999.
3. 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 53 registered investment companies, with
approximately 155 U.S. based funds or series.
The preceding table indicates the total fees paid to Directors by the Fund
individually, and by all of the funds in the Franklin Templeton Group of
Funds. These Directors also serve as directors or trustees of other
investment companies in the Franklin Templeton Group of Funds, many of which
hold meetings at different dates and times. The Directors believe that having
the same individuals serving on the boards of many of the funds in the
Franklin Templeton Group of Funds enhances the ability of each fund to
obtain, at a relatively modest cost to each separate fund, the services of
high caliber, experienced and knowledgeable noninterested Directors who can
more effectively oversee the management of the funds.
Board members historically have followed a policy of having substantial
investments in one or more of the funds in the Franklin Templeton Group of
Funds, as is consistent with their individual financial goals. In February
1998, this policy was formalized through adoption of a requirement that each
board member invest one-third of fees received for serving as a director or
trustee of a Templeton fund in shares of one or more Templeton funds, and
one-third of fees received for serving as a director or trustee of a Franklin
fund in shares of one or more Franklin funds until the value of such
investments equals or exceeds five times the annual fees paid such Board
member. Investments in the name of family members or entities controlled by a
Board member constitute fund holdings of such Board member for purposes of
this policy, and a three year phase-in period applies to such investment
requirements for Board members elected for the first time to a Board. In
implementing such policy, a Board member's fund holdings existing on February
27, 1998, are valued as of such date with subsequent investments valued at
cost.
Who are the Executive Officers of the Fund?
Executive Officers of the Fund are appointed by the Directors and serve at
the pleasure of the Board. Listed below, for each Executive Officer (with the
exception of Messrs. Burns, Johnson, Johnson, Jr. and Wiskemann, whose
biographical information is included above), is a brief description of his or
her recent professional experience:
Name, Address, and Offices with the Fund Principal Occupation During Past
Five Years and Age
- -------------------------------------------------------------------------------
Martin L. Flanagan
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Chief Financial Officer since 1995
President, Member - Office of the President, Franklin Resources, Inc.; Senior
Vice President, Chief Financial Officer and Director, Franklin/Templeton
Investor Services, Inc.; Senior Vice President and Chief Financial Officer,
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 51 of the investment companies in the
Franklin Templeton Group of Funds. Age 39.
Deborah R. Gatzek
777 Mariners Island Blvd.
San Mateo, CA 94404
Secretary since 1986
Partner, Stradley, Ronon, Stevens & Young, LLP; officer of 33 of the investment
companies in the Franklin Templeton Group of Funds; and formerly, Senior Vice
President and General Counsel, Franklin 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. (until January 2000). Age 51.
David Goss
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President since January 2000
President, Chief Executive Officer and Director, Franklin Select Realty Trust,
Property Resources, Inc., Property Resources Equity Trust and Franklin Real
Estate Management, Inc.; President and Chief Executive Officer, Franklin
Properties, Inc.; officer of 27 of the investment companies in the Franklin
Templeton Group of Funds; and formerly, President, Chief Executive Officer and
Director, Franklin Real Estate Income Fund and Franklin Advantage Real Estate
Income Fund (until 1996). Age 52.
Barbara J. Green
500 East Broward Blvd.
Fort Lauderdale, FL 33394-3091
Vice President since January 2000
Vice President and Deputy General Counsel, Franklin Resources, Inc.; Senior Vice
President, Templeton Worldwide, Inc. and Templeton Global Investors, Inc.;
officer of 46 of the investment companies in the Franklin Templeton Group of
Funds; and formerly, Deputy Director, Division of Investment Management,
Executive Assistant and Senior Advisor to the Chairman, Counselor to the
Chairman, Special Counsel and Attorney Fellow, U.S. Securities and Exchange
Commission (1986-1995), Attorney, Rogers & Wells, and Judicial Clerk, U.S.
District Court (District of Massachusetts). Age 52.
Edward V. McVey
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President since 1985
Senior Vice President and National Sales Manager, Franklin Templeton
Distributors, Inc.; and officer of 28 of the investment companies in the
Franklin Templeton Group of Funds. Age 62.
Kimberley Monasterio
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and Principal Accounting Officer since 1999
Vice President, Franklin Templeton Services, Inc.; and officer of 30 of the
investment companies in the Franklin Templeton Group of Funds. Age 36.
Murray L. Simpson
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President since January 2000
Executive Vice President and General Counsel, Franklin Resources, Inc.; officer
of 27 of the investment companies in the Franklin Templeton Group of Funds; and
formerly, Chief Executive Officer and Managing Director, Templeton Franklin
Investment Services (Asia) Limited (until January 2000) and Director, Templeton
Asset Management Ltd. (until 1999). Age 62.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU APPROVE PROPOSAL 1
PROPOSAL 2: TO RATIFY THE SELECTION OF INDEPENDENT AUDITORS
How are independent auditors selected?
The Board has a standing Audit Committee consisting of Messrs. Abbott and
LaHaye, both of whom are noninterested Directors. The Audit Committee reviews
the arrangements for and scope of the audit conducted by the Fund's
independent auditors, oversees the Fund's accounting and financial policies,
practices and internal controls, and submits a recommendation to the full
Board as to the selection of independent auditors.
Which independent auditors did the Board select?
For the current fiscal year, the Board, including all of the noninterested
Directors, selected as auditors the firm of PricewaterhouseCoopers LLP, 333
Market Street, San Francisco, CA 94105. Coopers & Lybrand L.L.P. served as
the independent auditors for the Fund since inception until 1998.
PricewaterhouseCoopers LLP is the successor entity to a 1998 combination of
Coopers & Lybrand L.L.P. with Price Waterhouse LLP. PricewaterhouseCoopers
LLP has examined and reported on the fiscal year-end financial statements,
dated July 31, 1999, and certain related U.S. Securities and Exchange
Commission ("SEC") filings. The auditors give an opinion on the financial
statements in the Fund's Annual Report to Shareholders.
Representatives of PricewaterhouseCoopers LLP are not expected to be present
at the Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT YOU APPROVE PROPOSAL 2
PROPOSAL 3: TO MODIFY THE FUND'S INVESTMENT FOCUS AND TO
CHANGE THE FUND'S NAME (this Proposal involves separate
votes on two (2) Sub-Proposals)
Sub-Proposal 3a: To modify the Fund's current investment criteria to include
other precious metals (platinum, palladium and silver), in addition to gold
as the principal investment focus.
Why is the Board proposing to modify the Fund's current investment criteria
and permit the Fund to expand its investments in other precious metals, in
addition to gold?
The Fund currently invests at least 65% of its total assets in equity
securities of companies that mine, process, or deal in gold. The declining
gold price over the past few years has resulted in a decline in the number of
companies that meet the Fund's investment criteria. Even if there is a
significant rebound in the price of gold, management believes that it will
take several years for the universe of companies in which the Fund may invest
to expand. Management has determined, and has reported to the Board, that the
current environment for gold equity securities is likely to result in further
consolidation within the gold industry. Such consolidation in conjunction
with volatile market conditions makes managing the Fund more difficult. In
order to enhance investment opportunities, management is recommending that
the Fund modify its principal investment criteria to expand its ability to
invest in companies that mine, process or otherwise deal in other precious
metals, in addition to gold.
Presently, the Fund concentrates (invests more than 25% of its total assets)
in companies that mine, process and deal in both gold and other precious
metals, such as silver, platinum, and palladium. If shareholders approve this
Sub-Proposal 3a, the Fund would be permitted to increase its investment in
the equity securities related to these other precious metals. Accordingly,
the Fund would no longer be required to invest up to 65% of its total assets
in the equity securities of gold companies only. Instead, the Fund would be
permitted to invest up to 65% of its total assets in the equity securities of
companies that mine, process or deal in both gold and other precious metals.
It is anticipated that this change would provide the Fund with additional
flexibility to pursue its investment objectives through investment in a
larger universe of companies. This proposal is not intended to change the
Fund's traditional focus on gold. However, expanding the ability of the Fund
to invest in companies associated with other precious metals is intended to
allow the Fund to better manage the market volatility that the current
historically low gold price has created.
Sub-Proposal 3b: To amend the Fund's charter to change the Fund's name to
reflect its revised investment focus, in the event that Sub-Proposal 3a is
approved.
Why is the Board recommending that the Fund change its name?
The Board is recommending that shareholders approve changing the Fund's name
to the "Franklin Gold and Precious Metals Fund." If shareholders approve the
change to the Fund's investment criteria as described in Sub-Proposal 3a,
under the federal securities laws, the Fund would be required to change its
name. A fund's name must be consistent with its investment focus, and may not
be either deceptive or misleading. If a fund's name implies that it will
invest primarily in a certain type of security, the fund is required to have
a policy that, under normal circumstances, at least 65% of the value of its
total assets will be invested in that type of security. The Fund's current
name implies that the Fund invests primarily in gold-related securities, and
in fact, it has been the Fund's policy to invest at least 65% of its assets
in gold-related securities. If the Fund changes its investment criteria to
expand its ability to invest in securities related to precious metals other
than gold equity securities, such as platinum, palladium and silver, the Fund
may no longer be investing at least 65% of its assets in gold equity
securities, as the name "Franklin Gold Fund" implies. Therefore, the Fund
would not be able to continue to use the name "Franklin Gold Fund" since that
name would be considered misleading.
Modifying the Fund's investment criteria as described in Sub-Proposal 3a will
result in the Fund investing approximately 65% of its assets in the equity
securities of companies associated with gold and other precious metals. For
this reason the Board has recommended that, if Sub-Proposal 3a is approved,
the name of the Fund be changed to the "Franklin Gold and Precious Metals
Fund." If Sub-Proposal 3a is not approved by the shareholders, the Fund will
not change its name, regardless of whether Sub-Proposal 3b is approved.
Why is the Fund's charter being amended to change the Fund's name?
In order to legally change the Fund's name, shareholders must approve an
amendment to the Fund's Articles of Incorporation, as amended and restated
(the "Articles"). Presently, Article First of the Fund's Articles states the
following: "The name of this corporation is Franklin Gold Fund." If approved,
Article First of the Fund's Articles would be amended to read as follows:
"The name of this corporation is Franklin Gold and Precious Metals Fund."
Approval of the amendment would also have the effect of changing the Fund's
name in any other location in the Articles where the name appears. Approval
of this amendment, and filing the amendment with the State of California,
would legally change the name of the Fund.
If the proposal to reorganize the Fund as a Delaware business trust is
approved (see Proposal 7), the name of the new Delaware business trust would
be the "Franklin Gold and Precious Metals Fund." Accordingly, no amendment to
the Fund's corporate charter would be filed, since the Fund would no longer
be a California corporation. However, if the Fund is not reorganized into a
Delaware business trust, it would still be required to file the amendment to
the Articles to change the Fund's name under California law.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT YOU APPROVE SUB-PROPOSALS 3a-3b
PROPOSAL 4: TO CHANGE THE CLASSIFICATION OF THE FUND FROM A DIVERSIFIED TO A
NON-DIVERSIFIED FUND
What does the Fund's current classification as "diversified" mean?
The Fund is currently classified as "diversified" according to the Investment
Company Act of 1940, as amended ("1940 Act"). This classification requires the
Fund to have an investment policy prohibiting it, as to 75% of its total assets,
from investing more than 5% of the value of its total assets in the securities
of any one issuer (other than securities issued by the U.S. government, its
agencies or instrumentalities or securities of other investment companies), and
to not more than 10% of the outstanding voting securities of such issuer. The
Fund's current investment limitations are even more restrictive since the Fund
is prohibited, as to 100% of its total assets, from investing more than 5% of
the value of its total assets in the securities of any one issuer (other than
securities issued by the U.S. government, its agencies or instrumentalities).
Under the 1940 Act, the remaining 25% of the Fund's total assets may be invested
without regard to the 5% and 10% limitations. Consistent with many mutual funds,
the Fund, while having claimed diversified status since its inception, also has
two fundamental investment restrictions summarizing the diversification
requirements of the 1940 Act. These restrictions, which currently appear in the
Fund's Statement of Additional Information as restrictions 1 and 2, state that
the Fund may not:
1. Purchase the stock or securities of any issuer other than those of
the U.S. or its instrumentalities, if at the time of the investment
the effect thereof shall be to cause more than 5% of the value of its
assets to be invested at such time in the securities of the issuer.
2. As to 75% of its total assets, purchase stock or securities of an
issuer, other than the U.S. or its instrumentalities, if the effect
thereof shall be to cause more than 10% of the voting securities of
such issuer to be held by the fund.
The Fund's investment adviser, Franklin Advisers, has recommended changing
the Fund's classification from "diversified" to "non-diversified." Under the
1940 Act, a change from diversified to non-diversified status requires a
shareholder vote. In addition, elimination of a fundamental investment
restriction requires such a vote. If Proposal 4 is approved by shareholders,
the Fund's diversification status would change, and its current fundamental
investment restrictions 1 and 2 regarding diversification would be eliminated.
Why is the Board recommending a change to the Fund's current classification?
Franklin Advisers has described to the Board that in the gold and precious
metals industries, investment opportunities are concentrated in a relatively
small number of companies. The diversified nature of the Fund, which requires
it to invest in a greater number of companies, is impeding the Fund's ability
to fully benefit from the performance of certain securities which comprise a
significant percentage of the Fund's investments. Thus, the non-diversified
status of the Fund puts it at a competitive disadvantage compared with other
funds which have the ability to invest in the securities of fewer companies.
Changing the Fund to non-diversified would help provide the Fund with
additional investment flexibility that, in light of the Fund's focus, would
be in the best interests of shareholders. Although greater investment
flexibility would result from a change to non-diversified status, it should
be noted that the Fund intends to continue to operate in compliance with
diversification requirements of the Internal Revenue Code of 1986, as
amended, ("Code") in order to qualify as a regulated investment company under
the Code. These Code provisions require that the Fund limit its investments
so that, at the close of each quarter of its taxable year: (i) not more than
25% of its total assets are invested in the securities (other than U.S.
government securities or the securities of other regulated investment
companies) of any one issuer; and (ii) at least 50% of the value of its total
assets is represented by cash and cash items (including receivables),
government securities and securities of other regulated investment companies,
and other securities for purposes of this calculation limited in respect of
any one issuer to an amount not greater in value than 5% of the value of the
Fund's total assets, and to not more than 10% of the outstanding voting
securities of the issuer.
What are the risks of such a change to the Fund's diversification status?
Changing the Fund to non-diversified involves potential risks, including the
potential that changes in the value of a single company's securities may have
a greater effect on the Fund's performance and share price than if the Fund
remained diversified. The gold and precious metals markets are relatively
limited and there are fewer companies in which to invest. Therefore, a
decrease in the price of a small number of companies could negatively impact
the net asset value of the Fund.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT YOU APPROVE PROPOSAL 4
INTRODUCTION TO PROPOSALS 5 AND 6.
Why is the Fund amending or eliminating certain of its fundamental investment
restrictions?
The Fund is subject to certain investment restrictions which govern the
Fund's investment activities. Under 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 Directors without
shareholder approval.
After the Fund was formed in 1968, 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 Directors recommend that the Fund's shareholders approve the
amendment or elimination of certain of the Fund's current fundamental
investment restrictions. The fundamental investment restrictions to which the
Fund is presently subject are listed in the Fund's Statement of Additional
Information as well as the Fund's By-Laws. Amending or eliminating these
restrictions by approving Proposals 5 and 6 will have the effect of amending
both the Statement of Additional Information and the Fund's By-Laws.
By reducing the total number of investment restrictions that can be changed
only by a shareholder vote, the Directors 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 Directors 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 restrictions satisfy current federal regulatory requirements,
and are written to provide flexibility to respond to future legal,
regulatory, market or technical changes. The proposed 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 Fund's existing investment restrictions, together with the recommended
changes to the restrictions, are detailed in Exhibit A, which is entitled,
"Fundamental Investment Restrictions Proposed to be Amended or Eliminated."
Shareholders are requested to vote on each Sub-Proposal in Proposal 5
separately.
PROPOSAL 5: TO APPROVE AMENDMENTS TO CERTAIN OF THE FUND'S FUNDAMENTAL
INVESTMENT RESTRICTIONS
(this Proposal involves separate votes on Sub-Proposals 5a - 5e)
Sub-Proposal 5a: 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 its total
assets (including the amount borrowed). A fund may borrow up to 5% of its
total assets for temporary purposes from any person. 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 effect will amending the current borrowing restriction have on the Fund?
As described in the Fund's current investment restriction 3, the Fund is
presently limited to borrowing up to 5% of assets, rather than the 331/3%
allowed under current law. The proposed restriction would increase this
borrowing limit to the legally permissible limit of 331/3%. The proposed
restriction would also clarify that the Fund may borrow: (1) from banks to
the extent permitted by the 1940 Act or any exemptions therefrom, and (2)
from any person for temporary purposes; but (3) in any event all borrowings
must not exceed 331/3% of total assets. The Fund's current restriction also
states that the Fund may not borrow in excess of 5% "for direct investment in
securities." The 1940 Act limits on borrowing historically were interpreted
to prohibit mutual funds from making additional investments in securities
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 SEC recently granted an exemptive order to the
Fund, together with other funds in the Franklin Templeton Group of Funds,
permitting the Fund to borrow money from affiliated Franklin and Templeton
funds. The proposed borrowing 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.
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.
Sub-Proposal 5b: 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.
The Fund's current restriction 5 relating to underwriting is combined with a
restriction relating to investing in illiquid securities. Approval of
Sub-Proposal 5b would result in the separation of the Fund's underwriting
restriction from the Fund's fundamental investment restriction relating to
investing more than 10% in illiquid securities. The restriction on investing
in illiquid securities is proposed to be eliminated (see Proposal 6).
What effect will amending the current underwriting restriction have on the
Fund?
The proposed restriction is similar to the current investment restriction 5.
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. 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.
Sub-Proposal 5c: 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 current
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 effect will amending the current lending restriction have on the Fund?
The proposed restriction is similar to the Fund's current restriction 4, but
would provide the Fund with greater lending flexibility. Although 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. The
Franklin Templeton Group of Funds, including the Fund, recently received an
exemptive order from the SEC that permits the Fund to lend cash to other
Franklin and Templeton funds. The proposed restriction permits 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.
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.
Sub-Proposal 5d: 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 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 effect will amending 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 restriction is exactly the same as the real estate
limitation contained in the Fund's current restriction 9. Accordingly, the
Fund will continue to be prohibited from directly purchasing or selling real
estate, but will be permitted to purchase or sell securities of real estate
investment trusts.
The Fund's current restriction 9 relating to real estate is combined with a
restriction relating to investments in other investment companies. The
adoption of this Sub-Proposal would result in the separation of the Fund's
real estate restriction from the Fund's fundamental investment restriction
relating to investments in other investment companies. This restriction on
investing in other investment companies is proposed to be eliminated (see
Proposal 6).
Commodities: 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 retains the carve-outs for gold bullion and gold
coins that are contained in the Fund's current restriction number 8. In
addition, 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 financial futures contracts and related options, it
has not done so. The Fund does not intend to begin investing in financial
futures contracts and related options as a result of this change. 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.
Sub-Proposal 5e: 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 effect will amending the restriction regarding issuing senior securities
have on the Fund?
The proposed senior securities restriction is similar to the Fund's current
non-fundamental restriction 5. The proposed 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.
If approved, the proposed restriction would be fundamental. 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.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT YOU APPROVE SUB-PROPOSALS 5a-5e
PROPOSAL 6: TO APPROVE THE ELIMINATION OF CERTAIN OF THE FUND'S FUNDAMENTAL
INVESTMENT RESTRICTIONS
Which six (6) fundamental investment restrictions are the Board recommending
that the Fund eliminate?
Some of the Fund's fundamental investment restrictions were originally
drafted to comply with 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 6, 7, 10, 11
and certain parts of restrictions 5 and 9, among its fundamental investment
restrictions. Franklin Advisers has recommended, and the Board has
determined, that all of these current fundamental investment restrictions
should be eliminated.
The exact wording of these six restrictions, (referred to in this Proposal 6
as the "Restrictions") has been included in Exhibit A, which is entitled,
"Current Fundamental Investment Restrictions Proposed to be Amended or
Eliminated."
Illiquid and Restricted Securities:
The Fund's current fundamental investment restriction number 5 limits the Fund's
ability to invest more than 10% of its assets in illiquid securities, including
certain securities with legal or contractual restrictions on resale. 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 6 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.
Securities on Margin and Short Sales:
The Fund's current fundamental investment restriction number 7 limits the
Fund's ability to purchase securities on margin or sell securities short. 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 these types of investment activities.
As a general matter, elimination of this fundamental restriction relating to
purchasing securities on margin and selling securities short, 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 5e). 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
inability to purchase on margin. Finally, the Fund has not previously, nor
does it currently intend, to engage in these investment activities.
Investment in Other Investment Companies:
The Fund's current restriction 9 limits the Fund's ability to invest in the
securities of other open-end investment companies, except in connection with
a merger, consolidation, acquisition or reorganization. This restriction 9,
which is inconsistent with the 1940 Act provisions in this regard, was
originally included in the Fund's fundamental investment restrictions in
response to various state law requirements. Under NSMIA, however, the Fund is
no longer legally required to retain such a policy as a fundamental
restriction.
Upon elimination of this restriction, the Fund would remain subject to the
1940 Act restrictions (or any exemption from such restrictions) on a fund's
ability to invest in other open-end funds. The 1940 Act restrictions state
that a fund may not purchase more than 3% of another fund's total outstanding
voting stock, commit more than 5% of its assets to the purchase of another
fund's securities, or have more than 10% of its total assets invested in
securities of all other funds.
The current restriction permits investments by the Fund in shares of a money
market fund, subject to certain conditions. Although eliminating the present
restriction would continue to permit the Fund to invest cash held at the end of
the day in money market funds, it would not subject the Fund to the limiting
conditions on investing in money market funds contained in the current
restriction. 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") which permits 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 in certain
limited circumstances.
Elimination of this restriction should not have an impact on the day to day
management of the Fund as the Fund does not intend to begin pursuing its
investment objective through the purchase of other open-end investment
company securities.
Securities with Unlimited Liability:
The Fund's current fundamental investment restriction 10 limits the Fund's
ability to invest in assessable securities or securities involving unlimited
liability on the part of the Fund. This restriction was originally included
in response to the various state law requirements to which mutual funds used
to be subject. Securities that are assessable have potentially unlimited
liability and generally are considered to be senior securities. The Fund's
policy regarding senior securities is discussed in Sub-Proposal 5e. As
discussed earlier in the introduction, under NSMIA the Fund is no longer
required to retain a fundamental policy regarding investments in securities
with unlimited liability.
Elimination of this restriction 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 invest in securities with unlimited liability.
Management Ownership of Securities:
The Fund's current restriction number 11 limits the Fund's ability to invest
in securities issued by companies whose securities are owned in certain
amounts by Directors and officers of the Fund, or its investment manager,
Franklin Advisers. 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 in this area would still apply to the Fund.
Why is the Board recommending that the Restrictions be eliminated, and what
effect will their elimination have on the Fund?
The Board has determined that eliminating the Restrictions is consistent with
the federal securities laws. By 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 six 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 DIRECTORS UNANIMOUSLY RECOMMENDS
THAT YOU APPROVE PROPOSAL 6
PROPOSAL 7: TO APPROVE THE REORGANIZATION OF THE FUND FROM A CALIFORNIA
CORPORATION TO A DELAWARE BUSINESS TRUST
What will the Reorganization mean for the Fund and its shareholders?
The Directors recommend that you approve a change in the form of organization
of the Fund from a California corporation to a Delaware business trust. This
proposed change will be referred to in this proxy statement as the
"Reorganization." The Board of Directors 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 Fund, (referred to in this Proposal 7 as the
"CA Corporation") in the form of a newly created Delaware business trust,
named "Franklin Gold and Precious Metals Fund" (and referred to in this
Proposal 7 as the "DE Trust").
The DE Trust will have the same investment objective, policies and
restrictions as the CA Corporation. This means that the DE Trust's
fundamental investment policies and restrictions will reflect the results of
the shareholders' vote on Proposals 3, 4, 5 and 6 of this proxy statement.
The Directors, officers and employees will be the same, and will operate the
DE Trust in the same manner as they previously operated the CA Corporation.
On the closing date of the Reorganization, you will hold an interest in the
DE Trust that is equivalent to your interest in the CA Corporation.
Essentially, your investment will not change, and the Reorganization will
have no material impact on your economic interests as a shareholder.
Why are the Directors recommending that I approve the Reorganization?
The Directors have determined that mutual funds formed as Delaware business
trusts have certain advantages over those funds organized as California
corporations. 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 DE Trust.
A comparison of the Delaware business trust law and the California General
Corporation law, and a comparison of the relevant provisions of the governing
documents of the DE Trust and the CA Corporation, are included in Exhibit C,
which is entitled, "Comparison and Significant Differences Between Delaware
Business Trusts and California Corporations."
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 Directors,
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 Directors believe that it is in the best interests of
the shareholders to approve the Reorganization.
What are the procedures and consequences of the Reorganization?
Upon completion of the Reorganization, the DE Trust will continue the
business of the CA Corporation with the same investment objective and
policies as exist on the date of the Reorganization, and will hold the same
portfolio of securities previously held by the CA Corporation. The DE
Trust will be operated under substantially identical overall management,
investment management, distribution and administrative arrangements as those
of the CA Corporation. As the successor to the CA Corporation's operations,
the DE Trust will adopt the CA Corporation's registration statement under the
federal securities laws with amendments to show the new Delaware business
trust structure.
The DE Trust was created solely for the purpose of becoming the successor
organization to, and carrying on the business of, the CA Corporation. To
accomplish the Reorganization, the Plan provides that the CA Corporation will
transfer all of its portfolio securities and any other assets, subject to its
related liabilities, to the DE Trust. In exchange for these assets and
liabilities, the DE Trust will issue its own shares to the CA Corporation, which
will then distribute those shares pro rata to you as a shareholder of the CA
Corporation. Through this procedure you will receive exactly the same number and
dollar amount of shares of the DE Trust as you previously held in the CA
Corporation. The net asset value of each share of the DE Trust will be the same
as that of the CA Corporation 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 CA Corporation that you may have had as of the
effective date of the Reorganization. As soon as practicable after the date of
the Reorganization, the CA Corporation will be dissolved and will go out of
existence.
The Directors 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 CA Corporation's shareholders.
If the Reorganization is not approved, or if the Directors abandon the
Reorganization, the CA Corporation will continue to operate as a corporation
under the laws of the State of California.
What effect will the Reorganization have on the current investment management
agreement?
As a result of the Reorganization, the DE Trust will be subject to a new
investment management agreement between the DE Trust and Franklin Advisers.
The new management agreement will be identical to the current management
agreement between Franklin Advisers and the CA Corporation. It is anticipated
that there will be no material change to the investment management agreement
as a result of the Reorganization.
What effect will the Reorganization have on the shareholder servicing
agreements and distribution plans?
The DE 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 CA Corporation. Franklin Templeton Distributors, Inc.
will serve as the distributor for the shares of the DE Trust under a separate
distribution agreement that is substantially identical to the distribution
agreement currently in effect for the CA Corporation.
As of the effective date of the Reorganization, the DE Trust 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 the CA Corporation. 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 Directors; (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 DE Trust. In fact, the DE Trust must have
shareholder approval of these issues or else it will not comply with the 1940
Act. However, the Directors 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
Directors 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 Directors of the CA Corporation who are in office at the
time of the Reorganization as Trustees of the DE Trust1; (2) the selection of
PricewaterhouseCoopers LLP as independent auditors for the DE Trust; and (3) a
new investment management agreement between the DE Trust and Franklin Advisers,
which is substantially identical to the investment management agreement
currently in place for the CA Corporation.
Prior to the Reorganization, the officers will cause the CA Corporation, as
the sole shareholder of the DE Trust, to vote its shares FOR the matters
specified above. This action will enable the DE 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 DE Trust?
The DE Trust was created on November 16, 1999 pursuant to Delaware law. The
DE Trust has an unlimited number of shares of beneficial interest with a par
value of $0.01 per share. The shares of the DE Trust will be allocated into
four classes to correspond to the current four classes of shares of the CA
Corporation.
1The Directors of a Delaware business trust are referred to as Trustees.
As of the effective date of the Reorganization, shares of the respective
classes of the CA Corporation and the DE 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 DE Trust and the CA
Corporation will have equal voting and liquidation rights and have one vote
per share. The DE Trust also will have the same fiscal year as the CA
Corporation.
Who will bear the expenses of the Reorganization?
Since the Reorganization will benefit the CA Corporation and its
shareholders, the Board has authorized that the expenses incurred in the
Reorganization shall be paid by the CA Corporation, 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 the DE Trust will be the same as the basis and holding period of
your shares in the CA Corporation. Consummation of the Reorganization is
subject to receipt of a legal opinion from the law firm of Stradley, Ronon,
Stevens & Young, LLP, counsel to the DE Trust and the CA Corporation, that,
under the Internal Revenue Code of 1986, as amended, the exchange of assets
of the CA Corporation for the shares of the DE Trust, the transfer of such
shares to the holders of shares of the CA Corporation, and the liquidation
and dissolution of the CA Corporation pursuant to the Plan will not give rise
to the recognition of a gain or loss for federal income tax purposes to the
CA Corporation, the DE Trust, or shareholders of either the CA Corporation or
the DE Trust.
What if I choose to sell my shares at any time?
A request to sell CA Corporation shares that is received and processed prior
to the Reorganization will be treated as a redemption of shares of the CA
Corporation. 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 DE 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 business 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 CA Corporation.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT YOU APPROVE PROPOSAL 7
PROPOSAL 8: TO AMEND THE FUND'S CHARTER TO INCREASE THE FUND'S AUTHORIZED
CAPITAL IN THE EVENT THAT PROPOSAL 7
IS NOT APPROVED
Why does the Fund need to increase its authorized capital?
Under its Articles, the Fund has an authorized capital of one hundred million
shares, which means that the Fund may currently issue (sell) one hundred
million shares of its stock. As the Fund has grown over the years, it has
sold much of its authorized capital. In order for the Fund to continue
selling its shares, shareholders must approve an increase in the number of
shares that the Fund has authority to sell.
Management has recommended, and the Board has agreed, that the Fund's
authorized capital should be increased by fifty (50) million shares, from the
current one hundred (100) million authorized shares, to a total of one
hundred fifty (150) million authorized shares.
Increasing the authorized capital of the Fund will enable the Fund to sell
more shares, which in turn is expected to help the Fund increase its asset
size. An increase in asset size will provide additional benefits to both the
Fund and to your investment in the Fund. As the Fund's assets grow, it may be
in a position to use these additional funds to place larger buy and sell
orders. In so doing, the Fund may be able to take advantage of certain
investment opportunities, and achieve economies of scale, that may be
unavailable to smaller orders.
Why is the Fund's charter being amended to increase the Fund's authorized
capital?
Since the number of shares that the Fund has authority to sell is contained
in the Fund's Articles, under state law an amendment to the Articles is
necessary to increase that number. Currently, the first sentence of Article
Fifth of the Fund's Articles states:
"The total number of shares of capital stock which the Corporation
shall have authority to issue is One Hundred Million (100,000,000)
shares of capital stock, $0.10 par value per share."
If approved, the first sentence of Article Fifth of the Fund's Articles would
be amended to read as follows:
"The total number of shares of capital stock which the Corporation
shall have authority to issue is One Hundred Fifty Million
(150,000,000) shares of capital stock, $0.10 par value per share."
Approving this amendment, and filing this amendment with the State of
California, would legally increase the number of shares the Fund is
authorized to sell.
What effect would approval of Proposal 7 have on this Proposal to amend the
charter to increase the Fund's authorized capital?
If the proposal to reorganize the Fund into a Delaware business trust (as
described above in Proposal 7) is approved, an amendment to the corporate
charter under California law would no longer be necessary. The new Delaware
business trust would be authorized to issue an unlimited number of shares,
and would not need to undergo the time and expense of a shareholder vote each
time the number of authorized shares approached the number of Fund shares
actually outstanding. However, in the event that Proposal 7 is not approved,
the Fund would be required to continue to seek shareholder approval, and
amend its charter, each time the Fund needs to increase its total number of
authorized shares.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT YOU APPROVE PROPOSAL 8
PROPOSAL 9: OTHER BUSINESS
The Directors do not intend to bring any matters before the Meeting other
than Proposals 1 through 8 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.
(C) INFORMATION ABOUT THE FUND
The Investment Manager. Franklin Advisers, Inc. ("Franklin Advisers"), 777
Mariners Island Blvd., San Mateo, California 94404 serves as the Fund's
investment manager. Franklin Advisers is wholly owned by Resources.
The Fund Administrator. Under an agreement with Franklin Advisers, 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 Fund. FT Services is a
wholly owned subsidiary of Resources and is an affiliate of Franklin
Advisers and the Fund's principal underwriter.
The Underwriter. The underwriter for the Fund 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 Fund 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 Fund's securities and
other assets.
Reports to Shareholders and Financial Statements. The Fund's last audited
financial statements and annual report, for the fiscal year ended July 31,
1999 is 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 January 24, 2000, the Fund had 25,627,936
shares outstanding and total net assets of $235,180,429. 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.
As of January 24, 2000, the principal shareholders of the Fund, beneficial
or of record, were:
Name and Address Share Class Percentage (%)
- -------------------------------------------------------------------------------
Franklin Templeton Trust Class B 8.06
Company CUST for the
Rollover IRA of Steven W. Allen
2624 Quail Valley
Irving, TX 75060
Franklin Templeton Trust Advisor Class 40.38
Company TTEE for ValuSelect
Franklin Resources, Inc.
Profit Sharing Plan1
P.O. Box 2438
Rancho Cordova, CA 95741-2438
1. Charles B. Johnson and Rupert H. Johnson, Jr., who are officers and
directors of the Fund, serve on the Administrative Committee of the
Franklin Templeton Profit Sharing 401(k) Plan which owns shares of the
Fund. In that capacity, they participate in the voting of such shares.
Charles B. Johnson and Rupert H. Johnson, Jr., disclaim beneficial
ownership of any share of the fund owned by the Franklin Templeton Profit
Sharing 401(k) Plan.
As of January 24, 2000, the officers and Board members, as a group, owned
of record and beneficially 1.4% of the Fund's Advisor Class shares and less
than 1% of the outstanding shares of the other classes.
(C) FURTHER INFORMATION ABOUT VOTING AND THE MEETING
Solicitation of Proxies. The cost of soliciting these proxies will be borne
by the Fund. The Fund reimburses brokerage firms and others for their
expenses in forwarding proxy material to the beneficial owners and
soliciting them to execute proxies. The Fund has engaged Shareholder
Communications Corporation to solicit proxies from brokers, banks, other
institutional holders and individual shareholders for an approximate fee,
including out-of-pocket expenses, ranging between $59,196 and $75,784. The
Fund expects that the solicitation will be primarily by mail, but also may
include telephone, telecopy or oral solicitations. The Fund does not
reimburse Directors and officers of the Fund, or regular employees and
agents of Franklin Advisers involved in the solicitation of proxies. The
Fund 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 Fund, Franklin Advisers and its affiliates, without extra
compensation, may conduct additional solicitations by telephone, personal
interviews and other means.
Voting by Broker-Dealers. The Fund expects that, before the Meeting,
broker-dealer firms holding shares of the Fund 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
Fund 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. A majority of the Fund's 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 Directors, requires that the nine Nominees receiving the greatest number
of votes cast at the Meeting will be elected. In the election of Directors
each shareholder entitled to vote may, under California law, cumulate his
or her votes and give one candidate a number of votes equal to the number
of Directors to be elected, multiplied by the number of votes to which his
or her shares are entitled or distribute his or her votes in the same way
among as many candidates as he or she thinks fit. Proposal 2, ratification
of the selection of independent auditors, requires the affirmative vote of
a majority of the Fund's shares present and voting on the Proposal at the
Meeting. Sub-Proposal 3a, modification of the Fund's current investment
policy to include other precious metals requires the affirmative vote of
the lesser of: (i) more than 50% of the outstanding voting securities of
the Fund; or (ii) 67% or more of the voting securities of the Fund present
at the Meeting, if the holders of more than 50% of the outstanding voting
securities are present or represented by proxy (referred to as a "1940 Act
vote"). Sub-Proposal 3b, amending the Fund's charter to change the Fund's
name requires the affirmative vote of a majority of the Fund's outstanding
shares. Proposal 4, changing the Fund's classification from diversified to
non-diversified; Sub-Proposals 5a-5e, amendments to fundamental investment
restrictions; and Proposal 6, elimination of fundamental investment
restrictions, all require a 1940 Act vote (see Sub-Proposal 3a). Proposal
7, the reorganization of the Fund from a California corporation to a
Delaware business trust; Proposal 8, amending the Fund's charter to
increase the Fund's authorized capital; and Proposal 9, the transaction of
any other business, all require the affirmative vote of a majority of the
Fund's outstanding shares. 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 Fund 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 Fund'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 Fund.
By order of the Board of Directors,
Deborah R. Gatzek
Secretary
Dated: February 1, 2000
San Mateo, California
<TABLE>
<CAPTION>
EXHIBIT A
FUNDAMENTAL INVESTMENT RESTRICTIONS PROPOSED
TO BE AMENDED OR ELIMINATED
PROPOSAL PROPOSED FUNDAMENTAL
OR SUB- CURRENT FUNDAMENTAL RESTRICTION RESTRICTION
PROPOSAL RESTRICTION The Fund may not: The Fund may not:
<S> <C> <C> <C>
4 Diversification The Fund may not: Proposed to be Eliminated.
1. Purchase the stock or
securities of any issuer other than
those of the U.S. or its
instrumentalities, if at the time
of the investment the effect
thereof shall be to cause more
than 5% of the value of its
assets to be invested at such
time in the securities
of such issuer.
4 Diversification Proposed to be Eliminated.
2. As to 75% of its total
assets, purchase stock or
securities of an issuer,
other than the U.S. or its
instrumentalities, if the
effect thereof shall be to cause
more than 10% of the voting
securities of such issuer to be
held by the fund.
5a Borrowing 3. Borrow money in an amount Borrow money, except that
in excess of 5% of the value of the fund may borrow money
its total assets, and then only from banks or affiliated
from banks for temporary or investment companies to the
emergency purposes, and not extent permitted by the 1940
for direct investment in securities. Act, or any exemptions therefrom
which may be granted by the SEC,
or for temporary or emergency
purposes and then in an amount not
exceeding 331/3% of the value of
the fund's total assets (including
the amount borrowed).
5b Underwriting 5. Underwrite the securities of Act as an underwriter except
other issuers or invest more to the extent the fund may
than 10% of its assets in illiquid be deemed to be an underwriter
securities, including certain when disposing of securities
securities with legal or contractual it owns or when selling its own
restrictions on resale. shares.
5c Lending 4. Lend its assets, except through Make loans to other persons except
the purchase or acquisition of bonds, (a) through the lending of its portfolio
debentures, or other debt securities securities, (b) through the purchase
of a type customarily purchased by of debt securities, loan participations
institutional investors, or through and/or engaging in direct corporate
loans of its portfolio securities, or to loans in accordance with its investment
the extent the entry into a repurchase objectives and policies, and (c)
agreement may be deemed a loan. 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 SEC.
5d Commodities 8. Invest in commodities or commodity Purchase or sell real estate and
contracts, except that it may invest in commodities, except that the fund may
gold bullion and foreign currency in purchase or sell securities of real
the form of gold coins. 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,
and may also invest in gold bullion
and foreign currency in the form of gold coins.
5d Real Estate 9. Invest directly in real estate Purchase or sell real estate
(although it may invest in real estate and commodities, except that the
investment trusts). . . . 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, and may also invest in
gold bullion and foreign currency
in the form of gold coins.
5e Senior Securities Issue senior securities, as Issue securities senior to the
defined in the Investment fund's presently authorized
Company Act of 1940, except shares of beneficial interest. Except
that this restriction shall that this restriction shall not
not be deemed to prohibit the be deemed to prohibit the fund from (a)
fund from (a) making any making any permitted borrowings,
permitted borrowings, mortgages loans, mortgages or pledges,
or pledges, or (b) entering (b) entering into options, futures
into repurchase transactions. contracts, forward contracts,
repurchase transactions, or reverse
Note: This policy is presently repurchase transactions, or (c) making
a non-fundamental policy. If short sales of securities to the
shareholders approve Sub-Proposal extent permitted by the 1940 Act and any
5e, this policy will be a rule or order thereunder, or SEC
fundamental policy. staff interpretations thereof.
6 Illiquid Securities 5. Underwrite the securities of Proposed to be Eliminated.
other issuers or invest more
than 10% of its assets in illiquid
securities, including certain
securities with legal or contractual
restrictions on resale.
6 Control or Management 6. Invest in securities for the purpose Proposed to be Eliminated.
of exercising management or control
of the issuer.
6 Margin Account;
Short Sales 7. Maintain a margin account with a Proposed to be Eliminated.
securities dealer or effect short sales.
6 Investment 9. Invest... in the securities Proposed to be Eliminated.
in Other Investment of other open-end investment
Companies companies, except that securities
of another open-end investment
company may be acquired pursuant
to a plan of reorganization,
merger, consolidation, or acquisition,
and except to the extent the
fund invests its uninvested
daily cash balances in shares of
Franklin Money Fund and other
money market funds in the Franklin
Group of Funds, provided (i) its
purchases and redemptions of such money
market fund shares may not be
subject to any purchase or redemption
fees, (ii) its investments may not
be subject to duplication of
management fees, nor to any charge
related to the expenses of
distributing the fund's shares
(as determined under Rule 12b-1,
as amended under the federal
securities laws), and (iii)
provided aggregate investments
by the fund in any such money
market fund do not exceed (A)
the greater of (i) 5% of the
fund's total net assets or (ii)
$2.5 million, or (B) more than 3%
of the outstanding shares of
any such money market fund.
6 Securities 10. Invest in assessable securities Proposed to be Eliminated.
with Unlimited or securities involving unlimited
Liability liability on the part of the fund.
6 Management 11. Purchase or retain in its Proposed to be Eliminated.
Ownership of portfolio any security if any officer,
Securities director, or security holder of
the issuer is at the same time
an officer, director, or employee
of the fund or of the fund's
manager and this person owns
beneficially more than 1/2 of
1% of the securities and if
all persons owning more than
1/2 of 1% own more than 5%
of the outstanding securities
of the issuer.
</TABLE>
EXHIBIT B
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made this
__ day of ______________, 2000 by and between Franklin Gold Fund, a
corporation created under the laws of the State of California (the "Fund"),
and Franklin Gold and Precious Metals Fund, a business trust created under
the laws of the State of Delaware (the "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 Fund will convey, transfer and deliver to the Trust, at the
closing provided for in Section 2 (hereinafter referred to as the "Closing")
all of its then-existing assets. In consideration thereof, the 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 Fund'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, and taxes assessed by the State of California, if any, the
obligations and liabilities allocated to the Fund to become the obligations
and liabilities of the Trust, and (ii) to deliver to the Fund full and
fractional shares of each class of the Trust equal in number to the number of
full and fractional shares outstanding of each class 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 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 Trust
such shareholder held in the corresponding class of the Fund on the Effective
Date of the Reorganization. Fractional shares of the Trust 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 Trust 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 Trust. Each shareholder of the Fund will have the
right to exchange his (her) share certificates for share certificates of the
corresponding class of the Trust. However, a shareholder need not make this
exchange of certificates unless he (she) so desires. Simultaneously with the
crediting of the shares of the Trust 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 Fund shall take all necessary steps under California law to terminate the
Fund.
2. Closing and Effective Date of the Reorganization. The Closing shall
commence at ________ Pacific time on April 9, 2000 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 Fund and the Trust at 777 Mariners
Island Boulevard, San Mateo, CA 94404.
3. Conditions Precedent. The obligations of the Fund and the 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 U.S. Securities and Exchange
Commission (the "Commission") and state securities commissions as may be
necessary to permit the parties to carry out the transactions contemplated by
this Agreement shall have been received;
(b)One or more post-effective amendments to the Fund'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 under the supervision of the Directors of the Fund
to be necessary and appropriate as a result of the Agreement, and (ii) the
adoption by the 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 Fund'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 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, 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 Fund, the Trust or shareholders of the Fund or the Trust;
(e)The Fund 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 Trust and constitutes a legal, valid and binding agreement of
the Trust in accordance with its terms; (ii) the shares of the 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 Trust; and
(iii) the Trust is duly organized and validly existing under the laws of the
State of Delaware;
(f)The 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
herein, and the execution of this Agreement, has been duly authorized and
approved by the Fund and constitutes a legal, valid and binding agreement of
the Fund in accordance with its terms; and (ii) the Fund is duly organized,
validly existing and in good standing under the laws of the State of
California;
(g)The shares of the Trust shall have been duly registered, qualified or
otherwise authorized 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 Fund (as defined in the Investment Company Act of
1940, as amended) at a meeting of shareholders of such Fund;
(i)The Trustees shall have taken the following action at a meeting duly
called for such purposes:
(1) Approval of the Trust's Custodian Agreement;
(2) Selection of PricewaterhouseCoopers LLP as the Trust's independent
public accountants for the fiscal year ending July 31, 2000;
(3) Approval of the investment management agreement between the Trust
and Franklin Advisers, Inc., which is substantially identical to the current
investment management agreement between the Fund and Franklin Advisers, Inc.;
(4) Authorization of the issuance by the Trust, prior to the Effective
Date of the Reorganization, of one share of each class of the Trust, to the
Fund in consideration for the payment of the current public offering price of
each corresponding class of the Trust, for the purpose of enabling the Fund
to vote on matters referred to in paragraph (j) of this Section 3;
(5) Approval of the submission of the matters referred to in paragraph
(j) of this Section 3 to the Fund as sole shareholder of the Trust; and
(6) Authorization of the issuance by the Trust of shares of the Trust
on the Effective Date of the Reorganization in exchange for the assets of the
Fund pursuant to the terms and provisions of this Agreement.
(j)The shareholders of the Fund shall have voted to approve the
Reorganization and, in connection with that vote, been informed that such a
vote would have the effect of directing the Fund to vote, as sole shareholder
of each class of the Trust, to:
(1) Elect as Trustees of the Trust (the "Trustees") the following
individuals: Messrs. Abbott, Ashton, Burns, Fortunato, Johnson, Johnson, Jr.,
LaHaye, Macklin and Wiskemann;
(2)Select PricewaterhouseCoopers LLP as the independent public accountants
for the Trust for the fiscal year ending July 31, 2000; and
(3)Approve a new investment management agreement between the Trust and
Franklin Advisers, Inc., which is substantially identical to the current
investment management agreement between the Fund and Franklin Advisers, Inc.;
and the Fund shall have voted to approve each such item.
At any time prior to the Closing, any of the foregoing conditions may be
waived by the Board of Directors of the Fund if, in the judgment of the
Directors, such waiver will not have a material adverse effect on the
benefits intended under this Agreement to the shareholders of the Fund.
4. Termination. The Board of Directors of the Fund 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 Directors,
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 Fund and the 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 Fund and the Trust have each caused this Agreement
and Plan of Reorganization to be executed on its behalf by its ____________ and
attested by its ____________, all as of the day and year first-above written.
Attest: Franklin Gold and Precious Metals Fund
(a Delaware business trust)
By: _______________________________ By: _______________________________
Attest: Franklin Gold Fund
(a California Corporation)
By: _______________________________ By: _______________________________
EXHIBIT C
<TABLE>
<CAPTION>
COMPARISON AND SIGNIFICANT DIFFERENCES BETWEEN
DELAWARE BUSINESS TRUSTS AND CALIFORNIA CORPORATIONS
Delaware Business Trusts California Corporations
- -------------------------------------------------------------------------------
Governing Documents
<S> <C>
A Delaware Business Trust (a "DBT") is created by a A California corporation (a "corporation") is created by
governing instrument (which may consist of one or more filing articles of incorporation with the Secretary of State
instruments, including an agreement and declaration of trust of California. The law governing corporations is referred to
and By-Laws) and a Certificate of Trust, which must be filed in this chart as the "California Act."
with the Delaware Secretary of State. The law governing DBTs
is referred to in this chart as the "Delaware Act."
A DBT is an unincorporated association organized under the A corporation is incorporated under the California Act. A
Delaware Act which operates similar to a typical corporation's operations are governed by its articles of
corporation. A DBT's operations are governed by a trust incorporation and By-Laws and its business and affairs are
instrument and By-Laws and its business and affairs are managed by or under the direction of a Board of Directors.
managed by or under the direction of a Board of Trustees.
A DBT organized as an open-end investment company is subject A corporation organized as an open-end investment company is
to the Investment Company Act of 1940, as amended (the "1940 subject to the 1940 Act. Shareholders own shares of "common
Act"). Shareholders own shares of "beneficial interest" as stock."
compared to the shares of "common stock" issued by
corporations.
Multiple Series
and Classes
Under the Delaware Act, a declaration of trust may provide The California Act authorizes a corporation to issue one or
for classes, groups or series of shares, or classes, groups more classes or series of common stock. A corporation
or series of shareholders, having such relative rights, issuing multiple series or classes must describe in its
powers and duties as the declaration of trust may provide. articles of incorporation the number of shares allocated to
The series and classes of a DBT may be described in the each series and/or class, and set forth the designation of
declaration of trust or in resolutions adopted by the Board each series and/or class (or provide that the Board may
of Trustees. Neither state filings nor shareholder approval determine or alter the designation of each class and the
are required to create series or classes. The Directors of rights, preferences, privileges and restrictions granted to
Franklin Gold Fund ("the CA Corporation") have proposed to or imposed upon each series or class). As a result, a
reorganize the CA Corporation from a corporation into a corporation is required to obtain shareholder approval to
Delaware business trust (the "DE Trust"). The DE Trust's increase the number of shares the corporation is authorized
Declaration of Trust permits the creation of multiple series to issue, and to file with the state an amendment to the
and classes and establishes the provisions relating to articles of incorporation reflecting that increase.
shares.
The Delaware Act explicitly provides for a reciprocal The California Act does not contain statutory provisions
limitation of interseries liability. Generally, the debts, addressing interseries liability in the context of a
liabilities, obligations and expenses incurred, contracted multiple series investment company. The California Act does,
for or otherwise existing with respect to a particular however, provide that a corporation which is authorized to
series of a multiple series investment company registered issue more than one series or class of shares shall set
under the 1940 Act are enforceable only against the assets forth any preferences and restrictions relating to each such
of such series, and not against the assets of the DBT, or series or class in its articles of incorporation. Therefore,
any other series, provided that the DBT separately maintains a corporation could incorporate a provision limiting
the records and assets of the series and makes certain interseries liability in its articles of incorporation.
disclosures in its governing instruments. Notwithstanding, it remains uncertain whether such a
provision can validly limit interseries liability.
The Declaration of Trust for the DE Trust specifically The CA Corporation does not address interseries liability in
limits interseries liability. However, a court applying its Articles of Incorporation or By-Laws.
federal securities law may not respect provisions that serve
to limit the liability of one series of an investment
company's shares for the liabilities of another series.
Accordingly, provisions relating to series liability
contained in the Declaration of Trust may be preempted by
the way in which the courts interpret the 1940 Act.
Shareholder Voting
Rights and Proxy
Requirements
The Declaration of Trust for the DE Trust provides that Each outstanding share of a corporation is generally
shareholders of record of each share are entitled to one entitled to one vote on each matter submitted to a vote of
vote for each full share, and a fractional vote for each shareholders (the California Act makes no mention of
fractional share. In addition, shareholders are not entitled fractional shares). Shareholders are entitled to cumulative
to cumulative voting for electing a Trustee(s). The DE voting when electing Directors. The California Act permits
Trust's Declaration of Trust further provides that voting separate voting by series or class. The CA Corporation's
will occur separately by series, and if applicable, by By-Laws provide that voting shall occur separately by class
class, subject to: (i) the requirements of the 1940 Act when (i) required by the California Act or the 1940 Act or
where shares of the DE Trust must be voted in the aggregate (ii) the matter only affects a particular class.
without reference to series or class, and (ii) where the
matter affects only a particular series or class.
The By-Laws for the DE Trust permit the DE Trust to accept Similar to the By-Laws for the DE Trust, the California Act
proxies by any electronic, telephonic, computerized permits a corporation to accept written proxies as well as
telecommunications or other reasonable alternative to the proxies submitted by electronic or telephonic means. The CA
execution of a written instrument authorizing the proxy to Corporation's By-Laws provide that all proxies shall be in
act, provided such authorization is received within eleven writing and signed by the shareholder or his duly authorized
(11) months before the meeting. attorney. The By-Laws further provide that proxies shall be
effective for eleven (11) months, unless the proxy provides
for a longer effective period.
Shareholder Meetings
The Delaware Act permits special shareholder meetings to be The California Act requires corporations operating as
called for any purpose. However, the governing instrument registered investment companies to hold shareholder meetings
determines shareholders' rights to call meetings. The when required to do so under the 1940 Act. The California
Declaration of Trust for the DE Trust provides that the Act also provides that special shareholder meetings may be
Board of Trustees shall call shareholder meetings for the called by the Board, the Chairman of the Board, the
purpose of: (i) electing Trustees, (ii) for such other President of the corporation, the holders of at least 10% of
purposes as may be prescribed by law, the Declaration of the outstanding voting shares, or other persons given the
Trust or the By-Laws, and (iii) taking action upon any other privilege to call such meetings, pursuant to the articles of
matter deemed by the Trustees to be necessary or desirable. incorporation or By-Laws. The CA Corporation's By-Laws
The By-Laws further provide that a special meeting may be provide that shareholder meetings shall be called by the
called at any time by the Board of Trustees, by the Board of Directors to elect Directors and for such other
Chairperson of the Board, or by the President or any Vice business that may properly arise. In addition, the By-Laws
President or the Secretary and any two (2) Trustees. An provide that special meetings may be called by the President
annual shareholder meeting is not required by either the or any three of the Directors, or by the holders of twenty
Delaware Act, or the DE Trust's Declaration of Trust, or the percent (20%) of the shares entitled to vote at the meeting.
By-Laws. The CA Corporation is not required to hold annual meetings
under either the California Act, or its Articles of
Incorporation or By-Laws.
Quorum Requirement
Except when a larger quorum is required by law, the By-Laws, The CA Corporation's By-Laws generally mirror the California
or the Declaration of Trust, the DE Trust's Declaration of Act, providing that a majority of the shares entitled to
Trust provides that forty percent (40%) of the shares vote shall constitute a quorum at a shareholder meeting.
entitled to vote shall constitute a quorum at a shareholder
meeting.
Action Without
Shareholder Meeting
Delaware law permits the governing instrument to set forth The California Act provides that unless the articles of
the procedure whereby action required to be approved by incorporation provide otherwise, any action which may be
shareholders at a meeting may be done by consent. The DE taken at any annual or special meeting of shareholders may
Trust's Declaration of Trust provides that any action taken be taken without a meeting and without prior notice, if
by shareholders may be taken without a meeting if shareholders having not less than the minimum number of
shareholders holding a majority of the shares entitled to votes that would be necessary to take such action at a
vote on the matter (or such larger proportion as shall be meeting at which all shares entitled to vote thereon were
required by any express provision of the Declaration of present and voted, consent to the action in writing. Both
Trust or By-Laws) and holding a majority (or such larger the CA Corporation's Articles of Incorporation and By-Laws
proportion as aforesaid) of the shares of any series (or are silent with regard to shareholder action by written
class) entitled to vote separately on the matter consent to consent.
the action in writing.
Amendments to
Governing Documents
The Delaware Act provides broad flexibility with respect to When amending its articles of incorporation, a corporation
amending the governing documents of a DBT. is generally required to obtain the approval of the Board of
Directors and the shareholders, and to file a certificate of
amendment with the state.
The DE Trust's Declaration of Trust provides that the The CA Corporation's Articles of Incorporation do not
Declaration of Trust may be restated and/or amended at any contain any provisions regarding the amendment of the
time by an instrument in writing signed by a majority of the Articles of Incorporation.
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 of the DE Trust may be amended or repealed by Most provisions of the By-Laws may be amended or repealed by
the affirmative vote or written consent of a majority of the a majority of the outstanding shares entitled to vote, or by
outstanding shares entitled to vote, or by the Board of the Board of Directors, subject to the rights of the
Trustees subject to the rights of the shareholders. shareholders. Certain provisions may be amended only by
shareholders.
Matters Requiring
Shareholder Approval
The Delaware Act affords Trustees the ability to easily Under the California Act, shareholders have the ability to
adapt a DBT to future contingencies. For example, Trustees vote on the following matters: (i) the election and removal
have the authority to incorporate a DBT, to merge or of Directors; (ii) certain amendments to the articles of
consolidate with another entity, to cause multiple series of incorporation and By-Laws; and (iii) with regard to a
a DBT to become separate trusts, to change the domicile, or merger, reorganization, or transfer or sale of all or
to liquidate a DBT, all without having to obtain a substantially all of the corporation's assets other than in
shareholder vote. the ordinary course of business.
The Declaration of Trust for the DE Trust, consistent with The By-Laws broadly provide that shareholders shall have the
the Delaware Act, affords shareholders the power to vote on right to vote at any meeting of shareholders or at any
the following matters: (i) the election or removal of election of the CA Corporation.
Trustees; (ii) as required by the Declaration of Trust, the
By-Laws, the 1940 Act or the DE Trust's registration The CA Corporation's By-Laws provide that when a quorum is
statement; and (iii) other matters deemed by the Board of present, a majority of the shares voted shall be sufficient
Trustees to be necessary or desirable. to elect Directors and take any action, unless a larger vote
is required by the Articles of Incorporation, the By-Laws or
The Declaration of Trust also provides that when a quorum is by applicable law. In the event that shareholders vote
present, a majority of the votes cast shall decide any cumulatively for Directors, the available Director slots
issues and a plurality shall elect a Trustee, unless a shall be filled by those candidates receiving the highest
larger vote is required by the Declaration of Trust, the number of affirmative votes of the shares entitled to be
By-Laws or by applicable law. voted.
Record Date/Notice
The Delaware Act permits a governing instrument to provide The California Act provides that a corporation may set a
for the establishment of record dates for determining voting record date which is not more than sixty (60) nor less than
rights. ten (10) days before a meeting.
The Declaration of Trust for the DE Trust provides that the The CA Corporation's By-Laws permit the Directors to set a
Board of Trustees may fix in advance a record date which record date which shall not be more than fifty (50) days
shall not be more than ninety (90) days, nor less than seven before the date of any shareholder meeting.
(7) days, before the date of any such meeting.
The By-Laws for the DE Trust provide that all notices of The By-Laws for the CA Corporation provide that all notices
shareholder meetings shall be sent or otherwise given to of shareholder meetings shall be sent to shareholders not
shareholders not less than seven (7) days nor more than less than ten (10) days before the date of the meeting.
seventy-five (75) days before the date of the meeting.
Removal of Trustees/
Directors
The Delaware Act is silent with respect to the removal of Under the California Act, a Director may be removed with or
Trustees. However, the DE Trust's Declaration of Trust without cause by the affirmative vote of a majority of the
states that the Board of Trustees, by action of a majority outstanding shares entitled to vote. However, no Director
of the then Trustees at a duly constituted meeting, may fill may be removed (unless the entire Board of Directors is
vacancies in the Board of Trustees or remove Trustees with removed) when the votes cast against removal would be
or without cause. sufficient to elect the Director if voted cumulatively at an
election.
Shareholder Rights
of Inspection
The Delaware Act sets forth the rights of shareholders to Like the Delaware Act, the California Act permits
gain access to and receive copies of certain DBT trust shareholders to make reasonable demands to gain access to,
documents and records. This right is qualified by the extent and receive copies of, certain corporate documents and
otherwise provided in the governing instrument of the DBT as records. Specifically, a shareholder may, upon written
well as a reasonable demand standard related to the demand and for a purpose reasonably related to such
shareholder's interest as an owner of the DBT. shareholder's interest as a shareholder, inspect and copy
the accounting books and records, minutes of shareholder and
board meetings, and the record of shareholders' names and
addresses at any time during normal business hours.
Consistent with Delaware law, the By-Laws of the DE Trust Neither the Articles of Incorporation nor the By-Laws of the
provide that a shareholder shall have the right to inspect CA Corporation address shareholder inspection rights.
and copy the minutes and accounting books and records of the
company upon written demand at any reasonable time during
usual business hours for a purpose reasonably related to the
shareholder's interest as a shareholder.
Shareholder Liability
Personal liability is limited by the Delaware Act to the The California Act generally limits a shareholder's personal
amount of investment in the DBT, and may be further limited liability to the amount of his or her investment in the
or restricted by the governing instrument. Shareholders of a corporation. However, a shareholder of a corporation may be
DBT are entitled to the same limitation of personal held liable for the amount of any distribution he or she
liability extended to stockholders of a private corporation accepts with the knowledge that the distribution was made in
organized for profit under the general corporation law of violation of the California Act. There is no specific
the State of Delaware. The DE Trust's Declaration of Trust mention of shareholder liability in the CA Corporation's
specifically limits the personal liability of shareholders. Articles of Incorporation or By-Laws.
Trustee/Director Liability
Subject to the declaration of trust, the Delaware Act The California Act provides that a Director, when acting in
provides that a Trustee, when acting in such capacity, may such capacity, shall not be subject to liability if the
not be held personally liable to any person other than the Director performs his or her duties in accordance with the
DBT or a shareholder for any act, omission or obligation of standard provided under California law. The California Act
the DBT or any Trustee. A Trustee's duties and liabilities requires Directors to act in good faith and in a manner
to the DBT and its shareholders may be expanded or which they believe to be in the best interests of the
restricted by the provisions of the Declaration of Trust. corporation and its shareholders, and to exercise such care
as an ordinarily prudent person in a like position would use
under similar circumstances. A corporation may not limit a
Director's liability for acts involving intentional
misconduct, bad faith, or a reckless disregard for the
Director's duty to the corporation, or for acts or omissions
that constitute an unexcused pattern of inattention. The
California Act further provides that a corporation may not
limit a Director's liability in connection with the approval
of improper distributions to shareholders, or with regard to
interested transactions or transactions for which the
Director derived an improper personal benefit.
The DE Trust's Declaration of Trust shields Trustees from The CA Corporation's Articles of Incorporation and By-Laws
liability for the acts or omissions of any officer, agent, do not contain provisions protecting Directors from
employee, manager or principal underwriter or other Trustee. liability for any neglect or wrongdoing.
Trustees and officers of the DE Trust may be held liable to
the DE Trust for willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in
the conduct of their office as a Trustee or officer, but may
not be held liable for errors of judgment or mistakes of
fact or law. In addition, the Declaration of Trust also
provides that Trustees, acting in their capacity as
Trustees, shall not be personally liable for acts done by or
on behalf of the DE Trust.
Indemnification
The Delaware Act permits a DBT to indemnify and hold The California Act allows a corporation to indemnify and
harmless any Trustee, shareholder or agent from and against hold harmless Directors and officers. Accordingly, the CA
any and all claims and demands. Consistent with the Delaware Corporation's By-Laws provide for the indemnification of any
Act, the Declaration of Trust for the DE Trust provides for Director or officer for claims arising out of or related to
the indemnification of officers and Trustees from and the performance of their duties as an officer or Director.
against any and all claims and demands arising out of or Like the DE Trust, the CA Corporation does not indemnify
related to the performance of their duties as an officer or Directors and officers from and against liability incurred
Trustee. The DE Trust will not indemnify, hold harmless or by reason of willful misfeasance, bad faith, gross
relieve Trustees from liability which results from willful negligence or reckless disregard of their duties.
misfeasance, bad faith, gross negligence or reckless
disregard of their duties.
The Declaration of Trust of the DE Trust also provides that Neither the California Act nor the Articles of Incorporation
any shareholder or former shareholder that is exposed to or By-Laws of the CA Corporation contain specific provisions
liability by reason of a claim or demand related to such permitting the indemnification of shareholders.
person having been a shareholder, and not because of his or
her acts or omissions, shall be entitled to be held harmless
and indemnified out of the assets of the DE Trust.
Insurance
The Delaware Act does not contain a provision specifically Under the California Act, a corporation may purchase and
related to insurance. The DE Trust's Declaration of Trust maintain insurance on behalf of any Director, officer,
provides that the Trustees shall be entitled and empowered employee, or other agent of the corporation against any
to the fullest extent permitted by law to purchase insurance liability asserted against or incurred by such person in
with the DE Trust's assets for liability and for all such capacity or arising out of the person's status as a
expenses reasonably incurred or paid or expected to be paid Director, officer, employee or agent of the corporation. A
by a Trustee or officer in connection with any claim or corporation may carry such insurance regardless of whether
proceeding in which he or she becomes involved by virtue of it would have the power to indemnify the person against the
his or her capacity (or former capacity) with the DE Trust, liability.
whether or not the DE Trust would have the power to
indemnify against such liability.
The By-Laws of the DE Trust permit insurance coverage only The Articles of Incorporation and By-Laws of the CA
to the extent that the DE Trust would have the power to Corporation do not contain provisions regarding the purchase
indemnify against such liability. of insurance coverage for the benefit of Directors,
officers, employees and agents of the CA Corporation.
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EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR
PROXY TODAY
Please detach at perforation before mailing.
PROXY PROXY
SPECIAL SHAREHOLDERS' MEETING OF
FRANKLIN GOLD FUND
MARCH 14, 2000
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 Gold Fund (the "Fund") that the
undersigned is entitled to vote at the Fund's Meeting to be held at 777
Mariners Island Boulevard, San Mateo, CA 94404 at 2:00 p.m., Pacific time on
March 14, 2000, 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.
VOTE VIA THE INTERNET:
HTTPS://VOTE.PROXY-DIRECT.COM
VOTE VIA THE TELEPHONE:
1-800-597-7836
CONTROL NUMBER:
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.
--------------------------------------
Signature
--------------------------------------
Signature
--------------------------------------
Date
PLEASE SIGN AND PROMPTLY RETURN IN THE ACCOMPANYING ENVELOPE. NO POSTAGE
REQUIRED IF MAILED IN THE U.S.
(Please see reverse side)
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
Please detach at perforation before mailing.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF FRANKLIN GOLD
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 DIRECTOR), 2, 3 (INCLUDING ALL SUB-PROPOSALS), 4, 5 (INCLUDING
ALL SUB-PROPOSALS), 6, 7, AND 8. 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 TO 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 DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF
PROPOSALS 1 - 8.
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<CAPTION>
<S> <C> <C> <C> <C> <C>
1. Election of Directors. To withhold authority to vote for any individual
nominee, strike a line through the nominee's name in the list below. OR all Vote Withheld FOR all nominees
ominees for all (except as marked
01 Frank H. Abbott, III 02 Harris J. Ashton 03 Harmon E. Burns to the contrary)
04 S. Joseph Fortunato 05 Charles B. Johnson 06 Rupert H. Johnson, Jr. [ ] [ ] [ ]
07 Frank W.T. LaHaye 08 Gordon S. Macklin 09 R. Martin Wiskemann
FOR AGAINST ABSTAIN
2. To ratify the selection of PricewaterhouseCoopers LLP as the Fund's [ ] [ ] [ ]
independent auditors for the Fund's fiscal year ending July 31, 2000.
3. To modify the Fund's investment focus and to change the Fund's name [ ] [ ] [ ]
(includes two (2) Sub-Proposals). [ ]
3.a. To modify the Fund's current investment criteria to include other
precious metals in addition to gold as the principal investment focus. [ ] [ ] [ ]
3.b. To amend the Fund's charter to change the Fund's name to reflect
its revised investment focus, in the event that Sub-Proposal 3a
is approved. [ ] [ ] [ ]
4. To change the classification of the Fund from a diversified fund to a
non-diversified fund. [ ] [ ] [ ]
5. To approve amendments to certain of the Fund's fundamental investment
restrictions (includes five (5) Sub-Proposals).
5.a. Borrowing [ ] [ ] [ ]
5.b. Underwriting [ ] [ ] [ ]
5.c. Lending [ ] [ ] [ ]
5.d. Real estate and commodities [ ] [ ] [ ]
5.e. Issuing senior securities [ ] [ ] [ ]
6. To approve the elimination of certain of the Fund's fundamental
investment restrictions. [ ] [ ] [ ]
7. To approve the reorganization of the Fund from a California corporation
to a Delaware business trust. [ ] [ ] [ ]
8. To amend the Fund's charter to increase the Fund's authorized capital in
the event that Proposal 7 is not approved. [ ] [ ] [ ]
9. To grant the proxyholders the authority to vote upon any other business GRANT WITHHOLD ABSTAIN
that may properly come before the Meeting or any adjournments thereof. [ ] [ ] [ ]
IMPORTANT: PLEASE SIGN AND MAIL IN YOUR PROXY...TODAY
[Insert Franklin Templeton Ben Head Logo]
[Insert computer toolbar graphic]
YOUR PROXY VOTE IS IMPORTANT!
AND NOW YOU CAN VOTE YOUR
PROXY ON THE PHONE OR ON THE INTERNET.
IT SAVES MONEY! Telephone and Internet voting saves postage costs. Savings
which can help to minimize fund expenses.
IT SAVES TIME! Telephone and Internet voting is instantaneous - 24 hours a
day.
IT'S EASY! Just follow these simple steps:
1. Read your proxy statement and have it at hand.
2. Call toll-free 1-800-597-7836 OR GO TO WEBSITE:
HTTPS://VOTE.PROXY-DIRECT.COM
3. Enter your 14 digit CONTROL NUMBER from your Proxy Card.
4. Follow the recorded or on-screen directions.
5. Do NOT mail your Proxy Card when you vote by phone or internet.
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