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 26th day 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 three
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 prospectuses 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 MidCap
Growth Fund 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 three 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 May 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 MidCap 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, 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:
/S/ DEBORAH R. GATZEK By: /S/ DAVID P. GOSS
Deborah R. Gatzek David P. Goss
Secretary Vice President
FRANKLIN STRATEGIC SERIES,
ON BEHALF OF
FRANKLIN MIDCAP GROWTH FUND
Attest:
/S/ DEBORAH R. GATZEK By: /S/ DAVID P. GOSS
Deborah R. Gatzek David P. Goss
Secretary Vice President
