SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
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Franklin Equity Fund
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FRANKLIN EQUITY FUND
IMPORTANT SHAREHOLDER INFORMATION
These materials are for a special shareholders' meeting scheduled for July
14, 2000 at 10:00 a.m. Pacific time. They discuss the proposals to be voted
on at the meeting, and contain your proxy statement and proxy card. A proxy
card is, in essence, a ballot. When you vote your proxy, it tells us how you
wish to vote on important issues relating to your Fund. If you complete and
sign the proxy, we'll vote it exactly as you tell us. If you simply sign the
proxy, we'll vote it in accordance with the 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 FUND INFORMATION 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. IF YOUR ACCOUNT IS ELIGIBLE, A CONTROL NUMBER AND
SEPARATE INSTRUCTIONS ARE ENCLOSED.
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A LETTER FROM THE PRESIDENT
Dear Shareholders:
Enclosed for your consideration are a number of important matters relating to
your investment in Franklin Equity Fund (the "Fund") in connection with a
Special Meeting of Shareholders. The materials which we have included
describe proposals that will affect the future of your fund.
The Board of Directors recommends that, among other items, 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
ended June 30, 2000;
3. Amending eight of the Fund's fundamental investment restrictions;
4. Eliminating six of the Fund's fundamental investment restrictions;
5. Changing the name of the Fund to "Franklin Growth and Income Fund";
and
6. Reorganizing the Fund from a California corporation to a Delaware
business trust.
PLEASE TAKE A MOMENT TO REVIEW THIS DOCUMENT, FILL OUT, SIGN AND RETURN THE
ENCLOSED PROXY CARD
To provide additional investment opportunities for the Fund, we have proposed
amending or eliminating certain of the Fund's fundamental investment
restrictions. 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. In addition, we are asking you to agree to change the name of the
Fund to the "Franklin Growth and Income Fund" to better reflect its
philosophy and enhance its position in the marketplace.
We also ask you to confirm the Board's recommendations by electing the
nominated Directors and ratifying the selection of the independent auditors.
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 E. Johnson
President
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FRANKLIN EQUITY FUND
NOTICE OF SPECIAL SHAREHOLDERS' MEETING
TO BE HELD ON JULY 14, 2000
A Special Shareholders' Meeting ("Meeting") of Franklin Equity Fund (the
"Fund"), will be held at the Fund's office at 777 Mariners Island Boulevard,
San Mateo, California 94404, at 10:00 a.m. (Pacific time), on July 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 ended June 30,
2000.
3. To approve amendments to certain of the Fund's fundamental investment
restrictions (includes seven (7) Sub-Proposals).
(a) To amend the Fund's fundamental investment restriction regarding
borrowing;
(b) To amend the Fund's fundamental investment restriction regarding
underwriting;
(c) To amend the Fund's fundamental investment restriction regarding
lending;
(d) To amend the Fund's fundamental investment restrictions regarding
investments in real estate and commodities;
(e) To amend the Fund's fundamental investment restriction regarding
short sales and issuing senior securities;
(f) To amend the Fund's fundamental investment restriction regarding
industry concentration; and
(g) To amend the Fund's fundamental investment restriction regarding
diversification of investments.
4. To approve the elimination of certain of the Fund's fundamental
investment restrictions.
5. To approve the reorganization of the Fund from a California
corporation to a Delaware business trust.
6. To amend the Fund's charter to change the Fund's name to "Franklin
Growth and Income Fund" in the event that Proposal 5 is not approved.
7. 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 May 17, 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
June 1, 2000
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Please sign and return your proxy card in the self-addressed envelope
regardless of the number of shares you own.
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TABLE OF CONTENTS
PAGE
PROXY STATEMENT
Information About Voting ................................... 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 Approve Amendments to Certain of the
Fund's Fundamental Investment Restrictions
(Includes Seven (7) Sub-Proposals) ............ 12
3a: Borrowing........................................... 12
3b: Underwriting........................................ 13
3c: Lending............................................. 14
3d: Real Estate and Commodities......................... 14
3e: Short Sales and Issuing Senior Securities........... 15
3f: Industry Concentration.............................. 16
3g: Diversification of Investments...................... 17
Proposal 4: To Approve the Elimination of Certain of the Fund's
Fundamental Investment Restrictions............. 18
Proposal 5: To Approve the Reorganization of the Fund From a California
Corporation to a Delaware Business Trust........ 21
Proposal 6: To Amend the Fund's Charter to Change the Fund's Name to
"Franklin Growth and Income Fund" in the Event that Proposal 5
is Not Approved................................. 25
Proposal 7: Other Business ................................. 26
EXHIBITS
Exhibit A: Fundamental Investment Restrictions
Proposed to be Amended or Eliminated.............. A-1
Exhibit B: Agreement and Plan of Reorganization ............ B-1
Exhibit C:Comparison and Significant Differences Between Delaware
Business Trusts and California Corporations......... C-1
FRANKLIN EQUITY FUND
PROXY STATEMENT
INFORMATION ABOUT VOTING
WHO IS ASKING FOR MY VOTE?
The Board of Directors of Franklin Equity Fund (the "Fund"), in connection
with the Special Meeting of the Shareholders of the Fund to be held July 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 May 17, 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 June 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 ended June 30, 2000;
3. To amend certain of the Fund's fundamental investment restrictions;
4. To eliminate certain of the Fund's fundamental investment restrictions;
5. To approve the reorganization of the Fund from a California corporation to
a Delaware business trust;
6. To amend the Fund's charter to change the Fund's name to "Franklin Growth
and Income Fund" in the event that Proposal 5 is not approved; and
7. 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 ended June 30, 2000;
3. FOR the amendment of each of the Fund's fundamental investment
restrictions proposed to be amended;
4. FOR the elimination of the Fund's fundamental investment restrictions
proposed to be eliminated;
5. FOR the reorganization of the Fund from a California corporation to a
Delaware business trust;
6. FOR the amendment to the Fund's charter to change the Fund's name to
"Franklin Growth and Income Fund" in the event that Proposal 5 is not
approved; and
7. FOR the proxyholders to vote, in their discretion, on any other business
that 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 enclosed proxy card. If you are eligible to vote by telephone or through
the Internet, a control number and separate instructions are enclosed.
Proxy cards that are properly signed, dated and received at or prior to the
Meeting will be voted as specified. If you specify a vote for any of the
Proposals 1 through 7, your proxy will be voted as you indicate. If you
simply sign and date the proxy card, but do not specify a vote for any of the
Proposals 1 through 7, your shares will be voted as follows: 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 amending certain of the Fund's fundamental investment
restrictions (Sub-Proposals 3a-3g), IN FAVOR of eliminating certain of the
Fund's fundamental investment restrictions, (Proposal 4), IN FAVOR of the
reorganization of the Fund from a California corporation to a Delaware
business trust (Proposal 5), IN FAVOR of amending the Fund's charter to
change the Fund's name to "Franklin Growth and Income Fund" in the event that
Proposal 5 is not approved by shareholders, (Proposal 6), and/or IN FAVOR of
granting the proxyholders named in the proxy card the authority to vote in
their discretion as to any other matters that may properly come before the
Meeting or any adjournment (Proposal 7).
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, S. Joseph Fortunato, Charles B. Johnson, Charles E.
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 Investments"). In
addition, Charles B. Johnson, Charles E. 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 16%, 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
proxyholders named in the proxy card 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 Franklin Templeton Investments.
SHARES BENEFICIALLY
FUND SHARES OWNED IN
OWNED BENEFICIALLY FRANKLIN TEMPLETON
AND % OF TOTAL INVESTMENTS
NAME, PRINCIPAL OCCUPATION OUTSTANDING (INCLUDING THE FUND)
DURING PAST FIVE YEARS AND AGE ON MAY 10, 2000 AS OF DECEMBER 31, 1999
Frank H. Abbott, III None 923,419
DIRECTOR SINCE 1965
President and Director, Abbott Corporation (an
investment company); director or trustee, as the case
may be, of 28 of the investment companies in Franklin
Templeton Investments; and formerly, Director,
MotherLode Gold Mines Consolidated (gold mining) and
Vacu-Dry Co. (food processing) (until 1996).
Age 79.
Harris J. Ashton 3,474** 1,509,048
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 48 of the investment companies in
Franklin Templeton Investments; and formerly, President,
Chief Executive Officer and Chairman of the Board,
General Host Corporation (nursery and craft centers)
(until 1998). Age 67.
S. Joseph Fortunato 231** 583,059
DIRECTOR SINCE 1989
Member of the law firm of Pitney, Hardin, Kipp & Szuch;
director or trustee, as the case may be, of 50 of the
investment companies in Franklin Templeton Investments.
Age 67.
Charles B. Johnson*+ 16,028** 22,129,668
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
Investment Advisory Services, Inc.; Chairman of the
Board, Franklin Advisers, 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 49 of
the investment companies in Franklin Templeton
Investments. Age 67.
Charles E. Johnson*+ None 257,557
PRESIDENT AND DIRECTOR SINCE 1993
President, Member - Office of the President and
Director, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.;
President and Director, Templeton Worldwide, Inc. and
Franklin Advisers, Inc.; Director, Templeton Investment
Counsel, Inc.; President, Franklin Investment Advisory
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 33 of the investment companies in Franklin Templeton
Investments. Age 43.
Rupert H. Johnson, Jr.*+ 15,415** 15,174,056
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., Franklin
Investment Advisory Services, Inc. and
Franklin/Templeton Investor Services, Inc.; and officer
and/or director or trustee, as the case may be, of most
of the other subsidiaries of Franklin Resources, Inc.
and of 52 of the investment companies in Franklin
Templeton Investments. Age 59.
Frank W. T. LaHaye 1,673** 1,281,673
DIRECTOR SINCE 1960
Chairman, Peregrine Venture Management Company (venture
capital); Director, The California Center for Land
Recycling (redevelopment); director or trustee, as the
case may be, of 28 of the investment companies in
Franklin Templeton Investments; and formerly, General
Partner, Miller & LaHaye and Peregrine Associates, the
general partners of Peregrine Venture Funds. Age 71.
Gordon S. Macklin None 443,628
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 48 of the investment
companies in Franklin Templeton Investments; and
formerly, Chairman, White River Corporation (financial
services) (until 1998) and Hambrecht and Quist Group
(investment banking) (until 1992), and President,
National Association of Securities Dealers, Inc. (until
1987). Age 72.
R. Martin Wiskemann* 164,964** 13,515,535
VICE PRESIDENT SINCE 1973 AND DIRECTOR SINCE 1960
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 Franklin Templeton Investments; and
formerly, Vice President and Director, ILA Financial
Services, Inc. (until 1998). Age 73.
*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. Johnson, 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, and the father
and uncle, respectively, of Charles E. Johnson.
**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. ("Advisers") and various
other service providers. Advisers is wholly owned by Resources. The Fund pays
the noninterested Directors $325 per month plus $300 per meeting attended.
Board members who serve on the Audit Committee of the Fund and other funds in
Franklin Templeton Investments receive a flat fee of $2,000 per committee
meeting attended, a portion of which is allocated to the Fund. Members of a
committee are not compensated for any committee meeting held on the day of a
board meeting.
During the fiscal year ended June 30, 1999 there were 11 meetings of the
Board and one meeting of the Audit Committee. Each of the Directors attended
at least 75% of the total number of meetings of the Board except for Charles
E. Johnson who attended 64% of the meetings. There was 100% attendance at the
meeting of the Audit Committee.
Certain Directors and executive officers ("Executive Officers") of the Fund
are shareholders of Resources and may be deemed to receive indirect
remuneration due to their participation in the management fees and other fees
received from Franklin Templeton Investments by Advisers and its affiliates.
Advisers or its affiliates pay the salaries and expenses of the Executive
Officers. No pension or retirement benefits are accrued as part of Fund
expenses.
The fees payable to noninterested board members by the Fund are subject to
reductions resulting from fee caps limiting the amount of fees payable to
board members who serve on other boards within Franklin Templeton
Investments. The following table shows the fees paid to noninterested
Directors by the Fund and by Franklin Templeton Investments.
NUMBER OF
BOARDS IN THE
TOTAL FEES TOTAL FEES FRANKLIN TEMPLETON
RECEIVED RECEIVED FROM GROUP OF FUNDS
FROM THE FRANKLIN TEMPLETON ON WHICH EACH
NAME OF DIRECTOR FUND 1 ($) INVESTMENTS 2 ($) DIRECTOR SERVES 3
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Frank H. Abbott, III 5,115 156,060 28
Harris J. Ashton 5,730 363,165 48
S. Joseph Fortunato 5,337 363,238 50
Frank W. T. LaHaye 5,415 156,060 28
Gordon S. Macklin 5,730 363,165 48
1. For the fiscal year ended June 30, 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 Franklin Templeton Investments. This number does not include the
total number of series or funds within each investment company for which the
Board members are responsible. Franklin Templeton Investments currently
includes 52 registered investment companies, with approximately 157 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 Franklin Templeton Investments.
These Directors also serve as directors or trustees of other investment
companies in Franklin Templeton Investments, 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 Franklin Templeton
Investments 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 Franklin Templeton Investments, 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. Johnson, Johnson, Johnson, Jr. and Wiskemann, whose
biographical information is included above), is a brief description of his or
her recent professional experience:
Name and Offices Principal Occupation
with the Fund During Past Five Years and Age
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Harmon E. Burns
VICE PRESIDENT SINCE 1986
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 52 of the investment
companies in Franklin Templeton Investments. Age 55.
Martin L. Flanagan
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER SINCE 1995
President, Member - Office of the President, Chief Financial Officer and
Chief Operating Officer, 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.; Director, Franklin Templeton Services, Inc.; officer
and/or director of some of the other subsidiaries of Franklin Resources,
Inc.; and officer and/or director or trustee, as the case may be, of 52 of
the investment companies in Franklin Templeton Investments. Age 39.
Deborah R. Gatzek
SECRETARY SINCE 1986
Partner, Stradley, Ronon, Stevens & Young, LLP; officer of 34 of the
investment companies in Franklin Templeton Investments; 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;
and Vice President, Chief Legal Officer and Chief Operating Officer, Franklin
Investment Advisory Services, Inc. (until January 2000). Age 51.
David P. Goss
VICE PRESIDENT SINCE JANUARY 2000
Counsel, Franklin Resources, Inc.; President, Chief Executive Officer and
Director, Franklin Select Realty Trust, Property Resources, Inc., Property
Resources Equity Trust, Franklin Real Estate Management, Inc. and Franklin
Properties, Inc.; officer and director of some of the other subsidiaries of
Franklin Resources, Inc.; officer of 53 of the investment companies in
Franklin Templeton Investments; and formerly, President, Chief Executive
Officer and Director, Franklin Real Estate Income Fund and Franklin Advantage
Real Estate Income Fund (until 1996). Age 53.
Barbara J. Green
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 some of the other subsidiaries of Franklin Resources, Inc.
and of 53 of the investment companies in Franklin Templeton Investments; 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 (until 1986), and Judicial Clerk, U.S.
District Court (District of Massachusetts) (until 1979). Age 52.
Edward V. McVey
VICE PRESIDENT SINCE 1985
Senior Vice President, Franklin Templeton Distributors, Inc., and officer of
one of the other subsidiaries of Franklin Resources, Inc. and of 29 of the
investment companies in Franklin Templeton Investments. Age 62.
Kimberley Monasterio
TREASURER AND PRINCIPAL ACCOUNTING OFFICER SINCE 1999
Vice President, Franklin Templeton Services, Inc.; and officer of 33 of the
investment companies in Franklin Templeton Investments. Age 36.
Murray L. Simpson
VICE PRESIDENT SINCE JANUARY 2000
Executive Vice President and General Counsel, Franklin Resources, Inc.;
officer and/or director of some of the subsidiaries of Franklin Resources,
Inc.; officer of 53 of the investment companies in Franklin Templeton
Investments; 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 PRICEWATERHOUSECOOPERS LLP AS
INDEPENDENT AUDITORS FOR THE FUND
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 last 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 from 1974 until 1998. Pricewaterhouse
Coopers 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 June
30, 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
INTRODUCTION TO PROPOSALS 3 AND 4.
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 Investment Company Act of 1940, as
amended, (the "1940 Act"), certain investment restrictions are required to be
"fundamental" which means that they can only be changed by a shareholder
vote. An investment company may designate additional restrictions that are
fundamental, and it may also adopt "non-fundamental" restrictions, which may
be changed by the Directors without shareholder approval.
After the Fund was reorganized as a California corporation in 1984, 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. 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.
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 nor
will the changes 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 3
separately.
PROPOSAL 3: TO APPROVE AMENDMENTS TO CERTAIN OF THE FUND'S FUNDAMENTAL
INVESTMENT RESTRICTIONS (THIS PROPOSAL INVOLVES SEPARATE VOTES ON
SUB-PROPOSALS 3A - 3G)
SUB-PROPOSAL 3A: 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 number 3, the Fund
is presently limited to borrowing up to 5% of assets, rather than the 331/3%
allowed under current law. The proposed revision 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 in a private transaction not intended for public distribution
for temporary or emergency 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 for investment purposes in excess of 5% of the
value of the Fund's assets. 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 Fund, however, has no current intention of changing
the way it operates to take advantage of the increased flexibility associated
with removing this restriction on its ability to make additional investments
while borrowings exceed 5%.
The proposed restriction also permits the Fund to borrow cash from investment
companies in Franklin Templeton Investments. The SEC recently granted an
exemptive order to the Fund, together with other funds in Franklin Templeton
Investments, permitting the Fund to borrow money from other Franklin and
Templeton funds. The proposed borrowing restriction would permit the Fund,
under certain circumstances and in accordance with the exemptive order, to
borrow money from other Franklin and Templeton funds at rates which are no
less 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 3B: 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 number 5 relating to underwriting is combined
with a restriction relating to acquiring restricted securities. The adoption
of this Sub-Proposal would result in the separation of the Fund's
underwriting restriction from the Fund's restriction relating to acquiring
restricted securities. The restriction on acquiring restricted securities is
proposed to be eliminated (see Proposal 4).
WHAT EFFECT WILL AMENDING THE CURRENT UNDERWRITING RESTRICTION HAVE ON THE
FUND?
The proposed restriction is similar to the current investment restriction
number 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 3C: 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 also 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 restriction
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 other 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 number
2, but would provide the Fund with somewhat 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 with additional flexibility to make loans to investment
companies. Franklin Templeton Investments, 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 other Franklin Templeton investment companies 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 3d: 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's real estate and
commodities restrictions are currently contained in two separate investment
restrictions. 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?
REAL ESTATE: The proposed real estate restriction is substantially the same
as the real estate limitation contained in the Fund's current restriction
number 10. Accordingly, the Fund will continue to be prohibited from directly
investing in real estate, but will be permitted to purchase or sell
securities of real estate investment trusts.
The Fund's current restriction relating to real estate is combined with a
restriction relating to investments in other investment companies in
investment restriction number 10. 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 and its combining with the Fund's commodities
restriction. The restriction on investing in other investment companies is
proposed to be eliminated (see Proposal 4).
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 commodities 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 for many
years had the ability to invest in options on securities and options on
futures, it has not done so. The Fund does not intend to begin investing in
financial futures contracts and related options. Therefore, it is not
anticipated that the proposed restriction would involve any additional risk.
Using financial futures instruments can involve substantial risks, and will
be utilized only if the investment manager believes such risks are advisable.
The Fund's current restriction number 7 relating to commodities is combined
with a restriction relating to the maintenance of margin accounts. The
adoption of this Sub-Proposal would result in the separation of the Fund's
commodities restriction from the Fund's fundamental investment restriction
relating to investments in margin accounts and its combining with the Fund's
real estate restriction. The restriction on investing in margin accounts is
proposed to be eliminated (see Proposal 4).
SUB-PROPOSAL 3E: TO AMEND THE FUND'S INVESTMENT RESTRICTION REGARDING SHORT
SALES AND 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," provided certain conditions are met. 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). According to regulatory interpretations, when engaging in such
transactions, a fund must mark on its or its custodian bank's books, or set
aside in a segregated account with its custodian bank, cash or liquid
securities to meet the SEC staff's collateralization requirements. This
procedure limits a fund's ability to engage in these types of transactions
and thereby limits a fund's exposure to risk associated with these
transactions.
WHAT EFFECT WILL AMENDING THE RESTRICTION REGARDING SHORT SALES AND ISSUING
SENIOR SECURITIES HAVE ON THE FUND?
The proposed restriction would amend the Fund's current investment
restriction number 8 and 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.
The Board does not anticipate that any additional risk to the Fund will occur
as a result of amending the current restriction 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.
SUB-PROPOSAL 3F: TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
REGARDING INDUSTRY CONCENTRATION.
Under the 1940 Act, a fund's policy of concentrating its investments in
securities of companies in the same industry must be fundamental. Under the
federal securities laws, a mutual fund "concentrates" its investments if it
invests more than 25% of its "net" assets (exclusive of certain items such as
cash, U.S. government securities, securities of other investment companies,
and tax-exempt securities) in a particular industry or group of industries. A
fund is not permitted to concentrate its investments in a particular industry
unless it so states.
WHAT EFFECT WILL AMENDING THE CURRENT RESTRICTION REGARDING INDUSTRY
CONCENTRATION HAVE ON THE FUND?
The proposed restriction would amend the Fund's current restriction by
clarifying the concentration policy's application to the Fund's "net" assets.
Further, the new restriction provides the Fund with additional flexibility
because it exempts from the 25% limitation securities issued or guaranteed by
the U.S. government or any of its agencies or instrumentalities, or the
securities of other investment companies as permitted by the 1940 Act. Such
investment flexibility will help the Fund respond to future legal,
regulatory, market or technical changes. However, adoption of the proposed
restriction is not expected to change materially the way in which the Fund is
currently managed as the Fund does not intend to begin concentrating in U.S.
government securities or in shares of other investment companies.
SUB-PROPOSAL 3G: TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
REGARDING DIVERSIFICATION OF INVESTMENTS.
The 1940 Act prohibits a "diversified" investment company, like the Fund,
from purchasing securities of any one issuer if, at the time of purchase, as
to 75% of the fund's total assets, more than 5% of the fund's total assets
would be invested in securities of that issuer, or the fund would own or hold
more than 10% of the outstanding voting securities of that issuer, except
that up to 25% of the fund's total assets may be invested without regard to
these limitations. Under the 1940 Act, these 5% and 10% limitations do not
apply to securities issued or guaranteed by the U.S. government, its agencies
or instrumentalities, or to the securities of other investment companies.
WHAT EFFECT WILL AMENDING THE CURRENT INVESTMENT DIVERSIFICATION RESTRICTION
HAVE ON THE FUND?
The Fund's current diversification restriction applies the 5% and 10%
limitations as to 100% of the Fund's total assets, rather than the lower
statutorily imposed 75% limit. Further, although the 1940 Act excludes the
securities of other investment companies as well as those of the U.S.
government and its agencies and instrumentalities, the current restriction
does not include such a carve-out for the securities of other investment
companies and the U.S. government securities carve-out is general and does
not encompass all aspects of the 1940 Act diversification provision.
The proposed restriction excludes from the 5% and 10% limitations the
purchase by the Fund of the securities of other investment companies. With
this exclusion, the Fund would be able to invest cash held at the end of the
day in money market funds or other short-term investments without regard to
the 5% and 10% investment limitations. The Fund, together with the other
funds in Franklin Templeton Investments, obtained an exemptive order from the
SEC (the "Cash Sweep Order") that 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 number 1 would enable
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.
Amending the Fund's diversification policy would make it consistent with the
definition of a diversified investment company under the 1940 Act with
respect to the securities of other investment companies and U.S. government
securities, and would provide the Fund with greater investment flexibility.
The proposed investment restriction also clarifies that the 5% and 10%
limitations do not apply to 25% of the Fund's total assets. However, it is
not currently anticipated that adoption of the proposed restriction would
materially change the way the Fund is managed.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT YOU APPROVE SUB-PROPOSALS 3A-3G
PROPOSAL 4: 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 such 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, 9 and 11,
and certain parts of restrictions 5, 7 and 10, among its fundamental
investment restrictions. Advisers has recommended, and the Board has
determined, that all of these current fundamental investment restrictions be
eliminated.
The exact wording of these six restrictions, (referred to in this Proposal 4
as the "Restrictions") has been included in Exhibit A, which is entitled,
"Fundamental Investment Restrictions Proposed to be Amended or Eliminated."
RESTRICTED SECURITIES:
The Fund's current fundamental investment restriction number 5, in part,
limits the Fund's ability to acquire any kind of unregistered security. This
restriction was drafted to accommodate old state restrictions on the purchase
of restricted securities, which are no longer required, as well as to address
the SEC's requirement relating to illiquid security investments by a fund. As
currently drafted, however, it is more restrictive than the SEC position
which permits funds to invest up to 15% of their assets in illiquid or
restricted securities. 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 may 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 the 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.
MARGIN ACCOUNTS:
The Fund's current fundamental investment restriction number 7 limits the
Fund's ability to purchase securities on margin. This restriction was
originally included in the Fund's list of investment limitations in response
to the various state law requirements to which mutual funds were 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 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
purchase securities on margin raises senior security issues and is
specifically 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.
THREE YEARS OF COMPANY OPERATION:
The Fund's current fundamental investment restriction number 9 limits the
Fund's ability to invest in companies which have a record of less than three
years continuous operation. Under NSMIA, this limitation is not required to
be a fundamental investment restriction. Elimination of this fundamental
investment restriction would permit the Fund to invest in a relatively new
company, if it otherwise met the Fund's investment criteria. Securities of
unseasoned companies present greater risks than securities of more
established companies. Elimination of this restriction may, therefore,
increase the risks to the Fund.
INVESTMENT IN OTHER INVESTMENT COMPANIES:
The Fund's current fundamental investment restriction number 10 limits the
Fund's ability to invest in the securities of other open-end investment
companies, except where there is no commission other than ordinary brokerage
commission paid, or in connection with a merger, consolidation, acquisition
or reorganization. This restriction, 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 also 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. Amending the Fund's current restriction would permit the
Fund to take advantage of the investment opportunities presented by the Cash
Sweep Order, (as described in Sub-Proposal 3g), 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 except with respect to cash investments in accordance with
the Cash Sweep Order.
MANAGEMENT OWNERSHIP OF SECURITIES:
The Fund's current restriction fundamental investment 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, 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 conflict of interest restrictions
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 except to the limited extent
described above.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT YOU APPROVE PROPOSAL 4
PROPOSAL 5: 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 place 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 5
as the "CA Corporation") in the form of a newly created Delaware business
trust, named "Franklin Growth and Income Fund" (and referred to in this
Proposal 5 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 and 4 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 IS MANAGEMENT CHANGING THE NAME OF THE FUND?
Management has proposed changing the name of the Fund to "Franklin Growth and
Income Fund" whether the Fund continues to be organized as a California
corporation (see Proposal 6), or whether it becomes a Delaware business
trust, as described in this Proposal 5. Management has determined, and the
Directors have agreed, that changing the Fund's name will better position the
Fund within a competitive marketplace, as well as distinguish the Fund from
other Franklin funds and competitors.
It is also anticipated that renaming and repositioning the Fund will help
attract additional assets to the Fund which could benefit shareholders
through a potentially lower expense ratio per shareholder. Renaming the Fund
is expected to create only minimal changes to the Fund's current portfolio
and to have only a minimal impact on the Fund's current portfolio management
techniques.
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 Franklin Templeton
Investments, 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 Advisers. The new
management agreement will be substantially identical to the current
management agreement between 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 items 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 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 March 21, 2000 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.
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. However, as permitted by California law, the CA Corporation
provides for cumulative voting in the election of its Directors, while the DE
Trust does not provide for cumulative voting in the election of its Trustees.
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 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 the 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. The value of your shares will not be
affected by the Reorganization.
WHAT IS THE EFFECT OF MY "YES" VOTE?
By voting "YES" to the Reorganization, you will be agreeing to become a
shareholder of a mutual fund organized as a Delaware trust, with its
Trustees, independent auditors, investment management agreement and
distribution plans already in place, and all such arrangements that are
substantially identical to those of the CA Corporation.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT YOU APPROVE PROPOSAL 5
PROPOSAL 6: TO AMEND THE FUND'S CHARTER TO CHANGE THE FUND'S NAME TO "FRANKLIN
GROWTH AND INCOME FUND" IN THE EVENT THAT PROPOSAL 5 IS NOT
APPROVED
WHY IS THE BOARD RECOMMENDING THAT THE FUND'S NAME BE CHANGED?
As described above in Proposal 5, Management has determined, and the Board
has agreed, that the Fund's name should be changed to "Franklin Growth and
Income Fund." This name change would enable the Fund to more clearly position
itself within a competitive marketplace, as well as help distinguish the Fund
from other Franklin funds and competitors. It is also anticipated that
renaming and repositioning the Fund will help attract additional assets to
the Fund. Additional assets could benefit shareholders through a potentially
lower expense ratio per shareholder.
Renaming the Fund is expected to create only minimal changes to the Fund's
current portfolio since the Fund has historically been managed for growth as
a primary objective, with dividend income as a secondary objective. If the
name change is approved, the Fund will continue to invest primarily in the
equity securities of growth companies. The Fund, however, will start paying
dividends quarterly, as opposed to semi-annually.
WHY IS THE FUND'S CHARTER BEING AMENDED TO CHANGE THE FUND'S NAME?
Since the name of the Fund is set forth in the Fund's Articles of
Incorporation, as amended (the "Charter"), under state law an amendment to
the Charter is necessary to legally change the Fund's name. Currently,
Article I of the Fund's Charter states: "The name of this corporation is
Franklin Equity Fund." If this Proposal 6 to change the Fund's name is
approved, Article I of the Fund's Charter would be amended to read as
follows: "The name of this corporation is Franklin Growth and Income Fund."
Approving this amendment, and filing the amendment with the State of
California, would legally change the name of the Fund.
WHAT EFFECT WOULD APPROVAL OF PROPOSAL 5 HAVE ON THIS PROPOSAL TO AMEND THE
FUND'S CHARTER?
If shareholders approve the proposal to reorganize the Fund into a Delaware
business trust named "Franklin Growth and Income Fund" (as described above in
Proposal 5), an amendment to the Fund's Charter to change the Fund's name
under California law would no longer be necessary. However, in the event that
Proposal 5 is not approved by shareholders, the Fund would be required to
amend its Charter in order to legally change the Fund's name.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT YOU APPROVE PROPOSAL 6
PROPOSAL 7: OTHER BUSINESS
The Directors do not intend to bring any matters before the Meeting other
than Proposals 1 through 7 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 card will use
their best judgment in voting on such matters.
INFORMATION ABOUT THE FUND
THE INVESTMENT MANAGER. Franklin Advisers, Inc. ("Advisers"), 777 Mariners
Island Blvd., San Mateo, California 94404 serves as the Fund's investment
manager. Advisers is wholly owned by Resources.
THE FUND ADMINISTRATOR. Under an agreement with 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 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., San Mateo, California 94404.
THE CUSTODIAN. 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 June 30,
1999, and its semi-annual report dated December 31, 1999, are available free
of charge. To obtain a copy, please call 1-800/DIAL BEN(R) or forward a written
request to Franklin/Templeton Investor Services, Inc., P.O. Box 997151,
Sacramento, CA 95899-9983.
PRINCIPAL SHAREHOLDERS. As of May 17, 2000, the Fund had 66,993,104.937
shares outstanding of Class A, 740,221.659 shares outstanding of Class B,
10,360,271.908 shares outstanding of Class C, and 730,792.319 shares
outstanding of Advisor Class and total net assets of $1,264,324,217. From
time to time, the number of shares held in "street name" accounts of various
securities dealers for the benefit of their clients may exceed 5% of the
total shares outstanding. To the knowledge of the Fund's management, as of
May 17, 2000 there were no other entities holding beneficially or of record
more than 5% of a class of the Fund's outstanding shares, except as shown for
Advisor Class in the following table:
PERCENTAGE
NAME AND ADDRESS SHARE CLASS (%)
FTTC Trust Services FBO Martin Wiskemann IRA Advisor 22
P.O. Box 5086
San Mateo, CA 94402-0086
FTTC Trustee for ValueSelect Advisor 38
Franklin Resources Profit Sharing 401(k) Plan
P.O. Box 2438
Rancho Cordova, CA 95741-2438
Note: Charles B. Johnson and Rupert H. Johnson, Jr. who are officers and
directors of the Fund, serve on the Administrative committee of the Franklin
Resources, Inc. 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.
In addition, to the knowledge of the Fund's management, as of May 10, 2000,
the officers and Board members, as a group, owned of record and beneficially
30.61% of the Fund's Advisor Class shares and less than 1% of the outstanding
shares of the other classes of the Fund.
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 $111,887 and $143,308. The Fund
expects that the solicitation will be primarily by mail, but also may include
telephone, personal interviews or other means. The Fund does not reimburse
Directors and officers of the Fund, or regular employees and agents of
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, 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-Proposals 3a-3g, amendments to fundamental investment
restrictions, and Proposal 4, elimination of certain fundamental investment
restrictions, both require 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. Proposal 5, the reorganization of the Fund from a
California corporation to a Delaware business trust; Proposal 6, amending the
Fund's charter to change the Fund's name; and Proposal 7, 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 PERSONS 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: June 1, 2000
San Mateo, California
<TABLE>
<CAPTION>
EXHIBIT A
FUNDAMENTAL INVESTMENT RESTRICTIONS PROPOSED
TO BE AMENDED OR ELIMINATED
PROPOSAL CURRENT FUNDAMENTAL PROPOSED FUNDAMENTAL
OR SUB- RESTRICTION RESTRICTION
PROPOSAL RESTRICTION THE FUND MAY NOT: THE FUND MAY NOT:
<S> <C> <C> <C>
3a Borrowing 3. Borrow money, except for Borrow money, except that
temporary or emergency (but the Fund may borrow money
not investment) purposes, and from banks or other
then only from banks and only investment companies to the
in an amount up to 5% of the extent permitted by the 1940
value of the assets. Act, or any exemptions
therefrom which may be
granted by the SEC, or from
any person in a private
transaction not intended for
public distribution 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).
3b Underwriting 5. Underwrite securities of Act as an underwriter except
other issuers . . . . to the extent the Fund may
be deemed to be an
underwriter when disposing
of securities it owns or
when selling its own shares.
3c Lending 2. Make loans to other Make loans to other persons
persons, except by the except (a) through the
purchase of bonds, lending of its portfolio
debentures, or similar securities, (b) through the
obligations which are purchase of debt securities,
publicly distributed or of a loan participations and/or
character usually acquired by engaging in direct corporate
institutional investors or loans in accordance with its
through loans of the fund's investment objectives and
portfolio securities, or to policies, and (c) to the
the extent the entry into a extent the entry into a
repurchase agreement may be repurchase agreement is
deemed a loan. deemed to be a loan. The
Fund may also make loans to
other investment companies
to the extent permitted by
the 1940 Act or any
exemptions therefrom which
may be granted by the SEC.
3d Commodities 7. . . . invest in Purchase or sell real estate
commodities or commodity and commodities, except that
contracts. the Fund may purchase or
sell securities of real
estate investment trusts,
may purchase or sell
currencies, may enter into
futures contracts on
securities, currencies, and
other indices or any other
financial instruments, and
may purchase and sell
options on such futures
contracts.
3d Real Estate 10. Invest directly in real Purchase or sell real estate
estate (although the fund may and commodities, except that
invest in real estate the Fund may purchase or
investment trusts). . . . 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.
3e Short Sales and 8. Effect short sales, unless Issue securities senior to
Senior at the time the fund owns the fund's presently
Securities securities equivalent in kind authorized shares of
and amount to those sold. The beneficial interest. Except
fund has not in the past, nor that this restriction shall
does it currently intend to not be deemed to prohibit
employ this investment the Fund from (a) making any
technique. permitted borrowings, loans,
mortgages or pledges, (b)
entering into options,
futures contracts, forward
contracts, repurchase
transactions, or reverse
repurchase transactions, or
(c) making short sales of
securities to the extent
permitted by the 1940 Act
and any rule or order
thereunder, or SEC staff
interpretations thereof.
3f Industry 4. Invest more than 25% of Concentrate (invest more
Concentration the fund's assets (at the than 25% of its net assets)
time of the most recent in securities of issuers in
investment) in any single a particular industry (other
industry. than securities issued or
guaranteed by the U.S.
government or any of its
agencies or
instrumentalities or
securities of other
investment companies).
3g Diversification 1. Purchase the securities of Purchase the securities of
of Investments any one issuer (other than any one issuer (other than
obligations of the U.S.) if the U.S. government or any
immediately thereafter and as of its agencies or
a result of the purchase, the instrumentalities or
fund would (a) have invested securities of other
more than 5% of the value of investment companies) if
the total assets in the immediately after such
securities of the issuer, or investment (a) more than 5%
(b) hold more than 10% of any of the value of the Fund's
or all classes of the total assets would be
securities of any one issuer. invested in such issuer or
(b) more than 10% of the
outstanding voting
securities of such issuer
would be owned by the Fund,
except that up to 25% of the
value of the Fund's total
assets may be invested
without regard to such 5%
and 10% limitations.
4 Restricted 5. . . . acquire securities Proposed to be Eliminated.
Securities which, at the time of the
acquisition, could be
disposed of publicly by the
fund only after registration
under the Securities Act of
1933.
4 Control or 6. Invest in securities for Proposed to be Eliminated.
Management the purpose of exercising
management or control of the
issuer.
4 Margin Accounts 7. Maintain a margin account Proposed to be Eliminated.
with a securities dealer . .
. .
4 Three Years of 9. Invest more than 5% of the Proposed to be Eliminated.
Company fund's total assets in
Operation companies which have a record
of less than three years
continuous operation,
including the operations of
any predecessor companies.
4 Investment in 10. Invest. . . in the Proposed to be Eliminated.
Other securities of other open-end
Investment investment companies, except:
Companies (a) where there is no
commission other than the
customary brokerage
commission; except (b) that
securities of another
open-end investment company
may be acquired pursuant to a
plan of reorganization,
merger, consolidation or
acquisition; and (c) 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(R)),
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 expense
of distributing the fund's
shares (as determined under
Rule 12b-1, as amended under
the federal securities laws)
and iii) aggregate
investments by the fund in
any such money market fund do
not exceed (A) the greater of
(1) 5% of the fund's total
net assets or (2) $2.5
million, or (B) more than 3%
of the outstanding shares of
any such money market fund.
4 Management 11. Purchase or retain in the Proposed to be Eliminated.
Ownership of fund's portfolio any security
Securities if any officer, director, or
security holder of the issuer
is at the same time an
officer, director or employee
of the fund or of the manager
and such person owns
beneficially more than 1/2 of
1% of the securities, and if
all such persons owning more
than 1/2 of 1% own more than
5% of the outstanding
securities of the issuer.
</TABLE>
EXHIBIT B
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made this
25th day of May, 2000 by and between Franklin Equity Fund, a corporation
created under the laws of the State of California (the "Fund"), and Franklin
Growth and Income 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 2:00 p.m. Pacific time on August 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 a majority the outstanding
shares of the Fund 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 June 30, 2001;
(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, Fortunato, Johnson, Johnson,
Johnson, Jr., LaHaye, Macklin and Wiskemann;
(2) Select PricewaterhouseCoopers LLP as the independent public
accountants for the Trust for the fiscal year ending June 30, 2001, 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 Vice President
and attested by its Secretary, all as of the day and year first-above written.
Attest: Franklin Growth and Income Fund
(a Delaware business trust)
/s/ Deborah R. Gatzek /s/ David P. Goss
By _____________________________ By: __________________________
Attest: Franklin Equity Fund
(a California Corporation)
/s/ Deborah R. Gatzek /s/ David P. Goss
By _____________________________ By: __________________________
EXHIBIT C
COMPARISON AND SIGNIFICANT DIFFERENCES BETWEEN
DELAWARE BUSINESS TRUSTS AND
CALIFORNIA CORPORATIONS
DELAWARE BUSINESS TRUST CALIFORNIA CORPORATION
Governing Documents A Delaware Business A California
Trust (a "DBT") is corporation (a
created by a governing "corporation") is
instrument (which may created by filing
consist of one or more articles of
instruments, including incorporation with the
an agreement and Secretary of State of
declaration of trust California. The law
and By-Laws) and a governing corporations
Certificate of Trust, is referred to in this
which must be filed chart as the
with the Delaware "California Act."
Secretary of State. The
law governing DBTs is
referred to in this
chart as the "Delaware
Act."
A DBT is an A corporation is
unincorporated incorporated under the
association organized California Act. A
under the Delaware Act corporation's
which operates similar operations are governed
to a typical by its articles of
corporation. A DBT's incorporation and
operations are governed By-Laws and its
by a trust instrument business and affairs
and By-Laws and its are managed by or under
business and affairs the direction of a
are managed by or under Board of Directors.
the direction of a
Board of Trustees.
A DBT organized as an A corporation organized
open-end investment as an open-end
company is subject to investment company is
the Investment Company subject to the 1940
Act of 1940, as amended Act. Shareholders own
(the "1940 Act"). shares of "common
Shareholders own shares stock."
of "beneficial
interest" as compared
to the shares of
"common stock" issued
by corporations.
Multiple Series Under the Delaware Act, The California Act
and Classes a declaration of trust authorizes a
may provide for corporation to issue
classes, groups or one or more classes or
series of shares, or series of common stock.
classes, groups or A corporation issuing
series of shareholders, multiple series or
having such relative classes must describe
rights, powers and in its articles of
duties as the incorporation the
declaration of trust number of shares
may provide. The series allocated to each
and classes of a DBT series and/or class,
may be described in the and set forth the
declaration of trust or designation of each
in resolutions adopted series and/or class (or
by the Board of provide that the Board
Trustees. Neither state may determine or alter
filings nor shareholder the designation of each
approval is required to class and the rights,
create series or preferences, privileges
classes. The Directors and restrictions
of Franklin Equity Fund granted to or imposed
("the CA Corporation") upon each series or
have proposed to class). As a result, a
reorganize the CA corporation is required
Corporation from a to obtain shareholder
corporation into a approval to increase
Delaware business trust the number of shares
(the "DE Trust"). The the corporation is
DE Trust's Declaration authorized to issue,
of Trust permits the and to file with the
creation of multiple state an amendment to
series and classes and the articles of
establishes the incorporation
provisions relating to reflecting that
shares. increase.
The Delaware Act The California Act does
explicitly provides for not contain statutory
a reciprocal limitation provisions addressing
of interseries interseries liability
liability. Generally, in the context of a
the debts, liabilities, multiple series
obligations and investment company. The
expenses incurred, California Act does,
contracted for or however, provide that a
otherwise existing with corporation which is
respect to a particular authorized to issue
series of a multiple more than one series or
series investment class of shares shall
company registered set forth any
under the 1940 Act are preferences and
enforceable only restrictions relating
against the assets of to each such series or
such series, and not class in its articles
against the assets of of incorporation.
the DBT, or any other Therefore, a
series, provided that corporation could
the DBT separately incorporate a provision
maintains the records limiting interseries
and assets of the liability in its
series and makes articles of
certain disclosures in incorporation.
its governing Notwithstanding, it
instruments. remains uncertain
whether such a
provision can validly
limit interseries
liability.
The Declaration of The CA Corporation does
Trust for the DE Trust not address interseries
specifically limits liability in its
interseries liability. Articles of
However, a court Incorporation or
applying federal By-Laws.
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 The Declaration of Under the California
Rights and Proxy Trust for the DE Trust Act, each outstanding
Requirements provides that share of a corporation
shareholders of record is generally entitled
of each share are to one vote on each
entitled to one vote matter submitted to a
for each full share, vote of shareholders
and a fractional vote The CA Corporation's
for each fractional By-Laws further provide
share. In addition, a fractional vote for
shareholders are not each fractional share
entitled to cumulative of the corporation.
voting for electing a Shareholders are
Trustee(s). The DE entitled to cumulative
Trust's Declaration of voting when electing
Trust further provides Directors. The
that voting will occur California Act permits
separately by series, separate voting by
and if applicable, by series or class. The CA
class, subject to: (i) Corporation's Articles
the requirements of the of Incorporation
1940 Act where shares provide that voting
of the DE Trust must be shall occur separately
voted in the aggregate by class when (i)
without reference to required by the
series or class, and California Act or the
(ii) where the matter 1940 Act or (ii) the
affects only a matter only affects a
particular series or particular class.
class.
The By-Laws for the DE Similar to the By-Laws
Trust specifically for the DE Trust, the
permit the DE Trust to California Act permits
accept proxies by any a corporation to accept
electronic, telephonic, written proxies as well
computerized as proxies submitted by
telecommunications or electronic or
other reasonable telephonic means. The
alternative to the CA Corporation's
execution of a written By-Laws provide that
instrument authorizing all proxies shall be in
the proxy to act, writing and signed by
provided such the shareholder or his
authorization is attorney-in-fact. The
received within eleven By-Laws further provide
(11) months before the that proxies shall be
meeting. effective for eleven
(11) months, unless the
proxy provides for a
longer effective period.
Shareholders' The Delaware Act The California Act
Meetings permits special requires corporations
shareholder meetings to operating as registered
be called for any investment companies to
purpose. However, the hold shareholder
governing instrument meetings when required
determines to do so under the 1940
shareholders' rights to Act. The California Act
call meetings. The also provides that
Declaration of Trust special shareholder
for the DE Trust meetings may be called
provides that the Board by the Board, the
of Trustees shall call Chairman of the Board,
shareholder meetings the President of the
for the purpose of: (i) corporation, the
electing Trustees, (ii) holders of at least 10%
for such other purposes of the outstanding
as may be prescribed by voting shares, or other
law, the Declaration of persons given the
Trust or the By-Laws, privilege to call such
and (iii) taking action meetings, pursuant to
upon any other matter the articles of
deemed by the Trustees incorporation or
to be necessary or By-Laws. The CA
desirable. The By-Laws Corporation's By-Laws
further provide that a generally reiterate the
special meeting may be provisions of the
called at any time by California Act
the Board of Trustees, concerning the calling
by the Chairman of the of shareholder meetings.
Board, or by the
President or any Vice
President or the
Secretary and any two
(2) Trustees. An annual
shareholders' meeting
is not required by
either the Delaware
Act, or the DE Trust's
Declaration of Trust,
or the By-Laws.
Quorum Requirement Except when a larger The CA Corporation's
quorum is required by By-Laws generally
law, the By-Laws, or mirror the California
the Declaration of Act, providing that a
Trust, the DE Trust's majority of the shares
Declaration of Trust entitled to vote shall
provides that forty constitute a quorum at
percent (40%) of the a shareholders meeting.
shares entitled to vote
shall constitute a
quorum at a
shareholder's meeting.
Action Without Delaware law permits The California Act
Shareholders' the governing provides that unless
Meeting instrument to set forth the articles of
the procedure whereby incorporation provide
action required to be otherwise, any action
approved by which may be taken at
shareholders at a any annual or special
meeting may be done by meeting of shareholders
consent. The DE Trust's may be taken without a
Declaration of Trust meeting and without
provides that any prior notice, if
action taken by shareholders having not
shareholders may be less than the minimum
taken without a meeting number of votes that
if shareholders holding would be necessary to
a majority of the take such action at a
shares entitled to vote meeting at which all
on the matter (or such shares entitled to vote
larger proportion as thereon were present
shall be required by and voted, consent to
any express provision the action in writing.
of the Declaration of The CA Corporation's
Trust or By-Laws) and By-Laws mirror the
holding a majority (or California Act with
such larger proportion regard to shareholder
as aforesaid) of the action by written
shares of any series consent.
(or class) entitled to
vote separately on the
matter consent to the
action in writing.
Amendments to The Delaware Act When amending its
Governing Documents provides broad articles of
flexibility with incorporation, a
respect to amending to corporation is
the governing documents generally required to
of a DBT. obtain the approval of
the Board of Directors
and the shareholders,
and to file a
certificate of
amendment with the
state. However, the
California Act does
permit a corporation,
if authorized in its
Articles of
Incorporation, to
increase or decrease
the number of
authorized shares of a
class by vote of the
board of directors
alone.
The DE Trust's The CA Corporation's
Declaration of Trust Articles of
provides that the Incorporation do not
Declaration of Trust contain provisions
may be restated and/or regarding the amendment
amended at any time by of the Articles of
an instrument in Incorporation, except
writing signed by a it does permit the
majority of the then Directors to increase
Trustees, and if or decrease the number
required, by approval of authorized shares of
of such amendment by a class without a vote
shareholders in of shareholders.
accordance with the
quorum and required
voting requirements as
set forth in the
Declaration of Trust.
The By-Laws of the DE Most provisions of the
Trust may be amended or By-Laws may be amended
repealed by the or repealed by a
affirmative vote or majority of the
written consent of a outstanding shares
majority of the entitled to vote, or by
outstanding shares the Board of Directors,
entitled to vote, or by subject to the rights
the Board of Trustees of the shareholders.
subject to the rights Certain provisions may
of the shareholders. be amended only by
shareholders.
Matters Requiring The Delaware Act Under the California
Shareholder affords Trustees the Act, shareholders have
Approval ability to easily adapt the ability to vote on
a DBT to future the following matters:
contingencies. For (i) the election and
example, Trustees have removal of Directors;
the authority to (ii) certain amendments
incorporate a DBT, to to the articles of
merge or consolidate incorporation and
with another entity, to By-Laws; and (iii) with
cause multiple series regard to a merger,
of a DBT to become reorganization, or
separate trusts, to transfer or sale of all
change the domicile, or or substantially all of
to liquidate a DBT, all the corporation's
without having to assets other than in
obtain a shareholder the ordinary course of
vote. business.
The Declaration of The By-Laws broadly
Trust for the DE Trust, provide that
consistent with the shareholders shall have
Delaware Act, affords the right to vote at
shareholders the power any meeting of
to vote on the shareholders.
following matters: (i)
the election or removal The CA Corporation's
of Trustees; (ii) as By-Laws provide that
required by the when a quorum is
Declaration of Trust, present, the
the By-Laws, the 1940 affirmative vote of the
Act or the DE Trust's majority of the shares
registration statement; represented at the
and (iii) other matters meeting and entitled to
deemed by the Board of vote on any matter
Trustees to be (other than the
necessary or desirable. election of Directors)
shall be the act of
The Declaration of shareholders, unless a
Trust also provides larger vote is required
that when a quorum is by the Articles of
present, a majority of Incorporation, the
the votes cast shall By-Laws or by
decide any issues and a applicable law. In the
plurality shall elect a event that shareholders
Trustee, unless a vote cumulatively for
larger vote is required Directors, the
by the Declaration of available Director
Trust, the By-Laws or slots shall be filled
by applicable law. by those candidates
receiving the highest
number of affirmative
votes of the shares
entitled to be voted.
Record Date/Notice The Delaware Act The California Act
permits a governing provides that a
instrument to provide corporation may set a
for the establishment record date which is
of record dates for not more than sixty
determining voting (60) nor less than ten
rights. (10) days before a
meeting.
The Declaration of Following the
Trust for the DE Trust California Act, the CA
provides that the Board Corporation's By-Laws
of Trustees may fix in permit the Directors to
advance a record date set a record date which
which shall not be more shall not be more than
than ninety (90) days, sixty (60) days nor
nor less than seven (7) less than ten (10) days
days, before the date before the date of any
of any such meeting. shareholder meeting.
The By-Laws for the DE The By-Laws for the CA
Trust provide that all Corporation provide
notices of shareholder that all notices of
meetings shall be sent shareholder meetings
or otherwise given to shall be sent to
shareholders not less shareholders not less
than seven (7) days nor than ten (10) days nor
more than seventy-five more than sixty (60)
(75) days before the days before the date of
date of the meeting. the meeting.
Removal of The Delaware Act is Under the California
Trustees/ silent with respect to Act, a Director may be
Directors the removal of removed with or without
Trustees. However, the cause by the
DE Trust's Declaration affirmative vote of a
of Trust states that majority of the
the Board of Trustees, outstanding shares
by action of a majority entitled to vote.
of the then Trustees at However, no Director
a duly constituted may be removed (unless
meeting, may fill the entire Board of
vacancies in the Board Directors is removed)
of Trustees or remove when the votes cast
Trustees with or against removal would
without cause. be sufficient to elect
the Director if voted
cumulatively at an
election.
Shareholder Rights The Delaware Act sets Like the Delaware Act,
of Inspection forth the rights of the California Act
shareholders to gain permits shareholders to
access to and receive make reasonable demands
copies of certain DBT to gain access to and
Trust documents and receive copies of
records. This right is certain corporate
qualified by the extent documents and records.
otherwise provided in Specifically, a
the governing shareholder may, upon
instrument of the DBT written demand and for
as well as a reasonable a purpose reasonably
demand standard related related to such
to the shareholder's shareholder's interest
interest as an owner of as a shareholder,
the DBT. 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 The By-Laws of the CA
Delaware law, the Corporation mirror the
By-Laws of the DE Trust California Act with
provide that a regard to shareholder
shareholder shall have inspection rights.
the right to inspect
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 Personal liability is The California Act
Liability limited by the Delaware generally limits a
Act to the amount of shareholder's personal
investment in the DBT, liability to the amount
and may be further of his or her
limited or restricted investment in the
by the governing corporation. However, a
instrument. shareholder of a
Shareholders of a DBT corporation may be held
are entitled to the liable for the amount
same limitation of of any distribution he
personal liability or she accepts with the
extended to knowledge that the
stockholders of a distribution was made
private corporation in violation of the
organized for profit California Act. There
under the general is no specific mention
corporation law of the of shareholder
State of Delaware. The liability in the CA
DE Trust's Declaration Corporation's Articles
of Trust specifically of Incorporation or
limits the personal By-Laws.
liability of
shareholders.
Trustee/Director Subject to the The California Act
Liability declaration of trust, provides that a
the Delaware Act Director, when acting
provides that a in such capacity, shall
Trustee, when acting in not be subject to
such capacity, may not liability if the
be held personally Director performs his
liable to any person or her duties in
other than the DBT or a accordance with the
shareholder for any standard provided under
act, omission or California law. The
obligation of the DBT California Act requires
or any Trustee. A Directors to act in
Trustee's duties and good faith and in a
liabilities to the DBT manner which they
and its shareholders believe to be in the
may be expanded or best interests of the
restricted by the corporation and its
provisions of the shareholders, and to
Declaration of Trust. 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 The CA Corporation's
Declaration of Trust Articles of
shields Trustees from Incorporation and
liability for the acts By-Laws do not contain
or omissions of any provisions protecting
officer, agent, Directors from
employee, manager or liability for any
principal underwriter neglect or wrongdoing.
or other Trustee.
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 The California Act
permits a DBT to allows a corporation to
indemnify and hold indemnify and hold
harmless any Trustee, harmless Directors and
shareholder or agent officers. Accordingly,
from and against any the CA Corporation's
and all claims and By-Laws provide for the
demands. Consistent indemnification of any
with the Delaware Act, Director or officer for
the Declaration of claims arising out of
Trust for the DE Trust or related to the
provides for the performance of their
indemnification of duties as an officer or
officers and Trustees Director. Like the DE
from and against any Trust, the CA
and all claims and Corporation does not
demands arising out of indemnify Directors and
or related to the officers from and
performance of their against liability
duties as an officer or incurred by reason of
Trustee. The DE Trust willful misfeasance,
will not indemnify, bad faith, gross
hold harmless or negligence or reckless
relieve Trustees from disregard of their
liability which results duties.
from willful
misfeasance, bad faith,
gross negligence or
reckless disregard of
their duties.
The Declaration of Neither the California
Trust of the DE Trust Act nor the Articles of
also provides that any Incorporation or
shareholder or former By-Laws of the CA
shareholder that is Corporation contain
exposed to liability by specific provisions
reason of a claim or permitting the
demand related to such indemnification of
person having been a shareholders.
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 Under the California
not contain a provision Act, a corporation may
specifically related to purchase and maintain
insurance. The DE insurance on behalf of
Trust's Declaration of any Director, officer,
Trust provides that the employee, or other
Trustees shall be agent of the
entitled and empowered corporation against any
to the fullest extent liability asserted
permitted by law to against or incurred by
purchase insurance with such person in such
the DE Trust's assets capacity or arising out
for liability and for of the person's status
all expenses reasonably as a Director, officer,
incurred or paid or employee or agent of
expected to be paid by the corporation. A
a Trustee or officer in corporation may carry
connection with any such insurance
claim or proceeding in regardless of whether
which he or she becomes it would have the power
involved by virtue of to indemnify the person
his or her capacity (or against the liability.
former capacity) with
the DE Trust, whether
or not the DE Trust
would have the power to
indemnify against such
liability.
The By-Laws of the DE Like the By-Laws of the
Trust permit insurance DE Trust, the By-Laws
coverage only to the of the CA Corporation
extent that the DE permit insurance
Trust would have the coverage only to the
power to indemnify extent that the CA
against such liability. Corporation would
otherwise be able to
indemnify against such
liability under the
provisions in its
By-Laws.
1 The Directors of a Delaware business trust are referred to as Trustees.
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 EQUITY FUND
JULY 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, Barbara J.
Green, and David P. Goss, and each of them, proxies of the undersigned with full
power of substitution to vote all shares of Franklin Equity 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 10:00 a.m. Pacific time on
July 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: WWW.FRANKLINTEMPLETON.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, your
title or capacity should be stated. If
shares are held jointly, each holder
must sign.
-----------------------------------------
Signature
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Signature
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Date 10817 FEF
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 EQUITY
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, 6 AND 7. IF ANY OTHER
MATTERS ABOUT WHICH THE PROXYHOLDERS WERE NOT AWARE PRIOR TO THE TIME OF THE
SOLICITATION PROPERLY COME BEFORE THE MEETING, 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 - 7.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FOR all Vote FOR all
nominees Withheld nominees
for all (except
as marked
to the
contrary)
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. [ ] [ ] [ ]
01 Frank H. Abbott, III 02 Harris J. Ashton 03 S. Joseph Fortunato
04 Charles B. Johnson 05 Charles E. 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 [ ] [ ] [ ]
June 30, 2000.
3.To approve amendments to certain of the Fund's fundamental
investment restrictions (includes seven (7) Sub-Proposals).
3.a. Borrowing [ ] [ ] [ ]
3.b. Underwriting [ ] [ ] [ ]
3.c. Lending [ ] [ ] [ ]
3.d. Real estate and commodities [ ] [ ] [ ]
3.e. Short sales and issuing senior securities [ ] [ ] [ ]
3.f. Industry concentration [ ] [ ] [ ]
3.g. Diversification [ ] [ ] [ ]
4. To approve the elimination of certain of the Fund's [ ] [ ] [ ]
fundamental investment restrictions.
5. To approve the reorganization of the Fund from a California [ ] [ ] [ ]
corporation to a Delaware business trust.
6. To amend the Fund's charter to change the Fund's name to
"Franklin Growth and Income Fund" in the event that Proposal 5 [ ] [ ] [ ]
is not approved.
GRANT WITHHOLD ABSTAIN
7. To grant the proxyholders the authority to vote upon any
other business that may properly come before the Meeting or any
adjournments thereof. [ ] [ ] [ ]
</TABLE>
IMPORTANT: PLEASE SIGN AND MAIL IN YOUR PROXY...TODAY
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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 Web site:
WWW.FRANKLINTEMPLETON.COM
3. Click on the Proxy Voting link.
4. Enter your 14 digit CONTROL NUMBER from your Proxy Card.
5. Follow the recorded or on-screen directions.
5. Do NOT mail your Proxy Card when you vote by phone or internet.
