SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
Franklin Equity Fund
- -------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
- -------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
- -------------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the amount
on which the filing fee is calculated and state how it was
determined):
- -------------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
- -------------------------------------------------------------------------------
5) Total fee paid:
- -------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
- -------------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
- -------------------------------------------------------------------------------
3) Filing Party:
- -------------------------------------------------------------------------------
4) Date Filed:
- -------------------------------------------------------------------------------
[LOGO]
Franklin(R)Templeton(R)
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.
This page intentionally left blank.
A LETTER FROM THE PRESIDENT
Dear Fellow Shareholders:
I am writing to request that you consider a number of matters relating to
your investment in Franklin Equity Fund (the "Fund"). The Board of Directors
asks 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; and
5. Reorganizing the Fund from a California corporation to a
Delaware business trust.
We urge you to confirm the Board's recommendations by electing the nominated
Directors and ratifying the selection of the independent auditors.
We also have proposed amending or eliminating certain of the Fund's
fundamental investment restrictions. We believe that the recommended changes
will provide additional investment opportunities to the Fund, as further
described in the attached proxy statement. We urge you to approve these
proposals which are designed to benefit all shareholders by providing the
Fund with greater flexibility in pursuing its investment objectives. We also
have proposed that the Fund be reorganized as a Delaware business trust
because Delaware law permits a less complicated structure and allows greater
flexibility in a mutual fund's business operations.
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
This page intentionally left blank
[LOGO]
Franklin(R)Templeton(R)
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
- ----------------------------------------------------------------------
Please sign and return your proxy card in the self-addressed
envelope regardless of the number of shares you own.
- ----------------------------------------------------------------------
TABLE OF CONTENTS
Page
PROXY STATEMENT
Information About Voting
Proposal 1: To Elect a Board of Directors
Proposal 2: To Ratify the Selection of
PricewaterhouseCoopers LLP as Independent Auditors for the Fund
Proposal 3: To Approve Amendments to Certain of the Fund's
Fundamental Investment Restrictions (Includes Seven (7)
Sub-Proposals)
3a: Borrowing
3b: Underwriting
3c: Lending
3d: Real Estate and Commodities
3e: Short Sales and Issuing Senior Securities
3f: Industry Concentration
3g: Diversification of Investments
Proposal 4: To Approve the Elimination of Certain of the
Fund's Fundamental Investment Restrictions
Proposal 5: To Approve the Reorganization of the Fund From
a California Corporation to a Delaware Business Trust
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
Proposal 7: Other Business
EXHIBITS
Exhibit A: Fundamental Investment Restrictions
Proposed to be Amended or Eliminated
Exhibit B: Form of Agreement and Plan of Reorganization
Exhibit C: Comparison and Significant Differences Between
Delaware Business Trusts and California Corporations
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
ACCORDANCE with the discretion of the persons named in the proxy card 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 Group of Funds"). 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
persons named in the proxy will vote in their discretion for another person
or other persons who may be nominated as Directors.
Listed below for each Nominee, is a brief description of his recent
professional experience and ownership of shares of the Fund and shares of all
of the investment companies in the Franklin Templeton Group of Funds.
Shares
Beneficially
Owned in the
Franklin
Fund Shares Templeton
Owned Group of
Beneficially Funds
and % of (including
Total the Fund) as
Outstanding of
Name, Address, Principal Occupation on May 10, December 31,
During Past Five Years and Age 2000 2000
- ----------------------------------------------------------------------
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 the Franklin Templeton Group of
Funds; 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 the Franklin
Templeton Group of Funds; and FORMERLY,
President, Chief Executive Officer and
Chairman of the Board, General Host
Corporation (nursery and craft centers)
(until 1998). 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 the
Franklin Templeton Group of Funds. Age
67.
Charles B. Johnson*+ 6,045 249,925
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 the Franklin
Templeton Group of Funds. 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 the Franklin Templeton Group of
Funds. Age 43.
Rupert H. Johnson, Jr.* + 9,399 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 the Franklin
Templeton Group of Funds. 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 the
Franklin Templeton Group of Funds; 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 the Franklin Templeton
Group of Funds; 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* 3,428 13,362,650
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 the Franklin Templeton
Group of Funds; 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 the Franklin Templeton Group of Funds receive a flat fee of
$2,000 per committee meeting attended, a portion of which is allocated to the
Fund. Members of a committee are not compensated for any committee meeting
held on the day of a board meeting.
During the fiscal year ended June 30, 2000 there were 11 meetings of the
Board and 1 meeting of the Audit Committee. Each of the Directors attended
at least 75% of the total number of meetings of the Board except for Charles
E. Johnson who attended 64% of the meetings. There was 100% attendance at
the meeting of the Audit Committee.
Certain Directors and executive officers ("Executive Officers") of the Fund
are shareholders of Resources and may be deemed to receive indirect
remuneration due to their participation in the management fees and other fees
received from the Franklin Templeton Group of Funds by Advisers and its
affiliates. Advisers or its affiliates pay the salaries and expenses of the
Executive Officers. No pension or retirement benefits are accrued as part of
Fund expenses.
The fees payable to noninterested board members by the Fund are subject to
reductions resulting from fee caps limiting the amount of fees payable to
board members who serve on other boards within the Franklin Templeton Group
of Funds. The following table shows the fees paid to noninterested Directors
by the Fund and by the Franklin Templeton Group of Funds.
Number of
Boards in the
Franklin
Total Fees Templeton
Total Fees Received from Group of Funds
Received the Franklin on
from the Templeton which Each
Fund 1 Group of Director
Name of Director ($) Funds 2 ($) Serves 3
- -------------------------------------------------------------------------------
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 the Franklin Templeton Group of Funds. This number does not
include the total number of series or funds within each investment
company for which the Board members are responsible. The Franklin
Templeton Group of Funds currently includes 53 registered investment
companies, with approximately 155 U.S. based funds or series.
The preceding table indicates the total fees paid to Directors by the Fund
individually, and by all of the funds in the Franklin Templeton Group of
Funds. These Directors also serve as directors or trustees of other
investment companies in the Franklin Templeton Group of Funds, many of which
hold meetings at different dates and times. The Directors believe that
having the same individuals serving on the boards of many of the funds in the
Franklin Templeton Group of Funds enhances the ability of each fund to
obtain, at a relatively modest cost to each separate fund, the services of
high caliber, experienced and knowledgeable noninterested Directors who can
more effectively oversee the management of the funds.
Board members historically have followed a policy of having substantial
investments in one or more of the funds in the Franklin Templeton Group of
Funds, as is consistent with their individual financial goals. In February
1998, this policy was formalized through adoption of a requirement that each
board member invest one-third of fees received for serving as a director or
trustee of a Templeton fund in shares of one or more Templeton funds, and
one-third of fees received for serving as a director or trustee of a Franklin
fund in shares of one or more Franklin funds until the value of such
investments equals or exceeds five times the annual fees paid such Board
member. Investments in the name of family members or entities controlled by
a Board member constitute fund holdings of such Board member for purposes of
this policy, and a three year phase-in period applies to such investment
requirements for Board members elected for the first time to a Board. In
implementing such policy, a Board member's fund holdings existing on February
27, 1998, are valued as of such date with subsequent investments valued at
cost.
WHO ARE THE EXECUTIVE OFFICERS OF THE FUND?
Executive Officers of the Fund are appointed by the Directors and serve at
the pleasure of the Board. Listed below, for each Executive Officer (with
the exception of Messrs. Johnson, Johnson, Johnson, Jr. and Wiskemann, whose
biographical information is included above), is a brief description of his or
her recent professional experience:
-----------------------------------------------------------------
Name, Address, and Principal Occupation
Offices with the Fund During Past Five Years and Age
-----------------------------------------------------------------
Harmon E. Burns Vice Chairman, Member - Office of
Vice President since 1986 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 the Franklin Templeton
Group of Funds. Age 55.
-----------------------------------------------------------------
Martin L. Flanagan President, Member - Office of the
Vice President and Chief President, Chief Financial Officer
Financial Officer since and Chief Operating Officer,
1995 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
the Franklin Templeton Group of
Funds. Age 39.
-----------------------------------------------------------------
Deborah R. Gatzek Partner, Stradley, Ronon, Stevens &
Secretary since 1986 Young, LLP; officer of 34 of the
investment companies in the
Franklin Templeton Group of Funds;
and FORMERLY, Senior Vice President
and General Counsel, Franklin
Resources, Inc., Senior Vice
President, Franklin Templeton
Services, Inc. and Franklin
Templeton Distributors, Inc.,
Executive Vice President, Franklin
Advisers, Inc., Vice President,
Franklin Advisory Services, LLC and
Franklin Mutual Advisers, LLC; and
Vice President, Chief Legal Officer
and Chief Operating Officer,
Franklin Investment Advisory
Services, Inc. (until January
2000). Age 51.
-----------------------------------------------------------------
David Goss President, Chief Executive Officer
Vice President since and Director, Franklin Select
January 2000 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 the
Franklin Templeton Group of Funds;
and FORMERLY, President, Chief
Executive Officer and Director,
Franklin Real Estate Income Fund
and Franklin Advantage Real Estate
Income Fund (until 1996). Age 53.
-----------------------------------------------------------------
Barbara J. Green Vice President and Deputy General
Vice President since Counsel, Franklin Resources, Inc.;
January 2000 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 the
Franklin Templeton Group of Funds;
and FORMERLY, Deputy Director,
Division of Investment Management,
Executive Assistant and Senior
Advisor to the Chairman, Counselor
to the Chairman, Special Counsel
and Attorney Fellow, U.S.
Securities and Exchange Commission
(1986-1995), Attorney, Rogers &
Wells (until 1986), and Judicial
Clerk, U.S. District Court
(District of Massachusetts) (until
1979). Age 52.
-----------------------------------------------------------------
Edward V. McVey Senior Vice President and National
Vice President since 1985 Sales Manager, Franklin Templeton
Distributors, Inc., and officer of
29 of the investment companies in
the Franklin Templeton Group of
Funds. Age 62.
-----------------------------------------------------------------
Kimberley Monasterio Vice President, Franklin Templeton
Treasurer and Principal Services, Inc.; and officer of 33
Accounting Officer since of the investment companies in the
1999 Franklin Templeton Group of Funds.
Age 36.
-----------------------------------------------------------------
Murray L. Simpson Executive Vice President and
777 Mariners Island Blvd. General Counsel, Franklin
San Mateo, CA 94404 Resources, Inc.; officer and/or
Vice President since director of some of the
January 2000 subsidiaries of Franklin Resources,
Inc.; officer of 53 of the
investment companies in the
Franklin Templeton Group of Funds;
and FORMERLY, Chief Executive
Officer and Managing Director,
Templeton Franklin Investment
Services (Asia) Limited (until
January 2000) and Director,
Templeton Asset Management Ltd.
(until 1999). Age 62.
-----------------------------------------------------------------
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT YOU APPROVE PROPOSAL 1
PROPOSAL 2: TO RATIFY THE SELECTION OF
PRICEWATERHOUSECOOPERS LLC 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. The Board also does not anticipate that the proposed changes will
materially affect the manner in which the Fund is managed.
The Fund's existing investment restrictions, together with the recommended
changes to the restrictions, are detailed in Exhibit A, which is entitled,
"Fundamental Investment Restrictions Proposed to be Amended or Eliminated."
Shareholders are requested to vote on each Sub-Proposal in Proposal 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 3, the Fund is
presently limited to borrowing up to 5% of assets, rather than the 33 1/3%
allowed under current law. The proposed restriction would increase this
borrowing limit to the legally permissible limit of 33 1/3%. The proposed
restriction would also clarify that the Fund may borrow: (1) from banks to
the extent permitted by the 1940 Act or any exemptions therefrom, and (2)
from any person for temporary or emergency purposes, but (3) in any event all
borrowings must not exceed 33 1/3% 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 proposed restriction also permits the Fund to borrow cash from affiliated
investment companies. The SEC recently granted an exemptive order to the
Fund, together with other funds in the Franklin Templeton Group of Funds,
permitting the Fund to borrow money from affiliated Franklin and Templeton
funds. The proposed borrowing restriction would permit the Fund, under
certain circumstances and in accordance with the exemptive order, to borrow
money from other Franklin and Templeton funds at rates which are more
favorable than those which the Fund would receive if it borrowed from banks
or other lenders.
Since the proposed borrowing restriction would provide the Fund with greater
borrowing flexibility, the Fund may be subject to additional costs, as well
as the risks inherent to borrowing, such as reduced total return.
SUB-PROPOSAL 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 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 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 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 affiliated investment
companies. The Franklin Templeton Group of Funds, including the Fund,
recently received an exemptive order from the SEC that permits the Fund to
lend cash to other Franklin and Templeton funds. The proposed restriction
permits the Fund, under certain conditions, to lend cash to other Franklin or
Templeton funds at rates higher than those which the Fund would receive if
the Fund loaned cash to banks through short-term lendings such as repurchase
agreements. The Board anticipates that this additional flexibility to lend
cash to affiliated investment companies would allow additional investment
opportunities, and would enhance the Fund's ability to respond to changes in
market, industry or regulatory conditions.
It is not anticipated that adoption of the proposed restriction would involve
any additional risk as the proposed restriction would not affect the way the
Fund is currently managed.
SUB-PROPOSAL 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?
The proposed restriction will combine the limitations on investing in both
real estate and commodities into one restriction.
REAL ESTATE: The proposed real estate restriction is substantially the same
as the real estate limitation contained in the Fund's current restriction
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 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 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 other
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 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 the Franklin Templeton Group of Funds, 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 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 will be deemed to have
invested in such issuer for the purposes of exercising control or
management. This restriction was intended to ensure that a mutual fund would
not be engaged in the business of managing another company.
Eliminating 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. As a general matter, elimination of
this fundamental restriction is not intended to have an impact on the day to
day management of the Fund.
INVESTMENT IN OTHER INVESTMENT COMPANIES:
The Fund's current fundamental investment restriction 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 the Franklin
Templeton Group of Funds, since many of the funds are already organized as
Delaware business trusts, and the Delaware trust form has been chosen for new
Franklin and Templeton funds that have been created over the past few years.
Increased uniformity among the funds, many of which share common Directors,
officers and service providers, is expected to reduce the costs and resources
needed to comply with state corporate laws, and also reduce administrative
burdens.
For these reasons, the Directors believe that it is in the best interests of
the shareholders to approve the Reorganization.
WHAT ARE THE PROCEDURES AND CONSEQUENCES OF THE REORGANIZATION?
Upon completion of the Reorganization, the DE Trust will continue the
business of the CA Corporation with the same investment objective and
policies as exist on the date of the Reorganization, and will hold the same
portfolio of securities previously held by the CA Corporation. The DE Trust
will be operated under substantially identical overall management, investment
management, distribution and administrative arrangements as those of the CA
Corporation. As the successor to the CA Corporation's operations, the DE
Trust will adopt the CA Corporation's registration statement under the
federal securities laws with amendments to show the new Delaware business
trust structure.
The DE Trust was created solely for the purpose of becoming the successor
organization to, and carrying on the business of, the CA Corporation. To
accomplish the Reorganization, the Plan provides that the CA Corporation will
transfer all of its portfolio securities and any other assets, subject to its
related liabilities, to the DE Trust. In exchange for these assets and
liabilities, the DE Trust will issue its own shares to the CA Corporation,
which will then distribute those shares pro rata to you as a shareholder of
the CA Corporation. Through this procedure you will receive exactly the same
number and dollar amount of shares of the DE Trust as you previously held in
the CA Corporation. The net asset value of each share of the DE Trust will
be the same as that of the CA Corporation on the date of the Reorganization.
You will retain the right to any declared but undistributed dividends or
other distributions payable on the shares of the CA Corporation that you may
have had as of the effective date of the Reorganization. As soon as
practicable after the date of the Reorganization, the CA Corporation will be
dissolved and will go out of existence.
The Directors may terminate the Plan and abandon the Reorganization at any
time prior to the effective date of the Reorganization if they determine that
such actions are in the best interests of the CA Corporation's shareholders.
If the Reorganization is not approved, or if the Directors abandon the
Reorganization, the CA Corporation will continue to operate as a corporation
under the laws of the State of California.
WHAT EFFECT WILL THE REORGANIZATION HAVE ON THE CURRENT INVESTMENT MANAGEMENT
AGREEMENT?
As a result of the Reorganization, the DE Trust will be subject to a new
investment management agreement between the DE Trust and 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.
1 The Directors of a Delaware business trust are referred to as Trustees.
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.
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's investment strategy is expected to be
slightly more structured towards growth. This is expected to have only a
minimal impact on the Fund's current portfolio management. In addition, the
Fund 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 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., P.O. Box 7777, San Mateo, California 94403-7777.
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., 777 Mariners
Island Blvd., P.O. Box 7777, San Mateo, CA 94403-7777.
Principal Shareholders. As of May 17, 2000, the Fund had ______________
shares outstanding and total net assets of $____________. From time to time,
the number of shares held in "street name" accounts of various securities
dealers for the benefit of their clients may exceed 5% of the total shares
outstanding. To the knowledge of the Fund's management, as of May 17, 2000
there were no other entities holding beneficially or of record more than 5%
of the Fund's outstanding shares.
In addition, to the knowledge of the Fund's management, as of May 10, 2000 no
Director of the Fund owned 1% or more of the outstanding shares of the Fund,
and the Officers and Directors of the Fund owned, as a group, less than 1% of
the outstanding shares 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
EXHIBIT A
FUNDAMENTAL INVESTMENT RESTRICTIONS PROPOSED TO BE AMENDED OR ELIMINATED
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
PROPOSAL CURRENT FUNDAMENTAL RESTRICTION PROPOSED FUNDAMENTAL RESTRICTION
OR
SUB-PROPOSALRESTRICTION The Fund may not: The Fund may not:
- --------------------------------------------------------------------------------------------------------
3a Borrowing 3. Borrow money, except for Borrow money, except that the fund
temporary or emergency (but not may borrow money from banks or
investment) purposes, and then affiliated investment companies to
only from banks and only in an the extent permitted by the 1940
amount up to 5% of the value of Act, or any exemptions therefrom
the assets. which may be granted by the SEC, or
for temporary or emergency purposes
and then in an amount not exceeding
33 1/3% of the value of the fund's
total assets (including the amount
borrowed).
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
3b Underwriting 5. Underwrite securities of Act as an underwriter except to the
other issuers . . . . 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 except
persons, except by the purchase (a) through the lending of its
of bonds, debentures, or portfolio securities, (b) through
similar obligations which are the purchase of debt securities,
publicly distributed or of a loan participations and/or engaging
character usually acquired by in direct corporate loans in
institutional investors or accordance with its investment
through loans of the fund's objectives and policies, and (c) to
portfolio securities, or to the the extent the entry into a
extent the entry into a repurchase agreement is deemed to be
repurchase agreement may be a loan. The fund may also make loans
deemed a loan. to affiliated 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 and
commodities or commodity commodities, except that the fund
contracts. 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 and
estate (although the fund may commodities, except that the fund
invest in real estate may purchase or sell securities of
investment trusts). . . . 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 8. Effect short sales, unless Issue securities senior to the
and Senior at the time the fund owns fund's presently authorized shares
Securities securities equivalent in kind of beneficial interest. Except that
and amount to those sold. The this restriction shall not be deemed
fund has not in the past, nor to prohibit the fund from (a) making
does it currently intend to any permitted borrowings, loans,
employ this investment mortgages or pledges, (b) entering
technique. 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 than 25% of
Concentration the fund's assets (at the time its net assets) in securities of
of the most recent investment) issuers in a particular industry
in any single industry. (other than securities issued or
guaranteed by the U.S. government or
any of its agencies or
instrumentalities or securities of
other investment companies).
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
3g Diversification 1. Purchase the securities of Purchase the securities of any one
of Investments any one issuer (other than issuer (other than the U.S.
obligations of the U.S.) if government or any of its agencies or
immediately thereafter and as a instrumentalities or securities of
result of the purchase, the other investment companies) if
fund would (a) have invested immediately after such investment
more than 5% of the value of (a) more than 5% of the value of the
the total assets in the fund's total assets would be
securities of the issuer, or invested in such issuer or (b) more
(b) hold more than 10% of any than 10% of the outstanding voting
or all classes of the securities of such issuer would be
securities of any one issuer. 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 7. Maintain a margin account Proposed to be Eliminated.
Accounts with a securities dealer . . . .
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
4 Three Years 9. Invest more than 5% of the Proposed to be Eliminated.
of 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
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made this __
day of ______________, 2000 by and between Franklin 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 ________ Pacific time on _________, 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, 2000;
(3) Approval of the investment management agreement between the Trust and
Franklin Advisers, Inc., which is substantially identical to the current
investment management agreement between the Fund and Franklin Advisers, Inc.;
(4) Authorization of the issuance by the Trust, prior to the Effective Date
of the Reorganization, of one share of each class of the Trust, to the Fund
in consideration for the payment of the current public offering price of each
corresponding class of the Trust, for the purpose of enabling the Fund to
vote on matters referred to in paragraph (j) of this Section 3;
(5) Approval of the submission of the matters referred to in paragraph (j)
of this Section 3 to the Fund as sole shareholder of the Trust; and
(6) Authorization of the issuance by the Trust of shares of the Trust on the
Effective Date of the Reorganization in exchange for the assets of the Fund
pursuant to the terms and provisions of this Agreement.
(j) The shareholders of the Fund shall have voted to approve the
Reorganization and, in connection with that vote, been informed that such a
vote would have the effect of directing the Fund to vote, as sole shareholder
of each class of the Trust, to:
(1) Elect as Trustees of the Trust (the "Trustees") the following
individuals: Messrs. Abbott, Ashton, 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, 2000, and
(3) Approve a new investment management agreement between the Trust and
Franklin Advisers, Inc., which is substantially identical to the current
investment management agreement between the Fund and Franklin Advisers, Inc.;
and the Fund shall have voted to approve each such item.
At any time prior to the Closing, any of the foregoing conditions may be
waived by the Board of Directors of the Fund if, in the judgment of the
Directors, such waiver will not have a material adverse effect on the
benefits intended under this Agreement to the shareholders of the Fund.
4. Termination. The Board of Directors of the Fund may terminate this
Agreement and abandon the Reorganization contemplated hereby, notwithstanding
approval thereof by the shareholders of the Fund, at any time prior to the
Effective Date of the Reorganization if, in the judgment of the Directors,
the facts and circumstances make proceeding with the Agreement inadvisable.
5. Entire Agreement. This Agreement embodies the entire agreement between
the parties and there are no agreements, understandings, restrictions or
warranties among the parties other than those set forth herein or herein
provided for.
6. Further Assurances. The Fund and the Trust shall take such further
action as may be necessary or desirable and proper to consummate the
transactions contemplated hereby.
7. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
8. Governing Law. This Agreement and the transactions contemplated hereby
shall be governed by and construed and enforced in accordance with the laws
of the State of Delaware.
IN WITNESS WHEREOF, the Fund and the Trust have each caused this Agreement
and Plan of Reorganization to be executed on its behalf by its 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)
By: By:
Attest: Franklin Equity Fund
(a California Corporation)
By: By:
EXHIBIT C
COMPARISON AND SIGNIFICANT DIFFERENCES BETWEEN DELAWARE BUSINESS TRUSTS AND
CALIFORNIA CORPORATIONS
Delaware Business Trust California Corporation
Governing A Delaware Business Trust A California corporation (a
Documents (a "DBT") is created by a "corporation") is created by
governing instrument filing articles of
(which may consist of one incorporation with the
or more instruments, Secretary of State of
including an agreement and California. The law
declaration of trust and governing corporations is
By-Laws) and a Certificate referred to in this chart as
of Trust, which must be the "California Act."
filed with the Delaware
Secretary of State. The
law governing DBTs is
referred to in this chart
as the "Delaware Act."
A DBT is an unincorporated A corporation is incorporated
association organized under the California Act. A
under the Delaware Act corporation's operations are
which operates similar to governed by its articles of
a typical corporation. A incorporation and By-Laws and
DBT's operations are its business and affairs are
governed by a trust managed by or under the
instrument and By-Laws and direction of a Board of
its business and affairs Directors.
are managed by or under
the direction of a Board
of Trustees.
A DBT organized as an A corporation organized as an
open-end investment open-end investment company
company is subject to the is subject to the 1940 Act.
Investment Company Act of Shareholders own shares of
1940, as amended (the "common stock."
"1940 Act"). Shareholders
own shares of "beneficial
interest" as compared to
the shares of "common
stock" issued by
corporations.
Multiple Under the Delaware Act, a The California Act authorizes
Series and declaration of trust may a corporation to issue one or
Classes provide for classes, more classes or series of
groups or series of common stock. A corporation
shares, or classes, groups issuing multiple series or
or series of shareholders, classes must describe in its
having such relative articles of incorporation the
rights, powers and duties number of shares allocated to
as the declaration of each series and/or class, and
trust may provide. The set forth the designation of
series and classes of a each series and/or class (or
DBT may be described in provide that the Board may
the declaration of trust determine or alter the
or in resolutions adopted designation of each class and
by the Board of Trustees. the rights, preferences,
Neither state filings nor privileges and restrictions
shareholder approval is granted to or imposed upon
required to create series each series or class). As a
or classes. The Directors result, a corporation is
of Franklin Equity Fund required to obtain
("the CA Corporation") shareholder approval to
have proposed to increase the number of shares
reorganize the CA the corporation is authorized
Corporation from a to issue, and to file with
corporation into a the state an amendment to the
Delaware business trust articles of incorporation
(the "DE Trust"). The DE reflecting that increase.
Trust's Declaration of
Trust permits the creation
of multiple series and
classes and establishes
the provisions relating to
shares.
The Delaware Act The California Act does not
explicitly provides for a contain statutory provisions
reciprocal limitation of addressing interseries
interseries liability. liability in the context of a
Generally, the debts, multiple series investment
liabilities, obligations company. The California Act
and expenses incurred, does, however, provide that a
contracted for or corporation which is
otherwise existing with authorized to issue more than
respect to a particular one series or class of shares
series of a multiple shall set forth any
series investment company preferences and restrictions
registered under the 1940 relating to each such series
Act are enforceable only or class in its articles of
against the assets of such incorporation. Therefore, a
series, and not against corporation could incorporate
the assets of the DBT, or a provision limiting
any other series, provided interseries liability in its
that the DBT separately articles of incorporation.
maintains the records and Notwithstanding, it remains
assets of the series and uncertain whether such a
makes certain disclosures provision can validly limit
in its governing interseries liability.
instruments.
The Declaration of Trust The CA Corporation does not
for the DE Trust address interseries liability
specifically limits in its Articles of
interseries liability. Incorporation or By-Laws.
However, a court applying
federal securities law may
not respect provisions
that serve to limit the
liability of one series of
an investment company's
shares for the liabilities
of another series.
Accordingly, provisions
relating to series
liability contained in the
Declaration of Trust may
be preempted by the way in
which the courts interpret
the 1940 Act.
Shareholder The Declaration of Trust Under the California Act,
Voting Rights for the DE Trust provides each outstanding share of a
and Proxy that shareholders of corporation is generally
Requirements record of each share are entitled to one vote on each
entitled to one vote for matter submitted to a vote of
each full share, and a shareholders The CA
fractional vote for each Corporation's By-Laws further
fractional share. In provide a fractional vote for
addition, shareholders are each fractional share of the
not entitled to cumulative corporation. Shareholders
voting for electing a are entitled to cumulative
Trustee(s). The DE voting when electing
Trust's Declaration of Directors. The California
Trust further provides Act permits separate voting
that voting will occur by series or class. The CA
separately by series, and Corporation's Articles of
if applicable, by class, Incorporation provide that
subject to: (i) the voting shall occur separately
requirements of the 1940 by class when (i) required by
Act where shares of the DE the California Act or the
Trust must be voted in the 1940 Act or (ii) the matter
aggregate without only affects a particular
reference to series or class.
class, and (ii) where the
matter affects only a
particular series or class.
The By-Laws for the DE Similar to the By-Laws for
Trust permit the DE Trust the DE Trust, the California
to accept proxies by any Act permits a corporation to
electronic, telephonic, accept written proxies as
computerized well as proxies submitted by
telecommunications or electronic or telephonic
other reasonable means. The CA Corporation's
alternative to the By-Laws provide that all
execution of a written proxies shall be in writing
instrument authorizing the and signed by the shareholder
proxy to act, provided or his attorney-in-fact. The
such authorization is By-Laws further provide that
received within eleven proxies shall be effective
(11) months before the for eleven (11) months,
meeting. unless the proxy provides for
a longer effective period.
Shareholders' The Delaware Act permits The California Act requires
Meetings special shareholder corporations operating as
meetings to be called for registered investment
any purpose. However, the companies to hold shareholder
governing instrument meetings when required to do
determines shareholders' so under the 1940 Act. The
rights to call meetings. California Act also provides
The Declaration of Trust that special shareholder
for the DE Trust provides meetings may be called by the
that the Board of Trustees Board, the Chairman of the
shall call shareholder Board, the President of the
meetings for the purpose corporation, the holders of
of: (i) electing Trustees, at least 10% of the
(ii) for such other outstanding voting shares, or
purposes as may be other persons given the
prescribed by law, the privilege to call such
Declaration of Trust or meetings, pursuant to the
the By-Laws, and (iii) articles of incorporation or
taking action upon any By-Laws. The CA
other matter deemed by the Corporation's By-Laws
Trustees to be necessary generally reiterate the
or desirable. The By-Laws provisions of the California
further provide that a Act concerning the calling of
special meeting may be shareholder meetings.
called at any time by the
Board of Trustees, by the
Chairperson of the 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 Except when a larger The CA Corporation's By-Laws
Requirement quorum is required by law, generally mirror the
the By-Laws, or the California Act, providing
Declaration of Trust, the that a majority of the shares
DE Trust's Declaration of entitled to vote shall
Trust provides that forty constitute a quorum at a
percent (40%) of the shareholders meeting.
shares entitled to vote
shall constitute a quorum
at a shareholder's
meeting.
Action Without Delaware law permits the The California Act provides
Shareholders' governing instrument to that unless the articles of
Meeting set forth the procedure incorporation provide
whereby action required to otherwise, any action which
be approved by may be taken at any annual or
shareholders at a meeting special meeting of
may be done by consent. shareholders may be taken
The DE Trust's Declaration without a meeting and without
of Trust provides that any prior notice, if shareholders
action taken by having not less than the
shareholders may be taken minimum number of votes that
without a meeting if would be necessary to take
shareholders holding a such action at a meeting at
majority of the shares which all shares entitled to
entitled to vote on the vote thereon were present and
matter (or such larger voted, consent to the action
proportion as shall be in writing. The CA
required by any express Corporation's By-Laws mirror
provision of the the California Act with
Declaration of Trust or regard to shareholder action
By-Laws) and holding a by written consent.
majority (or such larger
proportion as aforesaid)
of the shares of any
series (or class) entitled
to vote separately on the
matter consent to the
action in writing.
Amendments to The Delaware Act provides When amending its articles of
Governing broad flexibility with incorporation, a corporation
Documents respect to amending to the is generally required to
governing documents of a obtain the approval of the
DBT. 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
it 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 Declaration The CA Corporation's Articles
of Trust provides that the of Incorporation do not
Declaration of Trust may contain provisions regarding
be restated and/or amended the amendment of the Articles
at any time by an of Incorporation, except it
instrument in writing does permit the Directors to
signed by a majority of increase or decrease the
the then Trustees, and if number of authorized shares
required, by approval of of a class without a vote of
such amendment by shareholders.
shareholders in 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 or
repealed by the repealed by a majority of the
affirmative vote or outstanding shares entitled
written consent of a to vote, or by the Board of
majority of the Directors, subject to the
outstanding shares rights of the shareholders.
entitled to vote, or by Certain provisions may be
the Board of Trustees amended only by
subject to the rights of shareholders.
the shareholders.
Matters The Delaware Act affords Under the California Act,
Requiring Trustees the ability to shareholders have the ability
Shareholder easily adapt a DBT to to vote on the following
Approval future contingencies. For matters: (i) the election and
example, Trustees have the removal of Directors; (ii)
authority to incorporate a certain amendments to the
DBT, to merge or articles of incorporation and
consolidate with another By-Laws; and (iii) with
entity, to cause multiple regard to a merger,
series of a DBT to become reorganization, or transfer
separate trusts, to change or sale of all or
the domicile, or to substantially all of the
liquidate a DBT, all corporation's assets other
without having to obtain a than in the ordinary course
shareholder vote. of business.
The Declaration of Trust The By-Laws broadly provide
for the DE Trust, that shareholders shall have
consistent with the the right to vote at any
Delaware Act, affords meeting of shareholders.
shareholders the power to
vote on the following The CA Corporation's By-Laws
matters: (i) the election provide that when a quorum is
or removal of Trustees; present, the affirmative vote
(ii) as required by the of the majority of the shares
Declaration of Trust, the represented at the meeting
By-Laws, the 1940 Act or and entitled to vote on any
the DE Trust's matter (other than the
registration statement; election of Directors) shall
and (iii) other matters be the act of shareholders,
deemed by the Board of unless a larger vote is
Trustees to be necessary required by the Articles of
or desirable. Incorporation, the By-Laws or
by applicable law. In the
The Declaration of Trust event that shareholders vote
also provides that when a cumulatively for Directors,
quorum is present, a the available Director slots
majority of the votes cast shall be filled by those
shall decide any issues candidates receiving the
and a plurality shall highest number of affirmative
elect a Trustee, unless a votes of the shares entitled
larger vote is required by to be voted.
the Declaration of Trust,
the By-Laws or by
applicable law.
Record The Delaware Act permits a The California Act provides
Date/Notice governing instrument to that a corporation may set a
provide for the record date which is not more
establishment of record than sixty (60) nor less than
dates for determining ten (10) days before a
voting rights. meeting.
The Declaration of Trust Following the California Act,
for the DE Trust provides the CA Corporation's By-Laws
that the Board of Trustees permit the Directors to set a
may fix in advance a record date which shall not
record date which shall be more than sixty (60) days
not be more than ninety nor less than ten (10) days
(90) days, nor less than before the date of any
seven (7) days, before the shareholder meeting.
date of any such meeting.
The By-Laws for the DE The By-Laws for the CA
Trust provide that all Corporation provide that all
notices of shareholder notices of shareholder
meetings shall be sent or meetings shall be sent to
otherwise given to shareholders not less than
shareholders not less than ten (10) days nor more than
seven (7) days nor more sixty (60) days before the
than seventy-five (75) date of the meeting.
days before the date of
the meeting.
Removal of The Delaware Act is silent Under the California Act, a
Trustees/ with respect to the Director may be removed with
Directors removal of Trustees. or without cause by the
However, the DE Trust's affirmative vote of a
Declaration of Trust majority of the outstanding
states that the Board of shares entitled to vote.
Trustees, by action of a However, no Director may be
majority of the then removed (unless the entire
Trustees at a duly Board of Directors is
constituted meeting, may removed) when the votes cast
fill vacancies in the against removal would be
Board of Trustees or sufficient to elect the
remove Trustees with or Director if voted
without cause. cumulatively at an election.
Shareholder The Delaware Act sets Like the Delaware Act, the
Rights of forth the rights of California Act permits
Inspection shareholders to gain shareholders to make
access to and receive reasonable demands to gain
copies of certain DBT access to and receive copies
Trust documents and of certain corporate
records. This right is documents and records.
qualified by the extent Specifically, a shareholder
otherwise provided in the may, upon written demand and
governing instrument of for a purpose reasonably
the DBT as well as a related to such shareholder's
reasonable demand standard interest as a shareholder,
related to the inspect and copy the
shareholder's interest as accounting books and records,
an owner of the DBT. minutes of shareholder and
board meetings, and the
record of shareholders' names
and addresses at any time
during normal business
hours.
Consistent with Delaware The By-Laws of the CA
law, the By-Laws of the DE Corporation mirror the
Trust provide that a California Act with regard to
shareholder shall have the shareholder inspection rights.
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 generally
Liability limited by the Delaware limits a shareholder's
Act to the amount of personal liability to the
investment in the DBT, and amount of his or her
may be further limited or investment in the
restricted by the corporation. However, a
governing instrument. shareholder of a corporation
Shareholders of a DBT are may be held liable for the
entitled to the same amount of any distribution he
limitation of personal or she accepts with the
liability extended to knowledge that the
stockholders of a private distribution was made in
corporation organized for violation of the California
profit under the general Act. There is no specific
corporation law of the mention of shareholder
State of Delaware. The DE liability in the CA
Trust's Declaration of Corporation's Articles of
Trust specifically limits Incorporation or By-Laws.
the personal liability of
sharesholders.
Trustee/DirectorSubject to the declaration The California Act provides
Liability of trust, the Delaware Act that a Director, when acting
provides that a Trustee, in such capacity, shall not
when acting in such be subject to liability if
capacity, may not be held the Director performs his or
personally liable to any her duties in accordance with
person other than the DBT the standard provided under
or a shareholder for any California law. The
act, omission or California Act requires
obligation of the DBT or Directors to act in good
any Trustee. A Trustee's faith and in a manner which
duties and liabilities to they believe to be in the
the DBT and its best interests of the
shareholders may be corporation and its
expanded or restricted by shareholders, and to exercise
the provisions of the such care as an ordinarily
Declaration of Trust. prudent person in a like
position would use under
similar circumstances. A
corporation may not limit a
Director's liability for acts
involving intentional
misconduct, bad faith, or a
reckless disregard for the
Director's duty to the
corporation, or for acts or
omissions that constitute an
unexcused pattern of
inattention. The California
Act further provides that a
corporation may not limit a
Director's liability in
connection with the approval
of improper distributions to
shareholders, or with regard
to interested transactions or
transactions for which the
Director derived an improper
personal benefit.
The DE Trust's Declaration The CA Corporation's Articles
of Trust shields Trustees of Incorporation and By-Laws
from liability for the do not contain provisions
acts or omissions of any protecting Directors from
officer, agent, employee, liability for any neglect or
manager or principal wrongdoing.
underwriter 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 permits a The California Act allows a
DBT to indemnify and hold corporation to indemnify and
harmless any Trustee, hold harmless Directors and
shareholder or agent from officers. Accordingly, the
and against any and all CA Corporation's By-Laws
claims and demands. provide for the
Consistent with the indemnification of any
Delaware Act, the Director or officer for
Declaration of Trust for claims arising out of or
the DE Trust provides for related to the performance of
the indemnification of their duties as an officer or
officers and Trustees from Director. Like the DE Trust,
and against any and all the CA Corporation does not
claims and demands arising indemnify Directors and
out of or related to the officers from and against
performance of their liability incurred by reason
duties as an officer or of willful misfeasance, bad
Trustee. The DE Trust faith, gross negligence or
will not indemnify, hold reckless disregard of their
harmless or relieve duties.
Trustees from liability
which results from willful
misfeasance, bad faith,
gross negligence or
reckless disregard of
their duties.
The Declaration of Trust Neither the California Act
of the DE Trust also nor the Articles of
provides that any Incorporation or By-Laws of
shareholder or former the CA Corporation contain
shareholder that is specific provisions
exposed to liability by permitting the
reason of a claim or indemnification of
demand related to such shareholders.
person having been a
shareholder, and not
because of his or her acts
or omissions, shall be
entitled to be held
harmless and indemnified
out of the assets of the
DE Trust.
Insurance The Delaware Act does not Under the California Act, a
contain a provision corporation may purchase and
specifically related to maintain insurance on behalf
insurance. The DE Trust's of any Director, officer,
Declaration of Trust employee, or other agent of
provides that the Trustees the corporation against any
shall be entitled and liability asserted against or
empowered to the fullest incurred by such person in
extent permitted by law to such capacity or arising out
purchase insurance with of the person's status as a
the DE Trust's assets for Director, officer, employee
liability and for all or agent of the corporation.
expenses reasonably A corporation may carry such
incurred or paid or insurance regardless of
expected to be paid by a whether it would have the
Trustee or officer in power to indemnify the person
connection with any claim against the liability.
or proceeding in which he
or she becomes involved by
virtue of his or her
capacity (or 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 DE
Trust permit insurance Trust, the By-Laws of the CA
coverage only to the Corporation permit insurance
extent that the DE Trust coverage only to the extent
would have the power to that the CA Corporation would
indemnify against such otherwise be able to
liability. indemnify against such
liability under the
provisions in its By-Laws.
- --------
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, and Leiann
Nuzum, 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: HTTPS://VOTE.PROXY-DIRECT.COM
VOTE VIA THE TELEPHONE: 1-800-597-7836
CONTROL NUMBER:
NOTE: Please sign exactly as your name appears on
the proxy. If signing for estates, trusts or
corporations, title or capacity should be stated. If
shares are held jointly, each holder must sign.
____________________________
Signature
____________________________
Signature
____________________________
Date FEF 10817
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 PROPERLY COME BEFORE THE MEETING ABOUT WHICH THE PROXYHOLDERS WERE NOT
AWARE PRIOR TO THE TIME OF THE SOLICITATION, AUTHORIZATION IS GIVEN TO THE
PROXYHOLDERS TO VOTE IN ACCORDANCE WITH THE VIEWS OF MANAGEMENT ON SUCH MATTERS.
MANAGEMENT IS NOT AWARE OF ANY SUCH MATTERS.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF
PROPOSALS 1 - 6.
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
2. To ratify the selection of
PricewaterhouseCoopers LLP as the Fund's
independent auditors for the Fund's fiscal FOR AGAINST ABSTAIN
year ending June 30, 2000. [ ] [ ] [ ]
3. To approve amendments to certain of the
Fund's fundamental investment restrictions
(includes seven (7) Sub-Proposals).
5.a. Borrowing [ ] [ ] [ ]
5.b. Underwriting [ ] [ ] [ ]
5.c. Lending [ ] [ ] [ ]
5.d. Real estate and commodities [ ] [ ] [ ]
5.e. Short sales and Issuing
senior securities [ ] [ ] [ ]
5.f. Industry concentration [ ] [ ] [ ]
5.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. [ ] [ ] [ ]
7. To grant the proxyholders the authority to
vote upon any other business that may properly
come before the Meeting or any adjournments GRANT WITHHOLD ABSTAIN
thereof. [ ] [ ] [ ]
IMPORTANT: PLEASE SIGN AND MAIL IN YOUR PROXY...TODAY
[Insert Franklin Templeton Ben Head Logo]
[Insert computer toolbar graphic]
YOUR PROXY VOTE IS IMPORTANT!
AND NOW YOU CAN VOTE YOUR
PROXY ON THE PHONE OR ON THE INTERNET.
IT SAVES MONEY! Telephone and Internet voting saves postage costs. Savings
which can help to minimize fund expenses.
IT SAVES TIME! Telephone and Internet voting is instantaneous - 24 hours a
day.
IT'S EASY! Just follow these simple steps:
1. Read your proxy statement and have it at hand.
2. Call toll-free 1-800-597-7836 OR GO TO WEBSITE:
HTTPS://VOTE.PROXY-DIRECT.COM
3. Enter your 14 digit CONTROL NUMBER from your Proxy Card.
4. Follow the recorded or on-screen directions.
5. Do NOT mail your Proxy Card when you vote by phone or internet.
