File No. 33-39088
AS FILED APRIL 20, 2000
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. |_|
Post-Effective Amendment No. |_|
(Check appropriate box or boxes)
FRANKLIN STRATEGIC SERIES
(Exact Name of Registrant as Specified in Charter)
(650) 312-2000
(Area Code and Telephone Number)
777 MARINERS ISLAND BLVD.
SAN MATEO, CA 94404-7777
Address of Principal Executive Offices:
(Number, Street, City, State, Zip Code)
MURRAY SIMPSON, ESQUIRE
777 MARINERS ISLAND BLVD.
SAN MATEO, CA 94404-7777
Name and Address of Agent for Service:
(Number and Street) (City) (State) (Zip Code)
Copies to:
DEBORAH R. GATZEK, ESQUIRE
STRADLEY, RONON, STEVENS & YOUNG, LLP
1840 GATEWAY DRIVE, 2ND FLOOR
SAN MATEO, CA 94404
Approximate Date of Proposed Public Offering: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE
UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE ON MAY 20, 2000, PURSUANT
TO RULE 488.
TITLE OF THE SECURITIES BEING REGISTERED: SHARES OF BENEFICIAL INTEREST, PAR
VALUE $.01 PER SHARE, OF FRANKLIN CALIFORNIA GROWTH FUND - CLASS A. NO FILING
FEE IS DUE BECAUSE REGISTRANT IS RELYING ON SECTION 24(F) OF THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED.
[LOGO]
FRANKLIN(R)TEMPLETON(R)
FRANKLIN MIDCAP GROWTH FUND
IMPORTANT SHAREHOLDER INFORMATION
These materials are for a special shareholders' meeting scheduled for July 19,
2000 at 1:00 p.m. Pacific time. They discuss the proposals to be voted on at the
meeting, and contain your proxy statement and proxy card. A proxy card is, in
essence, a ballot. When you vote your proxy, it tells us how you wish to vote on
important issues relating to your Fund. If you complete and sign the proxy,
we'll vote it exactly as you tell us. If you simply sign the proxy, we'll vote
it in accordance with the Board of Trustees' recommendations on page [] 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.
Dear Shareholder:
Enclosed is a Notice of Meeting for a Special Shareholders' Meeting of
Franklin MidCap Growth Fund ("MidCap Growth Fund"). The Meeting is scheduled for
July 19, 2000 at 1:00 p.m. Pacific time at the offices of Fund at 777 Mariners
Island Boulevard, San Mateo, California 94404-7777. The accompanying materials
describe an important proposal which may affect the future of your Fund. We ask
you to give this your prompt attention and vote via the enclosed proxy card.
PLEASE TAKE A MOMENT TO FILL OUT, SIGN AND
RETURN THE ENCLOSED PROXY CARD
This meeting is very important to the Fund's future. The Trustees of your
Fund unanimously recommend that you consider and approve a Plan of
Reorganization that would result in your shares of MidCap Growth Fund being
exchanged for those of a fund called Franklin California Growth Fund
("California Growth Fund"). If the shareholders of MidCap Growth Fund approve
the proposal, you will receive shares of California Growth Fund equal in value
to your investment in MidCap Growth Fund. You will no longer be a shareholder of
MidCap Growth Fund, and you will instead be a shareholder of California Growth
Fund. The MidCap Fund will no longer exist after the reorganization is
completed.
The proposed transaction is intended to be tax-free, which means that you
will not have a taxable gain or loss on the exchange of your shares.
The Trustees recommend this transaction because the projected growth in
assets of MidCap Growth Fund was not sufficient to provide competitive
performance and high quality service to shareholders over the long term. MidCap
Growth Fund and California Growth Fund are both managed by Franklin Advisers,
Inc. ("Advisers"). California Growth Fund has investment goals and investment
policies that are similar to those of MidCap Growth Fund, and is a larger fund
that may be better able to obtain cost savings for shareholders.
Please take the time to review this document and vote now. THE TRUSTEES OF
THE FUND UNANIMOUSLY RECOMMEND THAT YOU VOTE IN FAVOR OF THIS PROPOSAL.
[_] To ensure that your vote is counted, indicate your
position on the enclosed proxy card.
[_] Sign and return your card promptly.
[_] You may also vote by telephone or over the Internet.
[_] If you determine at a later date that you wish to
attend this meeting, you may revoke your proxy and vote
in person.
Thank you for your attention to this matter.
Sincerely,
Rupert H. Johnson, Jr.
President
FRANKLIN MIDCAP GROWTH FUND
777 MARINERS ISLAND BOULEVARD
SAN MATEO, CALIFORNIA 94404-7777
NOTICE OF SPECIAL SHAREHOLDERS' MEETING
TO BE HELD ON JULY 19, 2000
To the Shareholders of Franklin MidCap Growth Fund:
NOTICE IS HEREBY GIVEN that a Special Shareholders' Meeting of Franklin
MidCap Growth Fund ("MidCap Growth Fund") will be held at the offices of MidCap
Growth Fund, 777 Mariners Island Boulevard, San Mateo, California 94404-7777 on
July 19, 2000 at 1:00 p.m. Pacific time. The Meeting is being called for the
following purpose:
1. To approve or disapprove a Plan of Reorganization of Franklin Strategic
Series (the "Trust") on behalf of two of its series, MidCap Growth Fund and
California Growth Fund that provides for the acquisition of substantially all of
the assets of MidCap Growth Fund in exchange for Class A shares of California
Growth Fund, the distribution of such shares to the shareholders of MidCap
Growth Fund, and the liquidation and dissolution of MidCap Growth Fund.
In addition, shareholders will be asked to grant the proxyholders the
authority to vote upon any other business which may legally come before the
Meeting or any adjournment thereof.
The Plan of Reorganization in the attached Prospectus/Proxy Statement
describes this transaction more completely. A copy of the Plan of Reorganization
is attached as Exhibit A to the Prospectus/Proxy Statement.
Shareholders of record as of the close of business on April 26, 2000 are
entitled to notice of, and to vote at, the Meeting or any adjournment thereof.
By Order of the Board of Trustees,
Deborah R. Gatzek
Secretary
May 26, 2000
THE BOARD OF TRUSTEES URGES YOU TO COMPLETE, DATE, SIGN, AND RETURN THE
ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE. IT IS
IMPORTANT THAT YOU RETURN YOUR SIGNED PROXY CARD PROMPTLY SO THAT A QUORUM MAY
BE ENSURED.
PROSPECTUS AND PROXY STATEMENT
When reading this Prospectus/Proxy Statement, you will see certain terms
beginning with capital letters. This means the term is explained in our glossary
section.
TABLE OF CONTENTS
PAGE
COVER PAGE............................................................... Cover
SUMMARY..................................................................
What proposal am I voting on?......................................
How will the shareholder voting be handled?........................
COMPARISONS OF SOME IMPORTANT FEATURES...................................
How do the investment goals and policies of the Funds compare?.....
What are the risks of an investment in the Funds?..................
Who manages the Funds?.............................................
What are the fees and expenses of each Fund and what might they be
after the Transaction?.......................................
Where can I find more financial information about the Funds?.......
What are other key features of the Funds?..........................
REASONS FOR THE TRANSACTION..............................................
INFORMATION ABOUT THE TRANSACTION........................................
How will the Transaction be carried out?...........................
Who will pay the expenses of the Transaction?......................
What are the tax consequences of the Transaction?..................
What should I know about the shares of California Growth Fund......
What are the capitalizations of the Funds and what might
the capitalization be after the Transaction?.................
COMPARISON OF INVESTMENT GOALS AND POLICIES..............................
Are there any significant differences between the investment
goals and strategies of the Funds?..........................
How do the fundamental investment restrictions of the Funds
differ?.....................................................
What are the risk factors associated with investments in the
Funds?......................................................
VOTING INFORMATION.......................................................
How many votes are necessary to approve the Plan?..................
How do I ensure my vote is accurately recorded?....................
Can I revoke my proxy?.............................................
What other matters will be voted upon at the Meeting?..............
Who is entitled to vote?...........................................
What other solicitations will be made?.............................
Are there dissenters' rights?......................................
INFORMATION ABOUT CALIFORNIA GROWTH FUND.................................
INFORMATION ABOUT MIDCAP GROWTH FUND.....................................
PAGE
PRINCIPAL HOLDERS OF SHARES..............................................
GLOSSARY - USEFUL TERMS AND DEFINITIONS..................................
EXHIBITS TO PROSPECTUS AND PROXY STATEMENT
EXHIBIT A - PLAN OF REORGANIZATION................................. A-1
EXHIBIT B - PROSPECTUS OF FRANKLIN CALIFORNIA GROWTH FUND -
CLASS A, B & C DATED SEPTEMBER 1, 1999, AS AMENDED MAY 1, 2000
(ENCLOSED)
EXHIBIT C - ANNUAL REPORT TO SHAREHOLDERS OF FRANKLIN CALIFORNIA GROWTH
FUND AND MIDCAP GROWTH FUND DATED APRIL 30, 1999 (ENCLOSED)
PROSPECTUS AND PROXY STATEMENT
DATED MAY [__], 2000
ACQUISITION OF THE ASSETS OF
FRANKLIN MIDCAP GROWTH FUND
BY AND IN EXCHANGE FOR CLASS A SHARES OF
FRANKLIN CALIFORNIA GROWTH FUND
This Prospectus/Proxy Statement solicits proxies to be voted at a Special
Shareholders' Meeting (the "Meeting") of Franklin MidCap Growth Fund ("MidCap
Growth Fund"), a series of Franklin Strategic Series ("Trust") to approve or
disapprove a Plan of Reorganization (the "Plan"). If shareholders of MidCap
Growth Fund vote to approve the Plan, the net assets of MidCap Growth Fund will
be acquired by and in exchange for shares of Franklin California Growth Fund
("California Growth Fund"), also a series of the Trust.
The Meeting will be held at the principal offices of MidCap Growth Fund,
which are located at 777 Mariners Island Boulevard, San Mateo, California
94404-7777 on July 19, 2000 at 1:00 Pacific time. The Board of Trustees of the
Trust, on behalf of MidCap Growth Fund is soliciting these proxies. This
Prospectus/Proxy Statement will first be sent to shareholders on or about May
26, 2000.
If MidCap Growth Fund shareholders vote to approve the Plan, you will
receive Class A shares of California Growth Fund equal in value to your
investment in shares of MidCap Growth Fund. MidCap Growth Fund will then be
liquidated and dissolved.
The investment goals of California Growth Fund and MidCap Growth Fund
(individually, a "Fund" and collectively, the "Funds") are similar, but not
identical. California Growth Fund's investment goal is capital appreciation.
MidCap Growth Fund's principal investment goal is long-term capital
appreciation, which may mean California Growth Fund will seek to achieve capital
appreciation without reference to any time horizon. More significant differences
between the Funds are that (1) California Growth Fund is a non-diversified fund,
which means it may invest a greater portion of its assets in the securities of
one issuer and, therefore, a smaller number of individual issuers, than a
diversified fund such as MidCap Growth Fund, and (2) California Growth Fund
focuses its investments on issuers in California, while MidCap Growth Fund may
seek opportunities in all states.
This Prospectus/Proxy Statement gives the information about the proposed
reorganization and Class A shares of California Growth Fund that you should know
before investing. You should retain it for future reference. Additional
information about California Growth Fund and the proposed reorganization has
been filed with the SEC and can be found in the following documents:
[_] The Prospectus of California Growth Fund - Class A, B & C dated September
1, 1999, as amended May 1, 2000 (the "California Growth Fund Prospectus"),
is attached to and considered a part of this Prospectus/Proxy Statement.
[_] The Annual Report to Shareholders of the Trust dated April 30, 1999, which
contains financial and performance information for California Growth Fund
and MidCap Growth Fund, is attached to and considered a part of this
Prospectus/Proxy Statement.
[_] A Statement of Additional Information dated September 1, 1999, as amended
January 1, 2000, and as supplemented February 16, 2000, relating to this
Prospectus/Proxy Statement has been filed with the SEC and is incorporated
by reference into this Prospectus/Proxy Statement.
You may request a free copy of the SAI relating to this Prospectus/Proxy
Statement or any of the documents referred to above without charge by calling
1-800/DIAL-BEN(R) or by writing to either Fund at 777 Mariners Island Boulevard,
San Mateo, CA 94403-7777.
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER U.S. GOVERNMENT AGENCY.
MUTUAL FUND SHARES INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
SUMMARY
This is only a summary of certain information contained in this
Prospectus/Proxy Statement. You should read the more complete information in the
rest of this Prospectus/Proxy Statement, including the Plan (attached as Exhibit
A), the California Growth Fund Prospectus (attached as Exhibit B) and the Annual
Report to Shareholders of the Trust (attached as Exhibit C).
WHAT PROPOSAL AM I VOTING ON?
At a meeting held on February 14, 2000, the Board of Trustees of the Trust
on behalf of MidCap Growth Fund approved the Plan and determined to recommend
that shareholders of MidCap Growth Fund vote to approve the Plan. If
shareholders of MidCap Growth Fund vote to approve the Plan, it will result in
the transfer of the net assets of MidCap Growth Fund to California Growth Fund,
in exchange for an equal value of shares of California Growth Fund. The shares
of California Growth Fund will then be distributed to MidCap Growth Fund
shareholders and MidCap Growth Fund will be liquidated and dissolved. (The
proposed transaction is referred to in this Prospectus/Proxy Statement as the
"Transaction.") As a result of the Transaction, you will cease to be a
shareholder of MidCap Growth Fund and will become a shareholder of California
Growth Fund. This exchange will occur on the closing date of the Transaction,
which is the specific date on which the Transaction takes place.
This means that your shares of MidCap Growth Fund will be exchanged for an
equal value of shares of California Growth Fund. You will receive Class A shares
of California Growth Fund equal in value to your investment in shares of MidCap
Growth Fund.
California Growth Fund is a mutual fund in the Franklin Templeton Group of
Funds. It is managed by Advisers. It has an investment goal and policies that
are similar, but not identical, to those of MidCap Growth Fund. For the reasons
set forth in the "Reasons for the Transaction" section, the Board of Trustees of
the Trust on behalf of MidCap Growth Fund has determined that the Transaction is
in the best interests of the shareholders of MidCap Growth Fund. The Boards of
Trustees of the Trust also concluded that no dilution in value would result to
the shareholders of MidCap Growth Fund or California Growth Fund, as a result of
the Transaction.
THE BOARD OF TRUSTEES RECOMMENDS THAT YOU
VOTE TO APPROVE THE AGREEMENT AND PLAN.
HOW WILL THE SHAREHOLDER VOTING BE HANDLED?
Shareholders who own shares of MidCap Growth Fund at the close of business
on April 26, 2000 will be entitled to vote at the Meeting, and will be entitled
to one vote for each full share and a fractional vote for each fractional share
that they hold. To approve the Transaction, a majority of the shares of MidCap
Growth Fund outstanding and entitled to vote must be voted in favor of the Plan.
Please vote by proxy as soon as you receive this Prospectus/Proxy
Statement. You may place your vote by completing and signing the enclosed proxy
card or voting by telephone or over the Internet. If you vote by any of these
three methods, your votes will be officially cast at the Meeting by the persons
appointed as proxies.
You can revoke your proxy or change your voting instructions at any time
until the vote is taken at the Meeting. For more details about shareholder
voting, see the "Voting Information" section of this Prospectus/Proxy Statement.
COMPARISONS OF SOME IMPORTANT FEATURES
HOW DO THE INVESTMENT GOALS AND POLICIES OF THE FUNDS COMPARE?
The principal differences in investment strategies and the policies of the
Funds are the extent to which their portfolios are diversified, the extent to
which their investments are focused on companies with operations in California,
and the size of the companies in which the Funds invest.
The principal investment goal of the Funds is very similar. MidCap Growth
Funds' primary investment goal is long term capital appreciation. California
Growth Fund's primary investment goal is capital appreciation. Thus, California
Growth Fund's emphasis on capital appreciation is unrelated to a particular time
horizon.
MidCap Growth Fund, unlike California Growth Fund, is a diversified fund.
As a diversified fund, MidCap Growth Fund is required to spread its investments
among more issues.
Under normal market conditions, California Growth Fund invests at least 65%
of its total assets in the securities of companies headquartered or conducting a
majority of their operations in the State of California. California Growth Fund
may invest up to 35% of its total assets in securities of issuers headquartered
or conducting a majority of their operations outside of the State of California,
including outside the U.S. MidCap Growth Fund has no specific focus on investing
in companies located in a geographic region and it may also invest a portion of
its assets outside the U.S.
Under normal market conditions, MidCap Growth Fund invests primarily in the
equity securities of companies of medium market capitalization growth companies
(i.e., those companies that have a market capitalization range between $1
billion and $8 billion). California Growth Fund may invest a significant portion
of its assets in smaller capitalization companies, those with market
capitalizations under $1.5 billion.
For more information about the investment goals and policies of the Funds,
please see the section "Comparison of Investment Goals and Policies."
WHAT ARE THE RISKS OF AN INVESTMENT IN THE FUNDS?
Investments in California Growth Fund and MidCap Growth Fund involve risks
common to most mutual funds. There is no guarantee against losses resulting from
an investment in either Fund, nor that either Fund will achieve its investment
goals. Both Funds are subject to the risks posed by investing in stocks.
California Growth Fund is a non-diversified fund, which means it may invest a
greater portion of its assets in the securities of one issuer and, therefore, a
smaller number of individual issuers than a diversified fund. Therefore,
California Growth Fund may be more sensitive to economic, business, political or
other changes affecting similar issuers or securities.
Also, California Growth Fund invests a greater portion of its assets in
securities of companies headquartered or conducting a majority of their
operations in the State of California, so that the performance of California
Growth Fund will likely be dependent on economic, political and other conditions
within California.
California Growth Fund seeks to invest in small and medium capitalization
companies, while MidCap Growth Fund seeks to invest primarily in medium
capitalization companies. Thus, California Growth Fund may place greater
emphasis upon investments in small cap companies which may be relatively new or
unseasoned companies. California Growth Fund's investments in the securities of
new or unseasoned companies may present greater risks than securities of larger
capitalization companies which may be more established companies in which MidCap
Growth Fund may invest.
For more information about the risks of the Funds, see the section "What
are the risk factors associated with investments in the Funds?" under the
heading "Comparison of Investment Goals and Policies."
WHO MANAGES THE FUNDS?
The management of the business and affairs of each Fund is the
responsibility of the Board of Trustees of the Trust, as California Growth Fund
and MidCap Growth Fund are both series of the Trust. Both Funds are open-end,
registered management investment companies, commonly referred to as "mutual
funds." The Trust was organized as a Delaware business trust on January 25, 1991
and is registered with the SEC.
Advisers manages the assets and makes the investment decisions for both
Funds. Advisers is a wholly-owned subsidiary of Resources. Resources is a
publicly owned company engaged in various aspects of the financial services
industry through its subsidiaries. Together, Advisers and their affiliates serve
as investment manager or administrator to 53 registered investment companies,
with approximately 155 U.S.-based funds or series. They have over $229 billion
in combined assets under management for more than 5 million U.S.-based mutual
fund shareholders and other accounts. The principal shareholders of Resources
are Charles B. Johnson and Rupert H. Johnson, Jr.
The team responsible for the day-to-day management of California Growth
Fund's portfolio is:
CONRAD B. HERRMANN CFA, SENIOR VICE PRESIDENT OF ADVISERS. Mr. Herrmann has
been a manager of the California Growth Fund since 1993. He joined the Franklin
Templeton Group in 1989.
CANYON A. CHAN CFA, VICE PRESIDENT OF ADVISERS. Mr. Chan has been a manager
of the California Growth Fund since 1999. He joined the Franklin Templeton Group
in 1991.
California Growth Fund has a management agreement with Advisers under which
Advisers is to receive a management fee equal to an annual rate of 0.625 of 1%
of the value of its average daily net assets up to and including $100 million;
0.50 of 1% of the value of its average daily net assets over $100 million up to
and including $250 million; 0.45 of 1% of the value of its average daily net
assets over $250 million up to and including $10 billion; 0.44 of 1% of the
value of its average daily net assets over $10 billion up to and including $12.5
billion; 0.42 of 1% of the value of its average daily net assets over $12.5
billion up to and including $15 billion; and 0.40 of 1% of the value of its
average daily net assets in excess of $15 billion. Each class of California
Growth Fund pays its proportionate share of the management fee.
MidCap Growth Fund has a management agreement with Advisers under which
Advisers receives a management fee equal to an annual rate of 0.65 of 1% of the
value of its average daily net assets.
WHAT ARE THE FEES AND EXPENSES OF EACH FUND AND WHAT MIGHT THEY BE AFTER THE
TRANSACTION?
FEE TABLE FOR
MIDCAP GROWTH FUND AND CALIFORNIA GROWTH FUND
ACTUAL+ PROJECTED++
-------------------------- ------------
California
MidCap Growth California Growth Fund -
Fund - Growth Fund - Class A
CLASS A CLASS A After Transaction
------- -------
SHAREHOLDER TRANSACTION EXPENSES*
- ---------------------------------
Maximum Sales Charge (as a
percentage of Offering Price)... 5.75% 5.75% 5.75%
Paid at time of purchase 1...... 5.75% 5.75% 5.75%
Paid at time of redemption 2.... None None None
Exchange Fee (per transaction) 3. $5.00 None None
ANNUAL FUND OPERATING EXPENSES
- ------------------------------
(as percentage of average net assets)
Management Fees............. 0.65% 0.48% 0.44%
Distribution and service
(12b-1) Fees................ 0.26% 0.25% 0.25%
Other Expenses.............. 0.33% 0.27% 0.20%
----- ----- -----
Total Annual Fund Operating
Expenses.................... 1.24% 1.00% 0.89%
===== ===== =====
+ Information provided for MidCap Growth Fund and California Growth Fund shares
is provided for the fiscal year ended April 30, 1999.
++ Projected expenses based on current and anticipated California Growth Fund
expenses.
* If your transaction is processed through your Securities Dealer, you may be
charged a fee by your Securities Dealer for this service.
1. There is no front-end sales charge if you invest $1 million or more in
Class A shares of the California Growth Fund or shares of MidCap Growth
Fund. Please see "Your Account - Choosing a Share Class" in the Prospectus
of California Growth Fund ("California Growth Fund Prospectus").
2. A Contingent Deferred Sales Charge ("CDSC") of 1% may apply to Class A
purchases of $1 million or more with respect to each of the Funds if you
sell the shares within one year. See "Your Account - Contingent Deferred
Sales Charge" in the California Growth Fund Prospectus for details.
3. There is a $5 fee charged by MidCap Growth Fund for each exchange by a
Market Timer. California Growth Fund does not accept funds from Market
Timers. We process all other exchanges without a fee.
EXAMPLE
Assume the annual return for each class is 5%, operating expenses are as
described above, and you sell your shares after the number of years shown. These
are the projected expenses for each $10,000 that you invest in a Fund.
CLASS A 1 YEAR* 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
MidCap Growth Fund $694 $946 $1,217 $1,989
California Growth Fund $671 $875 $1,096 $1,729
Projected California Growth Fund
(after Transaction) $661 $843 $1,040 $1,608
* Assumes a CDSC will not apply.
THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE shown. Each
Fund pays its operating expenses. The effects of these expenses are reflected in
the Net Asset Value or dividends of each class and are not directly charged to
your account.
WHERE CAN I FIND MORE FINANCIAL INFORMATION ABOUT THE FUNDS?
For the California Growth Fund, per share income information for the past
five fiscal years (and the most recent six month semiannual period) for Class A
is shown below under the heading "Financial Highlights." Also the current Annual
Report to Shareholders of the Trust, which is attached, contains more financial
information about California Growth Fund and MidCap Growth Fund as well as
discussions of California Growth Fund's and MidCap Growth Fund's performance
during the fiscal year ended April 30, 1999 and the six month period ended
October 31, 1999.
FINANCIAL HIGHLIGHTS
CALIFORNIA GROWTH FUND - CLASS A
SIX MONTHS
ENDED
OCTOBER 31,
1999 YEAR ENDED APRIL 30,
- --------------------------------------------------------------------------------
(UNAUDITED) 1 1999 1998 1997 1996 1995
---------------------------------------------------------
PER SHARE DATA ($)
Net asset value,
beginning of year 25.82 24.97 19.35 18.26 14.03 12.05
---------------------------------------------------------
Net investment income .01 .10 .14 .13 .20 .16
Net realized and
unrealized gains 8.25 1.42 6.48 1.51 6.03 3.04
---------------------------------------------------------
Total from investment
operations 8.26 1.52 6.62 1.64 6.23 3.20
---------------------------------------------------------
Distributions from
net investment income (.06) (.14) (.14) (.12) (.23) (.12)
Distributions in
excess of net
investment income (.02) - - - - -
Distributions from
net realized gains - (.53) (.86) (.43) (1.77) (1.10)
---------------------------------------------------------
Total distributions (.08) (.67) (1.00) (.55) (2.00) (1.22)
---------------------------------------------------------
Net asset value, end
of year 34.00 25.82 24.97 19.35 18.26 14.03
=========================================================
Total return (%) 2 32.10 6.39 34.98 8.94 47.42 29.09
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
year ($ x 1,000) 1,063,395 780,598 721,254 282,898 81,175 13,844
Ratios to average net
assets: (%)
Expenses .96 3 1.00 .99 1.08 .71 .25
Expenses excluding
waiver and payments by
affiliate .96 3 1.00 .99 1.08 1.09 1.27
Net investment income .04 3 .41 .67 .84 1.42 1.63
Portfolio turnover
rate (%) 38.20 52.76 48.52 44.81 61.82 79.52
1. Based on average shares outstanding
2. Total return does not include sales charges, and is not annualized.
3. Annualized.
WHAT ARE OTHER KEY FEATURES OF THE FUNDS?
THE FUNDS USE THE SAME SERVICE PROVIDERS FOR THE FOLLOWING SERVICES:
TRANSFER AGENCY AND CUSTODY SERVICES. Investor Services, a wholly owned
subsidiary of Resources, is the shareholder servicing agent and acts as the
transfer agent and dividend-paying agent for the funds.
Bank of New York, Mutual Funds Division, 90 Washington Street, New York, NY
10286, acts as the custodian of the securities and other assets of both Funds.
ADMINISTRATIVE SERVICES. FT Services, a wholly-owned subsidiary of
Resources, provides certain administrative facilities and services to California
Growth Fund and MidCap Growth Fund under the same terms and conditions.
DISTRIBUTION SERVICES. Distributors acts as the principal underwriter in
the continuous public offering of the Funds' shares under the same terms and
conditions for both Funds.
DISTRIBUTION AND SERVICE (12B-1) FEES. Both Funds have distribution or
"Rule 12b-1" plans Under each plan, the Fund may pay Distributors or others for
the expenses of activities that are primarily intended to sell shares of the
class. These expenses may include, among others, distribution or service fees
paid to Securities Dealers or others who have executed a servicing agreement
with the fund, Distributors or its affiliates; a prorated portion of
Distributors' overhead expenses; and the expenses of printing prospectuses and
reports used for sales purposes, and preparing and distributing sales literature
and advertisements. The distribution and service (12b-1) fees charged to each
class are based only on the fees attributable to that particular class.
MidCap Growth Fund under its Class A plan may pay up to 0.35% per year of
Class A's average daily net assets while payments by California Growth Fund
under its plan are limited to 0.25% per year of Class A's average daily net
assets.
For more information regarding California Growth Fund's Rule 12b-1 plans,
please see "The Underwriter - Distribution and Service (12b-1) fees" in the
current SAI for both funds dated September 1, 2000, as supplemented February 16,
2000 ("Combined SAI").
PURCHASES AND REDEMPTIONS. The maximum front-end sales charge imposed on
purchases of Class A shares of California Growth Fund and of shares of MidCap
Growth Fund is 5.75% with reduced charges for purchases of $50,000 or more and
no front-end sales charges for purchases of $1 million or more. Each Fund
generally requires a minimum initial investment of $1,000 and subsequent
investments of at least $50.
You may sell (redeem) your shares at any time. Shares of each Fund also may
be exchanged for shares of other Franklin Templeton Funds, subject to certain
limitations, as provided in the prospectus of the respective Franklin Templeton
Fund. Because an exchange is technically a sale and a purchase of shares, an
exchange is a taxable transaction.
Shares of each Fund may be redeemed at their respective Net Asset Value per
share. However, redemptions of Class A shares of California Growth Fund which
were purchased in amounts of $1,000,000 or more generally are subject to a CDSC.
There is also a 1% CDSC on any Class A shares of California Growth Fund and
shares of MidCap Growth Fund you sell within 12 months of purchase. California
Growth Fund shares acquired by MidCap Growth Fund shareholders as a result of
this Transaction are subject to a CDSC to the same extent that MidCap Growth
Fund shares were subject to a CDSC.
Additional information and specific instructions explaining how to buy,
sell, and exchange shares of California Growth Fund are outlined in the
California Growth Fund Prospectus under the heading "Your Account." The
accompanying California Growth Fund Prospectus also lists phone numbers for you
to call if you have any questions about your account under the heading
"Questions." These instructions and phone numbers are the same for both Funds.
DIVIDENDS AND DISTRIBUTIONS. Each Fund intends to pay a dividend at least
annually representing substantially all of its net investment income and any net
realized capital gains. The amount of these distributions will vary and there is
no guarantee the Funds will pay dividends.
For more information about the tax implications of investments in the
California Growth Funds, see the attached California Growth Fund Prospectus
under the heading "Distributions and Taxes."
REASONS FOR THE TRANSACTION
The Board of Trustees on behalf of MidCap Growth Fund has recommended the
Transaction in order to combine MidCap Growth Fund with a larger fund that has
similar goals and investment policies. A larger fund may be expected to have a
lower expense ratio because certain costs may be spread over a larger asset
base. However, variable expenses that are based on the value of assets or the
number of shareholder accounts, such as custody and transfer agency fees, would
be largely unaffected by the Transaction.
The Plan was presented to the Board of Trustees of MidCap Growth Fund at a
meeting held on February 14, 2000. At the meeting, the Board of Trustees
reviewed the potential benefits and costs to shareholders of MidCap Growth Fund;
the expense ratios of California Growth Fund and MidCap Growth Fund; the
comparative investment performance of California Growth Fund and MidCap Growth
Fund; the compatibility of the investment goals, policies, restrictions and
investments of MidCap Growth Fund with those of California Growth Fund; and the
tax consequences of the Transaction. During the course of its deliberations, the
Board of Trustees noted that the expenses of the Transaction will be shared
one-quarter by MidCap Growth Fund, one-quarter by California Growth Fund, and
one-half by Advisers.
The Board of Trustees including a majority of the trustees who are not
interested persons of either Fund, concluded that the Transaction is in the best
interests of the shareholders of MidCap Growth Fund and that no dilution of
value would result to the shareholders of MidCap Growth Fund from the
Transaction, approved the Plan and recommended that shareholders of MidCap
Growth Fund vote to approve the Transaction.
FOR THE REASONS DISCUSSED ABOVE, THE BOARD OF TRUSTEES
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE PLAN.
If shareholders of MidCap Growth Fund do not approve the Plan, the Board of
Trustees will consider other possible courses of action for MidCap Growth Fund,
including liquidation and dissolution.
INFORMATION ABOUT THE TRANSACTION
This is only a summary of the Plan. You should read the actual Plan. It is
attached as Exhibit A.
HOW WILL THE TRANSACTION BE CARRIED OUT?
If the shareholders of MidCap Growth Fund approve the Plan, the Transaction
will take place after various conditions are satisfied by the Trust on behalf of
MidCap Growth Fund and California Growth Fund, including the preparation of
certain documents. The Trust will determine a specific date for the actual
Transaction to take place. This is called the closing date. If the shareholders
of MidCap Growth Fund do not approve the Plan, the Transaction will not take
place.
If shareholders of MidCap Growth Fund approve the Plan at the Meeting,
shares of MidCap Growth Fund will no longer be offered for sale, except for the
reinvestment of dividend and capital gain distributions. Until the close of
business on the day of the Meeting, you may continue to add to your existing
account subject to your applicable minimum additional investment amount or buy
additional shares through the reinvestment of dividend and capital gain
distributions.
If the shareholders of MidCap Growth Fund approve the Plan, MidCap Growth
Fund will deliver to California Growth Fund substantially all of its assets on
the closing date. In exchange, Shareholders of MidCap Growth Fund will receive
Class A shares of California Growth Fund that have a value equal to the dollar
value of the assets delivered to MidCap Growth Fund. The stock transfer books of
MidCap Growth Fund will be permanently closed as of 1:00 p.m. Pacific time on
the closing date. MidCap Growth Fund will only accept requests for redemption
received in proper form before 1:00 p.m. Pacific time on the closing date.
Requests received after that time will be considered requests to redeem shares
of California Growth Fund.
To the extent permitted by law, the Funds may agree to amend the Plan
without shareholder approval. They may also agree to terminate and abandon the
Transaction at any time before or, to the extent permitted by law, after the
approval of shareholders of MidCap Growth Fund.
WHO WILL PAY THE EXPENSES OF THE TRANSACTION?
The expenses resulting from the Transaction will be paid one-quarter by
MidCap Growth Fund, one-quarter by California Growth Fund, and one-half by
Advisers, the investment manager for both Funds.
WHAT ARE THE TAX CONSEQUENCES OF THE TRANSACTION?
The Transaction is intended to qualify as a tax-free reorganization for
federal income tax purposes under Section 368(a)(1) of the Internal Revenue Code
of 1986, as amended. Based on certain assumptions and representations received
from the Trust, on behalf of the Funds, it is the opinion of Stradley Ronon
Stevens & Young, LLP, counsel to the Funds, that shareholders of MidCap Growth
Fund will not recognize any gain or loss for federal income tax purposes as a
result of the exchange of their shares of MidCap Growth Fund for shares of
California Growth Fund and that neither California Growth Fund nor its
shareholders will recognize any gain or loss upon receipt of the assets of
MidCap Growth Fund.
You will continue to be responsible for tracking the purchase cost and
holding period of your shares and should consult your tax advisor regarding the
effect, if any, of the Transaction in light of your individual circumstances.
You should also consult your tax advisor as to state and local tax consequences,
if any, of the Transaction, because this discussion only relates to the federal
income tax consequences.
WHAT SHOULD I KNOW ABOUT THE SHARES OF CALIFORNIA GROWTH FUND?
Class A shares of California Growth Fund will be distributed to
shareholders of the MidCap Growth Fund's shares and will have the same legal
characteristics as the shares of MidCap Growth Fund with respect to such matters
as voting rights, assessibility, conversion rights, and transferability. Former
shareholders of MidCap Growth Fund whose shares are represented by outstanding
share certificates will not be allowed to redeem shares of California Growth
Fund until MidCap Growth Fund certificates have been returned.
WHAT ARE THE CAPITALIZATIONS OF THE FUNDS AND WHAT MIGHT THE CAPITALIZATION
BE AFTER THE TRANSACTION?
The following table sets forth, as of February 29, 2000, the capitalization
of Class A shares of MidCap Growth Fund (the only class of MidCap Growth Fund
outstanding) and the Class A shares of California Growth Fund. The table also
shows the projected capitalization of California Growth Fund Class A shares as
adjusted to give effect to the proposed Transaction. The capitalization of
California Growth Fund and its classes is likely to be different when the
Transaction is consummated.
California
Growth Fund
MidCap - Projected
Growth California after
Fund Growth Fund Transaction
(UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- -----------
Net assets (all classes) $82 $2,734 $2,816
(millions)....................
Total shares outstanding (all
classes)...................... 2,916,546 45,952,245 1 47,319,902 1
Class A net assets (millions). $82 $2,221 $2,303
Class A shares outstanding.... 2,916,546 37,259,838 38,627,495
Class A net asset value per
share......................... $27.95 $59.61 $59.61
1. California Growth Fund offers two additional classes of shares, Class B and
Class C.
COMPARISON OF INVESTMENT GOALS AND POLICIES
This section describes the key differences between the investment policies
of MidCap Growth Fund and California Growth Fund, and certain noteworthy
differences between the investment goals and policies of the two Funds. For a
complete description of California Growth Fund's investment policies and risks,
you should read the California Growth Fund Prospectus, which is attached to this
Prospectus/Proxy Statement as Exhibit B.
ARE THERE ANY SIGNIFICANT DIFFERENCES BETWEEN THE INVESTMENT GOALS AND
STRATEGIES OF THE FUNDS?
There are several important differences between the Funds.
Unlike California Growth Fund, MidCap Growth Fund is a "diversified" fund
under the 1940 Act. As a diversified fund, 75% of MidCap Growth Fund's total
assets may not be invested in more than 5% of a single issuer's securities or be
used to purchase 10% or more of the outstanding securities of a single issuer.
MidCap Growth Fund is not prohibited from investing the remaining 25% of its
assets in the securities of a single issuer.
Although California Growth Fund may invest a greater portion of its assets
in the securities of one issuer than a diversified fund, it does intend to meet
the diversification requirements of the Internal Revenue Code.
As a non-diversified fund, California Growth Fund may invest a greater
portion of its assets in the securities of one issuer and, therefore, a smaller
number of individual issuers than a diversified fund. Economic, business,
political or other changes can affect all securities of a similar type. Because
it is a non-diversified fund, California Growth Fund may be more sensitive to
these changes.
Under normal market conditions, the California Growth Fund invests at least
65% of its assets in equity and debt securities of companies headquartered or
conducting a majority of their operations in the state of California. The MidCap
Growth Fund does not focus its investments in companies in any single state or
region.
While the MidCap Growth Fund expects to invest a significant portion of its
assets in medium-sized companies with a market capitalization of $1 billion and
$8 billion, the California Growth Fund expects to invest a significant portion
of its assets in small capitalization companies - those whose market
capitalization is below $1.5 billion - in addition to medium capitalization
companies.
Although the principal investment goal of MidCap Growth Fund is long-term
capital appreciation, and that of California Growth Fund is capital
appreciation, there is minimal practical difference between the two. The Funds'
investment goals are fundamental.
There are other differences between the Funds that are of lesser
significance.
For example, California Growth Fund may, although it does not have any
current intent to do so, invest a greater portion of its assets in debt
securities than does MidCap Growth Fund. While neither of the Funds has any
limitation on the percentage of its total assets invested in foreign securities,
the MidCap Growth Fund intends to limit its investments in foreign securities to
no more than 5% of its total assets.
California Growth Fund may not loan more than 10% of the value of its total
assets, whereas MidCap Growth Fund may not loan more than 20% of the value of
its total assets.
The California Growth Fund may invest in securities of companies operating
in the real estate industry, including real estate investment trusts (REITs).
The California Growth Fund currently intends to limit these investments to no
more than 10% of total assets. MidCap Growth Fund may also invest in REITs, but
has no specific limit to any investment it may make in REITs.
Both Funds may lend their portfolio securities to qualified banks or broker
dealers. Such loans may not exceed 20%, in the case of MidCap Growth Fund, and
10%, in the case of California Growth Fund, of the value of each fund's total
assets measured at the time of the most recent loan.
As a fundamental policy, California Growth Fund may not invest more than
10% of its total assets in securities with a limited trading market. Illiquid
securities are generally securities that cannot be sold within seven days in the
normal course of business at approximately the amount at which the fund has
valued them. MidCap Growth Fund has no restriction on the percentage of assets
which may be invested in illiquid securities.
HOW DO THE FUNDAMENTAL INVESTMENT RESTRICTIONS OF THE FUNDS DIFFER?
As described below, the Funds have adopted similar restrictions as
fundamental policies, which may not be changed without the approval of a
Majority Vote. California Growth Fund is not prohibited from purchasing shares
of money market funds managed by Advisers or its affiliates to the extent
permitted by exemption granted under the 1940 Act. MidCap Growth Fund may not
purchase securities of other investment companies, except in connection with a
merger, consolidation, acquisition or reorganization; provided that all or
substantially all of the assets of the MidCap Growth Fund may be invested in
another registered company having the same objective and policies as MidCap
Growth Fund.
MidCap Growth Fund may participate in an interfund lending program with
other Franklin Templeton Funds to the extent permitted under the 1940 Act.
California Growth Fund does not yet have this authority.
California Growth Fund may not invest more than 10% of the value of its
total assets in securities with legal or contractual restrictions on resale
(although the Fund may invest in such securities to the extent permitted under
the federal securities laws) or which are not readily marketable, or which have
a record of less than three years continuous operation, including the operations
of any predecessor companies, if more than 5% of California Growth Fund's total
assets would be invested in such companies. MidCap Growth Fund has no
limitations on its investment in such securities.
Policies or restrictions that are deemed fundamental may not be changed
without the approval of the lesser of (i) a majority of the outstanding shares
of the fund, or (ii) 67% or more of the shares represented at a meeting of
shareholders at which the holders of more than 50% of the outstanding shares are
represented ("Majority Vote").
California Growth Fund may not invest in excess of 5% of its total assets
in options unrelated to its transaction in futures. Although MidCap Growth Fund
has no stated policy in this regard, MidCap Growth Fund has a non-fundamental
policy that it may not invest in excess of 5% of its net assets, valued at the
lower of cost or market, in warrants. In addition, no more than 2% of MidCap
Growth Fund's net assets may be invested in warrants not listed on either the
New York Stock Exchange or American Stock Exchange.
WHAT ARE THE RISK FACTORS ASSOCIATED WITH INVESTMENTS IN THE FUNDS?
Like all investments, an investment in both Funds involves risk. There is
no assurance that the Funds will meet their investment goals. The achievement of
the Funds' goals depends upon market conditions, generally, and on the
investment managers' analytical and portfolio management skills. The risks of
the funds are basically the same as those of other investments in real estate
securities.
STOCK RISK.
While stocks have historically outperformed other asset classes over the
long term, they tend to go up and down more dramatically over the shorter term.
These price movements may result from factors affecting individual companies,
industries or securities markets as a whole.
MEDIUM AND SMALLER COMPANIES RISK. California Growth Fund invests a
substantial portion of its assets in equity securities of medium and smaller
companies and, therefore, it is subject to additional risks associated with
those securities. Historically, medium-size and smaller company securities have
been more volatile in price than larger company securities, especially over the
short term. Among the reasons for the greater price volatility are the less
certain growth prospects of medium-size and smaller companies, the lower degree
of liquidity in the markets for such securities, and the greater sensitivity of
these companies to changing economic conditions.
In addition, these companies may lack depth of management, they may be
unable to generate funds necessary for growth or development, or they may be
developing or marketing new products or services for which markets are not yet
established and may never become established. While medium-size and smaller
companies may offer greater opportunities for capital growth than larger, more
established companies, they also involve greater risks and should be considered
speculative.
FOREIGN SECURITIES RISK.
Securities of companies and governments located outside the U.S. may
involve risks that can increase the potential for losses in a fund. Investments
in Depository Receipts also involve some or all of the following risks. These
risks, including currency risks, may be greater for California Growth Fund than
MidCap Growth Fund because California Growth Fund has no limit on what
percentage of its assets may be invested in foreign securities whereas MidCap
Growth Fund intends to limit its investments in foreign securities to no more
than 5% of its assets.
COUNTRY RISK. General securities market movements in any country where a
fund has investments are likely to affect the value of the securities the fund
owns that trade in that country. These movements will affect a fund's share
price and fund performance.
The political, economic and social structures of some countries a fund
invests in may be less stable and more volatile than those in the U.S. The risks
of investing in these countries include the possibility of the imposition of
exchange controls, currency devaluations, foreign ownership limitations,
expropriation, restrictions on removal of currency or other assets,
nationalization of assets, punitive taxes and certain custody and settlement
risks.
Investments in developing or emerging markets are subject to all of the
risks of foreign investing generally, and have additional heightened risks due
to a lack of established legal, business and social frameworks to support
securities markets. Foreign securities markets, including emerging markets, may
have substantially lower trading volumes than U.S. markets, resulting in less
liquidity and more volatility than experienced in the U.S. While short-term
volatility in these markets can be disconcerting, declines in excess of 50% are
not unusual.
COMPANY RISK. Foreign companies are not subject to the same disclosure,
accounting, auditing and financial reporting standards and practices as U.S.
companies and their securities may not be as liquid as securities of similar
U.S. companies. Foreign stock exchanges, trading systems, brokers and companies
generally have less government supervision and regulation than in the U.S. A
fund may have greater difficulty voting proxies, exercising shareholder rights,
pursuing legal remedies and obtaining judgments with respect to foreign
investments in foreign courts than with respect to U.S. companies in U.S.
courts.
CURRENCY RISK.
To the extent either Fund's investments are denominated in foreign
currencies, changes in foreign currency exchange rates will affect the value of
the fund's foreign investments and the fund's share price. Generally, when the
U.S. dollar rises in value against a foreign currency, an investment in that
country loses value because that currency is worth fewer U.S. dollars.
Devaluation of currency by a country's government or banking authority also has
a significant impact on the value of any securities denominated in that
currency.
EURO. On January 1, 1999, the European Monetary Union (EMU) introduced a
new single currency, the euro, to replace the national currency for
participating member countries.
Because the change to a single currency has been relatively recent, it is
not possible to predict the impact of the euro on the business or financial
condition of European issuers that a Fund may hold in its portfolio, and their
impact on fund performance. To the extent either Fund holds non-U.S. dollar
(euro or other) denominated securities, it will still be exposed to currency
risk due to fluctuations in those currencies versus the U.S. dollar.
CONVERTIBLE SECURITIES RISK.
To the extent either Fund invests in convertible securities, it is subject
to the risks associated with them. A convertible security has risk
characteristics of both equity and debt securities. Its value may rise and fall
with the market value of the underlying stock or, like a debt security, vary
with changes in interest rates and the credit quality of the issuer. A
convertible security tends to perform more like a stock when the underlying
stock price is high (because it is assumed it will be converted) and more like a
debt security when the underlying stock price is low (because it is assumed it
will not be converted). Because its value can be influenced by many different
factors, a convertible security is not as sensitive to interest rate changes as
a similar non-convertible debt security, and generally has less potential for
gain or loss than the underlying stock.
DERIVATIVE SECURITIES RISK.
Options, futures, options on futures, and forward currency contracts are
considered derivative investments since their value depends on the value of the
underlying asset to be purchased or sold. A Fund's investment in derivatives may
involve a small investment relative to the amount of risk assumed. To the extent
either Fund enters into any of these transactions, their success will depend on
the manager's ability to predict market movements.
ILLIQUID SECURITIES RISK.
As a fundamental policy, the California Growth Fund may invest up to 10% of
its total assets in securities with legal or contractual restrictions, although
it may not invest in illiquid securities issued by real estate investment
trusts. MidCap Growth Fund has no policy with respect to illiquid investments.
Investments by a Fund in illiquid securities involve the possibility that the
securities cannot be readily sold or can only be resold at a price significantly
lower than their value, which may have a negative effect on the value of the
Fund's shares.
INTEREST RATE RISK.
When interest rates rise, debt security prices fall. The opposite is also
true: debt security prices go up when interest rates fall. In general,
securities with longer maturities are more sensitive to these price changes. To
the extent California Growth Fund invests more of its assets in debt securities
than MidCap Growth Fund, California Growth Fund is exposed to a greater interest
rate risk.
CREDIT RISK.
This is the possibility than an issuer will be unable to make interest
payments or repay principal. Changes in an issuer's financial strength or in a
security's credit rating may affect its value and, thus, impact the value of a
Fund's shares. As with the interest rate risk, to the extent that California
Growth Fund invests more of its assets in debt securities than MidCap Growth
Fund, California Growth Fund is exposed to greater credit risk.
NON-DIVERSIFICATION RISK.
A potential difference in the risks associated with investments in each of
the Funds arises from the fact that California Growth Fund, unlike MidCap Growth
Fund, is non-diversified. To the extent California Growth Fund's investments are
not diversified, California Growth Fund may be more sensitive to economic,
political, business, or regulatory developments affecting a single issuer or
industry. This, in turn, may result in greater fluctuation in the value of
California Growth Fund's shares.
VOTING INFORMATION
HOW MANY VOTES ARE NECESSARY TO APPROVE THE PLAN?
The affirmative vote of a majority of the total number of shares of MidCap
Growth Fund outstanding and entitled to vote is necessary to approve the Plan.
Each shareholder will be entitled to one vote for each full share, and a
fractional vote for each fractional share of MidCap Growth Fund held at the
close of business on April 26, 2000 (the "Record Date"). If sufficient votes to
approve the Plan are not received by the date of the Meeting, the Meeting may be
adjourned to permit further solicitations of proxies.
Under relevant state law and the Trust's governing documents, abstentions
and broker non-votes will be included for purposes of determining whether a
quorum is present at the Meeting, but will be treated as votes not cast and,
therefore, will not be counted for purposes of determining whether the matters
to be voted upon at the Meeting have been approved, and will have the same
effect as a vote against the Plan.
HOW DO I ENSURE MY VOTE IS ACCURATELY RECORDED?
You can vote in any one of four ways:
o By mail, with the enclosed proxy card.
o In person at the Meeting.
o Through [ ], a proxy solicitor,
by calling toll-free 1-800/[].
o By telephone or through the Internet; a control
number is provided on your proxy card and separate
instructions are enclosed.
A proxy card is, in essence, a ballot. IF YOU SIMPLY SIGN AND DATE THE PROXY BUT
GIVE NO VOTING INSTRUCTIONS, YOUR SHARES WILL BE VOTED IN FAVOR OF THE PLAN AND
IN ACCORDANCE WITH THE VIEWS OF MANAGEMENT UPON ANY UNEXPECTED MATTERS THAT COME
BEFORE THE MEETING OR ADJOURNMENT OF THE MEETING.
CAN I REVOKE MY PROXY?
You may revoke your proxy at any time before it is voted by sending a
written notice to MidCap Growth Fund expressly revoking your proxy, by signing
and forwarding to MidCap Growth Fund a later-dated proxy, or by attending the
Meeting and voting in person.
WHAT OTHER MATTERS WILL BE VOTED UPON AT THE MEETING?
The Board of Trustees of the Trust on behalf of MidCap Growth Fund does not
intend to bring any matters before the Meeting other than those described in
this proxy. It is not aware of any other matters to be brought before the
Meeting by others. If any other matter legally comes before the Meeting, proxies
for which discretion has been granted will be voted in accordance with the views
of management.
WHO IS ENTITLED TO VOTE?
Shareholders of record of MidCap Growth Fund on the Record Date will be
entitled to vote at the meeting. On the Record Date, there were ______________
outstanding shares of MidCap Growth Fund - Class A, the only class of MidCap
Growth Fund issued and outstanding.
WHAT OTHER SOLICITATIONS WILL BE MADE?
MidCap Growth Fund will request broker-dealer firms, custodians, nominees
and fiduciaries to forward proxy material to the beneficial owners of the shares
of record. MidCap Growth Fund may reimburse broker-dealer firms, custodians,
nominees and fiduciaries for their reasonable expenses incurred in connection
with such proxy solicitation. In addition to solicitations by mail, officers and
employees of the Trust, without extra pay, may conduct additional solicitations
by telephone, personal interviews and other means. The Trust, on behalf of
MidCap Growth Fund, has engaged [] to solicit proxies from brokers, banks, other
institutional holders and individual shareholders for an approximate fee,
including out-of-pocket expenses ranging between $10,456 and $13,413. The costs
of any such additional solicitation and of any adjourned session will be shared
one-quarter by MidCap Growth Fund, one-quarter by California Growth Fund, and
one-half by Advisers.
ARE THERE DISSENTERS' RIGHTS?
Shareholders of MidCap Growth Fund will not be entitled to any "dissenters'
rights" since the proposed Transaction involves two open-end investment
companies registered under the 1940 Act (commonly called mutual funds). Although
no dissenters' rights may be available, you have the right to redeem your shares
at Net Asset Value until the closing date. After the closing date, you may
redeem your California Growth Fund shares or exchange them for shares of certain
other funds in the Franklin Templeton Funds, subject to the terms in the
prospectus of the respective fund.
INFORMATION ABOUT CALIFORNIA GROWTH FUND
Information about California Growth Fund is included in the California
Growth Fund Prospectus, which is attached to and considered a part of this
Prospectus/Proxy Statement. . Additional information about California Growth
Fund is included in the Combined SAI which is attached hereto and considered a
part of this Prospectus/Proxy Statement. You may request a free copy of the
Semiannual Report to Shareholders for the six month period ended October 31,
1999 by calling 1-800/DIAL-BEN(R) or by writing to the California Growth Fund at
777 Mariners Island Blvd., P.O. Box 7777, San Mateo, CA 94403-7777. The
California Growth Fund's Annual Report to Shareholders for the fiscal year ended
April 30, 1999, is attached to and considered a part of this Prospectus/Proxy
Statement.
The California Growth Fund files proxy materials, reports and other
information with the SEC in accordance with the informational requirements of
the Securities Exchange Act of 1934 and the 1940 Act. These materials can be
inspected and copied at: the SEC's Public Reference Room at 450 Fifth Street NW,
Washington, DC 20549, and at the Regional Offices of the SEC located in New York
City at 7 World Trade Center, Suite 1300, New York, NY 10048 and in Chicago at
500 West Madison Street, Suite 1400, Chicago, IL 60661. Also, copies of such
material can be obtained from the SEC's Public Reference Section, Washington, DC
20549-6009, at prescribed rates, or from the SEC's Internet address at
http://www.sec.gov.
INFORMATION ABOUT MIDCAP GROWTH FUND
Information about MidCap Growth Fund is included in its prospectus, the
Combined SAI, and in the Trust's Annual Report to Shareholders dated April 30,
1999 and Semiannual Report dated October 31, 1999. These documents have been
filed with the SEC and the Trust's Annual Report is attached as an exhibit to
this Prospectus/Proxy Statement. You may request free copies of the MidCap
Growth Fund's prospectus and the Trust's Semiannual Report dated October 31,
1999 by calling 1-800/DIAL BEN(R) or by writing to MidCap Growth Fund at 777
Mariners Island Blvd., P.O. Box 7777, San Mateo, CA 94403-7777. Reports and
other information filed by the MidCap Growth Fund can be inspected and copied
at: the SEC's Public Reference Room at 450 Fifth Street NW, Washington, DC
20549, and at the Regional Offices of the SEC located in New York City at 7
World Trade Center, Suite 1300, New York, NY 10048 and in Chicago at 500 West
Madison Street, Suite 1400, Chicago, IL 60661. Also, copies of such material can
be obtained from the SEC's Public Reference Section, Washington, DC 20549-6009,
at prescribed rates, or from the SEC's Internet address at http://www.sec.gov.
PRINCIPAL HOLDERS OF SHARES
As of the Record Date, the principal shareholder of the Franklin MidCap
Growth Fund, beneficial or of record, was:
NAME AND ADDRESS PERCENTAGE (%)
- -------------------------------------------------------------------------
Franklin Resources, Inc.1
Corporate Accounting
Attn: Michael Corcoran
555 Airport Blvd., 4th Floor
Burlingame, CA 94010 26
Note: Charles B. Johnson and Rupert H. Johnson, Jr., who are officers and
trustees of the Trust, may be considered beneficial holders of the fund
shares held by Franklin Resources, Inc. (Resources). As principal
shareholders of Resources, they may be able to control the voting of
Resources' shares of the fund.
From time to time, the number of fund shares held in the "street name"
accounts of various securities dealers for the benefit of their clients or in
centralized securities depositories may exceed 5% of the total shares
outstanding. No other person owned (beneficially or of record) 5% or more of the
outstanding shares of California Growth Fund.
As of the Record Date, the officers and trustees of the Trust, as a group,
owned less than 1% of the outstanding voting shares of MidCap Growth Fund and/or
Class A of California Growth Fund.
GLOSSARY
USEFUL TERMS AND DEFINITIONS
1940 ACT - Investment Company Act of 1940, as amended
ADVISERS - Franklin Advisers, Inc., 777 Mariners Island Blvd., San Mateo, CA
94404, the investment manager for both Funds
CONTINGENT DEFERRED SALES CHARGE (CDSC) - A sales charge of 1% that may apply
if you sell your Class A shares within 12 months of purchase
DISTRIBUTORS - Franklin Templeton Distributors, Inc., 777 Mariners Island
Blvd., San Mateo, CA 94404-7777, the principal underwriter for the Funds
FRANKLIN TEMPLETON FUNDS - The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds, except Franklin Templeton
Variable Insurance Products Trust and Templeton Capital Accumulator Fund, Inc.
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies
in the Franklin Group of Funds(R) and the Templeton Group of Funds
FT SERVICES - Franklin Templeton Services, Inc., the Funds' administrator
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., 777 Mariners
Island Blvd., P.O. Box 7777, San Mateo, CA 94403-7777, the shareholder
servicing and transfer agent to the Funds
MARKET TIMERS - Market Timers generally include market timing or asset
allocation services, accounts administered so as to buy, sell or exchange
shares based on predetermined market indicators, or any person or group whose
transactions seem to follow a timing pattern or whose transactions include
frequent or large exchanges.
MOODY'S - Moody's Investors Services, Inc.
NASD - National Association of Securities Dealers, Inc.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by
the number of shares outstanding.
OFFERING PRICE - The public offering price is based on the Net Asset Value
per share of the class and includes the front-end sales charge, if
applicable. For each Fund, the maximum front-end sales charge is 5.75% for
Class A shares of California Growth Fund and for shares of MidCap Growth
Fund. We calculate the offering price to two decimal places using standard
rounding criteria.
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the funds This reference is for convenience only and does not
indicate a legal conclusion of capacity.
S&P - Standard & Poor's(R) Ratings Group
U.S. - United States
WE/OUR/US - Unless the context indicates a different meaning, these terms
refer to the funds and/or Investor Services, Distributors, or other wholly
owned subsidiaries of Resources.
EXHIBITS TO COMBINED PROSPECTUS
AND PROXY STATEMENT
EXHIBIT
A Plan of Reorganization by Franklin Strategic Series on behalf of
Franklin California Growth Fund and Franklin MidCap Growth Fund
B Prospectus of Franklin California Growth Fund - Class A, B & C
dated September 1, 1999, as amended May 1, 2000 (enclosed)
C Annual Report to Shareholders of Franklin Strategic Series dated
April 30, 1999 (enclosed)
EXHIBIT A
PLAN OF REORGANIZATION
THIS PLAN OF REORGANIZATION (the "Plan"), is made by Franklin Strategic
Series, a business trust created under the laws of the State of Delaware in
1991 (the "Trust") as of this ______ of May, 2000, on behalf of two of its
series, Franklin MidCap Growth Fund ("MidCap Growth Fund") and Franklin
California Growth Fund ("California Growth Fund") (collectively, the "Funds")
with its principal place of business at 777 Mariners Island Boulevard, San
Mateo, California 94404.
PLAN OF REORGANIZATION
The reorganization (hereinafter referred to as the "Plan of
Reorganization") will consist of (i) the acquisition by California Growth Fund,
of substantially all of the property, assets and goodwill of MidCap Growth Fund
in exchange solely for shares of beneficial interest, par value $0.01 per share,
of California Growth Fund - Class A ("California Growth Fund Shares"); and (ii)
the subsequent dissolution of MidCap Growth Fund as soon as practicable after
the closing (as defined in Section 3, hereinafter called the "Closing"), all
upon and subject to the terms and conditions of this Plan hereinafter set forth.
AGREEMENT
In order to consummate the Plan of Reorganization and in consideration of
the promises and of the covenants and agreements hereinafter set forth, and
intending to be legally bound, the parties hereto covenant and agree as follows:
1. SALE AND TRANSFER OF ASSETS, LIQUIDATION AND DISSOLUTION OF MIDCAP
GROWTH FUND.
(a) Subject to the terms and conditions of this Plan, the Trust on
behalf of MidCap Growth Fund agrees that it will convey, transfer and deliver
to California Growth Fund at the Closing all of MidCap Growth Fund's then
existing assets, free and clear of all liens, encumbrances, and claims
whatsoever (other than shareholders' rights of redemption), except for cash,
bank deposits, or cash equivalent securities in an estimated amount necessary
to: (i) pay the costs and expenses of carrying out this Plan (including, but
not limited to, fees of counsel and accountants, and expenses of its
liquidation and dissolution contemplated hereunder), which costs and expenses
shall be established on MidCap Growth Fund's books as liability reserves;
(ii) discharge its unpaid liabilities on its books at the closing date (as
defined in Section 3, hereinafter called the "Closing Date"), including, but
not limited to, its income dividends and capital gains distributions, if any,
payable for the period prior to, and through, the Closing Date; and (iii) pay
such contingent liabilities as the Board of Trustees shall reasonably deem to
exist against MidCap Growth Fund, if any, at the Closing Date, for which
contingent and other appropriate liability reserves shall be established on
MidCap Growth Fund's books (hereinafter "Net Assets"). MidCap Growth Fund
shall also retain any and all rights that it may have over and against any
person that may have accrued up to and including the close of business on the
Closing Date.
(b) Subject to the terms and conditions of this Plan, the Trust on
behalf of California Growth Fund, shall at the Closing deliver to MidCap
Growth Fund the number of California Growth Fund Shares, determined by
dividing the net asset value per share of the Class A shares of MidCap Growth
Fund (the "MidCap Growth Fund Shares") by the net asset value per share of
California Growth Fund Shares, and multiplying the result thereof by the
number of outstanding MidCap Growth Fund Shares, as of 1:00 p.m. Pacific time
on the Closing Date. All such values shall be determined in the manner and
as of the time set forth in Section 2 hereof.
(c) Immediately following the Closing, the Trust shall dissolve
MidCap Growth Fund and distribute pro rata to the shareholders of record of
the MidCap Growth Fund Shares as of the close of business on the Closing
Date, California Growth Fund Shares received by MidCap Growth Fund pursuant
to this Section 1. Such liquidation and distribution shall be accomplished
by the establishment of accounts on the share records of MidCap Growth Fund
of the type and in the amounts due such shareholders based on their
respective holdings as of the close of business on the Closing Date.
Fractional California Growth Fund Shares shall be carried to the third
decimal place. As promptly as practicable after the Closing, each holder of
any outstanding certificate or certificates representing shares of beneficial
interest of MidCap Growth Fund shall be entitled to surrender the same to the
transfer agent for California Growth Fund in exchange for the number of
California Growth Fund Shares into which the MidCap Growth Fund Shares
theretofore represented by the certificate or certificates so surrendered
shall have been converted. Certificates for California Growth Fund Shares
shall not be issued, unless specifically requested by the shareholders.
Until so surrendered, each outstanding certificate which, prior to the
Closing, represented shares of beneficial interest of MidCap Growth Fund
shall be deemed for all California Growth Fund's purposes to evidence
ownership of the number of California Growth Fund Shares into which the
MidCap Growth Fund Shares (which prior to the Closing were represented
thereby) have been converted.
2. VALUATION.
(a) The value of MidCap Growth Fund's Net Assets to be acquired by
California Growth Fund, hereunder shall be computed as of 1:00 p.m. Pacific
time on the Closing Date using the valuation procedures set forth in MidCap
Growth Fund's currently effective prospectus.
(b) The net asset value of a share of beneficial interest of MidCap
Growth Fund Shares shall be determined to the fourth decimal place as of 1:00
p.m. Pacific time on the Closing Date using the valuation procedures set
forth in MidCap Growth Fund's currently effective prospectus.
(c) The net asset value of a share of beneficial interest of
California Growth Fund Shares shall be determined to the nearest full cent as
of 1:00 p.m. Pacific time on the Closing Date using the valuation procedures
set forth in California Growth Fund's currently effective prospectus.
3. CLOSING AND CLOSING DATE.
The Closing Date shall be August 3, 2000, or such later date as
determined by the Trust's officers. The Closing shall take place at the
principal office of the Trust at 2:00 p.m., Pacific time, on the Closing
Date. The Trust on behalf of the MidCap Growth Fund shall have provided for
delivery as of the Closing of those Net Assets of MidCap Growth Fund to be
transferred to the account of California Growth Fund at the Trust's
Custodian, Bank of New York, Mutual Funds Division, 90 Washington Street, New
York, New York 10286. Also, the Trust on behalf of the MidCap Growth Fund
shall have prepared and have available at the Closing a list of names and
addresses of the shareholders of record of its MidCap Growth Fund Shares and
the number of shares of beneficial interest of MidCap Growth Fund Shares
owned by each such shareholder, indicating thereon which such shares are
represented by outstanding certificates and which by book-entry accounts, all
as of 1:00 p.m. Pacific time on the Closing Date, certified by its transfer
agent or by its President to the best of its or his knowledge and belief.
The Trust on behalf of California Growth Fund shall issue and deliver a
certificate or certificates evidencing the shares of beneficial interest of
California Growth Fund to be delivered to the account of MidCap Growth Fund
at said transfer agent registered in such manner as the officers of the Trust
on behalf of MidCap Growth Fund shall deem appropriate, or shall have
prepared satisfactory evidence that such California Growth Fund Shares have
been registered in an account on the books of California Growth Fund in such
manner as the officers of the Trust on behalf of MidCap Growth Fund shall
deem appropriate.
4. REPRESENTATIONS AND WARRANTIES BY THE TRUST ON BEHALF OF CALIFORNIA
GROWTH FUND.
The Trust makes the following representations and warranties about
California Growth Fund:
(a) California Growth Fund is a series of the Trust, a business trust
created under the laws of the State of Delaware on January 25, 1991, and is
validly existing under the laws of that State. The Trust is duly registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end, management investment company and all of the Trust's California
Growth Fund Shares sold were sold pursuant to an effective registration
statement filed under the Securities Act of 1933, as amended (the "1933
Act"), except for those shares sold pursuant to the private offering
exemption for the purpose of raising the required initial capital.
(b) The Trust is authorized to issue an unlimited number of shares of
beneficial interest of California Growth Fund Shares, par value $0.01 per
share, each outstanding share of which is fully paid, non-assessable, freely
transferable and has full voting rights. California Growth Fund is further
divided into four classes of shares of which California Growth Fund Shares is
one, and an unlimited number of shares of beneficial interest, par value
$0.01 per share, have been allocated and designated to the California Growth
Fund Shares.
(c) The financial statements appearing in the Trust's Annual Report
to Shareholders for the fiscal year ended April 30, 1999, audited by
PricewaterhouseCoopers, LLP, and the Semiannual Report to Shareholders for
the six month period ended October 31, 1999, fairly present the financial
position of California Growth Fund as of such dates and the results of its
operations for the periods indicated in conformity with generally accepted
accounting principles applied on a consistent basis.
(d) The books and records of California Growth Fund accurately
summarize the accounting data represented and contain no material omissions
with respect to the business and operations of California Growth Fund.
(e) The Trust has the necessary power and authority to conduct its
business as such business is now being conducted.
(f) The Trust on behalf of California Growth Fund is not a party to
or obligated under any provision of its Agreement and Declaration of Trust or
Amended and Restated By-laws ("By-laws"), or any contract or any other
commitment or obligation, and is not subject to any order or decree that
would be violated by its execution of or performance under this Plan.
(g) The Trust has elected to treat California Growth Fund as a
regulated investment company ("RIC") for federal income tax purposes under
Part I of Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), and California Growth Fund has qualified as a RIC for each taxable
year since its inception, and will qualify as a RIC as of the Closing Date.
5. REPRESENTATIONS AND WARRANTIES BY THE TRUST ON BEHALF OF MIDCAP GROWTH
FUND.
The Trust makes the following representations and warranties about
MidCap Growth Fund:
(a) MidCap Growth Fund is a series of the Trust, a business trust
created under the laws of the State of Delaware on January 25, 1991, and is
validly existing under the laws of that state. The Trust is duly registered
under the 1940 Act as an open-end, management investment company and all of
the Trust's MidCap Growth Fund's shares sold were sold pursuant to an
effective registration statement filed under the 1933 Act, except for those
shares sold pursuant to the private offering exemption for the purpose of
raising the required initial capital.
(b) The Trust is authorized to issue an unlimited number of shares of
beneficial interest of MidCap Growth Fund, par value $0.01 per share, each
outstanding share of which is fully paid, non-assessable, freely
transferable, and has full voting rights. One class of shares of MidCap
Growth Fund has been designated as the MidCap Growth Fund - Class A Shares,
and an unlimited number of shares of beneficial interest of the Trust, par
value $0.01 per share, have been allocated to the MidCap Growth Fund Shares.
(c) The financial statements appearing in the Trust's Annual Report
to Shareholders for the fiscal year ended April 30, 1999, audited by
PricewaterhouseCoopers, LLP, and the Semiannual Report to Shareholders for
the six month period ended October 31, 1999, fairly present the financial
position of MidCap Growth Fund as of such date and the results of its
operations for the period indicated in conformity with generally accepted
accounting principles applied on a consistent basis.
(d) The Trust has the necessary power and authority to conduct MidCap
Growth Fund's business as such business is now being conducted.
(e) The Trust on behalf of MidCap Growth Fund is not a party to or
obligated under any provision of the Trust's Agreement and Declaration of
Trust or By-laws, or any contract or any other commitment or obligation, and
is not subject to any order or decree, that would be violated by the Trust's
execution of or performance under this Plan.
(f) The Trust has elected to treat MidCap Growth Fund as a RIC for
federal income tax purposes under Part I of Subchapter M of the Code, and
MidCap Growth Fund has qualified as a RIC for each taxable year since its
inception and will qualify as a RIC as of the Closing Date.
6. REPRESENTATIONS AND WARRANTIES BY THE TRUST ON BEHALF OF THE FUNDS.
The Trust makes the following representations and warranties about both
MidCap Growth Fund and California Growth Fund:
(a) The Trust will create a statement of assets and liabilities for
each of the Funds which will be prepared as of 1:00 p.m. Pacific time on the
Closing Date for the purpose of determining the number of California Growth
Fund Shares to be issued pursuant to Section 1 of this Plan, will accurately
reflect its Net Assets in the case of MidCap Growth Fund and its net assets
in the case of California Growth Fund, and outstanding shares of beneficial
interest, as of such date, in conformity with generally accepted accounting
principles applied on a consistent basis.
(b) At the Closing, the Funds will have good and marketable title to
all of the securities and other assets shown on the statement of assets and
liabilities referred to in "(a)" above, free and clear of all liens or
encumbrances of any nature whatsoever, except such imperfections of title or
encumbrances as do not materially detract from the value or use of the assets
subject thereto, or materially affect title thereto.
(c) Except as disclosed in the Trust's currently effective prospectus
relating to the Funds, there is no material suit, judicial action, or legal
or administrative proceeding pending or threatened against either of the
Funds.
(d) There are no known actual or proposed deficiency assessments with
respect to any taxes payable by either of the Funds.
(e) The execution, delivery, and performance of this Plan have been
duly authorized by all necessary action of the Trust's Board of Trustees, and
this Plan constitutes a valid and binding obligation enforceable in
accordance with its terms.
(f) It anticipates that consummation of this Plan will not cause
either of the Funds to fail to conform to the requirements of Subchapter M of
the Code for federal income taxation as a RIC at the end of its fiscal year.
(g) The Trust has the necessary power and authority to conduct the
business of the Funds, as such business is now being conducted.
7. INTENTIONS OF THE TRUST ON BEHALF OF THE FUNDS.
(a) The Trust intends to operate each Fund's respective business, as
presently conducted between the date hereof and the Closing.
(b) The Trust intends that the MidCap Growth Fund will not acquire
California Growth Fund Shares for the purpose of making distributions thereof
to anyone other than MidCap Growth Fund's shareholders.
(c) The Trust on behalf of MidCap Growth Fund intends, if this Plan
is consummated, to liquidate and dissolve MidCap Growth Fund.
(d) The Trust intends that, by the Closing, all of the Funds' Federal
and other tax returns and reports required by law to be filed on or before
such date shall have been filed, and all Federal and other taxes shown as due
on said returns shall have either been paid or adequate liability reserves
shall have been provided for the payment of such taxes.
(e) At the Closing, the Trust on behalf of MidCap Growth Fund intends
to have available a copy of the shareholder ledger accounts, certified by the
Trust's transfer agent or its President to the best of its or his knowledge
and belief, for all the shareholders of record of Mid-Cap Growth Fund Shares
as of 1:00 p.m. Pacific time on the Closing Date who are to become
shareholders of California Growth Fund as a result of the transfer of assets
that is the subject of this Plan.
(f) The Trust intends to mail to each shareholder of record of MidCap
Growth Fund entitled to vote at the meeting of its shareholders at which
action on this Plan is to be considered, in sufficient time to comply with
requirements as to notice thereof, a combined Prospectus and Proxy Statement
that complies in all material respects with the applicable provisions of
Section 14(a) of the Securities Exchange Act of 1934, as amended, and Section
20(a) of the 1940 Act, and the rules and regulations, respectively,
thereunder.
(g) The Trust intends to file with the U.S. Securities and Exchange
Commission a registration statement on Form N-14 under the 1933 Act relating
to California Growth Fund Shares issuable hereunder ("Registration
Statement"), and will use its best efforts to provide that the Registration
Statement becomes effective as promptly as practicable. At the time it
becomes effective, the Registration Statement will (i) comply in all material
respects with the applicable provisions of the 1933 Act, and the rules and
regulations promulgated thereunder; and (ii) not contain any untrue statement
of material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. At the
time the Registration Statement becomes effective, at the time of MidCap
Growth Fund's shareholders' meeting, and at the Closing Date, the prospectus
and statement of additional information included in the Registration
Statement will not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
8. CONDITIONS PRECEDENT TO BE FULFILLED BY THE TRUST ON BEHALF OF THE
FUNDS.
The consummation of this Plan hereunder shall be subject to the
following respective conditions:
(a) That: (i) all the representations and warranties contained
herein shall be true and correct as of the Closing with the same effect as
though made as of and at such date; (ii) the performance of all obligations
required by this Plan to be performed by the Trust on behalf of the Funds
shall occur prior to the Closing; and (iii) the Trust shall execute a
certificate signed by the President and by the Secretary or equivalent
officer to the foregoing effect.
(b) That this Plan shall have been adopted and approved by the
appropriate action of the Board of Trustees of the Trust on behalf of each of
the Funds.
(c) That the U.S. Securities and Exchange Commission shall not have
issued an unfavorable management report under Section 25(b) of the 1940 Act
or instituted or threatened to institute any proceeding seeking to enjoin
consummation of the Plan under Section 25(c) of the 1940 Act. And, further,
no other legal, administrative or other proceeding shall have been instituted
or threatened that would materially affect the financial condition of Mid-Cap
Growth Fund or California Growth Fund or would prohibit the transactions
contemplated hereby.
(d) That this Plan and the Plan of Reorganization contemplated hereby
shall have been adopted and approved by the appropriate action of the
shareholders of MidCap Growth Fund at an annual or special meeting or any
adjournment thereof.
(e) That a distribution or distributions shall have been declared for
each of the Funds prior to the Closing Date that, together with all previous
distributions, shall have the effect of distributing to its shareholders (i)
all of its net investment income and all of its net realized capital gains,
if any, for the period from the close of its last fiscal year to 1:00 p.m.
Pacific time on the Closing Date; and (ii) any undistributed net investment
income and net realized capital gains from any period to the extent not
otherwise declared for distribution.
(f) That there shall be delivered to the Trust on behalf of MidCap
Growth Fund an opinion from Messrs. Stradley, Ronon, Stevens & Young, LLP,
counsel to the Trust, to the effect that, provided the acquisition
contemplated hereby is carried out in accordance with this Plan and based
upon certificates of the officers of the Trust with regard to matters of fact:
(1) The acquisition by California Growth Fund of substantially
all the assets of MidCap Growth Fund as provided for herein in exchange for
California Growth Fund Shares will qualify as a reorganization within the
meaning of Section 368(a)(1)(C) of the Code, and MidCap Growth Fund and
California Growth Fund will each be a party to the respective reorganization
within the meaning of Section 368(b) of the Code;
(2) No gain or loss will be recognized by MidCap Growth Fund
upon the transfer of substantially all of its assets to California Growth
Fund in exchange solely for voting shares of California Growth Fund (Code
Sections 361(a) and 357(a)). No opinion, however, will be expressed as to
whether any accrued market discount will be required to be recognized as
ordinary income pursuant to Section 1276 of the Code;
(3) No gain or loss will be recognized by California Growth
Fund upon the receipt of substantially all of the assets of MidCap Growth
Fund in exchange solely for voting shares of California Growth Fund (Code
Section 1032(a));
(4) The basis of the assets of MidCap Growth Fund received by
California Growth Fund will be the same as the basis of such assets to MidCap
Growth Fund immediately prior to the exchange (Code Section 362(b));
(5) The holding period of the assets of MidCap Growth Fund
received by California Growth Fund will include the period during which such
assets were held by MidCap Growth Fund (Code Section 1223(2));
(6) No gain or loss will be recognized to the shareholders of
MidCap Growth Fund Shares upon the exchange of their shares in MidCap Growth
Fund for voting shares of California Growth Fund (Code Section 354(a));
(7) The basis of California Growth Fund Shares received by
MidCap Growth Fund Shares' shareholders shall be the same as the basis of the
MidCap Growth Fund Shares exchanged therefor (Code Section 358(a)(1));
(8) The holding period of California Growth Fund Shares
received by shareholders of MidCap Growth Fund Shares (including fractional
shares to which they may be entitled) will include the holding period of the
MidCap Growth Fund Shares surrendered in exchange therefor, provided that the
MidCap Growth Fund Shares were held as a capital asset on the date of the
exchange (Code Section 1223(1)); and
(9) California Growth Fund will succeed to and take into
account as of the date of the proposed transfer the items of MidCap Growth
Fund described in Section 381(c) of the Code (as defined in Section
1.381(b)-1(b) of the Income Tax Regulations), subject to the conditions and
limitations specified in Sections 381(b) and (c), 382, 383 and 384 of the
Code and the Income Tax Regulations thereunder.
(g) That there shall be delivered to the Trust on behalf of
California Growth Fund an opinion in form and substance satisfactory to it
from Messrs. Stradley Ronon Stevens & Young, LLP, counsel to the Trust with
respect to MidCap Growth Fund, to the effect that, subject in all respects to
the effects of bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and other laws now or hereafter affecting generally the
enforcement of creditors' rights:
(1) MidCap Growth Fund is a series of the Trust , a business
trust organized under the laws of the State of Delaware on January 25, 1991,
and the Trust is a validly existing business trust and in good standing under
the laws of that state;
(2) The Trust is authorized to issue an unlimited number of
shares of beneficial interest of MidCap Growth Fund, par value $0.01 per
share. One class of shares of MidCap Growth Fund has been designated as the
MidCap Growth Fund - Class A Shares, and an unlimited number of shares of
beneficial interest of the Trust have been allocated to the MidCap Growth
Fund Shares. Assuming that the initial shares of beneficial interest of
MidCap Growth Fund were issued in accordance with the 1940 Act and the
Agreement and Declaration of Trust and By-laws of MidCap Growth Fund, and
that all other outstanding shares of MidCap Growth Fund were sold, issued and
paid for in accordance with the terms of MidCap Growth Fund's prospectus in
effect at the time of such sales, each such outstanding share is fully paid,
non-assessable, freely transferable and has full voting rights;
(3) MidCap Growth Fund is a diversified series of the Trust, an
open-end investment company of the management type registered as such under
the 1940 Act;
(4) Except as disclosed in MidCap Growth Fund's currently
effective prospectus, such counsel does not know of any material suit,
action, or legal or administrative proceeding pending or threatened against
MidCap Growth Fund, the unfavorable outcome of which would materially and
adversely affect MidCap Growth Fund;
(5) All actions required to be taken by the Trust on behalf of
MidCap Growth Fund to authorize this Plan and to effect the Plan of
Reorganization contemplated hereby have been duly authorized by all necessary
action on the part of MidCap Growth Fund; and
(6) Neither the execution, delivery, nor performance of this
Plan by the Trust on behalf of MidCap Growth Fund violates any provision of
its Agreement and Declaration of Trust or By-laws, or the provisions of any
agreement or other instrument known to such counsel to which the Trust is a
party or by which the Trust is otherwise bound; this Plan is the legal, valid
and binding obligation of the Trust on behalf of MidCap Growth Fund and is
enforceable against the Trust on behalf of MidCap Growth Fund in accordance
with its terms.
In giving the opinions set forth above, this counsel may state that it
is relying on certificates of the officers of the Trust with regard to
matters of fact, and certain certifications and written statements of
governmental officials with respect to the good standing of the Trust.
(h) That there shall be delivered to the Trust on behalf of MidCap
Growth Fund an opinion in form and substance satisfactory to it from Messrs.
Stradley, Ronon, Stevens & Young, LLP, counsel to the Trust with respect to
California Growth Fund, to the effect that, subject in all respects to the
effects of bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and other laws now or hereafter affecting generally the
enforcement of creditors' rights:
(1) California Growth Fund is a series of the Trust, a business
trust organized under the laws of the State of Delaware on January 25, 1991,
and is a validly existing business trust and in good standing under the laws
of that state;
(2) The Trust is authorized to issue an unlimited number of
shares of beneficial interest of California Growth Fund, par value $0.01 per
share. California Growth Fund is further divided into four classes of shares
of which California Growth Fund Shares is one, and an unlimited number of
shares of beneficial interest, par value $0.01 per share, have been allocated
and designated to the California Growth Fund Shares. Assuming that the
initial shares of beneficial interest of California Growth Fund were issued
in accordance with the 1940 Act, and the Agreement and Declaration of Trust
and By-laws of the Trust, and that all other outstanding shares of California
Growth Fund were sold, issued and paid for in accordance with the terms of
California Growth Fund's prospectus in effect at the time of such sales, each
such outstanding share of California Growth Fund is fully paid,
non-assessable, freely transferable and has full voting rights;
(3) California Growth Fund is a nondiversified series of the
Trust, an open-end investment company of the management type registered as
such under the 1940 Act;
(4) Except as disclosed in California Growth Fund's currently
effective prospectus, such counsel does not know of any material suit,
action, or legal or administrative proceeding pending or threatened against
California Growth Fund, the unfavorable outcome of which would materially and
adversely affect California Growth Fund;
(5) California Growth Fund Shares to be issued pursuant to the
terms of this Plan have been duly authorized and, when issued and delivered
as provided in this Plan, will have been validly issued and fully paid and
will be non-assessable by the Trust on behalf of California Growth Fund;
(6) All actions required to be taken by the Trust on behalf of
California Growth Fund to authorize this Plan and to effect the Plan of
Reorganization contemplated hereby have been duly authorized by all necessary
action on the part of the Trust;
(7) Neither the execution, delivery, nor performance of this
Plan by the Trust on behalf of California Growth Fund violates any provision
of its Agreement and Declaration of Trust or By-laws, or the provisions of
any agreement or other instrument known to such counsel to which the Trust is
a party or by which the Trust is otherwise bound; this Plan is the legal,
valid and binding obligation of the Trust on behalf of California Growth Fund
and is enforceable against the Trust on behalf of California Growth Fund in
accordance with its terms; and
(8) The registration statement of the Trust, of which the
prospectus, dated September 1, 1999, as amended January 1, 2000, of
California Growth Fund is a part (the "Prospectus"), is, at the time of the
signing of this Plan, effective under the 1933 Act, and, to the best
knowledge of such counsel, no stop order suspending the effectiveness of such
registration statement has been issued, and no proceedings for such purpose
have been instituted or are pending before or threatened by the U.S.
Securities and Exchange Commission under the 1933 Act, and nothing has come
to counsel's attention that causes it to believe that, at the time the
Prospectus became effective, or at the time of the signing of this Plan, or
at the Closing, such Prospectus (except for the financial statements and
other financial and statistical data included therein, as to which counsel
need not express an opinion), contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and such counsel
knows of no legal or government proceedings required to be described in the
Prospectus, or of any contract or document of a character required to be
described in the Prospectus that is not described as required.
In giving the opinions set forth above, this counsel may state that it
is relying on certificates of the officers of the Trust with regard to
matters of fact, and certain certifications and written statements of
governmental officials with respect to the good standing of the Trust.
(i) That the Trust's Registration Statement with respect to the
California Growth Fund Shares to be delivered to MidCap Growth Fund Shares'
shareholders in accordance with this Plan shall have become effective, and no
stop order suspending the effectiveness of the Registration Statement or any
amendment or supplement thereto, shall have been issued prior to the Closing
Date or shall be in effect at Closing, and no proceedings for the issuance of
such an order shall be pending or threatened on that date.
(j) That the California Growth Fund Shares to be delivered hereunder
shall be eligible for sale by the Trust with each state commission or agency
with which such eligibility is required in order to permit California Growth
Fund Shares lawfully to be delivered to each holder of MidCap Growth Fund
Shares.
(k) That, at the Closing, there shall be transferred to California
Growth Fund, aggregate Net Assets of MidCap Growth Fund comprising at least
90% in fair market value of the total net assets and 70% of the fair market
value of the total gross assets recorded on the books of MidCap Growth Fund
on the Closing Date.
9. BROKERAGE FEES AND EXPENSES.
(a) The Trust represents and warrants that there are no broker or
finders' fees payable by it in connection with the transactions provided for
herein.
(b) The expenses of entering into and carrying out the provisions of
this Plan shall be borne one-quarter by California Growth Fund, one-quarter
by MidCap Growth Fund, and one-half by Franklin Advisers, Inc.
10. TERMINATION; POSTPONEMENT; WAIVER; ORDER.
(a) Anything contained in this Plan to the contrary notwithstanding,
this Plan may be terminated and the Plan of Reorganization abandoned at any
time (whether before or after approval thereof by the shareholders of MidCap
Growth Fund) prior to the Closing, or the Closing may be postponed by the
Trust on behalf of either party by resolution of the Board of Trustees, if
circumstances develop that, in the opinion of the Board, make proceeding with
the Plan inadvisable.
(b) If the transactions contemplated by this Plan have not been
consummated by December 31, 2000, the Plan shall automatically terminate on
that date, unless a later date is established.
(c) In the event of termination of this Plan pursuant to the
provisions hereof, the same shall become void and have no further effect, and
neither the Trust, MidCap Growth Fund nor California Growth Fund nor the
Trust's trustees, officers, or agents or the shareholders of MidCap Growth
Fund or California Growth Fund shall have any liability in respect of this
Plan.
(d) At any time prior to the Closing, any of the terms or conditions
of this Plan may be waived by the Board of Trustees on behalf of either of
MidCap Growth Fund or California Growth Fund if, in the judgment of such
Board of Trustees, such action or waiver will not have a material adverse
effect on the benefits intended under this Plan to the shareholders of either
Mid-Cap Growth Fund or California Growth Fund, on behalf of whom such action
is taken.
(e) The respective representations and warranties contained in
Sections 4 to 6 hereof shall expire with and be terminated by the Plan of
Reorganization, and neither the Trust nor any of its officers, trustees,
agents or shareholders nor the Funds nor any of their shareholders shall have
any liability with respect to such representations or warranties after the
Closing. This provision shall not protect any officer, trustee, agent or
shareholder of either of the Funds or the Trust against any liability to the
entity for which that officer, trustee, agent or shareholder so acts or to
either of the Funds' shareholders to which that officer, trustee, agent or
shareholder would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties in the conduct
of such office.
(f) If any order or orders of the U.S. Securities and Exchange
Commission with respect to this Plan shall be issued prior to the Closing and
shall impose any terms or conditions that are determined by action of the
Board of Trustees of the Trust on behalf of MidCap Growth Fund or California
Growth Fund to be acceptable, such terms and conditions shall be binding as
if a part of this Plan without further vote or approval of the shareholders
of MidCap Growth Fund, unless such terms and conditions shall result in a
change in the method of computing the number of California Growth Fund Shares
to be issued to MidCap Growth Fund in which event, unless such terms and
conditions shall have been included in the proxy solicitation material
furnished to the shareholders of MidCap Growth Fund prior to the meeting at
which the transactions contemplated by this Plan shall have been approved,
this Plan shall not be consummated and shall terminate unless the Trust shall
promptly call a special meeting of the shareholders of MidCap Growth Fund at
which such conditions so imposed shall be submitted for approval.
11. ENTIRE AGREEMENT AND AMENDMENTS.
This Plan embodies the entire agreement between the parties and there
are no agreements, understandings, restrictions, or warranties relating to
the transactions contemplated by this Plan other than those set forth herein
or herein provided for. This Plan may be amended only by the Trust on behalf
of the Funds. Neither this Plan nor any interest herein may be assigned
without the prior written consent of the Trust on behalf of the Funds.
12. COUNTERPARTS.
This Plan may be executed in any number of counterparts, each of which
shall be deemed to be an original, but all such counterparts together shall
constitute but one instrument.
13. NOTICES.
Any notice, report, or demand required or permitted by any provision of
this Plan shall be in writing and shall be deemed to have been given if
delivered or mailed, first class postage prepaid, addressed to the Trust at
777 Mariners Island Boulevard, P. O. Box 7777, San Mateo, California 94404,
Attention: Secretary.
14. GOVERNING LAW.
This Plan shall be governed by and carried out in accordance with the
laws of the State of Delaware.
IN WITNESS WHEREOF, Franklin Strategic Series on behalf of the Funds
has caused this Plan to be executed on their behalf by its duly authorized
officers, all as of the date and year first-above written.
FRANKLIN STRATEGIC SERIES, ON BEHALF OF
FRANKLIN CALIFORNIA GROWTH FUND
Attest:
_________________________ By:________________________________
Deborah R. Gatzek, Secretary Name:
Title: Vice President
FRANKLIN STRATEGIC SERIES, ON BEHALF OF
FRANKLIN MIDCAP GROWTH FUND
Attest:
_________________________ By:________________________________
Deborah R. Gatzek, Secretary Name:
Title: Vice President
EXHIBIT B
PROSPECTUS OF
FRANKLIN CALIFORNIA GROWTH FUND
DATED SEPTEMBER 1, 1999, AS AMENDED MAY 1, 2000
FRANKLIN STRATEGIC SERIES
INVESTMENT STRATEGY GROWTH
Franklin Aggressive Growth Fund - Class A, B & C
Franklin California Growth Fund - Class A, B & C
Franklin Large Cap Growth Fund - Class A, B & C
Franklin Small Cap Growth Fund I (formerly, Small Cap Growth Fund) - Class A
& C
Franklin Small Cap Growth Fund II - Class A, B & C
SEPTEMBER 1, 1999 AS AMENDED MAY 1, 2000
[Insert Franklin Templeton Ben Head]
The SEC has not approved or disapproved these securities or passed upon the
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
CONTENTS
The Funds
[Begin callout]
INFORMATION ABOUT
EACH FUND YOU SHOULD
KNOW BEFORE INVESTING
[END CALLOUT]
[insert page #] Franklin Aggressive Growth Fund
[insert page #] Franklin California Growth Fund
[insert page #] Franklin Large Cap Growth Fund
[insert page #] Franklin Small Cap Growth Fund I
[insert page #] Franklin Small Cap Growth Fund II
[insert page #] Distributions and Taxes
YOUR ACCOUNT
[Begin callout]
INFORMATION ABOUT SALES CHARGES, ACCOUNT TRANSACTIONS AND SERVICES
[End callout]
[insert page #] Choosing a Share Class
[insert page #] Buying Shares
[insert page #] Investor Services
[insert page #] Selling Shares
[insert page #] Account Policies
[insert page #] Questions
FOR MORE INFORMATION
[Begin callout]
WHERE TO LEARN MORE ABOUT EACH FUND
[End callout]
Back Cover
FRANKLIN AGGRESSIVE GROWTH FUND
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
GOAL The fund's investment goal is capital appreciation.
PRINCIPAL INVESTMENTS The fund normally invests primarily in equity
securities of companies demonstrating accelerating growth, increasing
profitability, or above-average growth or growth potential as compared with
the overall economy.
[Begin call out]
The fund invests primarily in aggressive growth companies' equity securities.
[End callout]
Equity securities generally entitle the holder to participate in a company's
general operating results. They include common stocks, convertible securities
and warrants.
The fund invests in small, medium, and large capitalization companies with
strong growth potential across a wide range of sectors. In choosing equity
investments, the fund's manager will focus on sectors that have exceptional
growth potential and fast growing, innovative companies within these sectors.
In addition, solid management and sound financial records are factors the
manager also considers.
Although the manager will search for investments across a large number of
sectors, it expects to have significant positions in particular sectors.
These sectors may include, for example, technology (including computers and
telecommunications), health care (including biotechnology), consumer
products, and consumer services (including media, broadcasting and
entertainment).
TEMPORARY INVESTMENTS The manager may take a temporary defensive position
when it believes the securities trading markets or the economy are
experiencing excessive volatility or a prolonged general decline, or other
adverse conditions exist. Under these circumstances, the fund may be unable
to pursue its investment goal, because it may not invest or may invest
substantially less in aggressive growth companies' equity securities.
[Insert graphic of chart with line going up and down] MAIN RISKS
[Begin callout]
Because the securities the fund holds fluctuate in price, the value of your
investment in the fund will go up and down. This means you could lose money
over short or even extended periods.
[End callout]
STOCKS While stocks have historically outperformed other asset classes over
the long term, they tend to go up and down more dramatically over the shorter
term. These price movements may result from factors affecting individual
companies, industries or the securities market as a whole.
The prices of aggressive growth stocks are based largely on projections of
the issuer's future earnings and revenues. If a company's earnings or
revenues fall short of expectations, its stock price may fall dramatically.
The fund's manager uses an aggressive growth strategy in choosing the fund's
investments. As a result, an investment in the fund involves a greater degree
of risk and its share price may be more volatile than an investment in a
conservative equity fund or a growth fund investing entirely in proven growth
stocks. Aggressive growth stocks may be more expensive relative to their
earnings or assets compared to value or other stocks.
SMALLER AND MIDSIZE COMPANIES Historically, smaller and midsize company
securities have been more volatile in price than larger company securities,
especially over the short term. Among the reasons for the greater price
volatility are the less certain growth prospects of smaller and midsize
companies, the lower degree of liquidity in the markets for such securities,
and the greater sensitivity of smaller and midsize companies to changing
economic conditions.
In addition, smaller and midsize companies may lack depth of management, they
may be unable to generate funds necessary for growth or development, or they
may be developing or marketing new products or services for which markets are
not yet established and may never become established.
Smaller and midsize companies involve greater risks than larger, more
established companies and should be considered speculative.
TECHNOLOGY COMPANIES The technology sector has historically been volatile
due to the rapid pace of product change and development within the sector.
The stock prices of companies operating within this sector may be subject to
abrupt or erratic movements.
HEALTH CARE COMPANIES The activities of health care companies may be funded
or subsidized by federal and state governments. If government funding and
subsidies are reduced or discontinued, the profitability of these companies
could be adversely affected. Health care companies may also be affected by
government policies on health care reimbursements, regulatory approval for
new drugs and medical instruments, and similar matters. They are also subject
to legislative risk, i.e., the risk of a reform of the health care system
through legislation.
TELECOMMUNICATIONS, MEDIA, AND BROADCASTING COMPANIES The activities of
telecommunications, media, and broadcasting companies operate under
international, federal, and state regulations. These companies may be
adversely affected by changes in government regulations. In addition, these
sectors have been undergoing deregulation to enable increased competition,
which could affect the companies in these sectors that the fund holds.
CONSUMER PRODUCTS, SERVICES, AND ENTERTAINMENT COMPANIES These companies have
historically been sensitive to the economy in general, through changes in
consumer spending patterns. These companies may be adversely affected by
changes in consumer opinion or demand for a given product or service.
PORTFOLIO TURNOVER Because of the fund's aggressive growth strategy, the
fund's portfolio turnover rate may be higher than that of other mutual funds.
High portfolio turnover may involve additional expenses to the fund,
including transaction costs for purchases and sales of securities. These
transactions may result in realization of taxable capital gains, including
short-term capital gains, which are generally taxed at ordinary income tax
rates.
MARKET A security's value may be reduced by market activity or the results
of supply and demand. This is a basic risk associated with all securities.
When there are more sellers than buyers, prices tend to fall. Likewise, when
there are more buyers than sellers, prices tend to rise.
More detailed information about the fund, its policies and risks can be found
in the fund's Statement of Additional Information (SAI).
[Begin callout]
Mutual fund shares are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and are not insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency of the U.S.
government. Mutual fund shares involve investment risks, including the
possible loss of principal.
[End callout]
[Insert graphic of a bull and a bear] PERFORMANCE
Because the fund is new, it has no performance history.
[Insert graphic of percentage sign] FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
- -----------------------------------------------------------------
Maximum sales charge (load) as a
percentage of offering price 5.75% 4.00% 1.99%
Load imposed on purchases 5.75% None 1.00%
Maximum deferred sales charge None 1 4.00% 2 0.99% 3
(load)
Exchange fee 4 $5.00 $5.00 $5.00
Please see "Choosing a Share Class" on page 46 for an explanation of how and
when these sales charges apply.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)5
CLASS A CLASS B CLASS C
- -----------------------------------------------------------------
Management fees 6 0.50% 0.50% 0.50%
Distribution and service (12b-1) 0.35% 1.00% 1.00%
fees
Other expenses 0.84% 0.84% 0.84%
----------------------------
Total annual fund operating 1.69% 2.34% 2.34%
expenses 6 ============================
1. Except for investments of $1 million or more (see page 46) and purchases
by certain retirement plans without an initial sales charge.
2. Declines to zero after six years.
3. This is equivalent to a charge of 1% based on net asset value.
4. This fee is only for market timers (see page 59).
5. The management fees and distribution and service (12b-1) fees shown are
based on the fund's maximum contractual amount. Other expenses are estimated
for the current fiscal year.
6. The manager and administrator have agreed in advance to limit their
respective fees and to assume as their own expense certain expenses otherwise
payable by the fund. With this reduction, management and administration fees
are estimated to be 0.26% and total annual fund operating expenses are
estimated to be 1.25% for Class A, 1.90% for Class B, and 1.90% for Class C
for the current fiscal year. The manager and administrator may end this
arrangement at any time upon notice to the fund's Board of Trustees.
EXAMPLE
This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds. It assumes:
o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year; and
o The fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS
- --------------------------------------------------
If you sell your shares at
the end of the period:
CLASS A $737 1 $1,077
CLASS B $637 $1,030
CLASS C $433 $ 823
If you do not sell your
shares:
CLASS B $237 $ 730
CLASS C $335 $ 823
1. Assumes a contingent deferred sales charge (CDSC) will not apply.
[Insert graphic of briefcase] MANAGEMENT
Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94403, is the fund's investment manager. Together, Advisers and its
affiliates manage over $229 billion in assets.
The team responsible for the fund's management is:
CONRAD B. HERRMANN CFA, SENIOR VICE PRESIDENT OF ADVISERS
Mr. Herrmann has been a manager of the fund since its inception. He joined
the Franklin Templeton Group in 1989.
MICHAEL MCCARTHY, VICE PRESIDENT OF ADVISERS
Mr. McCarthy has been a manager of the fund since its inception. He joined
the Franklin Templeton Group in 1992.
JOHN P. SCANDALIOS, PORTFOLIO MANAGER OF ADVISERS
Mr. Scandalios has been a manager of the fund since its inception. He joined
the Franklin Templeton Group in 1996. Previously, he was with Chase Manhattan
Bank.
The fund pays Advisers a fee for managing the fund's assets and making its
investment decisions. The fee is equal to an annual rate of:
o 0.50% of the value of net assets up to and including $500 million;
o 0.40% of the value of net assets over $500 million up to and including $1
billion;
o 0.35% of the value of net assets over $1 billion up to and including $1.5
billion;
o 0.30% of the value of net assets over $1.5 billion up to and including $6.5
billion;
o 0.275% of the value of net assets over $6.5 billion up to and including
$11.5 billion;
o 0.25% of the value of net assets over $11.5 billion up to and including
$16.5 billion;
o 0.24% of the value of net assets over $16.5 billion up to and including $19
billion;
o 0.23% of the value of net assets over $19 billion up to and including $21.5
billion; and
o 0.22% of the value of net assets in excess of $21.5 billion.
[Insert graphic of a dollar bill] FINANCIAL HIGHLIGHTS
This table presents the fund's financial performance since its inception.
OCTOBER 31, 1999
CLASS A (UNAUDITED) 1,2
PER SHARE DATA ($)
Net asset value, beginning of period 10.00
Net investment loss (.02)
Net realized and unrealized gains 6.41
Total from investment operations 6.39
----
Net asset value, end of period 16.39
=====
Total return (%)3 63.90
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period($ x 1,000) 11,363
Ratios to average net assets: (%)
Expenses 1.23 4
Expenses excluding waiver and
payments by affiliate 1.61 4
Net investment loss (.44)4
Portfolio turnover rate (%) 91.19
OCTOBER 31, 1999
CLASS B (UNAUDITED) 1,2
PER SHARE DATA ($)
Net asset value, beginning of period 10.00
Net investment loss (.05)
Net realized and unrealized gains 6.44
Total from investment operations 6.39
----
Net asset value, end of period 16.39
=====
Total return (%)3 63.90
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 1,494
Ratios to average net assets: (%)
Expenses 1.80 4
Expenses excluding waiver and
payments by affiliate 2.18 4
Net investment loss (1.05)4
Portfolio turnover rate (%) 91.19
OCTOBER 31, 1999
CLASS C (UNAUDITED)1,2
PER SHARE DATA ($)
Net asset value, beginning of period 10.00
Net investment loss (.05)
Net realized and unrealized gains 6.43
Total from investment operations 6.38
----
Net asset value, end of period 16.38
=====
Total return (%)3 63.80
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 3,999
Ratios to average net assets: (%)
Expenses 1.83 4
Expenses excluding waiver and
payments by affiliate 2.21 4
Net investment loss (1.11)4
Portfolio turnover rate (%) 91.19
1. Based on average shares outstanding.
2. For the period June 23, 1999 (effective date) to October 31, 1999.
3. Total return does not include sales charges, and is not annualized.
4. Annualized.
FRANKLIN CALIFORNIA GROWTH FUND
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
GOAL The fund's investment goal is capital appreciation.
PRINCIPAL INVESTMENTS The fund normally invests primarily in equity
securities of California companies.
[Begin callout]
The fund invests primarily in California companies' equity securities.
[End callout]
For purposes of the fund's investments, California companies are companies
headquartered or conducting a majority of their operations in the state of
California. The fund invests in small to mid-size companies as well as in
relatively well-known, larger capitalization companies in mature industries
that the manager believes have the potential for capital appreciation.
Equity securities generally entitle the holder to participate in a company's
general operating results. They include common stocks, preferred stocks,
convertible securities and warrants.
The manager expects to invest a portion of the fund's assets in securities of
companies in the technology sector, including computer companies. Typically,
the fund will invest in technology companies that market their products or
services globally rather than only domestically or regionally.
TEMPORARY INVESTMENTS The manager may take a temporary defensive position
when it believes the securities trading markets or the economy are
experiencing excessive volatility or a prolonged general decline, or other
adverse conditions exist. Under these circumstances, the fund may be unable
to pursue its investment goal, because it may not invest or may invest
substantially less in California companies' equity securities.
[Insert graphic of chart with line going up and down] MAIN RISKS
CALIFORNIA Since the fund invests heavily in California companies' equity
securities, events and conditions in California are likely to affect the
fund's investments and its performance. These events may include changes in
economic and political conditions. These and other conditions within
California are unpredictable and can change at any time.
[Begin callout]
Because the securities the fund holds fluctuate in price, the value of your
investment in the fund will go up and down. This means you could lose money
over short or even extended periods.
[End callout]
STOCKS While stocks have historically outperformed other asset classes over
the long term, they tend to go up and down more dramatically over the shorter
term. These price movements may result from factors affecting individual
companies, industries or the securities market as a whole.
The prices of growth stocks are based largely on projections of the issuer's
future earnings and revenues. If a company's earnings or revenues fall short
of expectations, its stock price may fall dramatically. Growth stocks may be
more expensive relative to their earnings or assets compared to value or
other stocks. Because the fund invests in growth stocks, its share price may
be more volatile than other types of investments.
SMALLER AND MIDSIZE COMPANIES Historically, smaller and midsize company
securities have been more volatile in price than large company securities,
especially over the short term. Among the reasons for the greater price
volatility are the less certain growth prospects of smaller and midsize
companies, the lower degree of liquidity in the markets for such securities,
and the greater sensitivity of smaller and midsize companies to changing
economic conditions.
In addition, smaller and midsize companies may lack depth of management, they
may be unable to generate funds necessary for growth or development, or they
may be developing or marketing new products or services for which markets are
not yet established and may never become established.
Smaller and midsize companies involve greater risks than larger, more
established companies and should be considered speculative.
MARKET A security's value may be reduced by market activity or the results of
supply and demand. This is a basic risk associated with all securities. When
there are more sellers than buyers, prices tend to fall. Likewise, when there
are more buyers than sellers, prices tend to rise.
DIVERSIFICATION The fund is a non-diversified fund. It may invest a greater
portion of its assets in the securities of one issuer than a diversified
fund. The fund may be more sensitive to economic, business, political or
other changes affecting similar issuers or securities, which may result in
greater fluctuation in the value of the fund's shares, and may involve more
risk than an investment in a fund that does not focus on securities of a
single state. The fund, however, intends to meet certain tax diversification
requirements.
TECHNOLOGY COMPANIES The technology sector has historically been volatile due
to the rapid pace of product change and development within the sector. The
stock prices of companies operating within this sector may be subject to
abrupt or erratic movements.
More detailed information about the fund, its policies and risks can be found
in the fund's Statement of Additional Information (SAI).
[Begin callout]
Mutual fund shares are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and are not insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency of the U.S.
government. Mutual fund shares involve investment risks, including the
possible loss of principal.
[End callout]
[Insert graphic of a bull and a bear] PERFORMANCE
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns from year to year over the past eight calendar
years. The table shows how the fund's average annual total returns compare to
those of two broad-based securities market indices. Of course, past
performance cannot predict or guarantee future results.
CLASS A ANNUAL TOTAL RETURNS1
5.50% 17.57% 16.53% 47.63% 30.43% 15.71% 10.72% 95.17%
92 93 94 95 96 97 98 99
YEAR
[Begin callout]
BEST QUARTER:
Q4 '99 56.36%
WORST QUARTER:
Q3 '98 -15.27%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
SINCE
INCEPTION
1 YEAR 5 YEARS (10/30/91)
- ----------------------------------------------------------------------
Franklin California Growth Fund - 83.97%* 35.33% 26.35%
Class A 2
S&P 500 Index 3 21.04% 28.56% 20.24%
Franklin California 250 Index 4 75.20% 36.83% 25.66%
SINCE
INCEPTION
1 YEAR (01/01/99)
- ----------------------------------------------------------------------
Franklin California Growth Fund - 89.59%* 89.59%
Class B 2
S&P 500 Index 3 21.04% 21.04%
Franklin California 250 Index 4 75.20% 75.20%
SINCE
INCEPTION
1 YEAR (9/3/96)
- ----------------------------------------------------------------------
Franklin California Growth Fund - 90.91%* 36.30%
Class C 2
S&P 500 Index 3 21.04% 29.63%
Franklin California 250 Index 4 75.20% 39.99%
*Recently many individual stocks and sectors such as technology have
significantly exceeded historical norms; investors should generally not
expect such outsized returns to continue.
1. Figures do not reflect sales charges. If they did, returns would be lower.
As of March 31, 2000, the fund's year-to-date return was 19.07% for Class A.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains.
3. Source: Standard & Poor's Micropal. The S&P 500(R) Index is an unmanaged
group of widely held common stocks covering a variety of industries. It
includes reinvested dividends. One cannot invest directly in an index, nor is
an index representative of the fund's portfolio.
4. The unmanaged Franklin California 250 Growth Index consists of the 250
largest California based companies on an equal weighted basis chosen to
approximate the business segment weightings of the California economy. It
includes reinvested dividends. One cannot invest directly in an index, nor is
an index representative of the fund's portfolio.
[Insert graphic of percentage sign] FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B 1 CLASS C
- --------------------------------------------------------------------
Maximum sales charge (load)
as a percentage of offering price 5.75% 4.00% 1.99%
Load imposed on purchases 5.75% None 1.00%
Maximum deferred sales charge None 2 4.00% 3 0.99% 4
(load)
Exchange fee None None None
Please see "Choosing a Share Class" on page 46 for an explanation of how and
when these sales charges apply.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
CLASS A CLASS B1 CLASS C
- --------------------------------------------------------------------
Management fees 0.48% 0.48% 0.48%
Distribution and service (12b-1) 0.25% 1.00% 1.00%
fees
Other expenses 0.27% 0.27% 0.27%
-------------------------------
Total annual fund operating expenses 1.00% 1.75% 1.75%
===============================
1. The fund began offering Class B shares on January 1, 1999. Annual fund
operating expenses are based on the expenses for Class A and C for the fiscal
year ended April 30, 1999. The distribution and service (12b-1) fees are
based on the maximum fees allowed under Class B's Rule 12b-1 plan.
2. Except for investments of $1 million or more (see page 46) and purchases
by certain retirement plans without an initial sales charge.
3. Declines to zero after six years.
4. This is equivalent to a charge of 1% based on net asset value.
EXAMPLE
This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds. It assumes:
o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year; and
o The fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------
If you sell your shares at
the end of the period:
CLASS A $671 1 $875 $1,096 $1,729
CLASS B $578 $851 $1,149 $1,864 2
CLASS C $374 3 $646 $1,039 $2,142
If you do not sell your
shares:
CLASS B $178 $551 $949 $1,864 2
CLASS C $226 $646 $1,039 $2,142
1. Assumes a contingent deferred sales charge (CDSC) will not apply.
2. Assumes conversion of Class B shares to Class A shares after eight years,
lowering your annual expenses from that time on.
[Insert graphic of briefcase] MANAGEMENT
Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404, is the fund's investment manager. Together, Advisers and its
affiliates manage over $229 billion in assets.
The team responsible for the fund's management is:
CANYON A. CHAN CFA, VICE PRESIDENT OF ADVISERS
Mr. Chan has been a manager of the fund since 1999. He joined the Franklin
Templeton Group in 1991.
CONRAD B. HERRMANN CFA, SENIOR VICE PRESIDENT OF ADVISERS
Mr. Herrmann has been a manager of the fund since 1993. He joined the
Franklin Templeton Group in 1989.
The fund pays Advisers a fee for managing the fund's assets and making its
investment decisions. For the fiscal year ended April 30, 1999, the fund paid
0.48% of its average daily net assets to the manager for its services.
[Insert graphic of a dollar bill] FINANCIAL HIGHLIGHTS
This table presents the fund's financial performance for the past five years.
This information has been audited by PricewaterhouseCoopers LLP.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
OCTOBER 31,
CLASS A 1999 YEAR ENDED APRIL 30,
- ----------------------------------------------------------------------------------------------------
(UNAUDITED) 1 1999 2 1998 1997 1996 1995
--------------- ---------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA ($)
Net asset value, beginning of
year 25.82 24.97 19.35 18.26 14.03 12.05
--------------- ---------- ---------- ---------- --------- --------
Net investment income
.01 .10 .14 .13 .20 .16
Net realized and unrealized
gains 8.25 1.42 6.48 1.51 6.03 3.04
--------------- ---------- ---------- ---------- --------- --------
Total from investment
operations 8.26 1.52 6.62 1.64 6.23 3.20
--------------- ---------- ---------- ---------- --------- --------
Distributions from net
investment income (.06) (.14) (.14) (.12) (.23) (.12)
Distributions in excess of
net investment income
(.02) - - - - -
Distributions from net
realized gains - (.53) (.86) (.43) (1.77) (1.10)
--------------- ---------- ---------- ---------- --------- --------
Total distributions (.08) (.67) (1.00) (.55) (2.00) (1.22)
--------------- ---------- ---------- ---------- --------- --------
Net asset value, end of year
34.00 25.82 24.97 19.35 18.26 14.03
=============== ========== ========== ========== ========= ========
Total return (%)4 32.10 6.39 34.98 8.94 47.42 29.09
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x
1,000) 1,063,395 780,598 721,254 282,898 81,175 13,844
Ratios to average net assets:
(%)
Expenses .96 5 1.00 .99 1.08 .71 .25
Expenses excluding waiver and
payments by affiliate
.96 5 1.00 .99 1.08 1.09 1.27
Net investment income
.04 5 .41 .67 .84 1.42 1.63
Portfolio turnover rate (%) 38.20 52.76 48.52 44.81 61.82 79.52
</TABLE>
CLASS B
PER SHARE DATA ($)
Net asset value, beginning
of year 25.75 24.31
------------ -----------
Net investment (loss) (.10) (.01)
Net realized and unrealized
gains 8.20 1.45
------------ -----------
Total from investment
operations 8.10 1.44
------------ -----------
Distribution from net
investment income (.06) -
In excess of net investment
income (.01) -
============ ===========
Total Distributions (.07) -
============ ===========
Net asset value, end of
period 33.78 25.75
============ ===========
Total return (%)4 31.58 5.88
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x
1,000) 10,469 2,657
Ratios to average net
assets: (%)
Expenses 1.71 5 1.75 5
Net investment loss (.68) 5 (.33)5
Portfolio turnover rate (%) 38.20 52.76
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
OCTOBER 31,
CLASS C 1999 YEAR ENDED APRIL 30,
- ------------------------------------------------------------------------------------------------------
(UNAUDITED) 1 1999 1998 19973
- ------------------------------------------------- ----------------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
PER SHARE DATA ($)
Net asset value, beginning of year 25.63 24.81 19.27 18.05
----------------- ------------ ----------- ---------
Net investment income (loss) (.10) (.07) - .05
Net realized and unrealized gains 8.20 1.42 6.43 1.65
----------------- ------------ ----------- ---------
Total from investment operations 8.10 1.35 6.43 1.70
----------------- ------------ ----------- ---------
Distributions from net
investment income (.02) 6 - (.03) (.05)
Distributions from net realized gains - (.53) (.86) (.43)
----------------- ------------ ----------- ---------
Total distributions (.02) (.53) (.89) (.48)
----------------- ------------ ----------- ---------
Net asset value, end of year 33.71 25.63 24.81 19.27
================= ============ =========== =========
Total return (%)4 31.62 5.67 34.02 9.32
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 214,780 159,310 122,701 24,556
Ratios to average net assets: (%)
Expenses 1.71 5 1.75 1.74 1.86 5
Net investment income (loss) (.72) 5 (.33) (.10) (.05) 5
Portfolio turnover rate (%) 38.20 52.76 48.52 44.81
</TABLE>
1. Based on average shares outstanding.
2. For the period January 1, 1999 (effective date) to April 30, 1999 for
Class B.
3. For the period September 3, 1996 (effective date) to April 30, 1997 for
Class C.
4. Total return does not include sales charges, and is not annualized.
5. Annualized.
6. Includes distributions in excess of net investment income in the amount of
$.004.
FRANKLIN LARGE CAP GROWTH FUND
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
GOAL The fund's principal investment goal is long-term capital appreciation.
PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest at
least 80% of its total assets in equity securities of large cap growth
companies located in the U.S.
For purposes of the fund's investments, large cap growth companies include
well-established companies with a market capitalization of $8.5 billion or
more that are expected to have revenue growth in excess of the economy as a
whole either through above-average industry expansion or market share gains.
These companies generally dominate, or are gaining market share, in their
respective industries and have a reputation for quality management, as well
as superior products and services.
Equity securities generally entitle the holder to participate in a company's
general operating results. They include common stocks, convertible securities
and warrants.
[Begin callout]
The fund invests primarily in large cap growth companies' equity securities.
[End callout]
In choosing equity investments, the fund's manager will focus on companies
that have exhibited above average growth, strong financial records and large
market capitalization. In addition, management expertise, industry
leadership, growth in market share and sustainable competitive advantage are
factors the manager also considers. Although the manager will search for
investments across a large number of industries, it expects to have
significant positions (but not in excess of 25% of its total assets in a
given sector) in the technology (including computers, telecommunications and
electronics), health care and financial services industries.
TEMPORARY INVESTMENTS The manager may take a temporary defensive position
when it believes the securities trading markets or the economy are
experiencing excessive volatility or a prolonged general decline, or other
adverse conditions exist. Under these circumstances, the fund may be unable
to pursue its investment goal, because it may not invest or may invest
substantially less in large cap growth companies' equity securities.
[Insert graphic of chart with line going up and down] MAIN RISKS
[Begin callout]
Because the securities the fund holds fluctuate in price, the value of your
investment in the fund will go up and down. This means you could lose money
over short or even extended periods.
[End callout]
STOCKS While stocks have historically outperformed other asset classes over
the long term, they tend to go up and down more dramatically over the shorter
term. These price movements may result from factors affecting individual
companies, industries or the securities market as a whole.
TECHNOLOGY COMPANIES The technology sector has historically been volatile due
to the rapid pace of product change and development within the sector. The
stock prices of companies operating within this sector may be subject to
abrupt or erratic movements. In addition, the activities of
telecommunications companies fall under international, federal and state
regulations. These companies may be adversely affected by changes in
government regulations.
HEALTH CARE COMPANIES The activities of health care companies may be funded
or subsidized by federal and state governments. If government funding and
subsidies are reduced or discontinued, the profitability of these companies
could be adversely affected. Health care companies may also be affected by
government policies on health care reimbursements, regulatory approval for
new drugs and medical instruments, and similar matters. They are also subject
to legislative risk, i.e., the risk of a reform of the health care system
through legislation.
FINANCIAL SERVICES COMPANIES Financial services companies are subject to
extensive government regulation which tends to limit both the amount and
types of loans and other financial commitments such companies can make, and
the interest rates and fees they can charge. These limitations can have a
significant impact on the profitability of a financial services company since
profitability is impacted by the company's ability to make financial
commitments such as loans.
The financial services industry is currently undergoing a number of changes
such as continuing consolidations, development of new products and structures
and changes to its regulatory framework. These changes are likely to have a
significant impact on the financial services industry.
More detailed information about the fund, its policies and risks can be found
in the fund's Statement of Additional Information (SAI).
[Begin callout]
Mutual fund shares are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and are not insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency of the U.S.
government. Mutual fund shares involve investment risks, including the
possible loss of principal.
[End callout]
[Insert graphic of bull and bear] PERFORMANCE
Because the fund is new, it has no performance history.
[Insert graphic of percentage sign] FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
- ---------------------------------------------------------------
Maximum sales charge (load) as a
percentage of offering price 5.75% 4.00% 1.99%
Load imposed on purchases 5.75% None 1.00%
Maximum deferred sales charge None 1 4.00% 2 0.99% 3
(load)
Exchange fee4 $5.00 $5.00 $5.00
Please see "Choosing a Share Class" on page 46 for an explanation of how and
when these sales charges apply.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)5
CLASS A CLASS B CLASS C
- ---------------------------------------------------------------
Management fees 6 0.50% 0.50% 0.50%
Distribution and service (12b-1) 0.35% 1.00% 1.00%
fees 6
Other expenses 0.84% 0.84% 0.84%
---------------------------
Total annual fund operating 1.69% 2.34% 2.34%
expenses6
===========================
1. Except for investments of $1 million or more (see page 46) and purchases
by certain retirement plans without an initial sales charge.
2. Declines to zero after six years.
3. This is equivalent to a charge of 1% based on net asset value.
4. This fee is only for market timers (see page 59).
5. The management fees and distribution and service (12b-1) fees shown are
based on the fund's maximum contractual amount. Other expenses are estimated
for the current fiscal year.
6. The manager and administrator have agreed in advance to limit their
respective fees and to assume as their own expense certain expenses otherwise
payable by the fund. With this reduction, management and administration fees
are estimated to be 0.26% and total annual fund operating expenses are
estimated to be 1.25% for Class A, 1.90% for Class B, and 1.90% for Class C
for the current fiscal year. The manager and administrator may end this
arrangement at any time upon notice to the fund's Board of Trustees.
EXAMPLE
This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds. It assumes:
o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year; and
o The fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS
- --------------------------------------------------
If you sell your shares at
the end of the period:
CLASS A $737 1 $1,077
CLASS B $637 $1,030
CLASS C $433 $823
If you do not sell your
shares:
CLASS B $237 $730
CLASS C $335 $823
1. Assumes a contingent deferred sales charge (CDSC) will not apply.
[Insert graphic of briefcase] MANAGEMENT
Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94403, is the fund's investment manager. Together, Advisers and its
affiliates manage over $229 billion in assets.
The team responsible for the fund's management is:
THERESA SPATH CFA, PORTFOLIO MANAGER OF ADVISERS
Ms. Spath has been a manager of the fund since its inception. She joined the
Franklin Templeton Group in 1994.
JASON R. NUNN, PORTFOLIO MANAGER OF ADVISERS
Mr. Nunn has been a manager of the fund since its inception. He joined the
Franklin Templeton Group in 1997. Previously, he worked in corporate finance
with Alex. Brown & Sons.
EDWARD B. JAMIESON, EXECUTIVE VICE PRESIDENT OF ADVISERS
Mr. Jamieson has been a manager of the fund since its inception. He joined
the Franklin Templeton Group in 1987.
The fund pays Advisers a fee for managing the fund's assets and making its
investment decisions. The fee is equal to an annual rate of:
o 0.50% of the value of net assets up to and including $500 million;
o 0.40% of the value of net assets over $500 million and not over $1 billion;
o 0.35% of the value of net assets over $1 billion and not over $1.5 billion;
o 0.30% of the value of net assets over $1.5 billion and not over $6.5
billion;
o 0.275% of the value of net assets over $6.5 billion and not over $11.5
billion;
o 0.25% of the value of net assets over $11.5 billion and not over $16.5
billion;
o 0.24% of the value of net assets over $16.5 billion and not over $19
billion;
o 0.23% of the value of net assets over $19 billion and not over $21.5
billion; and
o 0.22% of the value of net assets in excess of $21.5 billion.
FINANCIAL HIGHLIGHTS [Insert graphic of a dollar bill]
This table presents the fund's financial performance since its inception.
OCTOBER 31, 1999
CLASS A (UNAUDITED) 1,2
- -----------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 10.00
------------------
Net investment loss (.01)
Net realized and unrealized gains 1.24
------------------
Total from investment operations 1.23
==================
Net asset value, end of period 11.23
==================
Total return (%) 3 12.30
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 6,040
Ratios to average net assets: (%)
Expenses 1.21 4
Expenses excluding waiver and
payments by affiliate 1.71 4
Net investment loss (.31) 4
Portfolio turnover rate (%) 52.60
OCTOBER 31, 1999
CLASS B (UNAUDITED) 1,2
PER SHARE DATA ($)
Net asset value, beginning of period 10.00
------------------
Net investment loss (.04)
Net realized and unrealized gains 1.24
------------------
Total from investment operations 1.20
==================
Net asset value, end of period 11.20
==================
Total return (%) 3 12.00
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 976
Ratios to average net assets: (%)
Expenses 1.85 4
Expenses excluding waiver and
payments by affiliate 2.35 4
Net investment loss (.94) 4
Portfolio turnover rate (%) 52.60
OCTOBER 31, 1999
CLASS C (UNAUDITED) 1,2
PER SHARE DATA ($)
Net asset value, beginning of period 10.00
------------------
Net investment loss (.04)
Net realized and unrealized gains 1.23
------------------
Total from investment operations 1.19
==================
Net asset value, end of period 11.19
==================
Total return (%) 3 11.90
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 6,750
Ratios to average net assets: (%)
Expenses 1.86 4
Expenses excluding waiver and
payments by affiliate 2.36 4
Net investment loss (.97) 4
Portfolio turnover rate (%) 52.60
1. Based on average shares outstanding.
2. For the period June 7, 1999 (effective date) to October 31, 1999.
3. Total return does not include sales charges, and is not annualized.
4. Annualized.
FRANKLIN SMALL CAP GROWTH FUND I
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
GOAL The fund's investment goal is long-term capital growth.
MAIN INVESTMENTS Under normal market conditions, the fund will invest at
least 65% of its total assets in the equity securities of U.S. small
capitalization (small cap) companies. For this fund, small cap companies are
those companies with market cap values not exceeding: (i) $1.5 billion; or
(ii) the highest market cap value in the Russell 2000 Index; whichever is
greater, at the time of purchase. That index consists of 2,000 small
companies that have publicly traded securities. Market capitalization is
defined as share price multiplied by the number of common stock shares
outstanding. The fund generally expects that its portfolio median market cap
will significantly exceed the Index's median market cap. The manager may
continue to hold an investment for further capital growth opportunities even
if the company is no longer small cap. In selecting growth companies, the
fund may invest substantially in technology sectors such as electronics,
computer software and hardware, telecommunications, internet-related
services, and health-care technology.
In addition to its main investments, the fund may invest in equity securities
of larger companies. When suitable opportunities are available, the fund may
also invest in initial public offerings of securities, and may invest a very
small portion of its assets in private or illiquid securities, such as late
stage venture capital financings. An equity security represents a
proportionate share of the ownership of a company; its value is based on the
success of the company's business, any income paid to stockholders, the value
of its assets, and general market conditions. Common and preferred stocks,
and securities convertible into common stock, are examples of equity
securities.
[Begin callout]
The fund invests primarily in common stocks of small cap U.S. companies.
[End callout]
PORTFOLIO SELECTION The manager is a research driven, fundamental investor,
pursuing a growth strategy. As a "bottom-up" investor focusing primarily on
individual securities, the manager chooses companies that it believes are
positioned for rapid growth in revenues, earnings, or assets. The manager
relies on a team of analysts to provide in-depth industry expertise and uses
both qualitative and quantitative analysis to evaluate companies for distinct
and sustainable competitive advantages. Advantages, such as a particular
marketing or product niche, proven technology, and industry leadership are
all factors the manager believes point to strong long-term growth potential.
The manager diversifies the fund's assets across many industries, but from
time to time may invest substantially in certain sectors.
TEMPORARY INVESTMENTS When the manager believes market or economic conditions
are unfavorable for investors, is unable to locate suitable investment
opportunities, or seeks to maintain liquidity, it may invest all or
substantially all of the fund's assets in short-term investments, including
cash or cash equivalents. Under these circumstances, the fund may temporarily
be unable to pursue its investment goal.
[Insert graphic of chart with line going up and down] MAIN RISKS
[Begin callout]
Because the securities the fund holds fluctuate in price, the value of your
investment in the fund will go up and down. This means you could lose money
over short or even extended periods.
[End callout]
STOCKS While stocks have historically outperformed other asset classes over
the long term, they tend to go up and down more dramatically over the shorter
term. These price movements may result from factors affecting individual
companies, industries or the securities market as a whole.
GROWTH STYLE INVESTING Growth stock prices reflect projections of future
earnings or revenues, and can, therefore, fall dramatically if the company
fails to meet those projections. Growth stocks may also be more expensive
relative to their earnings or assets compared to value or other stocks.
Because the fund's manager uses an aggressive growth strategy, an investment
in the fund involves greater risk and more volatility than an investment in a
growth fund investing entirely in proven growth stocks.
TECHNOLOGY COMPANIES Technology and biotechnology industry stocks can be
subject to abrupt or erratic price movements. They have historically been
volatile in price, especially over the short term, due to the rapid pace of
product change and development affecting such companies. Prices often change
collectively without regard to the merits of individual companies.
SMALLER COMPANIES While smaller companies may offer opportunities for capital
growth, they also have significant risk. Historically, small cap company
securities have been more volatile in price than large company securities,
especially over the short term. Smaller or relatively new companies can be
particularly sensitive to changing economic conditions, including increases
in interest rates, because of their reliance on credit, and their growth
prospects are less certain.
For example, smaller companies may lack depth of management or may have
limited financial resources for growth or development. They may have limited
product lines or market share. Smaller companies may be in new industries, or
their new products or services may not find an established market or may
become quickly obsolete. Smaller companies' securities may be less liquid
which may adversely affect their price. Investments in these companies may be
considered speculative.
Initial public offerings (IPOs) of securities issued by unseasoned companies
with little or no operating history are risky and their prices are highly
volatile, but they can result in very large gains in their initial trading.
Attractive IPOs are often oversubscribed and may not be available to the
fund, or only in very limited quantities. Thus, when the fund's size is
smaller, any gains from IPOs will have an exaggerated impact on the fund's
reported performance than when the fund is larger.
More detailed information about the fund, its policies and risks can be found
in the fund's Statement of Additional Information (SAI).
[Begin callout]
Mutual fund shares are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and are not insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency of the U.S.
government. Mutual fund shares involve investment risks, including the
possible loss of principal.
[End callout]
[Insert graphic of a bull and a bear] PERFORMANCE
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns from year to year over the past seven calendar
years. The table shows how the fund's average annual total returns compare to
those of two broad-based securities market indices. Of course, past
performance cannot predict or guarantee future results.
CLASS A ANNUAL TOTAL RETURNS1
21.77% 9.22% 42.20% 27.07% 15.78% -0.02% 97.08%*
93 94 95 96 97 98 99
YEAR
[Begin callout]
BEST QUARTER:
Q4 '99 59.78%
WORST QUARTER:
Q3 '98 -23.56%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
SINCE
INCEPTION
1 YEAR 5 YEARS (2/14/92)
- ----------------------------------------------------------------------
Franklin Small Cap Growth Fund 85.73%* 31.19% 24.83%
I - Class A 2
S&P 500 Index 3 21.04% 28.56% 20.23%
Russell 2500 Index 4 24.14% 19.43% 15.26%
SINCE
INCEPTION
1 YEAR (10/2/95)
- ----------------------------------------------------------------------
Franklin Small Cap Growth 92.63%* 27.70%
Fund I - Class C 2
S&P 500 Index 3 21.04% 26.39%
Russell 2500 Index 4 24.14% 16.23%
*Recently many individual stocks and sectors such as technology have
significantly exceeded historical norms; investors should generally not
expect such outsized returns to continue.
1. Figures do not reflect sales charges. If they did, returns would be lower.
As of March 31, 2000, the fund's year-to-date return was 13.71% for Class A.
2. Figures reflect sales charges.
All fund performance assumes reinvestment of dividends and capital gains.
3. Source: Standard & Poor's Micropal. The S&P 500(R) Index is an unmanaged
group of widely held common stocks covering a variety of industries. It
includes reinvested dividends. One cannot invest directly in an index, nor is
an index representative of the fund's portfolio.
4. Source: Standard & Poor's Micropal. The Russell 2500 Index is an unmanaged
group of 2,500 stocks of smaller capitalization companies. It includes
reinvested dividends. One cannot invest directly in an index, nor is an index
representative of the fund's portfolio.
[Insert graphic of percentage sign] FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS C
- ----------------------------------------------------------
Maximum sales charge (load) as a
percentage of offering price 5.75% 1.99%
Load imposed on purchases 5.75% 1.00%
Maximum deferred sales charge None 1 0.99% 2
(load)
Exchange fee None None
Please see "Choosing a Share Class" on page 46 for an explanation of how and
when these sales charges apply.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
CLASS A CLASS C
- ----------------------------------------------------------
Management fees 0.46% 0.46%
Distribution and service (12b-1) 0.25% 1.00%
fees
Other expenses 0.23% 0.23%
======================
Total annual fund operating 0.94% 1.69%
expenses
======================
1. Except for investments of $1 million or more (see page 46) and purchases
by certain retirement plans without an initial sales charge.
2. This is equivalent to a charge of 1% based on net asset value.
EXAMPLE
This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds. It assumes:
o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year; and
o The fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------
If you sell your shares at
the end of the period:
CLASS A $665 1 $857 $1,065 $1,663
CLASS C $368 $627 $1,009 $2,078
If you do not sell your
shares:
CLASS C $270 $627 $1,009 $2,078
1. Assumes a contingent deferred sales charge (CDSC) will not apply.
[Insert graphic of briefcase] MANAGEMENT
Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404, is the fund's investment manager. Together, Advisers and its
affiliates manage over $229 billion in assets.
The team responsible for the fund's management is:
EDWARD B. JAMIESON, EXECUTIVE VICE PRESIDENT OF ADVISERS
Mr. Jamieson has been a manager of the fund since 1992. He joined the
Franklin Templeton Group in 1987.
MICHAEL MCCARTHY, VICE PRESIDENT OF ADVISERS
Mr. McCarthy has been a manager of the fund since 1993. He joined the
Franklin Templeton Group in 1992.
AIDAN O'CONNELL, PORTFOLIO MANAGER OF ADVISERS
Mr. O'Connell has been a manager of the fund since 1998. Previously, he was a
research associate and a corporate finance associate at Hambrecht & Quist.
The fund pays Advisers a fee for managing the fund's assets and making its
investment decisions. For the fiscal year ended April 30, 1999, the fund paid
0.46% of its average daily net assets to the manager for its services.
[Insert graphic of dollar bill] FINANCIAL HIGHLIGHTS
This table presents the fund's financial performance for the past five years.
This information has been audited by PricewaterhouseCoopers LLP.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
OCTOBER 31,
CLASS A 1999 1 YEAR ENDED APRIL 30,
- ---------------------------------------------------------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA ($)
Net asset value, beginning of year 24.65 25.93 18.96 19.75 14.90 12.75
-------------- ----------- ------------ ----------- --------- ---------
Net investment income .01 .06 .07 .03 .01 .03
Net realized and unrealized
gains (losses) 6.44 (1.02) 7.92 .04 6.23 3.14
-------------- ----------- ------------ ----------- --------- ---------
Total from investment operations 6.45 (.96) 7.99 .07 6.24 3.17
-------------- ----------- ------------ ----------- --------- ---------
Distributions from net investment
income - (.14) (.09) (.06) (.01) (.02)
Distributions from net realized
gains - (.18) (.93) (.80) (1.38) (1.00)
-------------- ----------- ------------ ----------- --------- ---------
Total distributions - (.32) (1.02) (.86) (1.39) (1.02)
============== =========== ============ =========== ========= =========
Net asset value, end of year 31.10 24.65 25.93 18.96 19.75 14.90
============== =========== ============ =========== ========= =========
Total return (%) 3 26.17 (3.44) 43.09 .14 44.06 27.05
RATIOS/SUPPLEMENTAL DATA
Net assets, end
of year ($ x 1,000) 5,754,813 4,251,284 3,957,972 1,071,352 444,912 63,010
Ratios to
average net assets: (%)
Expenses .91 4 .94 .89 .92 .97 .69
Expenses excluding waiver and
payments by affiliate .91 4 .94 .89 .92 1.00 1.16
Net investment income .06 4 .30 .32 .10 .09 .25
Portfolio turnover rate (%) 17.18 46.73 42.97 55.27 87.92 104.84
Six Months
Ended
October 31,
Class C 1999 Year ended April 30,
- -------------------------------------------------------------------------------------------------
(unaudited) 1999 1998 1997 1996 2
Per share data ($)
Net asset value,
beginning of year 24.32 25.59 18.78 19.66 17.94
------------- ------------ ----------- ------------ ---------
Net investment loss (.09) (.09) (.02) (.05) (.03)
Net realized and unrealized
gains (losses) 6.34 (1.00) 7.76 (.03) 2.71
------------- ------------ ----------- ------------ ---------
Total from investment operations
6.25 (1.09) 7.74 (.08) 2.68
------------- ------------ ----------- ------------ ---------
Distributions from net realized
gains - (.18) (.93) (.80) (.96)
============= ============ =========== ============ =========
Net asset value, end of year 30.57 24.32 25.59 18.78 19.66
============= ============ =========== ============ =========
Total return (%) 3 25.70 (4.08) 42.06 (.65) 15.98
Ratios/supplemental data
Net assets, end
of year ($ x 1,000) 993,786 764,715 731,707 146,164 24,102
Ratios to
average net assets: (%)
Expenses 1.66 4 1.69 1.64 1.69 1.76 4
Net investment loss (.69) 4 (.44) (.42) (.70) (.69) 4
Portfolio turnover rate (%) 17.18 46.73 42.97 55.27 87.92
</TABLE>
1. Based on average shares outstanding.
2. For the period October 1, 1995 (effective date) to April 30, 1996 for
Class C.
3. Total return does not include sales charges, and is not annualized.
4. Annualized.
FRANKLIN SMALL CAP GROWTH FUND II
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
GOAL The fund's investment goal is long-term capital growth.
MAIN INVESTMENTS Under normal market conditions, the fund will invest at
least 65% of its total assets in the equity securities of U.S. small
capitalization (small cap) companies. For this fund, small cap companies are
those companies with market cap values not exceeding: (i) $1.5 billion; or
(ii) the highest market cap value in the Russell 2000 Index; whichever is
greater, at the time of purchase. That index consists of 2,000 small
companies that have publicly traded securities. Market capitalization is
defined as share price multiplied by the number of common stock shares
outstanding. The manager may continue to hold an investment for further
capital growth opportunities even if the company is no longer small cap. In
selecting growth companies, the fund may invest substantially in technology
sectors such as electronics, computer software and hardware,
telecommunications, internet-related services, and health-care technology.
In addition to its main investments, the fund may invest in equity securities
of larger companies. When suitable opportunities are available, the fund may
also invest in initial public offerings of securities, and may invest a very
small portion of its assets in private or illiquid securities, such as late
stage venture capital financings. An equity security represents a
proportionate share of the ownership of a company; its value is based on the
success of the company's business, any income paid to stockholders, the value
of its assets, and general market conditions. Common and preferred stocks,
and securities convertible into common stock, are examples of equity
securities.
[Begin callout]
The fund invests primarily in common stocks of small cap U.S. companies.
[End callout]
PORTFOLIO SELECTION The manager is a research driven, fundamental investor,
pursuing a growth strategy. As a "bottom-up" investor focusing primarily on
individual securities, the manager chooses companies that it believes are
positioned for rapid growth in revenues, earnings, or assets. The manager
relies on a team of analysts to provide in-depth industry expertise and uses
both qualitative and quantitative analysis to evaluate companies for distinct
and sustainable competitive advantages. Advantages, such as a particular
marketing or product niche, proven technology, and industry leadership are
all factors the manager believes point to strong long-term growth potential.
The manager diversifies the fund's assets across many industries, but from
time to time may invest substantially in certain sectors.
TEMPORARY INVESTMENTS When the manager believes market or economic
conditions are unfavorable for investors, is unable to locate suitable
investment opportunities, or seeks to maintain liquidity, it may invest all
or substantially all of the fund's assets in short-term investments,
including cash or cash equivalents. Under these circumstances, the fund may
temporarily be unable to pursue its investment goal.
[Insert graphic of chart with line going up and down] MAIN RISKS
The fund's main risks can affect the fund's share price, its distributions or
income, and therefore, the fund's performance.
STOCKS While stocks have historically outperformed other asset classes over
the long term, their value tends to go up and down more dramatically over the
short term. These price movements may result from factors affecting
individual companies, industries, or securities markets.
GROWTH STYLE STOCK INVESTING Growth stock prices reflect projections of
future earnings or revenues, and can, therefore, fall dramatically if the
company fails to meet those projections. Growth stocks may also be more
expensive relative to their earnings or assets compared to value or other
stocks. Because the fund's manager uses an aggressive growth strategy, an
investment in the fund involves greater risk and more volatility than an
investment in a growth fund investing entirely in proven growth stocks.
[Begin callout]
Because the stocks the fund holds fluctuate in price with market conditions,
the value of your investment in the fund will go up and down. This means you
could lose money over short or even extended periods.
[End callout]
SMALLER COMPANIES While smaller companies may offer opportunities for
capital growth, they also have significant risk. Historically, smaller
company securities have been more volatile in price and have fluctuated
independently from larger company securities, especially over the
short-term. Smaller or relatively new companies can be particularly
sensitive to changing economic conditions, including increases in interest
rates, because of their reliance on credit, and their growth prospects are
less certain.
For example, smaller companies may lack depth of management or may have
limited financial resources for growth or development. They may have limited
product lines or market share. Smaller companies may be in new industries, or
their new products or services may not find an established market or may
become quickly obsolete. Smaller companies' securities may be less liquid
which may adversely affect their price. Investments in these companies may be
considered speculative.
Initial public offerings (IPOs) of securities issued by unseasoned companies
with little or no operating history are risky and their prices are highly
volatile, but they can result in very large gains in their initial trading.
Attractive IPOs are often oversubscribed and may not be available to the
fund, or only in very limited quantities. Thus, when the fund's size is
smaller, any gains from IPOs will have an exaggerated impact on the fund's
reported performance than when the fund is larger.
TECHNOLOGY COMPANIES Technology and biotechnology industry stocks can be
subject to abrupt or erratic price movements. They have historically been
volatile in price, especially over the short term, due to the rapid pace of
product change and development affecting such companies. Prices often change
collectively without regard to the merits of individual companies.
More detailed information about the fund, its policies and risks can be found
in the SAI.
[Insert graphic of bull and bear] PERFORMANCE
Because the fund is new, it has no performance history.
[Insert graphic of a percentage sign] FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------
Maximum sales charge (load) as a
percentage of offering price 5.75% 4.00% 1.99%
Load imposed on purchases 5.75% None 1.00%
Maximum deferred sales charge None 1 4.00% 2 0.99% 3
(load)
Exchange fee 4 $5.00 $5.00 $5.00
Please see "Choosing a Share Class" on page 46 for an explanation of how and
when these sales charges apply.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)5
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------
Management fees 6 0.55% 0.55% 0.55%
Distribution and service
(12b-1) fees 0.35% 1.00% 1.00%
Other expenses 0.60% 0.60% 0.60%
-------------------------------
Total annual fund operating 1.50% 2.15% 2.15%
expenses 6 -------------------------------
1. Except for investments of $1 million or more (see page 46)and purchases by
certain retirement plans without an initial sales charge.
2. Declines to zero after six years.
3. This is equivalent to a charge of 1% based on net asset value.
4. This fee is only for market timers (see page 59).
5. The management fees and distribution and service (12b-1) fees shown are
based on the fund's maximum contractual amount. Other expenses are estimated.
6. The manager and administrator have agreed in advance to limit their
respective fees and to assume as their own expense certain expenses otherwise
payable by the fund so that total annual fund operating expenses do not
exceed 1.40% for Class A, 2.05% for Class B and 2.05% for Class C for the
current fiscal year. After April 30, 2001, the manager and administrator may
end this arrangement at any time upon notice to the fund's Board of Trustees.
EXAMPLE
This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds. It assumes:
o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year; and
o The fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS
- --------------------------------------------------
If you sell your shares at
the end of the period:
CLASS A $719 1 $1,022
CLASS B $618 $ 973
CLASS C $415 $ 766
If you do not sell your
shares:
CLASS B $218 $ 673
CLASS C $316 $ 766
1. Assumes a contingent deferred sales charge (CDSC) will not apply.
[Insert graphic of briefcase] MANAGEMENT
Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404 is the fund's investment manager. Together, Advisers and its
affiliates manage over $229 billion in assets.
The team responsible for the fund's management:
EDWARD B. JAMIESON, EXECUTIVE VICE PRESIDENT OF ADVISERS
Mr. Jamieson has been a manager of the fund since its inception. He joined
the Franklin Templeton Group in 1987.
MICHAEL MCCARTHY, VICE PRESIDENT OF ADVISERS
Mr. McCarthy has been a manager of the fund since its inception. He joined
the Franklin Templeton Group in 1992.
AIDAN O'CONNELL, PORTFOLIO MANAGER OF ADVISERS
Mr. O'Connell has been a manager of the fund since its inception. He joined
the Franklin Templeton Group in 1998. Previously, he was a research associate
and a corporate finance associate at Hambrecht & Quist.
The fund pays Advisers a fee for managing the fund's assets and making its
investment decisions. The fee is equal to an annual rate of:
o 0.550% of the value of net assets up to and including $500 million;
o 0.450 of the value of net assets over $500 million up to and including
$1 billion;
o 0.400 of the value of net assets over $1 billion up to and including
$1.5 billion;
o 0.350 of the value of net assets over $1.5 billion up to and including
$6.5 billion;
o 0.325 of the value of net assets over $6.5 billion up to and including
$11.5 billion;
o 0.300 of the value of net assets over $11.5 billion up to and including
$16.5 billion;
o 0.290 of the value of net assets over $16.5 billion up to and including
$19 billion;
o 0.280 of the value of net assets over $19 billion up to and including
$21.5 billion;
o 0.270 of the value of net assets in excess of $21.5 billion.
[Insert graphic of dollar
signs and stacks of coins] DISTRIBUTIONS AND TAXES
INCOME AND CAPITAL GAINS DISTRIBUTIONS Each fund intends to pay a dividend at
least annually representing substantially all of its net investment income
and any net realized capital gains. The amount of this distribution will
vary and there is no guarantee any fund will pay dividends.
To receive a distribution, you must be a shareholder on the record date. The
record dates for each fund's distributions will vary. Please keep in mind
that if you invest in a fund shortly before the record date of a
distribution, any distribution will lower the value of the fund's shares by
the amount of the distribution and you will receive some of your investment
back in the form of a taxable distribution. If you would like information on
upcoming record dates for a fund's distributions, please call 1-800/DIAL BEN(R).
TAX CONSIDERATIONS In general, fund distributions are taxable to you as
either ordinary income or capital gains. This is true whether you reinvest
your distributions in additional fund shares or receive them in cash. Any
capital gains a fund distributes are taxable to you as long-term capital
gains no matter how long you have owned your shares.
[Begin callout]
BACKUP WITHHOLDING
By law, a fund must withhold 31% of your taxable distributions and redemption
proceeds if you do not provide your correct social security or taxpayer
identification number and certify that you are not subject to backup
withholding, or if the IRS instructs the fund to do so.
[End callout]
Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.
When you sell your shares of a fund, you may have a capital gain or loss. For
tax purposes, an exchange of your fund shares for shares of a different
Franklin Templeton Fund is the same as a sale.
Distributions of ordinary income and capital gains, and gains from the sale
or exchange of your fund shares generally will be subject to state and local
taxes. Non-U.S. investors may be subject to U.S. withholding and estate tax.
You should consult your tax advisor about the federal, state, local or
foreign tax consequences of your investment in a fund.
YOUR ACCOUNT
[Insert graphic of pencil marking an X] CHOOSING A SHARE CLASS
The Aggressive Growth Fund, California Fund, Large Cap Fund and Small Cap
Fund II each offer Class A, B and C shares. The Small Cap Fund I offers Class
A and C shares. Each class has its own sales charge and expense structure,
allowing you to choose the class that best meets your situation. Your
investment representative can help you decide.
CLASS A CLASS B CLASS C
- ----------------------------------------------------------------------
o Initial sales charge o No initial sales o Initial sales
of 5.75% or less charge charge of 1%
o Deferred sales o Deferred sales o Deferred sales
charge of 1% on charge of 4% on charge of 1% on
purchases of $1 shares you sell shares you sell
million or more sold within the first within 18 months
within 12 months year, declining to
1% within six years
and eliminated
after that
o Lower annual o Higher annual o Higher annual
expenses than Class expenses than Class expenses than Class
B or C due to lower A (same as Class C) A (same as Class B)
distribution fees due to higher due to higher
distribution fees. distribution fees.
Automatic No conversion to
conversion to Class Class A shares, so
A shares after annual expenses do
eight years, not decrease.
reducing future
annual expenses.
SALES CHARGES - CLASS A
THE SALES CHARGE
MAKES UP THIS % WHICH EQUALS THIS %
WHEN YOU INVEST THIS AMOUNT OF THE OFFERING OF YOUR NET INVESTMENT
PRICE
- ----------------------------------------------------------------------
Under $50,000 5.75 6.10
$50,000 but under $100,000 4.50 4.71
$100,000 but under $250,000 3.50 3.63
$250,000 but under $500,000 2.50 2.56
$500,000 but under $1 2.00 2.04
million
INVESTMENTS OF $1 MILLION OR MORE If you invest $1 million or more, either as
a lump sum or through our cumulative quantity discount or letter of intent
programs (see page 49), you can buy Class A shares without an initial sales
charge. However, there is a 1% contingent deferred sales charge (CDSC) on any
shares you sell within 12 months of purchase. The way we calculate the CDSC
is the same for each class (please see page 48).
DISTRIBUTION AND SERVICE (12B-1) FEES Class A has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows the Aggressive Growth Fund
and Large Cap Fund to pay distribution fees of up to 0.35% per year to those
who sell and distribute Class A shares and provide other services to
shareholders. For the California Fund, Small Cap Fund I and Small Cap Fund
II, Class A has a distribution plan, sometimes known as a Rule 12b-1 plan,
that allows the funds to pay distribution fees of up to 0.25% per year to
those who sell and distribute Class A shares and provide other services to
shareholders. Because these fees are paid out of Class A's assets on an
on-going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
SALES CHARGES - CLASS B
IF YOU SELL YOUR SHARES
WITHIN THIS MANY YEARS THIS % IS DEDUCTED FROM
AFTER BUYING THEM YOUR PROCEEDS AS A CDSC
1 Year 4
2 Years 4
3 Years 3
4 Years 3
5 Years 2
6 Years 1
7 Years 0
With Class B shares, there is no initial sales charge. However, there is a
CDSC if you sell your shares within six years, as described in the table
above. The way we calculate the CDSC is the same for each class (please see
page 48). After 8 years, your Class B shares automatically convert to Class A
shares, lowering your annual expenses from that time on.
MAXIMUM PURCHASE AMOUNT The maximum amount you may invest in Class B shares
at one time is $249,999. We place any investment of $250,000 or more in Class
A shares, since a reduced initial sales charge is available and Class A's
annual expenses are lower.
RETIREMENT PLANS Class B shares are available to certain retirement plans,
including IRAs (of any type), Franklin Templeton Trust Company 403(b) plans,
and Franklin Templeton Trust Company qualified plans with participant or
earmarked accounts.
DISTRIBUTION AND SERVICE (12B-1) FEES Class B has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows the fund to pay
distribution and other fees of up to 1% per year for the sale of Class B
shares and for services provided to shareholders. Because these fees are paid
out of Class B's assets on an on-going basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
SALES CHARGES - CLASS C
THE SALES
WHEN YOU INVEST THIS CHARGE MAKES UP WHICH EQUALS THIS % OF
AMOUNT THIS % OF THE YOUR NET INVESTMENT
OFFERING PRICE
- -------------------------------------------------------------------
Under $1 million 1.00 1.01
WE PLACE ANY INVESTMENT OF $1 MILLION OR MORE IN CLASS A SHARES, SINCE THERE
IS NO INITIAL SALES CHARGE AND CLASS A'S ANNUAL EXPENSES ARE LOWER.
CDSC There is a 1% contingent deferred sales charge (CDSC) on any Class C
shares you sell within 18 months of purchase. The way we calculate the CDSC
is the same for each class (please see below).
DISTRIBUTION AND SERVICE (12B-1) FEES Class C has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows the fund to pay
distribution and other fees of up to 0.75% per year for the sale of Class C
shares and for services provided to shareholders. Because these fees are paid
out of Class C's assets on an on-going basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
CONTINGENT DEFERRED SALES CHARGE (CDSC) - CLASS A, B & C
The CDSC for each class is based on the current value of the shares being
sold or their net asset value when purchased, whichever is less. There is no
CDSC on shares you acquire by reinvesting your dividends or capital gains
distributions.
[Begin callout]
The HOLDING PERIOD FOR THE CDSC begins on the day you buy your shares. Your
shares will age one month on that same date the next month and each following
month.
For example, if you buy shares on the 18th of the month, they will age one
month on the 18th day of the next month and each following month.
[End callout]
To keep your CDSC as low as possible, each time you place a request to sell
shares we will first sell any shares in your account that are not subject to
a CDSC. If there are not enough of these to meet your request, we will sell
the shares in the order they were purchased. We will use this same method if
you exchange your shares into another Franklin Templeton Fund (please see
page 54 for exchange information).
SALES CHARGE REDUCTIONS AND WAIVERS
If you qualify for any of the sales charge reductions or waivers below,
please let us know at the time you make your investment to help ensure you
receive the lower sales charge.
QUANTITY DISCOUNTS We offer several ways for you to combine your purchases in
the Franklin Templeton Funds to take advantage of the lower sales charges for
large purchases of Class A shares.
[Begin callout]
The FRANKLIN TEMPLETON FUNDS include all of the Franklin Templeton U.S.
registered mutual funds, except Franklin Templeton Variable Insurance
Products Trust and Templeton Capital Accumulator Fund, Inc.
[End callout]
o CUMULATIVE QUANTITY DISCOUNT - lets you combine all of your shares in the
Franklin Templeton Funds for purposes of calculating the sales charge. You
also may combine the shares of your spouse, and your children or
grandchildren, if they are under the age of 21. Certain company and
retirement plan accounts also may be included.
o LETTER OF INTENT (LOI) - expresses your intent to buy a stated dollar
amount of shares over a 13-month period and lets you receive the same sales
charge as if all shares had been purchased at one time. We will reserve a
portion of your shares to cover any additional sales charge that may apply
if you do not buy the amount stated in your LOI.
TO SIGN UP FOR THESE PROGRAMS, COMPLETE THE APPROPRIATE SECTION OF YOUR
ACCOUNT APPLICATION.
REINSTATEMENT PRIVILEGE If you sell shares of a Franklin Templeton Fund, you
may reinvest some or all of the proceeds within 365 days without an initial
sales charge. The proceeds must be reinvested within the same share class,
except proceeds from the sale of Class B shares will be reinvested in Class A
shares.
If you paid a CDSC when you sold your Class A or C shares, we will credit
your account with the amount of the CDSC paid but a new CDSC will apply. For
Class B shares reinvested in Class A, a new CDSC will not apply, although
your account will not be credited with the amount of any CDSC paid when you
sold your Class B shares.
Proceeds immediately placed in a Franklin Bank Certificate of Deposit (CD)
also may be reinvested without an initial sales charge if you reinvest them
within 365 days from the date the CD matures, including any rollover.
This privilege does not apply to shares you buy and sell under our exchange
program. Shares purchased with the proceeds from a money fund may be subject
to a sales charge.
SALES CHARGE WAIVERS Class A shares may be purchased without an initial sales
charge or CDSC by various individuals, institutions and retirement plans or
by investors who reinvest certain distributions and proceeds within 365
days. Certain investors also may buy Class C shares without an initial sales
charge. The CDSC for each class may be waived for certain redemptions and
distributions. If you would like information about available sales charge
waivers, call your investment representative or call Shareholder Services at
1-800/632-2301. For information about retirement plans, you may call
Retirement Services at 1-800/527-2020. A list of available sales charge
waivers also may be found in the Statement of Additional Information (SAI).
GROUP INVESTMENT PROGRAM Allows established groups of 11 or more investors to
invest as a group. For sales charge purposes, the group's investments are
added together. There are certain other requirements and the group must have
a purpose other than buying fund shares at a discount.
[Insert graphic of a paper with lines
and someone writing] BUYING SHARES
MINIMUM INVESTMENTS
- ----------------------------------------------------------------
INITIAL ADDITIONAL
- ----------------------------------------------------------------
Regular accounts $1,000 $50
- ----------------------------------------------------------------
Automatic investment plans $50 ($25 $50 ($25
for an for an
Education Education
IRA) IRA)
- ----------------------------------------------------------------
UGMA/UTMA accounts $100 $50
- ----------------------------------------------------------------
Retirement accounts no minimum no minimum
(other than IRAs, IRA rollovers,
Education IRAs or Roth IRAs)
- ----------------------------------------------------------------
IRAs, IRA rollovers, Education IRAs or
Roth IRAs $250 $50
- ----------------------------------------------------------------
Broker-dealer sponsored wrap account
programs $250 $50
- ----------------------------------------------------------------
Full-time employees, officers,
trustees and directors of Franklin
Templeton entities, and their
immediate family members $100 $50
- ----------------------------------------------------------------
PLEASE NOTE THAT YOU MAY ONLY BUY SHARES OF A FUND ELIGIBLE FOR SALE IN YOUR
STATE OR JURISDICTION.
Class A shares of the Small Cap Fund I are available only to the following
investors:
o Current shareholders who owned Class A shares of Small Cap Fund I as of
the close of business on April 30, 2000.
o Retirement plans: Current and new investors in retirement plans.
o Wrap programs: Current and new investors in wrap programs.
ACCOUNT APPLICATION If you are opening a new account, please complete and
sign the enclosed account application. Make sure you indicate the share class
you have chosen. If you do not indicate a class, we will place your purchase
in Class A shares. To save time, you can sign up now for services you may
want on your account by completing the appropriate sections of the
application (see the next page).
BUYING SHARES OPENING AN ACCOUNT ADDING TO AN ACCOUNT
[Insert graphic of Contact your Contact your
hands shaking] investment investment
representative representative
THROUGH YOUR
INVESTMENT
REPRESENTATIVE
- ----------------------------------------------------------------------
[Insert graphic of Make your check Make your check
envelope] payable to the fund. payable to the fund.
Include your account
BY MAIL Mail the check and number on the check.
your signed
application to Fill out the deposit
Investor Services. slip from your account
statement. If you do
not have a slip,
include a note with
your name, the fund
name, and your account
number.
Mail the check and
deposit slip or note
to Investor Services.
- ----------------------------------------------------------------------
[Insert graphic of Call to receive a Call to receive a wire
three lightning bolts] wire control number control number and
and wire instructions. wire instructions.
BY WIRE
Wire the funds and To make a same day
1-800/632-2301 mail your signed wire investment,
(or 1-650/312-2000 application to please call us by 1:00
collect) Investor Services. p.m. Pacific time and
Please include the make sure your wire
wire control number arrives by 3:00 p.m.
or your new account
number on the
application.
To make a same day
wire investment,
please call us by
1:00 p.m. Pacific
time and make sure
your wire arrives by
3:00 p.m.
- ----------------------------------------------------------------------
[Insert graphic of Call Shareholder Call Shareholder
two arrows pointing Services at the Services at the number
in opposite number below, or send below or our automated
directions] signed written TeleFACTS system, or
instructions. The send signed written
BY EXCHANGE TeleFACTS system instructions.
cannot be used to
TeleFACTS(R) open a new account. (Please see page 54
1-800/247-1753 for information on
(around-the-clock (Please see page 54 exchanges.)
access) for information on
exchanges.)
- ----------------------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES P.O. BOX 997151,
SACRAMENTO, CA 95899-9983
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)
[Insert graphic of person with a headset] INVESTOR SERVICES
AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to invest
in a fund by automatically transferring money from your checking or savings
account each month to buy shares. To sign up, complete the appropriate
section of your account application and mail it to Investor Services. If you
are opening a new account, please include the minimum initial investment of
$50 with your application.
AUTOMATIC PAYROLL DEDUCTION You may invest in a fund automatically by
transferring money from your paycheck to a fund by electronic funds transfer.
If you are interested, indicate on your application that you would like to
receive an Automatic Payroll Deduction Program kit.
DISTRIBUTION OPTIONS You may reinvest distributions you receive from a fund
in an existing account in the same share class* of the fund or another
Franklin Templeton Fund. Initial sales charges and CDSCs will not apply if
you reinvest your distributions within 365 days. You can also have your
distributions deposited in a bank account, or mailed by check. Deposits to a
bank account may be made by electronic funds transfer.
[Begin callout]
For Franklin Templeton Trust Company retirement plans, special forms may be
needed to receive distributions in cash. Please call 1-800/527-2020 for
information.
[End callout]
Please indicate on your application the distribution option you have chosen,
otherwise we will reinvest your distributions in the same share class of the
fund.
*Class B and C shareholders may reinvest their distributions in Class A
shares of any Franklin Templeton money fund.
RETIREMENT PLANS Franklin Templeton offers a variety of retirement plans for
individuals and businesses. These plans require separate applications and
their policies and procedures may be different than those described in this
prospectus. For more information, including a free retirement plan brochure
or application, please call Retirement Services at 1-800/527-2020.
TELEFACTS(R) Our TeleFACTS system offers around-the-clock access to information
about your account or any Franklin Templeton Fund. This service is available
from touch-tone phones at 1-800/247-1753. For a free TeleFACTS brochure, call
1-800/DIAL BEN.
TELEPHONE PRIVILEGES You will automatically receive telephone privileges when
you open your account, allowing you and your investment representative to
sell or exchange your shares and make certain other changes to your account
by phone.
For accounts with more than one registered owner, telephone privileges also
allow the funds to accept written instructions signed by only one owner for
transactions and account changes that could otherwise be made by phone. For
all other transactions and changes, all registered owners must sign the
instructions.
As long as we take certain measures to verify telephone requests, we will not
be responsible for any losses that may occur from unauthorized requests. Of
course, you can decline telephone exchange or redemption privileges on your
account application.
EXCHANGE PRIVILEGE You can exchange shares between most Franklin Templeton
Funds within the same class*, generally without paying any additional sales
charges. If you exchange shares held for less than six months, however, you
may be charged the difference between the initial sales charge of the two
funds if the difference is more than 0.25%. If you exchange shares from a
money fund, a sales charge may apply no matter how long you have held the
shares.
EXCHANGES INTO CLASS A SHARES OF SMALL CAP FUND I FROM OTHER FRANKLIN
TEMPLETON FUNDS WILL BE ACCEPTED ONLY TO ADD TO AN EXISTING ACCOUNT AND NOT
TO ESTABLISH A NEW ACCOUNT, OTHER THAN A RETIREMENT PLAN ACCOUNT OR INVESTORS
IN WRAP PROGRAMS.
[Begin callout]
An EXCHANGE is really two transactions: a sale of one fund and the purchase
of another. In general, the same policies that apply to purchases and sales
apply to exchanges, including minimum investment amounts. Exchanges also have
the same tax consequences as ordinary sales and purchases.
[End callout]
Generally exchanges may only be made between identically registered accounts,
unless you send written instructions with a signature guarantee. Any CDSC
will continue to be calculated from the date of your initial investment and
will not be charged at the time of the exchange. The purchase price for
determining a CDSC on exchanged shares will be the price you paid for the
original shares. If you exchange shares subject to a CDSC into a Class A
money fund, the time your shares are held in the money fund will not count
towards the CDSC holding period.
If you exchange your Class B shares for the same class of shares of another
Franklin Templeton Fund, the time your shares are held in that fund will
count towards the eight year period for automatic conversion to Class A
shares.
Frequent exchanges can interfere with fund management or operations and drive
up costs for all shareholders. To protect shareholders, there are limits on
the number and amount of exchanges you may make (please see "Market Timers"
on page 59).
*Certain Class Z shareholders of Franklin Mutual Series Fund Inc. may
exchange into Class A without any sales charge. Advisor Class shareholders of
another Franklin Templeton Fund also may exchange into Class A without any
sales charge. Advisor Class shareholders who exchange their shares for Class
A shares and later decide they would like to exchange into another fund that
offers Advisor Class may do so.
SYSTEMATIC WITHDRAWAL PLAN This plan allows you to automatically sell your
shares and receive regular payments from your account. A CDSC may apply to
withdrawals that exceed certain amounts. Certain terms and minimums apply. To
sign up, complete the appropriate section of your application. Please keep in
mind that if a systematic withdrawal plan exhausts the Small Cap Fund I -
Class A Shares in your account, your account will be closed and you will not
be able to buy additional Small Cap Fund I Class A Shares or to reopen your
account.
[Insert graphic of a certificate] SELLING SHARES
You can sell your shares at any time. Please keep in mind that a contingent
deferred sales charge (CDSC) may apply. Please also keep in mind that if you
sell all the Class A Shares in your Small Cap Fund I account, your Small Cap
Fund I account will be closed and you will not be able to buy additional
Small Cap Fund I Class A Shares or to reopen your Small Cap Fund I account.
SELLING SHARES IN WRITING Generally, requests to sell $100,000 or less can be
made over the phone or with a simple letter. Sometimes, however, to protect
you and the fund we will need written instructions signed by all registered
owners, with a signature guarantee for each owner, if:
[Begin callout]
A SIGNATURE GUARANTEE helps protect your account against fraud. You can
obtain a signature guarantee at most banks and securities dealers.
A notary public CANNOT provide a signature guarantee.
[End callout]
o you are selling more than $100,000 worth of shares
o you want your proceeds paid to someone who is not a registered owner
o you want to send your proceeds somewhere other than the address of
record, or preauthorized bank or brokerage firm account
We also may require a signature guarantee on instructions we receive from an
agent, not the registered owners, or when we believe it would protect the
fund against potential claims based on the instructions received.
SELLING RECENTLY PURCHASED SHARES If you sell shares recently purchased with
a check or draft, we may delay sending you the proceeds until your check or
draft has cleared, which may take seven business days or more. A certified or
cashier's check may clear in less time.
REDEMPTION PROCEEDS Your redemption check will be sent within seven days
after we receive your request in proper form. We are not able to receive or
pay out cash in the form of currency. Redemption proceeds may be delayed if
we have not yet received your signed account application.
RETIREMENT PLANS You may need to complete additional forms to sell shares in
a Franklin Templeton Trust Company retirement plan. For participants under
age 591/2, tax penalties may apply. Call Retirement Services at
1-800/527-2020 for details.
SELLING SHARES
TO SELL SOME OR ALL OF YOUR SHARES
- ----------------------------------------------------------------------
[Insert graphic of hands Contact your investment
shaking] representative
THROUGH YOUR
INVESTMENT
REPRESENTATIVE
- ----------------------------------------------------------------------
[Insert graphic of envelope] Send written instructions and
BY MAIL endorsed share certificates (if you
hold share certificates) to Investor
Services. Corporate, partnership or
trust accounts may need to send
additional documents.
Specify the fund, the account number
and the dollar value or number of
shares you wish to sell. If you own
both Class A and B shares, also
specify the class of shares,
otherwise we will sell your Class A
shares first. Be sure to include all
necessary signatures and any
additional documents, as well as
signature guarantees if required.
A check will be mailed to the
name(s) and address on the account,
or otherwise according to your
written instructions.
- ----------------------------------------------------------------------
[Insert graphic of phone] As long as your transaction is for
$100,000 or less, you do not hold
BY PHONE share certificates and you have not
changed your address by phone within
1-800/632-2301 the last 15 days, you can sell your
shares by phone.
A check will be mailed to the
name(s) and address on the account.
Written instructions, with a
signature guarantee, are required to
send the check to another address or
to make it payable to another person.
- ----------------------------------------------------------------------
[Insert graphic of three You can call or write to have
lightning bolts] redemption proceeds sent to a bank
account. See the policies above for
BY ELECTRONIC FUNDS TRANSFER selling shares by mail or phone.
(ACH)
Before requesting to have redemption
proceeds sent to a bank account,
please make sure we have your bank
account information on file. If we
do not have this information, you
will need to send written
instructions with your bank's name
and address, a voided check or
savings account deposit slip, and a
signature guarantee if the ownership
of the bank and fund accounts is
different.
If we receive your request in proper
form by 1:00 p.m. Pacific time,
proceeds sent by ACH generally will
be available within two to three
business days.
- ----------------------------------------------------------------------
[Insert graphic of two arrows Obtain a current prospectus for the
pointing in opposite fund you are considering.
directions]
Call Shareholder Services at the
BY EXCHANGE number below or our automated
TeleFACTS system, or send signed
TeleFACTS(R) written instructions. See the
1-800/247-1753 policies above for selling shares by
(around-the-clock mail or phone.
access)
If you hold share certificates, you
will need to return them to the fund
before your exchange can be
processed.
- ----------------------------------------------------------------------
FRANKLIN TEMPLETON INVESTOR SERVICES P.O. BOX 997151,
SACRAMENTO, CA 95899-9983
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)
[Insert graphic of paper and pen] ACCOUNT POLICIES
CALCULATING SHARE PRICE Each fund calculates its net asset value per share
(NAV) each business day at the close of trading on the New York Stock
Exchange (normally 1:00 p.m. Pacific time). Each class's NAV is calculated by
dividing its net assets by the number of its shares outstanding.
[Begin callout]
When you buy shares, you pay the offering price. The offering price is the
NAV plus any applicable sales charge.
When you sell shares, you receive the NAV minus any applicable contingent
deferred sales charge (CDSC).
[End callout]
Each fund's assets are generally valued at their market value. If market
prices are unavailable, or if an event occurs after the close of the trading
market that materially affects the values, assets may be valued at their fair
value. If the fund holds securities listed primarily on a foreign exchange
that trades on days when the fund is not open for business, the value of your
shares may change on days that you cannot buy or sell shares.
Requests to buy and sell shares are processed at the NAV next calculated
after we receive your request in proper form.
ACCOUNTS WITH LOW BALANCES If the value of your account falls below $250 ($50
for employee and UGMA/UTMA accounts) because you sell some of your shares, we
may mail you a notice asking you to bring the account back up to its
applicable minimum investment amount. If you choose not to do so within 30
days, we may close your account and mail the proceeds to the address of
record. You will not be charged a CDSC if your account is closed for this
reason.
STATEMENTS AND REPORTS You will receive quarterly account statements that
show all your account transactions during the quarter. You also will receive
written notification after each transaction affecting your account (except
for distributions and transactions made through automatic investment or
withdrawal programs, which will be reported on your quarterly statement).
You also will receive the fund's financial reports every six months. To
reduce fund expenses, we try to identify related shareholders in a household
and send only one copy of the financial reports. If you need additional
copies, please call 1-800/DIAL BEN.
If there is a dealer or other investment representative of record on your
account, he or she also will receive copies of all notifications and
statements and other information about your account directly from the fund.
STREET OR NOMINEE ACCOUNTS You may transfer your shares from the street or
nominee name account of one dealer to another, as long as both dealers have
an agreement with Franklin Templeton Distributors, Inc. We will process the
transfer after we receive authorization in proper form from your delivering
securities dealer.
JOINT ACCOUNTS Unless you specify a different registration, accounts with two
or more owners are registered as "joint tenants with rights of survivorship"
(shown as "Jt Ten" on your account statement). To make any ownership changes
to a joint account, all owners must agree in writing, regardless of the law
in your state.
MARKET TIMERS The Aggressive Growth Fund, Large Cap Fund and Small Cap Fund
II may restrict or refuse exchanges by market timers. If accepted, each
exchange by a market timer will be charged $5 by Franklin/Templeton Investor
Services, Inc., the fund's transfer agent. The California Fund and Small Cap
Fund I do not allow investments by market timers. You will be considered a
market timer if you have (i) requested an exchange out of the fund within two
weeks of an earlier exchange request, or (ii) exchanged shares out of the
fund more than twice in a calendar quarter, or (iii) exchanged shares equal
to at least $5 million, or more than 1% of the fund's net assets, or (iv)
otherwise seem to follow a timing pattern. Shares under common ownership or
control are combined for these limits.
ADDITIONAL POLICIES Please note that the funds maintain additional policies
and reserve certain rights, including:
o The funds may refuse any order to buy shares, including any purchase
under the exchange privilege.
o At any time, the funds may change their investment minimums or waive or
lower their minimums for certain purchases.
o The funds may modify or discontinue the exchange privilege on 60 days'
notice.
o In unusual circumstances, we may temporarily suspend redemptions, or
postpone the payment of proceeds, as allowed by federal securities laws.
o For redemptions over a certain amount, each fund reserves the right to
make payments in securities or other assets of the fund, in the case of an
emergency or if the payment by check, wire or electronic funds transfer
would be harmful to existing shareholders.
o To permit investors to obtain the current price, dealers are responsible
for transmitting all orders to the funds promptly.
DEALER COMPENSATION Qualifying dealers who sell fund shares may receive sales
commissions and other payments. These are paid by Franklin Templeton
Distributors, Inc. (Distributors) from sales charges, distribution and
service (12b-1) fees and its other resources.
CLASS A CLASS B CLASS C
- ----------------------------------------------------------------------
COMMISSION (%) - 4.00 2.00
Investment under $50,000 5.00 - -
$50,000 but under $100,000 3.75 - -
$100,000 but under $250,000 2.80 - -
$250,000 but under $500,000 2.00 - -
$500,000 but under $1 million 1.60 - -
$1 million or more up to 1.00 1 - -
12B-1 FEE TO DEALER 0.25 2 0.25 3 1.00 4
A dealer commission of up to 1% may be paid on Class A NAV purchases by
certain retirement plans1 and on Class C NAV purchases. A dealer commission
of up to 0.25% may be paid on Class A NAV purchases by certain trust
companies and bank trust departments, eligible governmental authorities, and
broker-dealers or others on behalf of clients participating in comprehensive
fee programs.
1. During the first year after purchase, dealers may not be eligible to
receive the 12b-1 fee.
2. The Aggressive Growth Fund and Large Cap Fund may each pay up to 0.35% to
Distributors or others, out of which 0.10% generally will be retained by
Distributors for its distribution expenses.
3. Dealers may be eligible to receive up to 0.25% from the date of purchase.
After 8 years, Class B shares convert to Class A shares and dealers may then
receive the 12b-1 fee applicable to Class A.
4. Dealers may be eligible to receive up to 0.25% during the first year after
purchase and may be eligible to receive the full 12b-1 fee starting in the
13th month.
[Insert graphic of question mark] QUESTIONS
If you have any questions about the funds or your account, you can write to
us at P.O. Box 997151, Sacramento, CA 95899-9983. You can also call us at one
of the following numbers. For your protection and to help ensure we provide
you with quality service, all calls may be monitored or recorded.
HOURS (PACIFIC TIME,
DEPARTMENT NAME TELEPHONE NUMBER MONDAY THROUGH FRIDAY)
- -----------------------------------------------------------------
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
6:30 a.m. to 2:30 p.m. (Saturday)
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m. (Saturday)
Retirement Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Advisor Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Institutional 1-800/321-8563 6:00 a.m. to 5:00 p.m.
Services
TDD (hearing 1-800/851-0637 5:30 a.m. to 5:00 p.m.
impaired)
FOR MORE INFORMATION
You can learn more about each fund in the following documents:
ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS
Includes a discussion of recent market conditions and fund strategies,
financial statements, detailed performance information, portfolio holdings
and the auditor's report.
STATEMENTS OF ADDITIONAL INFORMATION (SAIS)
Contains more information about each fund, its investments and policies. It
is incorporated by reference (is legally a part of this prospectus).
For a free copy of the current annual/semiannual report or the SAI, please
contact your investment representative or call us at the number below.
FRANKLIN(R)TEMPLETON(R)
1-800/DIAL BEN(R) (1-800/342-5236)
TDD (Hearing Impaired) 1-800/851-0637
www.franklintempleton.com
You also can obtain information about each fund by visiting the SEC's Public
Reference Room in Washington, D.C. (phone 1-202/942-8090) or the EDGAR
Database on the SEC's Internet site at http://www.sec.gov. You can obtain
copies of this information, after paying a duplicating fee, by writing to the
SEC's Public Reference Section, Washington, D.C. 20549-0102 or by electronic
request at the following E-mail address: [email protected].
Investment Company Act file #811-6243 FSS1 P 05/00
EXHIBIT C
ANNUAL REPORT TO SHAREHOLDERS OF
FRANKLIN STRATEGIC SERIES
DATED APRIL 30, 1999
The Annual Report to shareholders of the Franklin California Growth Fund and
Franklin MidCap Growth Fund dated April 30, 1999, is part of this
Prospectus/Proxy Statement and will be included in the proxy mailing to all
shareholders of record. For purposes of the instant Edgar filing, the Annual
Report of Franklin California Growth Fund and Franklin MidCap Growth Fund dated
April 30, 1999, is incorporated herein by reference to the electronic filing
made on June 22, 1999, under File No. 33-39088.
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN
YOUR PROXY TODAY
Please detach at perforation before mailing.
PROXY PROXY
SPECIAL FRANKLIN SHAREHOLDERS' MEETING OF
MIDCAP GROWTH FUND
JULY 19, 2000
The undersigned hereby revokes all previous proxies for his shares and
appoints Rupert Johnson, Jr., Harmon E. Burns, Deborah R. Gatzek,, Barbara
Green, and David P. Goss, and each of them, proxies of the undersigned with
full power of substitution to vote all shares of Franklin MidCap Growth Fund
(the "MidCap Growth Fund") that the undersigned is entitled to vote at MidCap
Growth Fund's Special Shareholders' Meeting to be held at 777 Mariners Island
Boulevard, San Mateo, CA 94404 at 1:00 p.m., Pacific time on July 19, 2000,
including any adjournment 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 THE ATTACHED PROXY AND RETURN IT PROMPTLY.
THIS WILL SAVE THE EXPENSE OF FOLLOW-UP LETTERS TO SHAREHOLDERS WHO HAVE NOT
RESPONDED.
Note: Please sign exactly as
your name appears on the
proxy. If signing for
estates, trusts or
corporations, title or
capacity should be stated.
If shares are held jointly,
each holder must sign.
----------------------------
Signature
----------------------------
Signature
----------------------------
Date
(Please see reverse side)
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR
PROXY TODAY
Please detach at perforation before mailing.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST ON
BEHALF OF MIDCAP GROWTH FUND. IT WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, THIS PROXY SHALL BE VOTED IN FAVOR OF PROPOSAL 1,
REGARDING THE REORGANIZATION OF THE MIDCAP GROWTH FUND PURSUANT TO THE PLAN
OF REORGANIZATION WITH CALIFORNIA GROWTH FUND. IF ANY OTHER MATTERS PROPERLY
COME BEFORE THE MEETING ABOUT WHICH THE PROXYHOLDERS WERE NOT AWARE PRIOR TO
THE TIME OF THE SOLICITATION, AUTHORIZATION IS GIVEN THE PROXYHOLDERS TO VOTE
IN ACCORDANCE WITH THE VIEWS OF MANAGEMENT ON SUCH MATTERS. MANAGEMENT IS
NOT AWARE OF ANY SUCH MATTERS.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR PROPOSAL 1.
FOR AGAINST ABSTAIN
1. To approve a Plan of
Reorganization between |_| |_| |_|
Franklin MidCap Growth Fund
("MidCap Growth Fund") and
California Growth ("California
Growth Fund"), that provides
for the acquisition of
substantially all of the
assets of MidCap Growth Fund
in exchange for Class A shares
of California Growth Fund, the
distribution of such shares to
the shareholders of MidCap
Growth Fund, and the
dissolution of MidCap Growth
Fund (the "Reorganization").
GRANT WITHHOLD ABSTAIN
2. To grant the proxyholders the
authority to vote upon any |_| |_| |_|
other business which may
legally come before the
Meeting or any adjournment
thereof.
IMPORTANT: PLEASE SIGN AND MAIL IN YOUR PROXY. . . TODAY
PLEASE SIGN AND PROMPTLY RETURN IN THE ACCOMPANYING ENVELOPE. NO POSTAGE
REQUIRED IF MAILED IN THE U.S.
Part B
STATEMENT OF ADDITIONAL INFORMATION
FOR
FRANKLIN CALIFORNIA GROWTH FUND
DATED MAY [__], 2000
Acquisition of
the Assets of
FRANKLIN MIDCAP GROWTH FUND,
a series of Franklin Strategic Series
By and in exchange for shares of the
FRANKLIN CALIFORNIA GROWTH FUND,
also a series of Franklin Strategic Series
This Statement of Additional Information (SAI) relates specifically to the
proposed delivery of substantially all of the assets of Franklin MidCap Growth
Fund for Class A shares of Franklin California Growth Fund.
This SAI consists of this Cover Page and the following documents. Each of
these documents is attached to and is legally considered to be a part of this
SAI:
1. Statement of Additional Information of Franklin California
Growth Fund and Franklin MidCap Growth Fund dated September
1, 1999, as amended January 1, 2000, and as supplemented
February 16, 2000.
2. Annual Report of Franklin California Growth Fund and Franklin
MidCap Growth Fund for the fiscal year ended April 30, 1999.
3. Semiannual Report of Franklin California Growth Fund and
Franklin MidCap Growth Fund for the six months ended October
31, 1999.
This SAI is not a Prospectus; you should read this SAI in conjunction with
the Prospectus/Proxy Statement dated May [_], 2000, relating to the
above-referenced transaction. You can request a copy of the Prospectus/Proxy
Statement by calling 1-800/DIAL BEN or by writing to Franklin California Growth
Fund, 777 Mariners Island Boulevard, P.O. Box 7777, San Mateo, CA 94403-7777.
The Statement of Additional Information of Franklin California Growth Fund and
Franklin MidCap Growth Fund dated September 1, 1999, as amended January 1, 2000,
and as supplemented February 16, 2000, is part of this SAI and will be provided
to all shareholders requesting this SAI. For purposes of the instant Edgar
filing, the Statement of Additional Information of Franklin California Growth
Fund and Franklin MidCap Growth Fund dated September 1, 1999, as amended January
1, 2000, and as supplemented February 16, 2000, is incorporated herein by
reference to the electronic filings made on December 20, 1999, January 28, 2000,
and February 16, 2000, under File No. 33-39088.
The Annual Report to shareholders of the Franklin California Growth Fund and
Franklin MidCap Growth Fund dated April 30, 1999, is part of this SAI and will
be provided to all shareholders requesting this SAI. For purposes of the instant
Edgar filing, the Annual Report of Franklin California Growth Fund and Franklin
MidCap Growth Fund dated April 30, 1999, is incorporated herein by reference to
the electronic filing made on June 22, 1999, under File No. 33-39088.
The Semiannual Report of Franklin California Growth Fund and Franklin MidCap
Growth Fund dated April 30, 1999, is part of this SAI and will be provided to
all shareholders requesting this SAI.. For purposes of the instant Edgar filing,
the Semiannual Report of Franklin California Growth Fund and Franklin MidCap
Growth Fund dated April 30, 1999, is incorporated herein by reference to the
electronic filing made on January 6, 2000, under File No. 33-39088.
FRANKLIN STRATEGIC SERIES
FILE NOS. 33-39088 &
811-6243
FORM N-14
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a Court of appropriate
jurisdiction the question whether such indemnification is against public policy
as expressed in the Act and will be governed by the final adjudication of such
issue.
ITEM 16 EXHIBITS. The following exhibits are incorporated by reference to the
previously filed document indicated below, except Exhibits 12(a), 14(a), 16(a)
and 16(b):
(1) Copies of the charter of the Registrant as now in effect;
(a) Agreement and Declaration of Trust of Franklin California
250 Growth Index Fund dated January 22, 1991
Filing: Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(b) Certificate of Trust dated January 22, 1991
Filing: Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(c) Certificate of Amendment to the Certificate of Trust
dated November 19, 1991
Filing: Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(d) Certificate of Amendment to the Certificate of Trust of
Franklin Strategic Series dated May 14, 1992
Filing: Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(e) Certificate of Amendment of Agreement and Declaration of
Trust of Franklin Strategic Series dated April 18, 1995
Filing: Post-Effective Amendment No. 21 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: August 6, 1996
(2) Copies of the existing by-laws or corresponding instruments of the
Registrant;
(a) Amended and Restated By-Laws as of April 25, 1991
Filing: Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(b) Amendment to By-Laws dated October 27, 1994
Filing: Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(3) Copies of any voting trust agreement affecting more than five
percent of any class of equity securities of the Registrant;
Not Applicable
(4) Copies of the agreement of acquisition, reorganization, merger,
liquidation and any amendments to it;
(a) The Plan of Reorganization is included in this
registration statement as Exhibit A to the
Prospectus/Proxy Statement
(5) Copies of all instruments defining the rights of holders of the
securities being registered including, where applicable, the
relevant portion of the articles of incorporation or by-laws of
the Registrant;
Not Applicable
(6) Copies of all investment advisory contracts relating to the
management of the assets of the Registrant;
(a) Management Agreement between the Registrant, on behalf of
Franklin Global Health Care Fund, Franklin Small Cap
Growth Fund, Franklin Global Utilities Fund, and Franklin
Natural Resources Fund, and Franklin Advisers, Inc.,
dated February 24, 1992
Filing: Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(b) Management Agreement between the Registrant, on behalf of
Franklin Strategic Income Fund, and Franklin Advisers,
Inc., dated May 24, 1994
Filing: Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(c) Subadvisory Agreement between Franklin Advisers, Inc., on
behalf of the Franklin Strategic Income Fund, and
Templeton Investment Counsel, Inc., dated May 24, 1994
Filing: Post-Effective Amendment No. 21 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: August 6, 1996
(d) Amended and Restated Management Agreement between the
Registrant, on behalf of Franklin California Growth Fund,
and Franklin Advisers, Inc., dated July 12, 1993
Filing: Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(e) Management Agreement between the Registrant, on behalf of
Franklin Blue Chip Fund, and Franklin Advisers, Inc.,
dated February 13, 1996
Filing: Post-Effective Amendment No. 18 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: March 14, 1996
(f) Management Agreement between the Registrant, on behalf of
Franklin Institutional MidCap Growth Fund (now known as
Franklin MidCap Growth Fund), and Franklin Advisers,
Inc., dated January 1, 1996
Filing: Post-Effective Amendment No. 19 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: March 27, 1996
(g) Amendment dated August 1, 1995 to the Management
Agreement between the Registrant, on behalf of Franklin
California Growth Fund, and Franklin Advisers, Inc.,
dated July 12, 1993
Filing: Post-Effective Amendment No. 21 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: August 6, 1996
(h) Amendment dated August 1, 1995 to the Management
Agreement between the Registrant, on behalf of Franklin
Global Health Care Fund, Franklin Small Cap Growth Fund,
Franklin Global Utilities Fund, and Franklin Natural
Resources Fund, and Franklin Advisers, Inc., dated
February 24, 1992
Filing: Post-Effective Amendment No. 21 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: August 6, 1996
(i) Amendment dated August 1, 1995 to the Management
Agreement between the Registrant, on behalf of Franklin
Strategic Income Fund, and Franklin Advisers, Inc., dated
May 24, 1994
Filing: Post-Effective Amendment No. 21 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: August 6, 1996
(j) Management Agreement between the Registrant, on behalf of
Franklin Biotechnology Discovery Fund, and Franklin
Advisers, Inc., dated July 15, 1997
Filing: Post-Effective Amendment No. 25 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: August 22, 1997
(k) Investment Advisory Agreement between the Registrant, on
behalf of Franklin U.S. Long-Short Fund, and Franklin
Advisers, Inc. dated February 18, 1999
Filing: Post-Effective Amendment No. 31 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: March 11, 1999
(l) Investment Advisory Agreement between the Registrant, on
behalf of Franklin Large Cap Growth Fund, and Franklin
Advisers, Inc. dated May 18, 1999
Filing: Post-Effective Amendment No. 37 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 25, 1999
(m) Investment Advisory Agreement between the Registrant, on
behalf of Franklin Aggressive Growth Fund, and Franklin
Advisers, Inc. dated May 18, 1999
Filing: Post-Effective Amendment No. 37 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 25, 1999
(n) Form of Investment Advisory Agreement between the
Registrant, on behalf of Franklin Technology Fund, and
Franklin Advisers, Inc.
Filing: Post-Effective Amendment No. 39 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: February 16, 2000
(o) Form of Investment Advisory Agreement between the
Registrant, on behalf of Franklin Small Cap Growth Fund
II, and Franklin Advisers, Inc.
Filing: Post-Effective Amendment No. 39 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: February 16, 2000
(7) Copies of each underwriting or distribution contract between the
Registrant and a principal underwriter, and specimens or copies
of all agreements between principal underwriters and dealers;
(a) Amended and Restated Distribution Agreement between the
Registrant, on behalf of all Series except Franklin
Strategic Income Fund, and Franklin/Templeton
Distributors, Inc., dated April 23, 1995
Filing: Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(b) Amended and Restated Distribution Agreement between the
Registrant, on behalf of Franklin Strategic Income Fund,
and Franklin/Templeton Distributors, Inc., dated March
29, 1995
Filing: Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(c) Forms of Dealer Agreements between Franklin/Templeton
Distributors, Inc. and Securities Dealers dated March 1,
1998
Filing: Post-Effective Amendment No. 30 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: December 23, 1998
(d) Amendment of Amended and Restated Distribution Agreement
between the Registrant on behalf of Franklin Strategic
Income Fund, and Franklin/Templeton Distributors, Inc.
dated January 12, 1999
Filing: Post-Effective Amendment No. 37 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 25, 1999
(e) Amendment of Amended and Restated Distribution Agreement
between the Registrant on behalf of all series except
Franklin Strategic Income Fund, and Franklin/Templeton
Distributors, Inc. dated January 12, 1999
Filing: Post-Effective Amendment No. 37 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 25, 1999
(8) Copies of all bonus, profit sharing, pension, or other similar
contracts or arrangements wholly or partly for the benefit of
trustees or officers of the Registrant in their capacity as such.
Furnish a reasonably detailed description of any plan that is not
set forth in a formal document;
Not Applicable
(9) Copies of all custodian agreements and depository contracts under
Section 17(f) of the 1940 Act for securities and similar
investments of the Registrant, including the schedule of
remuneration;
(a) Master Custody Agreement between the Registrant and Bank
of New York dated February 16, 1996
Filing: Post-Effective Amendment No. 19 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: March 14, 1996
(b) Terminal Link Agreement between the Registrant and Bank
of New York dated February 16, 1996
Filing: Post-Effective Amendment No. 19 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: March 14, 1996
(c) Amendment dated May 7, 1997 to Master Custody Agreement
between Registrant and Bank of New York dated February
16, 1996
Filing: Post-Effective Amendment No. 27 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: March 13, 1998
(d) Amendment dated February 27, 1998 to Master Custody
Agreement between Registrant and Bank of New York dated
February 16, 1996
Filing: Post-Effective Amendment No. 30 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: December 23, 1998
(e) Foreign Custody Manager Agreement between the Registrant
and Bank of New York dated February 27, 1998
Filing: Post-Effective Amendment No. 30 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: December 23, 1998
(f) Amendment dated September 16, 1999 to Exhibit A of the
Master Custody Agreement
Filing: Post-Effective Amendment No. 38 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: January 28, 2000
(10) Copies of any plan entered into by Registrant pursuant to Rule
12b-1 under the 1940 Act and any agreements with any person
relating to implementation of the plan, and copies of any plan
entered into by Registrant pursuant to Rule 18f-3 under the 1940
Act, any agreement with any person relating to implementation of
the plan, any amendment to the plan, and a copy of the portion of
the minutes of the meeting of the Registrant's trustees
describing any action taken to revoke the plan;
(a) Amended and Restated Distribution Plan between the
Registrant, on behalf of Franklin California Growth Fund,
Franklin Small Cap Growth Fund, Franklin Global Health
Care Fund and Franklin Global Utilities Fund, and
Franklin/Templeton Distributors, Inc., dated July 1, 1993
Filing: Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(b) Distribution Plan between the Registrant, on behalf of
Franklin Global Utilities Fund - Class II, and
Franklin/Templeton Distributors, Inc., dated March 30,
1995
Filing: Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(c) Distribution Plan pursuant to Rule 12b-1 between the
Registrant, on behalf of the Franklin Strategic Income
Fund, and Franklin/Templeton Distributors, Inc., dated
May 24, 1994
Filing: Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(d) Distribution Plan pursuant to Rule 12b-1 between the
Registrant, on behalf of the Franklin Natural Resources
Fund, and Franklin/Templeton Distributors, Inc., dated
June 1, 1995
Filing: Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(e) Distribution Plan pursuant to Rule 12b-1 between the
Registrant, on behalf of the Franklin MidCap Growth Fund,
and Franklin/Templeton Distributors, Inc., dated June 1,
1996
Filing: Post-Effective Amendment No. 21 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: August 7, 1996
(f) Distribution Plan pursuant to Rule 12b-1 between the
Registrant, on behalf of the Franklin Blue Chip Fund, and
Franklin/Templeton Distributors, Inc., dated May 28, 1996
Filing: Post-Effective Amendment No. 21 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: August 7, 1996
(g) Distribution Plan pursuant to Rule 12b-1 between the
Registrant, on behalf of Franklin Small Cap Growth Fund -
Class II, and Franklin/Templeton Distributors, Inc.,
dated September 29, 1995
Filing: Post-Effective Amendment No. 21 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: August 7, 1996
(h) Distribution Plan pursuant to Rule 12b-1 between the
Registrant, on behalf of Franklin Biotechnology Discovery
Fund and Franklin/Templeton Distributors, Inc., dated
September 15, 1997
Filing: Post-Effective Amendment No. 27 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: March 13, 1998
(i) Distribution Plan pursuant to Rule 12b-1 between the
Registrant, on behalf of Franklin California Growth Fund
- Class II and Franklin Global Health Care Fund - Class
II, and Franklin/Templeton Distributors, Inc., dated
September 3, 1996
Filing: Post-Effective Amendment No. 26 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: August 29, 1997
(j) Distribution Plan pursuant to Rule 12b-1 between
Registrant, on behalf of Franklin Strategic Income Fund -
Class II, and Franklin/Templeton Distributors, Inc. dated
February 26, 1998
Filing: Post-Effective Amendment No. 28 to Registration
Statement on Form N-1A
File No. 33-39088
Filing date: April 21, 1998
(k) Distribution Plan pursuant to Rule 12b-1 between the
Registrant, on behalf of Franklin California Growth Fund
- Class B, and Franklin/Templeton Distributors, Inc.
dated October 16, 1998
Filing: Post-Effective Amendment No. 33 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: March 24, 1999
(l) Distribution Plan pursuant to Rule 12b-1 between the
Registrant, on behalf of Franklin Global Health Care Fund
- Class B, and Franklin/Templeton Distributors, Inc.
dated October 16, 1998
Filing: Post-Effective Amendment No. 33 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: March 24, 1999
(m) Distribution Plan pursuant to Rule 12b-1 between the
Registrant, on behalf of Franklin Global Utilities Fund -
Class B, and Franklin/Templeton Distributors, Inc. dated
October 16, 1998
Filing: Post-Effective Amendment No. 33 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: March 24, 1999
(n) Distribution Plan pursuant to Rule 12b-1 between the
Registrant, on behalf of Franklin Strategic Income Fund -
Class B, and Franklin/Templeton Distributors, Inc. dated
October 16, 1998
Filing: Post-Effective Amendment No. 33 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: March 24, 1999
(o) Distribution Plan pursuant to Rule 12b-1 between the
Registrant, on behalf of Franklin U.S. Long-Short Fund,
and Franklin/Templeton Distributors, Inc. dated April 15,
1999
Filing: Post-Effective Amendment No. 37 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 25, 1999
(p) Distribution Plan pursuant to Rule 12b-1 between the
Registrant, on behalf of Franklin Large Cap Growth Fund -
Class A, and Franklin/Templeton Distributors, Inc. dated
May 18, 1999
Filing: Post-Effective Amendment No. 37 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 25, 1999
(q) Distribution Plan pursuant to Rule 12b-1 between the
Registrant, on behalf of Franklin Aggressive Growth Fund
- Class A, and Franklin/Templeton Distributors, Inc.
dated May 18, 1999
Filing: Post-Effective Amendment No. 37 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 25, 1999
(r) Distribution Plan pursuant to Rule 12b-1 between the
Registrant, on behalf of Franklin Large Cap Growth Fund
- Class B, and Franklin/Templeton Distributors, Inc.
dated May 18, 1999
Filing: Post-Effective Amendment No. 37 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 25, 1999
(s) Distribution Plan pursuant to Rule 12b-1 between the
Registrant, on behalf of Franklin Aggressive Growth Fund
- Class B, and Franklin/Templeton Distributors, Inc.
dated May 18, 1999
Filing: Post-Effective Amendment No. 37 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 25, 1999
(t) Distribution Plan pursuant to Rule 12b-1 between the
Registrant, on behalf of Franklin Large Cap Growth Fund -
Class C, and Franklin/Templeton Distributors, Inc. dated
May 18, 1999
Filing: Post-Effective Amendment No. 37 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 25, 1999
(u) Distribution Plan pursuant to Rule 12b-1 between the
Registrant, on behalf of Franklin Aggressive Growth Fund
- Class C, and Franklin/Templeton Distributors, Inc.
dated May 18, 1999
Filing: Post-Effective Amendment No. 37 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 25, 1999
(v) Form of Distribution Plan pursuant to Rule 12b-1 between
the Registrant, on behalf of Franklin Blue Chip Fund -
Class B, and Franklin/Templeton Distributors, Inc.
Filing: Post-Effective Amendment No. 38 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: January 28, 2000
(w) Form of Distribution Plan pursuant to Rule 12b-1 between
the Registrant, on behalf of Franklin Blue Chip Fund -
Class C, and Franklin/Templeton Distributors, Inc.
Filing: Post-Effective Amendment No. 38 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: January 28, 2000
(x) Multiple Class Plan for Franklin Global Utilities Fund
dated April 16, 1998
Filing: Post-Effective Amendment No. 33 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: March 24, 1999
(y) Multiple Class Plan for Franklin California Growth Fund
dated April 16, 1998
Filing: Post-Effective Amendment No. 33 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: March 24, 1999
(z) Multiple Class Plan for Franklin Global Health Care Fund
dated April 16, 1998
Filing: Post-Effective Amendment No. 33 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: March 24, 1999
(aa) Multiple Class Plan for Franklin Small Cap Growth Fund
dated June 18, 1996
Filing: Post-Effective Amendment No. 24 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: December 11, 1996
(bb) Multiple Class Plan for Franklin Natural Resources Fund
dated June 18, 1996
Filing: Post-Effective Amendment No. 24 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: December 11, 1996
(cc) Multiple Class Plan for Franklin Strategic Income Fund
dated February 18, 1999
Filing: Post-Effective Amendment No. 32 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: March 24, 1999
(dd) Multiple Class Plan for Franklin Large Cap Growth Fund
dated May 18, 1999
Filing: Post-Effective Amendment No. 37 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 25, 1999
(ee) Multiple Class Plan for Franklin Aggressive Growth Fund
dated May 18, 1999
Filing: Post-Effective Amendment No. 37 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 25, 1999
(ff) Form of Multiple Class Plan for Franklin Blue Chip Fund
Filing: Post-Effective Amendment No. 38 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: January 28, 2000
(11) An opinion and consent of counsel as to the legality of the
securities being registered, indicating whether they will, when
sold, be legally issued, fully paid and nonassessable;
(a) Opinion and consent of counsel dated March 8, 1999
Filing: Post-Effective Amendment No. 31 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: March 11, 1999
(12) An opinion, and consent to their use, of counsel or, in lieu of an
opinion, a copy of the revenue ruling from the Internal Revenue
Service, supporting the tax matters and consequences to
shareholders discussed in the prospectus;
(a) Form of Opinion and Consent of Counsel Supporting Tax
Matters and Consequences to Shareholders
(13) Copies of all material contracts of the Registrant not made in the
ordinary course of business which are to be performed in whole or
in part on or after the date of filing the registration
statement;
(a) Subcontract for Fund Administrative Services dated
October 1, 1996 and Amendment thereto dated April 30,
1998 between Franklin Advisers, Inc. and Franklin
Templeton Services, Inc.
Filing: Post-Effective Amendment No. 30 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: December 23, 1998
(b) Administration Agreement between the Registrant, on
behalf of Franklin Biotechnology Discovery Fund, and
Franklin Templeton Services, Inc., dated July 15, 1997
Filing: Post-Effective Amendment No. 25 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: August 22, 1997
(c) Fund Administration Agreement between the Registrant, on
behalf of Franklin U.S. Long-Short Fund, and Franklin
Templeton Services, Inc. dated February 18, 1999
Filing: Post-Effective Amendment No. 31 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: March 11, 1999
(d) Fund Administration Agreement between the Registrant, on
behalf of Franklin Large Cap Growth Fund, and Franklin
Templeton Services, Inc. dated May 18, 1999
Filing: Post-Effective Amendment No. 37 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 25, 1999
(e) Fund Administration Agreement between the Registrant, on
behalf of Franklin Aggressive Growth Fund, and Franklin
Templeton Services, Inc. dated May 18, 1999
Filing: Post-Effective Amendment No. 37 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 25, 1999
(f) Form of Fund Administration Agreement between the
Registrant, on behalf of Franklin Technology Fund, and
Franklin Advisers, Inc.
Filing: Post-Effective Amendment No. 39 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: February 16, 2000
(g) Form of Fund Administration Agreement between the
Registrant, on behalf of Franklin Small Cap Growth Fund
II, and Franklin Advisers, Inc.
Filing: Post-Effective Amendment No. 39 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: February 16, 2000
(14) Copies of any other opinions, appraisals, or rulings, and
consents to their use, relied on in preparing the registration
statement and required by Section 7 of the 1933 Act;
(15) all financial statements omitted pursuant to Items 14(a)(1);
Not Applicable
(16) Manually signed copies of any power of attorney pursuant to which
the name of any person has been signed to the registration
statement; and
(a) Power of Attorney for Franklin Strategic Series dated [
], 2000
Filing: Post-Effective Amendment No. 38 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: January 28, 2000
(b) Certificate of Secretary dated [ ], 2000
Filing: Post-Effective Amendment No. 38 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: January 28, 2000
(17) Any additional exhibits which the registrant may wish to file.
Not Applicable
ITEM 17 UNDERTAKINGS
(a) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of
prospectus which is part of this registration statement by
any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c) of the Securities Act,
the reoffering prospectus will contain the information
called for by the applicable registration form for
reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items
of the applicable form.
(b) The undersigned Registrant agrees that every prospectus
that is filed under paragraph (1) above will be filed as
part of an amendment to the registration statement and will
not be used until the amendment is effective, and that, in
determining any liability under the 1933 Act, each
post-effective amendment shall be deemed to be a new
registrations statement for the securities offered therein,
and the offering of the securities at that time shall be
deemed top be the initial bona fide offering of them.
SIGNATURES
As required by the Securities Act of 1933, this registration statement has
been signed on behalf of the Registrant, in the City of San Mateo and the State
of California, on the 20th day of April, 2000.
FRANKLIN STRATEGIC SERIES
(Registrant)
By: RUPERT H. JOHNSON, JR.*
Rupert H. Johnson, Jr.
President
As required by the Securities Act of 1933, this Registration Statement has
been signed below by the following persons in the capacities and on the dates
indicated:
RUPERT H. JOHNSON, JR.* Principal Executive Officer
Rupert H. Johnson, Jr. and Trustee
Dated: April 20, 2000
MARTIN L. FLANAGAN* Principal Financial Officer
Martin L. Flanagan Dated: April 20, 2000
KIMBERLEY H. MONASTERIO* Principal Accounting Officer
Kimberley H. Monasterio Dated: April 20, 2000
FRANK H. ABBOTT, III* Trustee
Frank H. Abbott, III Dated: April 20, 2000
HARRIS J. ASHTON* Trustee
Harris J. Ashton Dated: April 20, 2000
HARMON E. BURNS* Trustee
Harmon E. Burns Dated: April 20, 2000
S. JOSEPH FORTUNATO* Trustee
S. Joseph Fortunato Dated: April 20, 2000
EDITH E. HOLIDAY* Trustee
Edith E. Holiday Dated: April 20, 2000
CHARLES B. JOHNSON* Trustee
Charles B. Johnson Dated: April 20, 2000
FRANK W.T. LAHAYE* Trustee
Frank W.T. LaHaye Dated: April 20, 2000
GORDON S. MACKLIN* Trustee
Gordon S. Macklin Dated: April 20, 2000
By:
David Goss
Attorney-in-Fact
(Pursuant to Power of Attorney filed herewith)
FRANKLIN STRATEGIC SERIES
REGISTRATION STATEMENT
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
EX-99.(12)(a) Form of Opinion and Consent of Counsel Supporting Tax
Matters and Consequences to Shareholders
EX-99.(14)(a) Consent of Auditors, PricewaterhouseCoopers LLP
EX-99.(16)(a) Power of Attorney for Franklin Strategic Series
EX-99.(16)(b) Certificate of Secretary for Franklin Strategic Series
[FORM OF OPINION]
Law Offices
STRADLEY, RONON, STEVENS & YOUNG, LLP
2600 One Commerce Square
Philadelphia, PA 19103-7098
(215) 564-8000
April 19, 2000
Board of Trustees
Franklin Strategic Series
777 Mariners Island Blvd.
San Mateo, CA 94404
Re: AGREEMENT AND PLAN OF REORGANIZATION, DATED AS OF THE ___
DAY OF APRIL, 2000 (THE "AGREEMENT"), MADE BY FRANKLIN
STATEGIC SERIES, A DELAWARE BUSINESS TRUST (THE "TRUST") ON
BEHALF OF TWO OF ITS SERIES, FRANKLIN MIDCAP GROWTH FUND
("ACQUIRED FUND") AND FRANKLIN CALIFORNIA GROWTH FUND ("ACQUIRING
FUND")
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Ladies and Gentlemen:
You have requested our opinion as to certain federal income tax
consequences of the reorganization of Acquired Fund which will consist of (i)
the acquisition by the Acquiring Fund, of substantially all of the property,
assets and goodwill of the Acquired Fund in exchange solely for shares of
beneficial interest, par value $0.01 per share, of the Acquiring Fund - Class A
("Acquiring Fund Shares"); and (ii) the distribution by the Acquired Fund of the
Acquiring Fund Shares to the shareholders of the Acquired Fund, and (iii) the
subsequent dissolution of Acquired Fund as soon as practicable after the closing
(the "Reorganization"), all upon and subject to the terms and conditions of the
Agreement.
In rendering our opinion, we have reviewed and relied upon (a) the
Agreement and Plan of Reorganization, dated as of the ___ day of April, 2000,
made by the Trust on behalf of the Acquiring Fund and the Acquired Fund, (b) the
proxy materials provided to stockholders of the Acquired Fund in connection with
the Special Meeting of Stockholders of the Acquired Fund held on the ___ day of
____________, 2000, (c) certain representations concerning the Reorganization
made to us by the Trust on behalf of Acquiring Fund and by the Acquired Fund in
a letter dated , 2000 (the "Representation Letter"), (d) all other documents,
financial and other reports and corporate minutes which we deemed relevant or
appropriate, and (e) such statutes, regulations, rulings and decisions as we
deemed material to the rendition of this opinion. All terms used herein, unless
otherwise defined, are used as defined in the Agreement.
For purposes of this opinion, we have assumed that the Acquired Fund on the
effective date of the Reorganization satisfies, and following the
Reorganization, the Acquiring Fund will continue to satisfy, the requirements of
subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), for
qualification as a regulated investment company.
Under regulations to be prescribed by the Secretary of Treasury under
Section 1276(d) of the Code, certain transfers of market discount bonds will be
excepted from the requirement that accrued market discount be recognized on
disposition of a market discount bond under Section 1276(a) of the Code. Such
regulations are to provide, in part, that accrued market discount will not be
included in income if no gain is recognized under Section 361(a) of the Code
where a bond is transferred in an exchange qualifying as a tax-free
reorganization. As of the date hereof, the Secretary has not issued any
regulations under Section 1276 of the Code.
Based on the foregoing and provided the Reorganization is carried out in
accordance with the applicable laws of the State of Delaware, the Agreement and
the Representation Letter, it is our opinion that:
1. The Reorganization will constitute a tax-free reorganization within the
meaning of Section 368(a)(1)(C) of the Code, and Acquired Fund and Acquiring
Fund will each be a party to the reorganization within the meaning of Section
368(b) of the Code.
2. No gain or loss will be recognized by Acquired Fund upon the transfer of
all of its assets to Acquiring Fund in exchange solely for Acquiring Fund Shares
pursuant to Section 361(a) and Section 357(a) of the Code. We express no opinion
as to whether any accrued market discount will be required to be recognized as
ordinary income pursuant to Section 1276 of the Code.
3. No gain or loss will be recognized by Acquiring Fund upon the receipt by
it of all of the assets of Acquired Fund in exchange solely for Acquiring Fund
Shares pursuant to Section 1032(a) of the Code.
4. The basis of the assets of Acquired Fund received by Acquiring Fund will
be the same as the basis of such assets to Acquired Fund immediately prior to
the exchange pursuant to Section 362(b) of the Code.
5. The holding period of the assets of Acquired Fund received by Acquiring
Fund will include the period during which such assets were held by Acquired Fund
pursuant to Section 1223(2) of the Code.
6. No gain or loss will be recognized by the stockholders of Acquired Fund
upon the exchange of their Acquired Fund Shares for Acquiring Fund Shares
(including fractional shares to which they may be entitled), pursuant to Section
354(a) of the Code.
7. The basis of the Acquiring Fund Shares received by the stockholders of
Acquired Fund (including fractional shares to which they may be entitled) will
be the same as the basis of the Acquired Fund Shares exchanged therefor pursuant
to Section 358(a)(1) of the Code.
8. The holding period of the Acquiring Fund Shares received by the
stockholders of Acquired Fund (including fractional shares to which they may be
entitled) will include the holding period of the Acquired Fund Shares
surrendered in exchange therefor, provided that the Acquired Fund Shares were
held as a capital asset on the effective date of the Reorganization, pursuant to
Section 1223(1) of the Code.
9. Acquiring Fund will succeed to and take into account as of the date of
the proposed transfer (as defined in Section 1.381(b)-1(b) of the Income Tax
Regulations) the items of Acquired Fund described in Section 381(c) of the Code,
subject to the conditions and limitations specified in Sections 381(b) and (c),
382, 383 and 384 of the Code.
Our opinion is based upon the Code, the applicable Treasury Regulations
promulgated thereunder, the present position of the Internal Revenue Service as
set forth in published revenue rulings and revenue procedures, present
administrative positions of the Internal Revenue Service, and existing judicial
decisions, all of which are subject to change either prospectively or
retroactively. We do not undertake to make any continuing analysis of the facts
or relevant law following the date of this letter.
Our opinion is conditioned upon the performance by Acquiring Fund and
Acquired Fund of their undertakings in the Agreement and the Representation
Letter.
This opinion is being rendered to the Trust, on behalf of both the
Acquiring Fund and the Acquired Fund, and may be relied upon only by such funds
and the stockholders of each.
Very truly yours,
STRADLEY, RONON, STEVENS & YOUNG, LLP
By: /S/WILLIAM P. ZIMMERMAN
------------------------
William P. Zimmerman, a Partner
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement of
Franklin Strategic Series on Form N-14 of our report dated June 4, 1999 on our
audit of the financial statements and financial highlights of Franklin Strategic
Series which report is included in the Annual Report to Shareholders of Franklin
Blue Chip Fund, Franklin California Growth Fund, Franklin MidCap Growth Fund and
Franklin Small Cap Growth Fund for the year ended April 30, 1999, filed with the
Securities and Exchange Commission pursuant to section 30(d) of the Investment
Company Act of 1940, which is incorporated by reference in the Registration
Statement. We also consent to the references to our Firm in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
San Francisco, California
April 20, 2000
POWER OF ATTORNEY
The undersigned officers and trustees of FRANKLIN STRATEGIC SERIES hereby
appoint MARK H. PLAFKER, HARMON E. BURNS, DEBORAH R. GATZEK, LEIANN NUZUM, KAREN
L. SKIDMORE, LEIANN NUZUM, MURRAY L. SIMPSON, BARBARA J. GREEN AND DAVID P. GOSS
(with full power to each of them to act alone) his/her attorney-in-fact and
agent, in all capacities, to execute, file or withdraw any of the documents
referred to below relating to the Company's Registration Statement on Form N-14
under the Securities Act of 1933, or any amendment to such Registration
Statement, covering the sale of shares by the Company under a prospectus
becoming effective after this date, with all exhibits and any and all documents
required to be filed with respect thereto with any regulatory authority. Each of
the undersigned grants to each of said attorneys full authority to do every act
necessary to be done in order to effectuate the same as fully, to all intents
and purposes as he/she could do if personally present, thereby ratifying all
that said attorneys-in-fact and agents may lawfully do or cause to be done by
virtue hereof.
The undersigned officers and trustees hereby execute this Power of Attorney
as of this 15TH day of APRIL , 2000.
/S/ RUPERT H. JOHNSON, JR. /S/ FRANK H. ABBOTT, III
Rupert H. Johnson, Jr., Frank H. Abbott, III, Trustee
Principal Executive Officer
and Trustee
/S/ HARRIS J. ASHTON /S/ HARMON E. BURNS
Harris J. Ashton, Trustee Harmon E. Burns, Trustee
/S/ S. JOSEPH FORTUNATO /S/ EDITH E. HOLIDAY
S. Joseph Fortunato, Trustee Edith E. Holiday, Trustee
/S/ CHARLES B. JOHNSON, /S/ FRANK W.T. LAHAYE
Charles B. Johnson, Trustee Frank W.T. LaHaye, Trustee
/S/ GORDON S. MACKLIN /S/ MARTIN L. FLANAGAN
Gordon S. Macklin, Trustee Martin L. Flanagan
Principal Financial Officer
/S/ KIMBERLY H. MONASTERIO
Kimberley H. Monasterio
Principal Accounting Officer
CERTIFICATE OF SECRETARY
I, David P. Goss, certify that I am Assistant Secretary of FRANKLIN STRATEGIC
SERIES (the "Trust").
As Assistant Secretary of the Trust, I further certify that the following
resolution was adopted by a majority of the Trustees of the Trust present at a
meeting held at 777 Mariners Island Boulevard, San Mateo, California 94404, on
February 15, 2000.
RESOLVED, that a Power of Attorney, substantially in the
form of the Power of Attorney presented to this Board,
appointing Harmon E. Burns, Deborah R. Gatzek, Mark H.
Plafker, Karen L. Skidmore, Leiann Nuzum, Murray L.
Simpson, Barbara J. Green and David P. Goss as
attorneys-in-fact for the purpose of filing a registration
statement on Form N-14, including all attachments and
exhibits, and any amendments thereto, with the SEC to
register the shares of California Growth Fund to be
transferred to MidCap Growth Fund in connection with the
reorganization, be executed by each Trustee and designated
officer.
I declare under penalty of perjury that the matters set forth in this
certificate are true and correct of my own knowledge.
/S/ DAVID P. GOSS
--------------------
Dated: FEBRUARY 15, 2000 David P. Goss
Assistant Secretary
