As filed with the Securities and Exchange Commission on March 6, 2023
File No. 333-[ ]
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ____ | [ ] | |
Post-Effective Amendment No. ____ | [ ] | |
(Check appropriate box or boxes)
FRANKLIN TEMPLETON ETF TRUST
(Exact Name of Registrant as Specified in Charter)
Registrant’s Area Code and Telephone Number: (954) 527-7500
ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
(Address of Principal Executive Offices) (Number, Street, City, State, Zip Code)
ALISON E. BAUR, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
(Name and Address of Agent for Service) (Number and Street) (City) (State) (Zip Code)
Copies to:
J. Stephen Feinour, Jr., Esquire
Stradley Ronon Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103-7098
Approximate Date of Proposed Public Offering: As soon as practicable after this Registration Statement becomes effective under the Securities Act of 1933, as amended.
Title of Securities Being Registered:
Shares of Beneficial Interest, no par value, of Franklin Focused Growth ETF.
No filing fee is due because Registrant is relying on Section 24(f) of the Investment Company Act of 1940, as amended.
It is proposed that the filing will become effective on April 5, 2023 pursuant to Rule 488 under the Securities Act of 1933, as amended.
FRANKLIN FOCUSED GROWTH FUND
IMPORTANT SHAREHOLDER INFORMATION
These materials are for a Special Meeting of Shareholders of the Franklin Focused Growth Fund (the “Fund”), which will be conducted exclusively online via live webcast and is scheduled for June 30, 2023, at 11:00 a.m. Eastern time. These materials discuss a proposal to be voted on at the meeting and contain a Notice of Special Meeting of Shareholders, a Prospectus/Proxy Statement (the “Prospectus/Proxy Statement”), and proxy card. A proxy card is, in essence, a ballot. When you complete a proxy card, it tells us how you wish the individuals named on your proxy card to vote on important issues relating to the Fund. If you complete, sign and return a proxy card, we’ll vote your proxy exactly as you tell us. If you simply sign and return a proxy card without indicating how your shares are to be voted, we’ll vote your proxy FOR the proposal which is in accordance with the Board of Trustees’ recommendation on page [13] of the Prospectus/Proxy Statement.
We urge you to review carefully the proposal in the Prospectus/Proxy Statement. Then, fill out the enclosed proxy card(s) and return it to us so that we know how you would like to vote. When shareholders return their proxy cards promptly, additional costs related to additional solicitation or mailings may be avoided.
PLEASE COMPLETE, SIGN AND RETURN the proxy card(s) you receive.
We welcome your comments. If you have any questions, call Fund Information at:
(800) DIAL BEN® or (800) 342-5236.
TELEPHONE AND ONLINE VOTING |
For your convenience, you may be able to vote by telephone or if eligible, online 24 hours a day. Please follow the instructions on the enclosed proxy card(s) to vote by telephone or online. If your account is eligible to vote online, separate instructions are enclosed. |
FRANKLIN FOCUSED GROWTH FUND
One Franklin Parkway
San Mateo, CA 94403-1906
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held on June 30, 2023
To the shareholders of the Franklin Focused Growth Fund (the “Target Fund”):
NOTICE IS HEREBY GIVEN of a Special Meeting of Shareholders (the “Meeting”) of the Target Fund, a series of Franklin Custodian Funds (the “Custodian Funds Trust”), which will be conducted exclusively online via live webcast on June 30, 2023, at 11:00 a.m., Eastern time. The Meeting is being called for the following purpose:
1. | To approve an Agreement and Plan of Reorganization (the “Plan”) between the Custodian Funds Trust, on behalf of the Target Fund, and the Franklin Templeton ETF Trust (the “ETF Trust”), on behalf of the Franklin Focused Growth ETF (the “Acquiring Fund”), a newly-created series of the ETF Trust, that provides for: (i) the acquisition of the assets and assumption of the liabilities of the Target Fund by the Acquiring Fund in exchange solely for shares of the Acquiring Fund, (ii) the pro rata distribution of such shares to the shareholders of the Target Fund, and (iii) the complete liquidation and dissolution of the Target Fund. |
2. | To transact such other business as may properly come before the Meeting. |
A copy of the Plan, which more completely sets forth the terms of the proposed reorganization of the Target Fund with and into the Acquiring Fund, is attached as Exhibit A to the Prospectus/Proxy Statement.
Shareholders of record as of the close of business on March 10, 2023 are entitled to notice of, and to vote at, the Meeting or any adjournment of the Meeting.
For technical assistance in accessing the Meeting, shareholders can email attendameeting@astfinancial.com.
By Order of the Board of Trustees of the Custodian Funds Trust, | |
Steven J. Gray | |
Vice President and Co-Secretary | |
[April __, 2023] |
You are invited to attend the Meeting, which will be conducted exclusively online via live webcast, but if you cannot do so, the Board of Trustees of the Custodian Funds Trust, on behalf of the Target Fund, urges you to complete, date, sign, and return the enclosed proxy card(s) in the enclosed postage-paid return envelope. It is important that you return your signed proxy
card(s) promptly so that a quorum may be ensured at the Meeting. You may revoke your proxy at any time before it is exercised by the subsequent execution and submission of a revised proxy card, by giving written notice of revocation to the Target Fund at any time before the proxy is exercised, or by voting at the Meeting. You may vote by touch-tone telephone by calling the telephone number printed on your proxy card and following the recorded instructions. In addition, if your account is eligible, you may be able to vote online by visiting the website printed on your proxy card and following the online instructions.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 30, 2023 |
The Notice of Special Meeting of Shareholders, Prospectus/Proxy Statement and related Statement of Additional Information are available online at https://vote.proxyonline.com/Franklin/docs/FocusedGrowth.pdf |
If you have any questions, would like to vote your shares, or wish to obtain instructions on how to attend the Meeting and vote at the Meeting, please call AST Fund Solutions, LLC, our proxy solicitor, toll free at (866) 829-0541.
Prospectus/Proxy Statement
(the “Prospectus/Proxy Statement”)
When reading this Prospectus/Proxy Statement, you will notice that certain terms are capitalized. The more significant of those capitalized terms are explained in our glossary section at the back of the Prospectus/Proxy Statement.
[TABLE OF CONTENTS] | ||
Page | ||
Cover Page | Cover | |
SUMMARY | 3 | |
What am I being asked to vote upon? | 3 | |
What will happen if shareholders approve the Plan? | 3 | |
How will the Reorganization affect me? | 3 | |
Will the Reorganization affect the way my investments are managed? | 4 | |
Are there any differences in risks between the Target Fund and the Acquiring Fund? | 5 | |
Will the fees and expenses of the Acquiring Fund be lower than the fees and expenses of the Target Fund? | 6 | |
Who will pay the costs in connection with the Reorganization? | 8 | |
What are some features of ETFs that differ from mutual funds? | 8 | |
What are the federal income tax consequences of the Reorganization? | 9 | |
How do the purchase procedures of the Funds compare? | 9 | |
How do the redemption procedures and exchange privileges of the Funds compare? | 10 | |
What is the anticipated timing of the Reorganization? | 11 | |
What happens if the Reorganization is not approved? | 11 | |
What do I need to do to prepare for the Reorganization? | 11 | |
What will happen if I don’t have a Brokerage Account that can accept ETF shares at the time of the Reorganization? | 12 | |
Are there other circumstances where a Target Fund shareholder will not be able to hold ETF shares? | 12 | |
What if the Reorganization is approved by shareholders and I don’t want to hold ETF shares? | 12 | |
How will shareholder voting be handled? | 13 | |
What is the Board’s recommendation regarding the proposal? | 13 | |
COMPARISONS OF SOME IMPORTANT FEATURES OF THE FUNDS | 13 | |
Are there any significant differences between the investment goals, policies and strategies of the Funds? | 13 |
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How do the principal investment risks of the Funds compare? | 15 | |
What are the purchase procedures of the Funds? | 15 | |
What are the redemption procedures and exchange privileges of the Funds? | 16 | |
Who manages the Funds? | 16 | |
What are the Funds’ investment management fee rates? | 17 | |
What are the fees and expenses of each Fund and what might they be after the Reorganization? | 18 | |
How do the performance records of the Funds compare? | 21 | |
Where can I find more financial and performance information about the Target Fund? | 22 | |
What are other key features of the Funds? | 22 | |
REASONS FOR THE REORGANIZATION | 24 | |
INFORMATION ABOUT THE REORGANIZATION | 27 | |
How will the Reorganization be carried out? | 27 | |
Who will pay the expenses of the Reorganization? | 28 | |
What should I know about the Acquiring Fund Shares? | 29 | |
What are the capitalizations of the Funds and what might the Acquiring Fund’s capitalization be after the Reorganization? | 29 | |
COMPARISONS OF INVESTMENT GOALS, STRATEGIES, POLICIES AND RISKS | 30 | |
How do the investment goals, strategies, policies and risks of the Funds compare? | 30 | |
What are the principal investment risks associated with investments in the Funds? | 33 | |
FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION | 36 | |
INFORMATION ABOUT THE FUNDS | 38 | |
FURTHER INFORMATION ABOUT THE FUNDS | 39 | |
VOTING INFORMATION | 41 | |
How many votes are necessary to approve the Plan? | 41 | |
May I revoke my proxy? | 42 | |
What other matters will be voted upon at the Meeting? | 42 | |
Who is entitled to vote? | 42 | |
How will proxies be solicited? | 42 | |
May I attend the Meeting? | 43 | |
How do I sign a proxy card? | 44 | |
Are there dissenters’ rights? | 44 |
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PRINCIPAL HOLDERS OF SHARES | 45 | |
SHAREHOLDER PROPOSALS | 45 | |
ADJOURNMENT | 45 | |
GLOSSARY | 47 | |
EXHIBITS TO PROSPECTUS/PROXY STATEMENT | 49 | |
A. | Agreement and Plan of Reorganization | A-1 |
B. | Principal Holders Of Securities | B-1 |
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PROSPECTUS/PROXY STATEMENT
Dated [April __, 2023]
Acquisition of the Assets and Assumption of the Liabilities of
FRANKLIN FOCUSED GROWTH FUND,
(a series of Franklin Custodian Funds)
By and in Exchange for Shares of
Franklin Focused Growth ETF
(a series of Franklin Templeton ETF Trust)
This Prospectus/Proxy Statement (the “Prospectus/Proxy Statement”) solicits proxies to be voted at a Special Meeting of Shareholders, which will be conducted exclusively online via live webcast on June 30, 2023 (the “Meeting”), of the Franklin Focused Growth Fund (the “Target Fund”), a series of Franklin Custodian Funds (the “Custodian Funds Trust”).
At the Meeting, shareholders of the Target Fund will be asked to approve or disapprove an Agreement and Plan of Reorganization (the “Plan”). If the Target Fund’s shareholders vote to approve the Plan, the assets and the liabilities of the Target Fund will be acquired and assumed, respectively, by the Franklin Focused Growth ETF (the “Acquiring Fund” or the “Franklin ETF”), a newly-created series of Franklin Templeton ETF Trust (the “ETF Trust”), in exchange solely for shares of the Acquiring Fund (“Acquiring Fund Shares”).
The U.S. Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy or accuracy of this Prospectus/Proxy Statement. Any representation to the contrary is a criminal offense.
The Meeting will be conducted exclusively online via live webcast on June 30, 2023, at 11:00 a.m., Eastern time. You can contact the host of the Meeting webcast by calling (866) 829-0541. The Board of Trustees of the Custodian Funds Trust (the “Board”), on behalf of the Target Fund, is soliciting these proxies. This Prospectus/Proxy Statement will first be sent to shareholders on or about [April __, 2023].
If the Target Fund’s shareholders vote to approve the Plan, on the closing date of the reorganization, shareholders of the Target Fund will receive shares of the Acquiring Fund of equivalent aggregate net asset value (“NAV”) to their investment in the Target Fund. The Target Fund will then be liquidated and dissolved.
The Target Fund and the Acquiring Fund (each, a “Fund” and together, the “Funds”) have identical investment goals and principal investment strategies, except that the Acquiring Fund, unlike the Target Fund, is a non-diversified (“Non-Diversified”) Fund within the meaning of the Investment Company Act of 1940, as amended (“1940 Act”). The Funds have substantially the same principal investment risks, except that the Acquiring Fund will also be subject to certain principal investment risks due to its structure as an ETF and its Non-Diversified status. Each Fund’s investment goal is to seek capital appreciation.
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This Prospectus/Proxy Statement includes information about the Plan and the Acquiring Fund that you should know before voting on the Plan, which if approved, would result in your investing in the Acquiring Fund. You should retain this Prospectus/Proxy Statement for future reference. Additional information about the Target Fund, the Acquiring Fund and the proposed transaction has been filed with the U.S. Securities and Exchange Commission (“SEC”) and can be found in the following documents:
• | The Prospectus of the Target Fund - Class A, Class C, Class R, Class R6 and Advisor Class shares dated February 1, 2023, as supplemented, (the “Target Fund Prospectus”), which is incorporated by reference into and considered a part of this Prospectus/Proxy Statement. |
• | The Prospectus of the Acquiring Fund dated [April __, 2023], (the “Acquiring Fund Prospectus”), accompanies this Prospectus/Proxy Statement and is also incorporated by reference into and considered a part of this Prospectus/Proxy Statement. |
• |
You may request a free copy of the SAI relating to this Prospectus/Proxy Statement, the Target Fund Prospectus or the Acquiring Fund Prospectus without charge by calling (800) DIAL-BEN/(800) 342-5236 or by writing to Franklin Templeton Investments at One Franklin Parkway, San Mateo, CA 94403-1906.
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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) and the Acquiring Fund Prospectus (enclosed).
What am I being asked to vote upon?
The Target Fund, which is currently operated as a mutual fund, will be converted into an ETF through its reorganization (the “Reorganization”) into a newly-created Acquiring Fund that has the same investment goal and investment strategies as the Target Fund, except that the Acquiring Fund is classified as a Non-Diversified Fund under the 1940 Act. As an ETF, the Acquiring Fund’s shares will be traded on Cboe BZX Exchange, Inc. (“Cboe BZX”). The Reorganization will be accomplished in accordance with the Plan. Shareholders of the Target Fund are being asked to approve the Plan between the Custodian Funds Trust, on behalf of the Target Fund, and the ETF Trust, on behalf of the Acquiring Fund, that provides for: (1) the acquisition of the assets and the assumption of the liabilities of the Target Fund by the Acquiring Fund in exchange solely for shares of the Acquiring Fund, (2) the distribution of such shares to the shareholders of the Target Fund, and (3) the complete liquidation and dissolution of the Target Fund.
What will happen if shareholders approve the Plan?
If the Target Fund’s shareholders vote to approve the Plan and all other closing conditions of the Reorganization under the Plan are satisfied or waived, then shareholders of the Target Fund will become shareholders of the Acquiring Fund on or about November 3, 2023 and will no longer be shareholders of the Target Fund. Shareholders of the Target Fund will receive Acquiring Fund Shares with an equivalent aggregate NAV of the Acquiring Fund.
In particular, the Plan provides that (1) the assets of the Target Fund will be acquired by the Acquiring Fund and the liabilities of the Target Fund will be assumed by the Acquiring Fund in exchange for Acquiring Fund Shares; and (2) the Acquiring Fund Shares received by the Target Fund in the exchange will then be distributed to shareholders of the Target Fund. After the Acquiring Fund Shares are distributed to the Target Fund’s shareholders, the Target Fund will be liquidated and dissolved.
In addition, if the Plan is approved by the Target Fund’s shareholders, each class of shares of the Target Fund, other than Advisor Class shares, will then be converted into Advisor Class shares (without a contingent deferred sales charge or other charge) prior to the Reorganization.
How will the Reorganization affect me?
If the Reorganization is completed, you will cease to be a shareholder of the Target Fund and will become a shareholder of the Acquiring Fund. Upon completion of the Reorganization, Target Fund shareholders will own shares of the Acquiring Fund having an aggregate net asset value (“NAV”) equal to the aggregate NAV of the shares of the Target Fund that were owned when the Reorganization happened. Shares of the Acquiring Fund will be transferred to a shareholder’s brokerage account, or if a shareholder does not have a brokerage account, the
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shares will be held by a stock transfer agent until a brokerage account is identified or the account is converted to cash (subject to applicable federal or state laws concerning unclaimed property). (For more information about the brokerage account needed to hold shares of the Acquiring Fund, see the question and answer on page [11], “What do I need to do to prepare for the Reorganization?”) Shares of the Acquiring Fund are not issued in fractional shares. As a result, the Target Fund will redeem any fractional shares held by shareholders at NAV immediately prior to the Reorganization. Such redemption will result in a cash payment, which is expected to be small and will likely be taxable to some extent for shareholders who hold fractional shares in a taxable account. Shareholders should consult their tax advisors to determine the effect of such redemption.
After the Reorganization, individual shares of the Acquiring Fund may only be purchased and sold on Cboe BZX, other national securities exchanges, electronic crossing networks and other alternative trading systems. Should a former Target Fund shareholder decide to purchase or sell shares in the Acquiring Fund after the Reorganization, the shareholder will need to place a trade through a broker who will execute the trade on an exchange at prevailing market prices. Because Acquiring Fund Shares trade at market prices rather than at NAV, Acquiring Fund Shares may trade at a price less than (discount) or greater than (premium) the Acquiring Fund’s NAV. As with all ETFs, your broker may charge a commission for purchase and sale transactions, although ETFs trade with no transaction fees (NTF) on many platforms. In addition, it is the ETF Trust’s understanding that the brokerage account statements that Acquiring Fund shareholders will receive from financial intermediaries following the Reorganization will provide information on the market price of the Acquiring Fund’s shares and not the NAV per share of the Acquiring Fund as would be the case for a mutual fund.
Will the Reorganization affect the way my investments are managed?
Generally, no. The Acquiring Fund will be managed using the same investment goal and principal investment strategies currently used by the Target Fund, except that the Acquiring Fund, unlike the Target Fund, is a Non-Diversified Fund which means that it generally invests a greater proportion of its assets in the securities of one or more issuers and invests overall is a smaller number of issues than a diversified fund. As a result, the Acquiring Fund may be more sensitive to the economic, business, political or other changes affecting individual issuers or investments which in turn may negatively impact the Acquiring Fund’s investment performance and result in greater fluctuation in the Acquiring Fund’s shares.
For a more complete discussion, see the sections below titled: “COMPARISONS OF SOME IMPORTANT FEATURES OF THE FUNDS ‒ Are there any significant differences between the investment goals, policies and strategies of the Funds?” and “How do the principal investment risks of the Funds compare?” and “COMPARISONS OF INVESTMENT GOALS, STRATEGIES, POLICIES AND RISKS – How do the investment goals, strategies, policies and risks of the Funds compare?” and “What are the principal investment risks associated with investments in the Funds?”
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Are there any differences in risks between the Target Fund and the Acquiring Fund?
Yes. While most of the risks of the Target Fund and the Acquiring Fund are the same, the Acquiring Fund is subject to certain risks unique to operating as an ETF, and an additional risk due to its Non-Diversified status. The Acquiring Fund is subject to:
• | Market Trading Risk. The Acquiring Fund faces numerous market trading risks, including the potential lack of an active market for Acquiring Fund shares, losses from trading in secondary markets, periods of high volatility and disruption in the creation/redemption process of the Acquiring Fund. Any of these factors, among others, may lead to the Acquiring Fund’s shares trading at a premium or discount to NAV. Thus, you may pay more (or less) than NAV when you buy shares of the Acquiring Fund in the secondary market, and you may receive less (or more) than NAV when you sell those shares in the secondary market. The Acquiring Fund’s investment manager, Franklin Advisers, Inc. (“FAV” or, the “Investment Manager”) cannot predict whether shares will trade above (premium), below (discount) or at NAV. To the extent that the underlying securities held by the Acquiring Fund trade on an exchange that is closed when the securities exchange on which the Acquiring Fund shares list and trade is open, there may be market uncertainty about the stale security pricing (i.e., the last quote from its closed foreign market) resulting in premiums or discounts to NAV that may be greater than those experienced by other ETFs. |
• | Authorized Participant Concentration Risk. Only an authorized participant (“Authorized Participant”) may engage in creation or redemption transactions directly with the Acquiring Fund. The Acquiring Fund has a limited number of institutions that act as Authorized Participants. To the extent that these institutions exit the business or are unable to proceed with creation and/or redemption orders with respect to the Acquiring Fund and no other Authorized Participant is able to step forward to create or redeem Creation Units (as defined below), Acquiring Fund Shares may trade at a discount to NAV and possibly face trading halts and/or delisting. This risk may be more pronounced in volatile markets, potentially where there are significant redemptions in ETFs generally. |
• | Small Fund Risk. When the Acquiring Fund’s size is small, the Acquiring Fund may experience low trading volume and wide bid/ask spreads. In addition, the Acquiring Fund may face the risk of being delisted if the Acquiring Fund does not meet certain conditions of the listing exchange. |
• | Non-Diversification Risk. Because the Acquiring Fund is Non-Diversified, it may be more sensitive to economic, business, political or other changes affecting individual issuers or investments than a diversified fund, which may negatively impact the Acquiring Fund's performance and result in greater fluctuation in the value of the Acquiring Fund’s shares. |
• | Large Shareholder Risk. Certain shareholders, including other funds or accounts advised by the Investment Manager, or an affiliate of the Investment Manager, may from time to |
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time own a substantial amount of the Acquiring Fund’s shares. In addition, a third-party investor, the Investment Manager or an affiliate of the Investment Manager, an Authorized Participant, a lead market maker, or another entity may invest in the Acquiring Fund and hold its investment for a limited period of time solely to facilitate commencement of the Acquiring Fund or to facilitate the Acquiring Fund’s achieving a specified size or scale. There can be no assurance that any large shareholder would not redeem its investment, that the size of the Acquiring Fund would be maintained at such levels or that the Acquiring Fund would continue to meet applicable listing requirements. Redemptions by large shareholders could have a significant negative impact on the Acquiring Fund. In addition, transactions by large shareholders may account for a large percentage of the trading volume on the listing exchange and may, therefore, have a material upward or downward effect on the market price of the shares. |
For a more complete discussion, see the sections below titled: “COMPARISONS OF INVESTMENT GOALS, STRATEGIES, POLICIES AND RISKS – How do the investment goals, strategies, policies and risks of the Funds compare?” and “What are the principal investment risks associated with investments in the Funds?”
Will the fees and expenses of the Acquiring Fund be lower than the fees and expenses of the Target Fund?
The total expense ratio for the Acquiring Fund is lower than the expense ratios of each class of shares of the Target Fund. In addition, the Acquiring Fund will be subject to a unitary fee structure, which will require the Investment Manager to pay the Acquiring Fund’s ordinary operating expenses (with limited exceptions as described below) without any increase in the Acquiring Fund’s management fee, typically resulting in lower fees and expenses to shareholders. This obligation to bear fund expenses is part of the Acquiring Fund’s investment management agreement and cannot be changed without the approval of shareholders.
The unitary management fee (the “Unitary Fee”) of the Acquiring Fund (0.55%) is lower than the management fee of the Target Fund (0.70%). As noted above, the Acquiring Fund has a Unitary Fee, which means that FAV will use the Unitary Fee it receives to reimburse the Acquiring Fund for all acquired fund fees and expenses (such as those associated with the Acquiring Fund’s investment in a Franklin Templeton money fund) and to pay all of the ordinary operating expenses of the Acquiring Fund, including, but not limited to, transfer agent fees, custodian fees, counsel fees, auditor fees, and securities registration and filing fees. Certain expenses will not be paid by FAV and will be borne by the Acquiring Fund including (i) the Acquiring Fund’s management fee, (ii) payments under the Acquiring Fund’s Rule 12b-1 plan (if any), (iii) brokerage expenses (including any costs incidental to transactions in portfolio securities or instruments), (iv) taxes, (v) interest (including borrowing costs and dividend expenses on securities sold short and overdraft charges), (vi) litigation expenses (including litigation to which the ETF Trust or the Acquiring Fund may be a party and indemnification of the trustees and officers with respect thereto), and (vii) other non-routine or extraordinary expenses. The management fee of the Target Fund pays for only FAV’s investment management services and to provide or procure certain administrative services for the Target Fund. The administrative services include preparing and maintaining books, records and tax and financial reports and monitoring compliance with regulatory requirements. There are other additional fees
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and expenses such as transfer agent fees, custodian fees, fund accounting fees, counsel fees, auditor fees, securities registration and filing fees, distribution and service fees, interest, brokerage commissions, taxes, and extraordinary expenses reflected in “Other expenses” and Distribution and service (12b-1) fees” in the table below that are borne by shareholders of the Target Fund.
ANNUAL OPERATING EXPENSE TABLE FOR CLASS A, CLASS C, CLASS R, CLASS R6 AND ADVISOR CLASS SHARES OF THE TARGET FUND AND PROJECTED FEES FOR THE ACQUIRING FUND AFTER THE REORGANIZATION
ANNUAL FUND OPERATING EXPENSES | Target Fund | Target Fund | Target Fund | Target Fund | Target Fund | Pro Forma Acquiring Fund |
Class | A | C | R | R6 | Advisor | |
Management fees | 0.70% | 0.70% | 0.70% | 0.70% | 0.70% | 0.55 % |
Distribution and service (12b-1) fees | 0.25 | 1.00 | 0.50 | None | None | None |
Other expenses | 0.42 | 0.42 | 0.41 | 0.28 | 0.42 | 0% |
Total annual Fund operating expenses | 1.37 | 2.12 | 1.61 | 0.98 | 1.12 | 0.55 |
Fee waiver and/or expense reimbursement | (0.27)1 | (0.27)1 | (0.26)1 | (0.16)1 | (0.27)1 | None |
Total annual Fund operating expenses after fee waiver and/or expense reimbursement | 1.101,2 | 1.851,2 | 1.351,2 | 0.821,2 | 0.851,2 | 0.55 |
1. | The transfer agent of the Target Fund has contractually agreed to cap transfer agency fees for Class R6 shares of the Target Fund so that the transfer agency fees for that class do not exceed 0.03% until January 31, 2024. During the term, this fee waiver and expense reimbursement agreement may not be terminated or amended without approval of the Board except to add series and classes, to reflect the extension of termination dates or to lower the cap on the Target Fund’s fees and expenses (which would result in lower fees for shareholders). |
2. | FAV has contractually agreed to waive fees and/or reimburse operating expenses (excluding Rule 12b-1 fees, acquired fund fees and expenses, and certain non-routine expenses or costs, such as those relating to litigation, indemnification, reorganizations and liquidations) for the Target Fund so that the ratio of total annual fund operating expenses will not exceed 0.85% for each share class. The investment manager has also agreed to reduce its fees to reflect reduced services resulting from the Fund’s investments in Franklin Templeton affiliated funds. These arrangements are expected to continue until January 31, 2024. During the term, the fee waiver and expense reimbursement agreements may not be terminated or amended without approval of the Board except to add series and classes, to reflect the extension of termination dates or to lower the waiver and expense limitation (which would result in lower fees for shareholders). |
For a more detailed comparison of the Funds’ fees and expenses, see the sections below titled “COMPARISONS OF SOME IMPORTANT FEATURES OF THE FUNDS ‒ What are the
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Funds’ investment management fee rates?” and “What are the fees and expenses of each Fund and what might they be after the Reorganization?”
Who will pay the costs in connection with the Reorganization?
The estimated cost of the Reorganization is expected to be approximately $435,000. FAV will bear 100% of the Reorganization costs except for any related portfolio transaction costs, which are expected to be less than $75,000. However, this estimate is subject to change based on the Target Fund’s portfolio holdings on the closing date of the Reorganization. FAV will bear the costs of the Reorganization whether or not the Reorganization is consummated.
What are some features of ETFs that differ from mutual funds?
The following are some unique features of ETFs as compared to mutual funds:
Transparency. The Acquiring Fund will be a transparent ETF that operates with full transparency to its portfolio holdings. Following the Reorganization, the Acquiring Fund, like other transparent ETFs, will make its portfolio holdings public each day. This holdings information, along with other information about the Acquiring Fund, will be available on the Acquiring Fund’s website at https://www.franklintempleton.com/investor/investments-and-solutions/investment-options/etfs/.
Tax Efficiency. In a mutual fund, when portfolio securities are sold, including in order to rebalance holdings or to raise cash for redemptions, the sale can create capital gains that impact all taxable shareholders of the mutual fund. In contrast, many ETFs create and redeem their shares in kind. ETFs do not recognize capital gain on in-kind distributions in redemption of their shares, which enables them to distribute appreciated securities to redeeming shareholders without recognizing gain on those securities. Thus, an ETF’s in-kind redemptions generally do not result in taxable distributions for its non-redeeming shareholders. Instead, non-redeeming ETF shareholders in an ETF that creates and redeems its shares in kind may recognize capital gains with respect to their ETF shares when they sell their ETF shares. The Acquiring Fund intends to create and redeem its shares in kind.
Sales of ETF Shares on an Exchange throughout the Day. ETFs provide shareholders with the opportunity to purchase and sell shares throughout the day at market-determined prices, instead of being required to wait to make a purchase or a redemption at the next calculated NAV per share at the end of the trading day. This means that when a shareholder decides to purchase or sell shares of the ETF, the shareholder can act on that decision immediately by contacting the shareholder’s broker to execute the trade. The market price of the ETF may be higher or lower than the ETF’s NAV per share, and may be higher or lower than the ETF’s next calculated NAV at the close of the trading day.
Sales only through a Broker. Unlike a mutual fund’s shares, individual shares of ETFs, like the Acquiring Fund, are not directly purchased or redeemed from the Acquiring Fund at NAV. Shares of the Acquiring Fund may be purchased or redeemed directly from the Acquiring Fund only in block size creation units (typically 50,000 shares or more or multiples thereof), and only an Authorized Participant may engage in purchase or redemption transactions directly with the
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Acquiring Fund. Once created, shares of the Acquiring Fund generally trade in the secondary market in amounts less than a creation unit. Acquiring Fund Shares may only be purchased and sold on a stock exchange through a broker at market prices. When buying and selling shares through a financial intermediary, a shareholder may incur brokerage or other charges determined by the financial intermediary, although ETFs trade with no transaction fees (NTF) on many platforms. In addition, a shareholder of an ETF, such as the Acquiring Fund, may incur costs attributable to the difference between the highest price a buyer is willing to pay to purchase shares (bid) and the lowest price a seller is willing to accept for shares (ask) when buying or selling shares in the secondary market (the “bid-ask spread”). Because ETF shares trade at market prices rather than at NAV, shares of an ETF, like the Acquiring Fund, may trade at a price less than (discount) or greater than (premium) the Acquiring Fund’s NAV. The trading prices of an ETF’s shares in the secondary market will fluctuate continuously throughout trading hours based on the supply and demand for the ETF’s shares and shares of the underlying securities held by the ETF, economic conditions and other factors.
In addition, the Acquiring Fund is subject to certain risks unique to operating as an ETF. For more information, see “Are there any differences in risks between the Target Fund and the Acquiring Fund?” above.
What are the federal income tax consequences of the Reorganization?
The Reorganization is expected to constitute a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, (the “Code”) and generally is not expected to result in recognition of gain or loss by the Target Fund or its shareholders. However, immediately prior to the Reorganization, most shareholders will receive cash compensation for fractional shares of the Target Fund that they hold. Such shareholders will generally be required to recognize gain or loss upon the receipt of cash for their fractional shares.
As a condition of the closing of the Reorganization and assuming the parties comply with the terms of the Plan, the Custodian Funds Trust and the ETF Trust (each, a “Trust” and collectively, the “Trusts”) will receive an opinion of counsel regarding the federal income tax consequences of the Reorganization. Shareholders should consult their tax advisers about state and local tax consequences of the Reorganization, if any, because the information about tax consequences in this Prospectus/Proxy Statement relates only to the federal income tax consequences of the Reorganization. For more information, please see the section “FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION.”
How do the purchase procedures of the Funds compare?
Shares of the Target Fund are sold on a continuous basis by Franklin Distributors, LLC (“Distributors”) at the next calculated NAV per share at the end of the trading day that the New York Stock Exchange (“NYSE”) is scheduled to be open for business. Acquiring Fund Shares may be purchased only on Cboe BZX, other national securities exchanges, electronic crossing networks and other alternative trading systems through your broker-dealer at market determined prices, which means that the market price per share of the ETF may be higher or lower than the ETF’s NAV per share, and may be higher or lower than the ETF’s next calculated NAV at the close of the trading day. You may pay brokerage commissions and other fees to financial
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intermediaries in connection with the purchase of shares of the Acquiring Fund (although you will not pay such commissions in connection with the shares of the Acquiring Fund received in the Reorganization).
Sales Charges. Class A shares of the Target Fund are currently subject to a front-end sales charge and a contingent deferred sales charge (“CDSC”) applies on purchases of $1,000,000 or more and purchases by certain retirement plans without an initial sales charge redeemed within 18 months of purchase, and Class C shares of the Target Fund are currently subject to a CDSC on shares redeemed within one year of purchase. No front-end sales charge or CDSC will be imposed on shares of the Target Fund exchanged for shares of the Acquiring Fund in connection with the Reorganization. In addition, effective March 1, 2023, the Target Fund has implemented waivers of any applicable front-end sales charge or CDSC in order to allow shareholders who do not wish to invest in the Acquiring Fund, or who may wish to invest in other eligible mutual funds of which FAV or an affiliate is the investment manager, to redeem or exchange their shares of the Target Fund prior to the consummation of the Reorganization without incurring a CDSC in connection with the redemption or exchange or a sales charge in connection with the exchange. No sales charges are imposed on shares of the Acquiring Fund.
Rule 12b-1 Fees. Class A shares, Class C shares, and Class R shares of the Target Fund are subject to Rule 12b-1 fees of 0.25%, 1.00%, and 0.50%, respectively. Class R and Class R6 shares of the Target Fund are not subject to any shareholder services or Rule 12b-1 fees. The ETF Trust has adopted a Rule 12b-1 plan under the 1940 Act for the Acquiring Fund with an annual fee of 0.25%. Acquiring Fund management currently does not intend that the Rule 12b-1 plan would be implemented for the Acquiring Fund at the time of the Reorganization or for the foreseeable future.
For a more complete discussion, see the section below titled “COMPARISONS OF SOME IMPORTANT FEATURES OF THE FUNDS ‒ What are the purchase procedures of the Funds?”
How do the redemption procedures and exchange privileges of the Funds compare?
Shares of the Target Fund may be sold (redeemed) at the next calculated NAV directly with the Target Fund each day that the NYSE is scheduled to be open for business. Unlike the Target Fund, individual shares of the Acquiring Fund are not sold at NAV per share directly by the Acquiring Fund. Acquiring Fund Shares may be sold only on Cboe BZX, other national securities exchanges, electronic crossing networks and other alternative trading systems through your broker-dealer at market determined prices, which means that the market price per share of the Acquiring Fund may be higher or lower than the Acquiring Fund’s NAV per share, and may be higher or lower than the Acquiring Fund’s next calculated NAV at the close of the trading day. You may pay brokerage commissions and other fees to financial intermediaries in connection with the sale of shares of the Acquiring Fund.
Shareholders of the Target Fund may exchange their Target Fund shares for shares of the same class of any other Franklin Templeton or Legg Mason fund generally without paying any additional sales charges, provided that the fund shares to be acquired in the exchange are available to new investors in such other fund and the shareholder is eligible to invest in such
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shares. In addition, shareholders of the Target Fund may exchange Target Fund shares for a different share class of the Target Fund provided they meet the eligibility requirements of the share class into which they are exchanging. As an ETF, the Acquiring Fund does not provide for the exchange of shares.
For a more complete discussion, see the section below titled “COMPARISONS OF SOME IMPORTANT FEATURES OF THE FUNDS ‒ What are the redemption procedures and exchange privileges of the Funds?”
What is the anticipated timing of the Reorganization?
The Meeting, which will be conducted exclusively online via live webcast, is scheduled to occur on June 30, 2023. If the necessary approval is obtained and all other closing conditions of the Reorganization under the Plan are satisfied or waived, the Reorganization is currently expected to be completed on or about November 3, 2023.
What happens if the Reorganization is not approved?
If the Reorganization is not approved by the Target Fund’s shareholders or does not close for any reason, such shareholders will remain shareholders of the Target Fund, and the Target Fund will continue to operate. The Board then will consider such other actions as it deems necessary or appropriate for the Target Fund.
What do I need to do to prepare for the Reorganization?
It is important for you to determine whether you hold your shares of the Target Fund in the type of account that can accommodate the ETF shares that will be received in the Reorganization. If you hold your shares of the Target Fund in an account directly with the Target Fund at the Target Fund’s transfer agent or in a brokerage account with a financial intermediary that only allows you to hold mutual fund shares, you will need to set up a brokerage account that allows investment in ETF shares if the Reorganization is approved and you elect to participate in the Reorganization.
Transferring Target Fund Shares to an Already Existing Brokerage Account. Transferring your shares from the Target Fund’s transfer agent to a brokerage account should be a simple process. If you have a brokerage account or a relationship with a brokerage firm, please talk to the broker and inform the broker that you would like to transfer a mutual fund position that you hold directly with the Target Fund into your brokerage account. Also inform your broker that such an account will need to be set up to accept ETF shares. If you do not have a brokerage account or a relationship with a brokerage firm, you will need to open an account if the Reorganization is approved and you elect to participate in the Reorganization.
You should provide your broker with a copy of the quarterly statement from the Target Fund. The broker will require your account number with the Target Fund, which can be found on your statement. The broker will help you complete a form to initiate the transfer. Once you sign that form, the broker will submit the form to the transfer agent directly, and the shares will be transferred into your brokerage account.
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Transferring Target Fund Shares from a Non-Accommodating Brokerage Account to a Brokerage Account that Accepts ETF Shares. The broker where you hold the Target Fund shares should be able to assist you in changing the characteristics of your brokerage account to an account that is permitted to invest in ETF shares. Contact your broker right away to make the necessary changes to your account.
You can contact your financial advisor or other financial intermediary for further information. You also may contact Franklin Templeton Investments at (800) DIAL-BEN/ (800) 342-5236.
What will happen if I don’t have a Brokerage Account that can accept ETF shares at the time of the Reorganization?
If your shares are held in an account that cannot accept ETF shares at the time of the Reorganization, the Acquiring Fund Shares received by you in the Reorganization will be held by a stock transfer agent, American Stock Transfer & Trust Company, LLC (“American Stock Transfer & Trust”), until a brokerage account is identified into which American Stock Transfer & Trust can transfer the shares. As planned, if the Acquiring Fund Shares are not transferred into a brokerage account within a year of the date of the Reorganization, the Acquiring Fund Shares will be converted to cash and the cash proceeds will be sent to the accountholder of record (subject to applicable federal or state laws concerning unclaimed property). The conversion of Acquiring Fund Shares to cash may be subject to fees and expenses and will likely be a taxable event for shareholders who hold their shares in a taxable account. If you think the Acquiring Fund Shares received by you in the Reorganization will be held by American Stock Transfer & Trust, after the Reorganization is consummated, you may contact them by e-mailing help@astfinancial.com or calling (800) 937-5449.
Are there other circumstances where a Target Fund shareholder will not be able to hold ETF shares?
Omnibus retirement plan recordkeepers may not be able to include ETF shares on their platforms, and in such a case a retirement plan investor would likely redeem its Target Fund shares prior to the Reorganization. In addition, shareholders who hold Target Fund shares with Fiduciary Trust International of the South (“FTIOS”) as their retirement account custodian and have not exchanged their Target Fund shares for shares of another eligible Franklin Templeton mutual fund or redeemed their Target Fund shares before the closing of the Reorganization would have their Target Fund shares exchanged by FTIOS for Class A shares of Franklin U.S. Government Money Fund.
What if the Reorganization is approved by shareholders and I don’t want to hold ETF shares?
If the Reorganization is approved and you do not want to receive ETF shares in connection with the Reorganization, you may redeem or exchange your shares of the Target Fund into another eligible Franklin Templeton fund prior to the Reorganization. If a Target Fund shareholder redeems his or her shares and such shares are held in a taxable account, the shareholder may recognize a taxable gain or loss based on the difference between the Target Fund shareholder’s tax basis in the shares and the amount that the redeeming shareholder receives for them.
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How will shareholder voting be handled?
Shareholders who own shares of the Target Fund at the close of business on March 10, 2023 (the “Record Date”), will be entitled to vote at the Meeting, and will be entitled to one vote for each full share and a proportionate fractional vote for each fractional share that they hold. Approval of the Reorganization by the Target Fund requires the affirmative vote of the lesser of: (i) a majority of the outstanding shares of the Target Fund or (ii) 67% or more of the outstanding shares of the Target Fund present or represented by proxy at the Meeting if the holders of more than 50% of the outstanding shares of the Target Fund are present or represented by proxy (“1940 Act Majority Vote”). AST Fund Solutions, LLC is a company that has been retained by the Target Fund to assist in the solicitation of proxies, and collect and tabulate shareholder votes. AST Fund Solutions, LLC is not affiliated with the Funds or with Franklin Resources, Inc.
Please vote by proxy as soon as you receive this Prospectus/Proxy Statement. You may cast your vote by completing, signing, and mailing the enclosed proxy card(s), by calling the number on the enclosed proxy card(s), or, online by following the on-line instructions if your account is eligible. If you vote by any of these methods, the persons appointed as proxies will officially cast your votes on your behalf at the Meeting. You may also attend the Meeting and cast your vote at the Meeting, which is being conducted exclusively online via live webcast.
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.
What is the Board’s recommendation regarding the proposal?
The Board unanimously recommends that you vote FOR the Reorganization. At a meeting held on December 14-15, 2022, the Board, on behalf of the Target Fund, considered the proposal to reorganize the Target Fund with and into the Acquiring Fund, unanimously approved the Plan, and voted to recommend that shareholders of the Target Fund vote to approve the Plan. For the reasons set forth in the “REASONS FOR THE REORGANIZATION” section of this Prospectus/Proxy Statement, the Board, including the Independent Trustees (as defined below), have determined that participation in the Reorganization is in the best interests of the Target Fund. The Board also concluded that no dilution in value would result to the shareholders of the Target Fund as a result of the Reorganization.
THE BOARD, ON BEHALF OF THE TARGET FUND, UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO APPROVE THE PLAN.
COMPARISONS OF SOME IMPORTANT FEATURES OF THE FUNDS
Are there any significant differences between the investment goals, policies and strategies of the Funds?
The Target Fund and Acquiring Fund have identical investment goals and employ identical principal investment strategies in seeking to achieve their goals, except that the Acquiring Fund unlike the Target Fund, will be a Non-Diversified Fund within the meaning of the 1940 Act.
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Investment Goals and Strategies
Each Fund’s investment goal is to seek capital appreciation. Under normal market conditions, the Funds invest predominantly in equity securities of companies that the Investment Manager believes offer compelling growth opportunities. In selecting securities, the Investment Manager considers many factors, including historical and potential growth in revenues and earnings, assessment of strength and quality of management, and determination of a company’s strategic positioning in its industry.
The equity securities in which the Funds invest are predominantly common stock. The Funds may invest in companies of any size, including small and medium capitalization companies. In addition to the Funds’ main investments, each Fund may invest a portion (up to 25%) of its net assets in foreign equity securities, including those located in emerging markets.
The Funds generally seek to maintain a portfolio consisting of securities of approximately 20-50 companies. Although the Funds seek investments across a number of sectors, from time to time, based on economic conditions, the Funds may have significant positions in particular sectors such as information technology. The Acquiring Fund is a “non-diversified” fund, which means it generally invests a greater proportion of its assets in the securities of one or more issuers and invests overall in a smaller number of issuers than a diversified fund.
The Investment Manager is a research-driven, “bottom-up” fundamental investor. The Investment Manager’s investment approach for the Funds focuses on identifying companies that offer, in its opinion, a compelling trade-off between growth opportunity, business and financial risk and valuation. Key valuation metrics include discounted-cash-flow, absolute and relative price-to-earnings, enterprise value, and sum of the parts, among others.
Investment Policies and Restrictions
The Target Fund and Acquiring Fund have adopted identical fundamental investment policies and restrictions regarding borrowing money, acting as underwriter, making loans, purchasing or selling real estate or physical commodities, issuing senior securities, and concentrating in an industry. The Target Fund has an additional fundamental investment restriction regarding investment diversification. The Target Fund may not purchase the securities of any one issuer (other than the U.S. government or any of its agencies or instrumentalities or securities of other investment companies, whether registered or excluded from registration under Section 3(c) of the 1940 Act) if immediately after such investment (i) more than 5% of the value of the Target Fund’s total assets would be invested in such issuer or (ii) more than 10% of the outstanding voting securities of such issuer would be owned by the Target Fund, except that up to 25% of the value of the Target Fund’s total assets may be invested without regard to such 5% and 10% limitations. This fundamental investment restriction does not apply to the Acquiring Fund due to its Non-Diversified status.
For more information about the investment goals, strategies and policies of the Funds, please see the section entitled “COMPARISONS OF INVESTMENT GOALS, STRATEGIES, POLICIES AND RISKS” in this Prospectus/Proxy Statement.
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How do the principal investment risks of the Funds compare?
An investment in each Fund involves risks common to most growth equity funds. You could lose money by investing in either Fund. Because the investment policies of the Funds are identical, except that the Acquiring Fund is Non-Diversified, the Funds have substantially similar principal investment risks. The Funds have in common the principal investment risks of Market, Focus, Growth Style Investing, Management, Small and Mid-Capitalization Companies, Foreign Securities (non-U.S.) and Cybersecurity. The Acquiring Fund is subject to the following additional risks unique to operating as an ETF: Market Trading, Authorized Participant Concentration, Small Fund, and Large Shareholder. The Acquiring Fund is also subject to “Non-Diversification” risk due to its Non-Diversified status.
For more information about the principal risks of the Funds, please see the section “COMPARISONS OF INVESTMENT GOALS, STRATEGIES, POLICIES AND RISKS – What are the principal investment risks associated with investments in the Funds?”.
What are the purchase procedures of the Funds?
Shares of the Acquiring Fund are sold without a sales charge. Unlike the Target Fund, shares of the Acquiring Fund are not purchased at NAV directly with the Acquiring Fund. The Acquiring Fund will issue (or redeem) shares at NAV only to certain financial institutions that have entered into agreements with the Acquiring Fund’s distributor in large, aggregated blocks known as “Creation Units.” A Creation Unit of the Acquiring Fund consists of a specified number of shares as stated in the Acquiring Fund Prospectus. Creation Units are generally issued (or redeemed) in kind for securities (and an amount of cash) that the Acquiring Fund specifies each day at the NAV next determined after receipt of an order.
The Target Fund and the Acquiring Fund have different procedures for the purchase of shares. Shares of the Target Fund are sold on a continuous basis at NAV by Distributors. Class A shares of the Target Fund are generally sold at NAV per share plus a sales charge. The maximum front-end sales charge imposed on purchases of Class A shares for the Target Fund is 5.50% with reduced charges for purchases of $25,000 or more and there is no front-end sales charge for purchases of $1 million or more. There is generally a 1.00% CDSC for purchases of $1 million or more and purchases by certain retirement plans without an initial sales charge on Class A shares of the Target Fund if they are sold within 18 months of purchase, and for any purchase of Class C shares of the Target Fund if they are sold within one year of purchase. Class R, Class R6, and Advisor Class shares of the Target Fund are not subject to a sales charge.
Acquiring Fund Shares may only be purchased on Cboe BZX, other national securities exchanges, electronic crossing networks and other alternative trading systems through your broker-dealer at market prices. Shares of the Acquiring Fund can be bought during the day like shares of other publicly traded companies. Buying Acquiring Fund Shares on an exchange involves certain costs. When buying shares through a financial intermediary, you may incur brokerage or other charges determined by your financial intermediary, although ETFs trade with no transaction fees (NTF) on many platforms. In addition, a shareholder of the Acquiring Fund may incur costs attributable to the difference between the highest price a buyer is willing to pay to purchase shares (bid) and the lowest price a seller is willing to accept for shares (ask) when
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buying shares in the secondary market (the “bid-ask spread”). Because Acquiring Fund Shares trade at market prices rather than at NAV, Acquiring Fund Shares may trade at a price less than (discount) or greater than (premium) the Acquiring Fund’s NAV. The trading prices of Acquiring Fund Shares in the secondary market will fluctuate continuously throughout trading hours based on the supply and demand for Acquiring Fund Shares and shares of the underlying securities held by the Acquiring Fund, economic conditions and other factors, rather than the Acquiring Fund’s NAV, which is calculated at the end of each business day.
Holders of shares of the Target Fund will not be assessed a front-end sales charge or CDSC in connection with the Reorganization. Additional information and specific instructions explaining how to buy shares of each Fund are outlined in each Fund’s Prospectus under the heading “Purchase and Sale of Fund Shares.”
What are the redemption procedures and exchange privileges of the Funds?
The Funds have different features for redeeming and exchanging shares. Redemption proceeds are remitted by check or electronic funds transfer (ACH) after receipt of proper documents, including signature guarantees under certain circumstances. The Target Fund’s shares may be redeemed at any time at the NAV next calculated after a shareholder’s request is received in proper form. Redemptions may be made by contacting your investment representative, or, if you hold shares directly with the Target Fund, by mail, by telephone and by electronic funds transfer (ACH). Unlike the Target Fund, shares of the Acquiring Fund are not sold at NAV directly with the Acquiring Fund. The Acquiring Fund will redeem shares at NAV only in Creation Units, and shares generally may only be sold on exchanges and other trading platforms, as explained above in the section titled “What are the purchase procedures of the Funds?”.
Shareholders of the Target Fund may exchange their Target Fund shares for shares of the same class of any other Franklin Templeton or Legg Mason fund, provided that the fund shares to be acquired in the exchange are available to new investors in such other fund and the shareholder is eligible to invest in such shares. In addition, shareholders of the Target Fund may exchange Target Fund shares for a different share class of the Target Fund provided they meet the eligibility requirements of the share class into which they are exchanging. Shareholders of the Target Fund may exchange shares of the Target Fund for the same class of shares of other funds sold by Distributors on any day that both the Target Fund and the fund into which the shareholder is exchanging are open for business. In addition to the permissible exchanges between funds without the same share class described above, if the Franklin Templeton or Legg Mason fund into which you wish to exchange your shares does not offer the class of shares in which you are currently invested, shareholders may exchange to certain specified other share classes as disclosed in the Target Fund Prospectus. As an ETF, the Acquiring Fund does not provide for the exchange of shares.
Who manages the Funds?
The oversight of the operations of the Target Fund is the responsibility of the Board, and the management of the business of the Acquiring Fund is the responsibility of the Board of Trustees
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of the ETF Trust (the “ETF Trust Board”). The Board and the ETF Trust Board each elect officers, who are responsible for the day-to-day operations of the Funds.
Investment Manager of the Funds. Franklin Advisers, Inc. (FAV), One Franklin Parkway, San Mateo, CA 94403-1906, serves as investment manager and provides administrative and certain oversight services to the Funds.
FAV is an indirect, wholly-owned subsidiaries of Franklin Resources, Inc. (“FRI”). FRI is a publicly owned holding company with its principal offices located at One Franklin Parkway, San Mateo, CA 94403-1906. FAV and its affiliates have over $1.39 trillion in assets under management as of December 31, 2022. Charles B. Johnson (former Chairman and Director of FRI) and Rupert H. Johnson, Jr. are principal shareholders of FRI.
Manager of Managers Structure. The Boards have each authorized the respective Funds to operate in a “manager of managers” structure whereby the Investment Manager can appoint and replace both affiliated and unaffiliated sub-advisors, and enter into, amend and terminate sub-advisory agreements with such sub-advisors, each subject to board approval but without obtaining prior shareholder approval (“Manager of Managers Structure”). For more information about the Manager of Managers Structure, see the section titled “COMPARISONS OF INVESTMENT GOALS, STRATEGIES, POLICIES AND RISKS-How do the investment goals, strategies, policies and risks of the Funds compare?- Manager of Managers Structure.”
Fund Management. The portfolio manager has responsibility for the day-to-day management of the Funds and operates to develop ideas and implement investment strategy for each Fund. The day-to-day portfolio management of each Fund is the responsibility of FAV.
The portfolio manager responsible for the day-to-day management of each Fund is Matthew J. Moberg, CPA. Mr. Moberg is Senior Vice President of FAV and has been portfolio manager of the Fund since its inception in 2016.
The SAI for the Target Fund dated February 1, 2023, as supplemented, (the “Target Fund SAI”) and the SAI for the Acquiring Fund dated [April __, 2023] (the “Acquiring Fund SAI”), provide additional information about the portfolio manager’s compensation, other accounts managed by the portfolio managers, and the portfolio manager’s ownership of securities in the Funds. For information on how to obtain a copy of the Target Fund SAI and the Acquiring Fund SAI, please see the section entitled “INFORMATION ABOUT THE FUNDS.”
What are the Funds’ investment management fee rates?
The investment management fee paid to FAV, with respect to the Target Fund is equal to an annual rate of 0.70% of the Target Fund’s average daily net assets. FAV is paid a fee equal to an annual rate of:
• | 0.700% up to and including $500 million; |
• | 0.600% over $500 million up to and including $1 billion; |
• | 0.550% over $1 billion up to and including $3 billion; |
• | 0.500% over $3 billion up to and including $5 billion; and |
• | 0.450% in excess of $5 billion. |
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FAV will also serve as investment manager to the Acquiring Fund. The Acquiring Fund, unlike the Target Fund, will have a Unitary Fee. The Unitary Fee paid to FAV is equal to the annual rate of 0.55% of the Acquiring Fund’s average daily net assets. Under the Unitary Fee, FAV reimburses the Acquiring Fund for all acquired fund fees and expenses (such as those associated with the Acquiring Fund’s investment in a Franklin Templeton money fund) and pays all of the ordinary operating expenses of the Acquiring Fund, except for (i) the Acquiring Fund’s management fee, (ii) payments under the Acquiring Fund’s Rule 12b-1 plan (if any), (iii) brokerage expenses (including any costs incidental to transactions in portfolio securities or instruments), (iv) taxes, (v) interest (including borrowing costs and dividend expenses on securities sold short and overdraft charges), (vi) litigation expenses (including litigation to which the ETF Trust or the Acquiring Fund may be a party and indemnification of the trustees and officers with respect thereto), and (vii) other non-routine or extraordinary expenses.
The Unitary Fee of the Acquiring Fund (0.55%) is lower than the management fee of the Target Fund (0.70%). The Acquiring Fund’s management fee is a Unitary Fee, which means that FAV will use the Unitary Fee it receives to reimburse the Acquiring Fund for all acquired fund fees and expenses (such as those associated with the Acquiring Fund’s investment in a Franklin Templeton money fund) and to pay all of the ordinary operating expenses of the Acquiring Fund, including, but not limited to, transfer agent fees, custodian fees, counsel fees, auditor fees, and securities registration and filing fees, except for certain exclusions noted in the above paragraph. The management fee of the Target Fund pays for only FAV’s investment management services and to provide or procure certain administrative services to the Target Fund. The administrative services include preparing and maintaining books, records and tax and financial reports and monitoring compliance with regulatory requirements. There are other additional fees and expenses such as transfer agent fees, custodian fees, fund accounting fees, counsel fees, auditor fees, securities registration and filing fees, distribution and service fees, interest, brokerage commissions, taxes, and extraordinary expenses that are borne by shareholders of the Target Fund.
The Target Fund has an investment management arrangement that includes both investment management and administrative services. FAV has subcontracted with Franklin Templeton Services, LLC (“FT Services”) to provide administrative services and facilities to the Target Fund out of its investment management fees from the Target Fund.
For the fiscal year ended September 30, 2022, the Target Fund paid FAV a net fee after waivers and expense reimbursements of $413,462 for its management and administrative services provided. For the fiscal year ended September 30, 2022, FAV paid FT Services a net fee after waivers and expense reimbursements of $143,853 for its administrative services provided. Because the Acquiring Fund has not yet commenced operations, no management or administrative services fees have been paid to FAV or FT Services.
What are the fees and expenses of each Fund and what might they be after the Reorganization?
Shareholders of the Funds pay various fees and expenses, either directly or indirectly. The tables below show the fees and expenses that you would pay if you were to buy, hold or sell shares of each Fund. You may pay other fees, such as brokerage commissions and other fees to financial
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intermediaries, which are not reflected in the tables and examples below. The fees and expenses in the tables appearing below are based on the expenses of the Target Fund for the fiscal year ended September 30, 2022 and the anticipated expenses of the Acquiring Fund during its first year of operation. The tables also show the pro forma expenses of the Acquiring Fund after giving effect to the Reorganization, based on pro forma net assets as of September 30, 2022. Pro forma numbers are estimated in good faith and are hypothetical. Actual expenses may vary significantly. You will not pay any sales load, CDSC, brokerage commission, redemption fee, or other transaction fee in connection with the receipt of ETF shares from the Reorganization.
TABLE OF SHAREHOLDER FEES
The following table shows shareholder fees paid directly from a new investment in the Target Fund. You will not pay these charges in connection with the Reorganization.
Shareholder Fees1 (fees paid directly from your investment) | Target Fund | Target Fund | Target Fund | Target Fund | Target Fund | Pro Forma Acquiring Fund |
Class | A | C | R | R6 | Advisor | |
Maximum sales charge (load) imposed on purchase (as a percentage of offering price) | 5.50% | None | None | None | None | None |
Maximum deferred sales charge (load) (as a percentage of the lower of original purchase price or sales proceeds) | None2 | 1.00% | None | None | None | None |
1 | Effective March 1, 2023, all front-end sales charges (sales charges imposed on purchase) and deferred sales charges will be waived in anticipation of the Reorganization. |
2 | There is a 1% CDSC that applies to investments of $1 Million or more and purchases by certain retirement plans without an initial sales charge on shares sold within 18 months of purchase. |
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ANNUAL OPERATING EXPENSE TABLE FOR CLASS A, CLASS C, CLASS R, CLASS R6 AND ADVISOR CLASS SHARES OF THE TARGET FUND AND PROJECTED FEES FOR THE ACQUIRING FUND AFTER THE REORGANIZATION
ANNUAL FUND OPERATING EXPENSES | Target Fund | Target Fund | Target Fund | Target Fund | Target Fund | Pro Forma Acquiring Fund |
Class | A | C | R | R6 | Advisor | |
Management fees | 0.70% | 0.70% | 0.70% | 0.70% | 0.70% | 0.55 % |
Distribution and service (12b-1) fees | 0.25 | 1.00 | 0.50 | None | None | None |
Other expenses | 0.42 | 0.42 | 0.41 | 0.28 | 0.42 | 0% |
Total annual Fund operating expenses | 1.37 | 2.12 | 1.61 | 0.98 | 1.12 | 0.55 |
Fee waiver and/or expense reimbursement | (0.27)1 | (0.27)1 | (0.26)1 | (0.16)1 | (0.27)1 | None |
Total annual Fund operating expenses after fee waiver and/or expense reimbursement | 1.101,2 | 1.851,2 | 1.351,2 | 0.821,2 | 0.851,2 | 0.55 |
1. | The transfer agent of the Target Fund has contractually agreed to cap transfer agency fees for Class R6 shares of the Target Fund so that the transfer agency fees for that class do not exceed 0.03% until January 31, 2024. During the term, this fee waiver and expense reimbursement agreement may not be terminated or amended without approval of the Board except to add series and classes, to reflect the extension of termination dates or to lower the cap on the Target Fund’s fees and expenses (which would result in lower fees for shareholders). |
2. | FAV has contractually agreed to waive fees and/or reimburse operating expenses (excluding Rule 12b-1 fees, acquired fund fees and expenses, and certain non-routine expenses or costs, such as those relating to litigation, indemnification, reorganizations and liquidations) for the Target Fund so that the ratio of total annual fund operating expenses will not exceed 0.85% for each share class. The investment manager has also agreed to reduce its fees to reflect reduced services resulting from the Fund’s investments in Franklin Templeton affiliated funds. These arrangements are expected to continue until January 31, 2024. During the term, the fee waiver and expense reimbursement agreements may not be terminated or amended without approval of the Board except to add series and classes, to reflect the extension of termination dates or to lower the waiver and expense limitation (which would result in lower fees for shareholders). |
Example
These examples are intended to help you compare the cost of investing in the Target Fund’s Class A, Class C, Class R, Class R6 and Advisor Class shares with the cost of investing in the Acquiring Fund Shares, both before and after the Reorganization. The Example assumes that you invest $10,000 in each Fund for the time periods indicated and then redeem all of your shares at the end of the period. The Example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. The Example reflects adjustments made to the Funds’ operating expenses due to the fee waivers and/or expense
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reimbursements by management for the 1 Year numbers only. 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 | |
Target Fund – Class A | $656 | $935 | $1,234 | $2,084 |
Target Fund – Class C | $288 | $638 | $1,115 | $2,241 |
Target Fund – Class R | $137 | $482 | $851 | $1,888 |
Target Fund – Class R6 | $84 | $296 | $526 | $1,187 |
Target Fund – Advisor Class | $87 | $330 | $591 | $1,338 |
Target Fund – Class C (if you do not sell your shares) | $188 | $638 | $1,115 | $2,241 |
Pro Forma – Acquiring Fund (assuming the Reorganization is completed) | $56 | $176 | $307 | $689 |
How do the performance records of the Funds compare?
The Acquiring Fund is a newly formed “shell” fund that has not yet commenced operations, and therefore, has no performance history predating the Reorganization. The Acquiring Fund has been organized solely in connection with the Reorganization to acquire the assets and assume the liabilities of the Target Fund and continue the business of the Target Fund, except that the Acquiring Fund will operate as an ETF instead of a mutual fund. Therefore, after the Reorganization, the Target Fund and its Advisor Class shares will remain the “accounting survivor.” This means that the Acquiring Fund will continue to show the historical investment performance and returns of the Advisor Class shares of the Target Fund (even after liquidation).
The historical performance of the Target Fund, as it is to be adopted by the Acquiring Fund, is included in the Acquiring Fund Prospectus that has accompanied this Prospectus/Proxy Statement.
The average annual total returns for each share class of the Target Fund, without any applicable sales charges and before taxes, as of December 31, 2022, are shown below.
Average Annual Total Return (at NAV and before taxes) | 1 Year | 5 Years | Since Inception |
Advisor Class | -39.63% | 8.27% | 11.72%1 |
Class A | -39.80% | 7.99% | 11.43%1 |
Class C | -40.24% | 7.19% | 10.61%1 |
Class R | -39.96% | 7.75% | 11.18%1 |
Class R6 | -39.65% | - | -0.86%2 |
Russell 1000 Growth Index (reflects no deduction for fees, expenses or taxes) | -29.14% | 10.96% | 13.21%1 |
1 | Since inception April 13, 2016. |
2 | Since inception February 14, 2020. |
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Calendar Year Total Return (at NAV and before taxes) | 2022 | 2021 | 2020 | 2019 | 2018 | 2017 |
Advisor Class | -39.63% | 16.09% | 56.18% | 33.14% | 2.08% | 34.16% |
Class A | -39.80% | 15.81% | 55.76% | 32.81% | 1.83% | 33.83% |
Class C | -40.24% | 14.85% | 54.78% | 31.83% | 1.06% | 32.86% |
Class R | -39.96% | 15.49% | 55.68% | 32.48% | 1.57% | 33.51% |
Class R6 | -39.68% | 16.19% | 56.24% | 33.14% | 2.08% | 34.16% |
Russell 1000 Growth Index (reflects no deduction for fees, expenses or taxes) | -29.14% | 27.60% | 38.49% | 36.39% | -1.51% | 30.21% |
The Target Fund’s past performance is not necessarily an indication of how the Funds will perform in the future. You can obtain updated performance information at franklintempleton.com or by calling (800) DIAL BEN/(800) 342-5236.
Where can I find more financial and performance information about the Target Fund?
Attached as Exhibit B below are the financial highlights tables of the Target Fund. The Target Fund Prospectus, and the Target Fund’s Annual Report for the fiscal year ended September 30, 2022, contain additional financial and performance information about the Target Fund. The documents are available free of charge upon request (see the section “INFORMATION ABOUT THE FUNDS”). The Acquiring Fund is new and has no performance history as of the date of this Prospectus/Proxy Statement. The Acquiring Fund will adopt the financial history of the Target Fund following the Reorganization.
What are other key features of the Funds?
Service Providers. The Funds use the following service providers:
• | Custodian. The Bank of New York Mellon, Mutual Funds Division, 100 Church Street, New York, NY 10286, acts as custodian of the Target Fund’s securities and other assets. State Street Bank and Trust Company (“State Street”), One Lincoln Street, Boston, MA 02111, serves as custodian of the Acquiring Fund’s securities and other assets. |
• | Shareholder Servicing and Transfer Agent. Franklin Templeton Investor Services, LLC, 3344 Quality Drive, Rancho Cordova, CA 95670-7313 is the Target Fund’s shareholder servicing agent and acts as the Target Fund’s transfer agent and dividend-paying agent. State Street, 1 Heritage Drive, Mail Stop 0H00100, North Quincy, MA 02171, is the Acquiring Fund’s transfer agent and dividend-paying agent. |
• | Administrator. Franklin Templeton Services, LLC (“FT Services”) One Franklin Parkway, San Mateo, CA 94403-1906, an indirect wholly owned subsidiary of FRI, has an agreement with FAV to provide certain administrative services and facilities for the Funds. The administrative services include preparing and maintaining books, records and tax and financial reports and monitoring compliance with regulatory requirements. |
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• | Sub-Administrator. JPMorgan Chase Bank, N.A. (“JPMorgan”) has an agreement with FT Services to provide certain sub-administrative services to the Target Fund. State Street has an agreement with FT Services to provide certain sub-administrative services to the Acquiring Fund. The administrative services JPMorgan and State Street provide to their respective Fund include, but are not limited to, certain fund accounting, financial reporting, tax, corporate governance and compliance and legal administration services. |
• | Distributor. Franklin Distributors, LLC (“Distributors”), One Franklin Parkway, San Mateo, CA 94403-1906, serves as each Fund’s distributor. |
• | Independent Registered Public Accounting Firm. PricewaterhouseCoopers LLP (“PwC”), 405 Howard Street, Suite 600, San Francisco, CA 94105, serves as each Fund’s independent registered public accounting firm. PwC audits the financial statements included in each Fund’s Annual Report to Shareholders. |
Distribution and Service (12b-1) Fees. Under a Rule 12b-1 plan, the Funds may pay Distributors or others for the expenses of activities that are primarily intended to sell Acquiring Fund Shares, or in the case of the Target Fund, shares of a particular class. These expenses also may include service fees paid to securities dealers or others who have executed a servicing agreement with either Fund, Distributors or its affiliates and others who provide service or account maintenance to shareholders (service fees); and the expenses of printing prospectuses and reports used for sales purposes, of marketing support and of preparing and distributing sales literature and advertisements. Together, these expenses, including the service fees, are “eligible expenses.” In the case of the Target Fund, the 12b-1 fees charged to each class are based only on the assets attributable to that particular class.
The Target Fund 12b-1 plan. Class A shares, Class C shares and Class R shares are subject to Rule 12b-1 fees based on an annualized percentage of average daily net assets up to 0.25%, 1.00%, and 0.50%, respectively. Class R6 and Advisor Class shares of the Target Fund are not subject to any shareholder services or Rule 12b-1 fees.
The ETF Trust 12b-1 plan. The ETF Trust has adopted a Rule 12b-1 plan under the 1940 Act for the Acquiring Fund with an annual fee of up to 0.25% of average daily net assets. Management currently does not intend that the Rule 12b-1 plan would be implemented for the Acquiring Fund at the time of the Reorganization or for the foreseeable future. Management will obtain the approval of the ETF Trust Board before implementing the Rule 12b-1 plan for the Acquiring Fund.
Fiscal Years. The fiscal/tax year end of the Target Fund is September 30. The initial fiscal/tax year end for the Acquiring Fund will be the same as the Target Fund. Management, however, expects to change the fiscal/tax year end of the Acquiring Fund to March 31 during the first year of operations to conform the Acquiring Fund with the other ETFs of the ETF Trust. The first fiscal year ending on March 31 for the Acquiring Fund is expected to be in 2024.
Dividends and Distributions. Each Fund generally pays dividends and distributes capital gains, if any, once in December and at such other times as are necessary. The Funds may distribute income dividends and capital gains more frequently, if necessary, in order to reduce or eliminate federal excise or income taxes on a Fund. The amount of any distribution will vary, and there is
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no guarantee a Fund will pay either income dividends or capital gain distributions. Your income dividends and capital gain distributions from the Target Fund will be automatically reinvested in additional shares at NAV unless you elect to receive them in cash. Your income dividends and capital gain distributions from the Acquiring Fund may be automatically reinvested in additional whole Acquiring Fund Shares only if the broker through whom you purchased the shares makes such option available.
Tax. The tax implications of an investment in each Fund are generally the same. However, the Acquiring Fund, as an ETF, may present certain tax efficiencies for investors over the Target Fund, a mutual fund. ETFs typically redeem their shares with in-kind distributions of assets, and they typically do not recognize capital gain on the in-kind redemption of their shares. The Acquiring Fund will typically create and redeem Creation Units on an in-kind basis, thereby minimizing the Acquiring Fund’s recognition of gain with respect to any appreciated securities it redeems in kind. In contrast, when portfolio securities are sold within the Target Fund, the sale can cause the recognition of capital gains within the Target Fund that generally would cause a taxable distribution to all of its shareholders—even if the shareholders may have an unrealized loss on their overall investment in the Target Fund. As a result, shareholders of the Acquiring Fund may pay less in taxes while they hold shares of the Acquiring Fund than they would if they held similar investments in the Target Fund. For more information about the tax implications of investments in the Funds, see the Target Fund Prospectus under the heading “Distributions and Taxes,” and the Acquiring Fund Prospectus under the heading “Distributions and Taxes.”
REASONS FOR THE REORGANIZATION
At a meeting of the Board on December 14-15, 2022 (the “December Board Meeting”), Management recommended to the Board that they approve the Reorganization of the Target Fund with and into the Acquiring Fund. Management recommended the Reorganization because of operational and tax advantages that the Acquiring Fund, as an ETF, would provide compared to the Target Fund, a mutual fund, including the lower expenses, that the Funds are managed in a substantially similar manner and by the same portfolio management team, certain structural advantages ETFs offer, ETF tax efficiency, the ability for shareholders to redeem or exchange their shares of the Target Fund prior to the Reorganization, the tax-free nature of the Reorganization, and the ability to retain the performance track record of the Target Fund. Other factors Management considered in connection with recommending the Reorganization included that there would be the need for Target Fund shareholders to have a brokerage account, that there may be circumstances where a Target Fund shareholder may not be able to hold Acquiring Fund Shares, and that there are no fractional shares of the Acquiring Fund.
At the December Board Meeting, the Board considered and unanimously approved the proposed Reorganization. The independent trustees of the Target Fund (the “Independent Trustees”) were advised on this matter by independent counsel.
The Board received from FAV written materials containing relevant information about the Acquiring Fund and the proposed Reorganization. The Board reviewed detailed information about: (1) the investment goal, strategies and policies of the Funds; (2) the portfolio management and other service providers of the Funds; (3) the comparability of the investment goals, policies,
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restrictions and investments of the Funds; (4) the current expense ratios of each Fund and the anticipated post-Reorganization expense ratio of the Acquiring Fund; (5) how the costs of the Reorganization will be borne solely by FAV or its affiliates and that no costs or expenses will be borne by the Target Fund or its shareholders other than any portfolio transaction costs; (6) operational considerations in conjunction with effecting the Reorganization, including the need for a brokerage account to hold Acquiring Fund Shares; (7) the federal income tax consequences of the Reorganization to the Target Fund’s shareholders; and (8) the general characteristics of the Funds.
The Board considered the potential benefits, risks and costs of the Reorganization to shareholders of the Target Fund. In approving the Reorganization, the Board considered the following factors:
Lower Expenses. The total expense ratio of the Acquiring Fund will be lower than the expense ratio of the Target Fund’s share classes. In addition, the proposed Unitary Fee for the Acquiring Fund will benefit shareholders because the Investment Manager will be obligated under the investment management agreement to pay the Acquiring Fund’s ordinary operating expenses, with limited exceptions, without any increase in the Investment Manager’s management fee. This obligation to bear fund expenses would be part of the Acquiring Fund’s investment management agreement with FAV and, therefore, could not be changed without approval of the Acquiring Fund’s shareholders.
Acquiring Fund will be Managed in a Substantially Similar Manner to the Target Fund. Management believes that it would be able to manage the Target Fund’s investment strategies equally effectively in an ETF structure and without material portfolio changes. The Acquiring Fund will have the same investment goals and investment strategies as the Target Fund except that the Acquiring Fund, unlike the Target Fund, is a Non-Diversified Fund. As a Non-Diversified Fund, the Franklin ETF will generally invest a greater portion of its assets in the securities of one or more issuers and may invest overall in a smaller number of issuers than a diversified fund like the Target Fund.
Same Portfolio Management Team. The portfolio managers that currently manage the Target Fund are expected to manage the Acquiring Fund following the closing of the Reorganization.
ETFs Offer Certain Structural Advantages. The Board noted Management’s belief that converting the Target Fund into an ETF may provide some structural advantages. The ETF structure offers potential benefits to shareholders including: (1) more efficient portfolio management through the use of in-kind transactions, which may help reduce portfolio transaction costs and offer tax efficiencies; (2) less cash drag on performance because the Acquiring Fund is not required to buy back or redeem shares directly from retail shareholders and, as a result, portfolio managers do not have to maintain a certain level of cash in order to maintain liquidity for redemptions, and (3) more flexible trading of ETF shares because investors have the ability to buy or sell ETF shares throughout the day at the current market price.
ETF Tax Efficiency. The ETF structure presents certain tax efficiencies for investors over the traditional mutual fund structure. While the tax treatment of ETFs and mutual funds is the same, ETFs typically acquire securities from and deliver securities to Authorized Participants in the
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creation and redemption process on an in-kind basis and thereby often avoid the realization of taxable capital gains within the ETF. Accordingly, investors in an ETF typically are only subject to capital gains taxes on their investment in the ETF after they sell their ETF shares. In contrast, when portfolio securities are sold within a mutual fund, the sale can cause the recognition of capital gains within the mutual fund that generally would cause a taxable distribution to all shareholders of the mutual fund—even if the shareholders may have an unrealized loss on their overall mutual fund investment. As a result, shareholders of the Acquiring Fund may generally pay less in taxes than they would if they held similar investments in the Target Fund.
Ability to Redeem or Exchange Shares of the Target Fund Prior to the Reorganization. Prior to the Reorganization, the Target Fund will implement a waiver of any applicable front-end sales charge or CDSC in order to allow shareholders who do not wish to invest in the Acquiring Fund, or who may wish to invest in other mutual funds of which FAV or an affiliate is the investment manager, to redeem or exchange their Target Fund shares prior to the consummation of the Reorganization without incurring a front-end sales charge or CDSC.
Tax-Free Nature. The Reorganization is anticipated to be treated as a tax-free reorganization for federal income tax purposes. If this objective is accomplished, shareholders of the Target Fund will recognize no gains or losses on exchanging their Target Fund shares for Acquiring Fund Shares; the Target Fund will recognize no gains or losses on the transfer of its assets to the Acquiring Fund; the Acquiring Fund will not recognize any gains or loss on receipt of the assets of the Target Fund; and the Acquiring Fund will acquire the Target Fund’s assets with its tax basis and tax holding periods carrying over.
Ability to Retain Performance Track Record. The Acquiring Fund will be able to maintain the Target Fund’s performance track record, which will assist in marketing and distribution efforts. Following the Reorganization, the Target Fund would be the accounting survivor and the Acquiring Fund would assume the historical performance of the Target Fund. If the Target Fund reorganized into a larger growth equity mutual fund, it would be unlikely that the Target Fund’s performance would survive such a reorganization.
Other factors the Board considered in connection with the Reorganization included:
Target Fund Shareholders’ Need for a Brokerage Account that May Hold ETF Shares. Shareholders of the Target Fund must have a brokerage account that is permitted to hold ETF shares in order to receive Acquiring Fund Shares. Acquiring Fund shares will be held by American Stock Transfer & Trust for any Target Fund shareholder (other than those retirement plan and account shareholders identified below) who does not have an appropriate brokerage account at the time of the Reorganization; this arrangement will provide a year from the date of the Reorganization for such shareholders to establish brokerage accounts.
There May Be Circumstances Where a Target Fund Shareholder Will Not Be Able to Hold ETF Shares. Omnibus retirement plan recordkeepers may not be able to include ETF shares on their platforms, and in such a case a retirement plan investor would likely redeem its Target Fund shares prior to the Reorganization. In addition, shareholders who hold Target Fund shares with Fiduciary Trust International of the South (“FTIOS”) as their retirement account custodian and
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have not exchanged their Target Fund shares for shares of another eligible Franklin Templeton mutual fund or redeemed their Target Fund shares before the closing of the Reorganization would have their Target Fund shares exchanged by FTIOS for Class A shares of Franklin U.S. Government Money Fund.
No Fractional Shares of the Franklin ETF. The Franklin ETF does not issue fractional shares so fractional shares of the Target Fund held by a shareholder immediately prior to the Reorganization will be redeemed at net asset value. The proceeds of this redemption will result in a cash payment to those shareholders who own fractional shares of the Target Fund, which is expected to be de minimis and likely will be a taxable event to such shareholder.
Based upon their evaluation of the relevant information presented to them, including the information and considerations described above but without identifying any single factor as all-important or controlling, and in light of their fiduciary duties under federal and state law, the Board, including all of the Independent Trustees, concluded that participating in the Reorganization is in the best interests of the Target Fund, and that no dilution of value would result to the shareholders of the Target Fund from the Reorganization. The Board unanimously approved the Plan at the December Board Meeting, and, on behalf of the Target Fund, unanimously recommended that shareholders of the Target Fund vote to approve the Plan.
FOR THE REASONS DISCUSSED ABOVE, THE BOARD,
ON BEHALF OF THE TARGET FUND, UNANIMOUSLY RECOMMENDS
THAT YOU VOTE “FOR” THE PLAN
ON BEHALF OF THE TARGET FUND, UNANIMOUSLY RECOMMENDS
THAT YOU VOTE “FOR” THE PLAN
INFORMATION ABOUT THE REORGANIZATION
This is only a summary of the Plan. You should read the Plan, which is attached as Exhibit A, for more complete information about the Reorganization.
How will the Reorganization be carried out?
If the shareholders of the Target Fund approve the Plan, the Reorganization will be completed after various conditions are satisfied, including the preparation of certain documents. If the shareholders of the Target Fund do not approve the Plan, the Reorganization will not take place. The Target Fund will continue to operate as it currently does, and the Board will consider such other actions as it deems necessary or appropriate.
If the Plan is approved by the Target Fund’s shareholders, each class of shares of the Target Fund, other than Advisor Class shares, will then be converted into Advisor Class shares (without a CDSC or other charge) prior to the Reorganization. After such conversion, any fractional shares held by shareholders will be redeemed, and the Target Fund will distribute the redemption proceeds to those shareholders. The redemption of shareholders’ fractional shares will likely be a taxable event for such shareholders and those shareholders are encouraged to consult their tax advisors to determine the effect of any such redemption.
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On the closing date, which is scheduled to occur on or about November 3, 2023 (the “Closing Date”), but which may occur on an earlier or later date as the officers of the Target Fund and the Acquiring Fund may mutually agree, the Target Fund will transfer all of its assets, free and clear of all liens, encumbrances, and claims whatsoever (except for liens or encumbrances that do not materially detract from the value or use of the Target Fund’s assets), to the Acquiring Fund and the Acquiring Fund will assume all liabilities of the Target Fund. In exchange, the Acquiring Fund will issue the Acquiring Fund Shares that have an aggregate NAV equal to the dollar value of the net assets delivered to the Acquiring Fund by the Custodian Funds Trust, on behalf of the Target Fund. The Custodian Funds Trust, on behalf of the Target Fund, will distribute to shareholders the Acquiring Fund Shares it receives. Each shareholder of the Target Fund will receive Acquiring Fund Shares with an aggregate NAV equal to the aggregate NAV of his or her shares of the Target Fund (and, immediately prior to the Reorganization, cash in lieu of fractional shares, if any). The Target Fund will accept requests for redemptions only if received in proper form before 1:00 p.m., Pacific time, on the day before the Closing Date (November 2, 2023). Any shares not redeemed before 1:00 p.m., Pacific time, on the day before the Closing Date (November 2, 2023) will be exchanged for Acquiring Fund Shares on the Closing Date. Shareholders who wish to redeem shares after 1:00 p.m., Pacific time, on the day before the Closing Date (November 2, 2023) will have to sell their Acquiring Fund Shares on an exchange using their brokerage account. The Target Fund will then terminate its existence, liquidate, and dissolve.
The obligations under the Plan are subject to various conditions, including, but not limited to:
• | the Acquiring Fund’s Registration Statement on Form N-14 under the Securities Act of 1933, of which this Prospectus/Proxy Statement is a part, shall have been filed with the SEC, such Registration Statement shall have become effective, 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 the Closing, and no proceedings for the issuance of such an order shall be pending or threatened on that date; |
• | the shareholders of the Target Fund shall have approved the Reorganization; and |
• | the Custodian Funds Trust, on behalf of the Target Fund, and the ETF Trust, on behalf of the Acquiring Fund, shall have received a tax opinion described further below, that the Reorganization is a “reorganization” within the meaning of Section 368(a) of the Code and generally is not expected to result in the recognition of gain or loss for federal income tax purposes for the Target Fund, the Acquiring Fund or their shareholders. |
The Custodian Funds Trust, on behalf of the Target Fund, and the ETF Trust, on behalf of the Acquiring Fund, may terminate or abandon the Plan at any time before or after the approval of the Plan by the shareholders of the Target Fund.
Who will pay the expenses of the Reorganization?
The estimated cost of the Reorganization is expected to be approximately $435,000. FAV will bear 100% of the Reorganization costs except for any related portfolio transaction costs, which
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will be borne by the Target Fund and Acquiring Fund. Portfolio transaction costs are expected to be less than $75,000. However, this estimate is subject to change based on the Target Fund’s portfolio holdings on the closing date of the Reorganization. FAV will bear the costs of the Reorganization whether or not the Reorganization is consummated.
What should I know about the Acquiring Fund Shares?
As discussed above in the sections titled “How do the purchase procedures of the Funds compare?” and “What are the redemption procedures and exchange privileges of the Funds?,” unlike Target Fund shares which may be purchased and redeemed directly with the Target Fund, Acquiring Fund Shares may only be purchased on Cboe BZX, other national securities exchanges, electronic crossing networks and other alternative trading systems through your broker-dealer. Therefore, if you do not have a brokerage account or your shares of the Target Fund are held in an account that cannot accept ETF shares at the time of the Reorganization of the Target Fund, you will be required to open a brokerage account in conjunction with the Reorganization or, alternatively, redeem your shares in the Target Fund. If you do nothing, the Acquiring Fund Shares received by you in the Reorganization will be held by a stock transfer agent, American Stock Transfer & Trust, until a brokerage account is identified into which American Stock Transfer & Trust can transfer the shares. As planned, if the Acquiring Fund Shares are not transferred into a brokerage account within a year of the date of the Reorganization, the Acquiring Fund Shares will be converted to cash and the cash proceeds will be sent to the accountholder of record (subject to applicable federal or state laws concerning unclaimed property). The conversion of Acquiring Fund Shares to cash may be subject to fees and expenses and will likely be a taxable event for shareholders who hold their shares in a taxable account.
What are the capitalizations of the Funds and what might the Acquiring Fund’s capitalization be after the Reorganization?
The following table sets forth as of February 5, 2023, the capitalizations of the Funds. The table also shows the projected capitalization of the Acquiring Fund as adjusted to give effect to the proposed Reorganization and assumes that the Reorganization is approved for the Target Fund. If the Reorganization is approved by the Target Fund’s shareholders, each class of shares of the Target Fund, other than Advisor Class shares, will be converted into Advisor Class shares (without a CDSC or other charge) prior to the Reorganization. At the closing of the Reorganization, shareholders of the Target Fund will receive the Acquiring Fund Shares (and cash in lieu of fractional shares, if any) based on the relative NAVs per share of the Funds as of 1:00 p.m., Pacific time, on the Closing Date.
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Target Fund | Acquiring Fund | Pro Forma Adjustments | Pro Forma- Acquiring Fund after Reorganization (estimated) | |
Class A Shares | ||||
Net Assets (thousands) | $61,462 | - | $(61,462) | - |
Total Shares Outstanding | 2,795,978 | - | (2,795,978) | - |
Net Asset Value Per Share | $21.98 | - | $(21.98) | - |
Class C Shares | ||||
Net Assets (thousands) | $4,376 | - | $(4,376) | - |
Total Shares Outstanding | 203,555 | - | (203,555) | - |
Net Asset Value Per Share | $21.50 | - | $(21.50) | - |
Class R Shares | ||||
Net Assets (thousands) | $949 | - | $(949) | - |
Total Shares Outstanding | 43,434 | - | (43,434) | - |
Net Asset Value Per Share | $21.85 | - | $(21.85) | - |
Class R6 Shares | ||||
Net Assets (thousands) | $53 | - | $(53) | - |
Total Shares Outstanding | 2,402 | - | (2,402) | - |
Net Asset Value Per Share | $22.18 | - | $(22.18) | - |
Advisor Class/ETF Shares | ||||
Net Assets (thousands) | $14,558 | $0 | $ 66,7651,2 | $81,323 |
Total Shares Outstanding | 656,872 | 0 | 3,015,8871,2 | 3,672,759 |
Net Asset Value Per Share | $22.16 | $0 | $22.14 | $22.14 |
1 | Figure reflects the costs associated with the Reorganization towards related portfolio transaction costs, which are expected to be less than $75,000. However, this estimate is subject to change based on the Target Fund’s portfolio holdings on the closing date of the Reorganization. |
2 | The Target Fund will redeem any fractional shares held by shareholders at NAV immediately prior to the Reorganization. The change on account of this is not reflected in the numbers above. |
COMPARISONS OF INVESTMENT GOALS, STRATEGIES, POLICIES AND RISKS
This section describes the similarities and compares the key differences between the investment goals, principal investment strategies and fundamental policies of the Funds, as well as the principal risks associated with such goals, strategies and policies. For a complete description of the Acquiring Fund’s investment policies, strategies and risks, you should read the Acquiring Fund Prospectus, which accompanies this Prospectus/Proxy Statement, and the Acquiring Fund SAI, which is available upon request.
How do the investment goals, strategies, policies and risks of the Funds compare?
The Target Fund is currently classified as an open-end fund under the 1940 Act (meaning a fund that issues and redeems shares on a continuous basis). As an open-end fund operating as a mutual fund, the Target Fund offers shares that are redeemable on each business day and daily
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liquidity. The Acquiring Fund is also classified as an open-end fund under the 1940 Act, but operates as an ETF. As an ETF, the Acquiring Fund offers shares that are bought and sold on a national securities exchange, which gives investors the ability to buy their shares throughout the day at the current market price (which may be at a premium or discount to NAV).
The Target Fund and Acquiring Fund have identical investment goals and strategies, except that the Acquiring Fund, unlike the Target Fund, is a Non-Diversified Fund. Each Fund’s investment goal and principal investment strategies are non-fundamental, which means they may be changed at any time by the Board or the ETF Trust Board, as applicable, without shareholder approval and upon notice to shareholders.
Investment Goal. Each Fund’s investment goal is to seek capital appreciation.
Investment Strategies. Under normal market conditions, the Funds invest predominantly in equity securities of companies that the Investment Manager believes offer compelling growth opportunities. In selecting securities, the Investment Manager considers many factors, including historical and potential growth in revenues and earnings, assessment of strength and quality of management, and determination of a company’s strategic positioning in its industry.
The equity securities in which the Funds invest are predominantly common stock. The Funds may invest in companies of any size, including small and medium capitalization companies. In addition to the Funds’ main investments, each Fund may invest a portion (up to 25%) of its net assets in foreign equity securities, including those located in emerging markets.
The Funds generally seek to maintain a portfolio consisting of securities of approximately 20-50 companies. Although the Funds seek investments across a number of sectors, from time to time, based on economic conditions, the Funds may have significant positions in particular sectors such as information technology. The Acquiring Fund is a “non-diversified” fund, which means it generally invests a greater proportion of its assets in the securities of one or more issuers and invests overall in a smaller number of issuers than a diversified fund.
An equity security, or stock, represents a proportionate share, or the right to acquire a proportionate share, of the ownership of a company; its value is based on the success of the company’s business and the value of its assets, as well as general market conditions. Common stocks, preferred stocks and related depositary receipts are examples of equity securities. Depositary receipts are certificates typically issued by a bank or trust company that give their holders the right to receive securities issued by a foreign or domestic company
The Investment Manager is a research-driven, “bottom-up” fundamental investor. The Investment Manager’s investment approach for the Funds focuses on identifying companies that offer, in its opinion, a compelling trade-off between growth opportunity, business and financial risk and valuation. Key valuation metrics include discounted-cash-flow, absolute and relative price-to-earnings, enterprise value, and sum of the parts, among others.
The Investment Manager may consider selling an individual equity security for reasons including, but not limited to, its belief that the security has met a price target, has become overvalued due to price appreciation or changes in the company’s fundamentals, is less attractive than other options, or for reasons of overall portfolio construction.
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Alongside traditional financial and economic analyses, the Investment Manager assesses the potential impacts of material environmental, social and governance (ESG) factors on a company, which the Investment Manager believes provide a measure of the company’s sustainability. In analysing ESG factors, the Investment Manager assesses whether a company’s practices pose a material financial risk or opportunity. Consideration of ESG factors and risks is only one component of the Investment Manager’s assessment of eligible investments and may not be a determinative factor in the Investment Manager’s final decision on whether to invest in a security. In addition, the weight given to ESG factors may vary across types of investments, industries, regions and issuers; ESG factors and weights considered may change over time. In certain circumstances, there may be times when not every investment is assessed for ESG factors and, when they are, not every ESG factor may be identified or evaluated.
The Funds have adopted identical fundamental investment restrictions, which may not be changed without shareholder approval, except that, as a Non-Diversified Fund, the Acquiring Fund does not share the fundamental restriction of the Target Fund relating to investment diversification. That restriction states that the Target Fund may not “Purchase the securities of any one issuer (other than the U.S. government or any of its agencies or instrumentalities or securities of other investment companies, whether registered or excluded from registration under Section 3(c) of the 1940 Act) if immediately after such investment (i) more than 5% of the value of the Fund’s total assets would be invested in such issuer or (ii) more than 10% of the outstanding voting securities of such issuer would be owned by the Fund, except that up to 25% of the value of the Fund’s total assets may be invested without regard to such 5% and 10% limitations.”
Manager of Managers Structure
Both the Board and the ETF Trust Board (each, a “Board” and collectively, the “Boards”) have each authorized the respective Funds to operate in a “manager of managers” structure whereby the Investment Manager can appoint and replace both affiliated and unaffiliated sub-advisors, and enter into, amend and terminate sub-advisory agreements with such sub-advisors, each subject to board approval but without obtaining prior shareholder approval (“Manager of Managers Structure”).
Each Fund will inform shareholders of the hiring of any new sub-advisor within 90 days after the hiring. The Manager of Managers Structure provides the Funds with greater flexibility and efficiency alleviates the need for a Fund to incur the expense and delays associated with obtaining shareholder approval of such sub-advisory agreements. The use of the Manager of Managers for each Fund is subject to certain conditions that are set forth in SEC exemptive relief and no-action letter guidance issued by the SEC staff. Under the Manager of Managers Structure, the Investment Manager has the ultimate responsibility, subject to oversight by each respective Fund’s Board, to oversee sub-advisors and recommend their hiring, termination and replacement. The Investment Manager will also, subject to the review and oversight of the Boards: Set each Fund’s overall investment strategy; evaluate, select and recommend sub-advisors to manage all or a portion of each Fund’s assets; and implement procedures reasonably designed to ensure that each sub-advisor complies with the respective Fund’s investment goal, policies and restrictions. Subject to review and oversight by the applicable Board, the Investment Manager will allocate and, when appropriate, reallocate a Fund’s assets among sub-advisors and monitor and evaluate the sub-advisors’ performance.
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What are the principal investment risks associated with investments in the Funds?
Like all investments, an investment in each Fund involves risk. There is no assurance that any open-end fund will meet its investment goals. The achievement of each Fund’s goal depends upon market conditions, generally, and on the Investment Manager’s analytical and portfolio management skills. The risks associated with an investment in the Target Fund and Acquiring Fund are identical, except that the Acquiring Fund is subject to certain risks unique to operating as an ETF, as well as an additional risk due to its Non-Diversified status.
Each Fund is subject to the following common risks:
Market. The market values of securities or other investments owned by the Funds will go up or down, sometimes rapidly or unpredictably. The market value of a security or other investment may be reduced by market activity or other results of supply and demand unrelated to the issuer. This is a basic risk associated with all investments. When there are more sellers than buyers, prices tend to fall. Likewise, when there are more buyers than sellers, prices tend to rise.
The current global outbreak of the novel strain of coronavirus, COVID-19, has resulted in market closures and dislocations, extreme volatility, liquidity constraints and increased trading costs. Efforts to contain the spread of COVID-19 have resulted in global travel restrictions and disruptions of healthcare systems, business operations and supply chains, layoffs, volatility in consumer demand for certain products, defaults and credit ratings downgrades, and other significant economic impacts. The effects of COVID-19 have impacted global economic activity across many industries and may heighten other pre-existing political, social and economic risks, locally or globally. The full impact of the COVID-19 pandemic is unpredictable and may adversely affect the Funds’ performance.
Stock prices tend to go up and down more dramatically than those of debt securities. A slower-growth or recessionary economic environment could have an adverse effect on the prices of the various stocks held by the Funds.
Focus. To the extent that a Fund focuses on particular countries, regions, industries, sectors or types of investment from time to time, the Fund may be subject to greater risks of adverse developments in such areas of focus than a fund that invests in a wider variety of countries, regions, industries, sectors or investments.
Each Fund may focus in the information technology sector. Companies operating within the information technology sector may be affected by worldwide technological developments, the success of their products and services (which may be outdated quickly), anticipated products or services that are delayed or cancelled, and investor perception of the company and/or its products or services. These companies typically face intense competition and potentially rapid product obsolescence. They may also have limited product lines, markets, financial resources or personnel. Technology companies are also heavily dependent on intellectual property rights and may be adversely affected by loss or impairment of those rights. There can be no assurance these companies will be able to successfully protect their intellectual property to prevent the misappropriation of their technology, or that competitors will not develop technology that is substantially similar or superior to such companies’ technology. These companies typically
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engage in significant amounts of spending on research and development, and there is no guarantee that the products or services produced by these companies will be successful. Technology companies are also potential targets for cyberattacks, which can have a materially adverse impact on the performance of these companies. The customers and/or suppliers of technology companies may be concentrated in a particular country, region or industry. Any adverse event affecting one of these countries, regions or industries could have a negative impact on these companies.
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 be more expensive relative to their current earnings or assets compared to value or other stocks, and if earnings growth expectations moderate, their valuations may return to more typical norms, causing their stock prices to fall. Prices of these companies’ securities may be more volatile than other securities, particularly over the short term.
Management. The Funds are subject to management risk because they are actively managed. The Investment Manager applies investment techniques and risk analyses in making investment decisions for each Fund, but there can be no guarantee that these decisions will produce the desired results.
Small and Mid-Capitalization Companies. Securities issued by small and mid-capitalization companies may be more volatile in price than those of larger companies, involve substantial risks and should be considered speculative. Such risks may include greater sensitivity to economic conditions, less certain growth prospects, and lack of depth of management and funds for growth and development. They may also have limited product lines or be developing or marketing new products or services for which markets are not yet established and may never become established. In addition, small and mid-capitalization companies may be particularly affected by interest rate increases, as they may find it more difficult to borrow money to continue or expand operations, or may have difficulty in repaying any loans.
Foreign Securities (non-U.S.). Investing in foreign securities typically involves more risks than investing in U.S. securities, and includes risks associated with: (i) internal and external political and economic developments – e.g., the political, economic and social policies and structures of some foreign countries may be less stable and more volatile than those in the U.S. or some foreign countries may be subject to trading restrictions or economic sanctions; (ii) trading practices – e.g., government supervision and regulation of foreign securities and currency markets, trading systems and brokers may be less than in the U.S.; (iii) availability of information – e.g., foreign issuers may not be subject to the same disclosure, accounting and financial reporting standards and practices as U.S. issuers; (iv) limited markets – e.g., the securities of certain foreign issuers may be less liquid (harder to sell) and more volatile; and (v) currency exchange rate fluctuations and policies (e.g., fluctuations may negatively affect investments denominated in foreign currencies and any income received or expenses paid by the Fund in that foreign currency). The risks of foreign investments may be greater in developing or emerging market countries.
Cybersecurity. Cybersecurity incidents, both intentional and unintentional, may allow an unauthorized party to gain access to Fund assets, Fund or customer data (including private
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shareholder information), or proprietary information, cause a Fund, the Investment Manager, Authorized Participants, or index providers (as applicable) and listing exchanges, and/or their service providers (including, but not limited to, Fund accountants, custodians, sub-custodians, transfer agents and financial intermediaries) to suffer data breaches, data corruption or loss of operational functionality or prevent Fund investors from purchasing, redeeming shares or receiving distributions. The Investment Manager has limited ability to prevent or mitigate cybersecurity incidents affecting third party service providers, and such third party service providers may have limited indemnification obligations to the Fund or Investment Manager. Cybersecurity incidents may result in financial losses to a Fund and its shareholders, and substantial costs may be incurred in an effort to prevent or mitigate future cybersecurity incidents. Issuers of securities in which the Funds invest are also subject to cybersecurity risks, and the value of these securities could decline if the issuers experience cybersecurity incidents.
Because technology is frequently changing, new ways to carry out cyber attacks are always developing. Therefore, there is a chance that some risks have not been identified or prepared for, or that an attack may not be detected, which puts limitations on the Funds’ ability to plan for or respond to a cyber attack. Like other funds and business enterprises, the Funds, the Investment Manager and their service providers are subject to the risk of cyber incidents occurring from time to time.
The Acquiring Fund is subject to the following risks unique to its operation as an ETF:
Market Trading. The Acquiring Fund faces numerous market trading risks, including the potential lack of an active market for Acquiring Fund shares, losses from trading in secondary markets, periods of high volatility and disruption in the creation/redemption process of the Acquiring Fund. Any of these factors, among others, may lead to the Acquiring Fund’s shares trading at a premium or discount to NAV. Thus, you may pay more (or less) than NAV when you buy shares of the Acquiring Fund in the secondary market, and you may receive less (or more) than NAV when you sell those shares in the secondary market. The Investment Manager cannot predict whether shares will trade above (premium), below (discount) or at NAV.
To the extent that the underlying securities held by the Acquiring Fund trade on an exchange that is closed when the securities exchange on which the Acquiring Fund shares list and trade is open, there may be market uncertainty about the stale security pricing (i.e., the last quote from its closed foreign market) resulting in premiums or discounts to NAV that may be greater than those experienced by other ETFs.
Authorized Participant Concentration. Only an Authorized Participant may engage in creation or redemption transactions directly with the Acquiring Fund. The Acquiring Fund has a limited number of institutions that act as Authorized Participants. To the extent that these institutions exit the business or are unable to proceed with creation and/or redemption orders with respect to the Acquiring Fund and no other Authorized Participant is able to step forward to create or redeem Creation Units, Acquiring Fund Shares may trade at a discount to NAV and possibly face trading halts and/or delisting. This risk may be more pronounced in volatile markets, potentially where there are significant redemptions in ETFs generally.
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Small Fund. When the Acquiring Fund’s size is small, the Acquiring Fund may experience low trading volume and wide bid/ask spreads. In addition, the Acquiring Fund may face the risk of being delisted if the Acquiring Fund does not meet certain conditions of the listing exchange.
Large Shareholder. Certain shareholders, including other funds or accounts advised by the Investment Manager or an affiliate of the Investment Manager, may from time to time own a substantial amount of the Acquiring Fund’s shares. In addition, a third-party investor, the Investment Manager or an affiliate of the Investment Manager, an Authorized Participant, a lead market maker, or another entity may invest in the Acquiring Fund and hold its investment for a limited period of time solely to facilitate commencement of the Acquiring Fund or to facilitate the Acquiring Fund’s achieving a specified size or scale. There can be no assurance that any large shareholder would not redeem its investment, that the size of the Acquiring Fund would be maintained at such levels or that the Acquiring Fund would continue to meet applicable listing requirements. Redemptions by large shareholders could have a significant negative impact on the Acquiring Fund. In addition, transactions by large shareholders may account for a large percentage of the trading volume on the listing exchange and may, therefore, have a material upward or downward effect on the market price of the shares.
The Acquiring Fund is also subject to the following additional risk due to its Non-Diversified status:
Non-Diversification. Because the Acquiring Fund is Non-Diversified, it may be more sensitive to economic, business, political or other changes affecting individual issuers or investments than a diversified fund, which may negatively impact the Acquiring Fund's performance and result in greater fluctuation in the value of the Acquiring Fund’s shares.
For more information about the investment risks associated with investments in the Funds, see each Fund Prospectus under the heading “More information on investment policies, practices and risks/financial highlights” and each Fund’s SAI under the heading “Goals, Strategies and Risks.”
FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION
The following is a general summary of some of the important U.S. federal income tax consequences of the Reorganization and is based upon the current provisions of the Code, existing U.S. Treasury Regulations thereunder, current administrative rulings of the IRS and published judicial decisions, all of which are subject to change, possibly with retroactive effect. These considerations are general in nature and individual shareholders should consult their own tax advisers as to the federal, state, local, and foreign tax considerations applicable to them and their individual circumstances. These same considerations generally do not apply to shareholders who hold their shares in a tax-advantaged account, such as an individual retirement account (IRA) or qualified retirement plan.
As a condition of closing the Reorganization, the Custodian Funds Trust, on behalf of the Target Fund, and the ETF Trust, on behalf of the Acquiring Fund, will receive an opinion of Stradley Ronon Stevens & Young, LLP (“Stradley Ronon”) to the effect that for federal income tax purposes:
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• | The Reorganization will constitute a “reorganization” within the meaning of Section 368(a) of the Code, and each of the Target Fund and the Acquiring Fund will be a “party to a reorganization” within the meaning of Section 368(b) of the Code; |
• | No gain or loss will be recognized by the Target Fund upon the transfer of all the assets of the Target Fund to the Acquiring Fund solely in exchange for shares of the Acquiring Fund and the assumption by the Acquiring Fund of all the Liabilities of the Target Fund, or upon the distribution of the shares of the Acquiring Fund to the applicable Target Fund Shareholders, except for (A) gain or loss that may be recognized on the transfer of “section 1256 contracts” as defined in Section 1256(b) of the Code, (B) gain that may be recognized on the transfer of stock in a “passive foreign investment company” as defined in Section 1297(a) of the Code, and (C) any other gain or loss that may be required to be recognized upon the transfer of an asset regardless of whether such transfer would otherwise be a non-recognition transaction under the Code; |
• | The tax basis in the hands of the Acquiring Fund of each asset transferred from the Target Fund to the Acquiring Fund in the Reorganization will be the same as the tax basis of such asset in the hands of the Target Fund immediately prior to the transfer thereof, increased by the amount of gain (or decreased by the amount of loss), if any, recognized by the Target Fund on the transfer; |
• | The holding period in the hands of the Acquiring Fund of each asset transferred from the Target Fund to the Acquiring Fund in the Reorganization, other than Assets with respect to which gain or loss is required to be recognized, will include the Target Fund’s holding period for such Asset (except where investment activities of the Acquiring Fund have the effect of reducing or eliminating the holding period with respect to an asset); |
• | No gain or loss will be recognized by the Acquiring Fund upon its receipt of all the Assets of the Target Fund solely in exchange for shares of the Acquiring Fund and the assumption by the Acquiring Fund of all the liabilities of the Target Fund as part of the Reorganization; |
• | No gain or loss will be recognized by the Target Fund shareholders upon the exchange of their shares of the Target Fund for shares of the Acquiring Fund as part of the Reorganization (except with respect to cash received by applicable Target Fund Shareholders in redemption of fractional shares prior to the Reorganization); |
• | The aggregate tax basis of the shares of the Acquiring Fund each Target Fund Shareholder receives in the Reorganization will be the same as the aggregate tax basis of the shares of the Target Fund exchanged therefor; |
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• | Each Target Fund shareholder’s holding period for the shares of the Acquiring Fund received in the Reorganization will include the Target Fund shareholder’s holding period for the shares of the Target Fund exchanged therefor, provided that the Target Fund shareholder held such shares of the Target Fund as capital assets on the date of the exchange; and |
• | The taxable year of the Target Fund will not be required to end solely as a result of the Reorganization. |
In rendering the opinion, Stradley Ronon will rely upon, among other things, certain facts and assumptions and certain representations of the Custodian Funds Trust, the Target Fund, the ETF Trust, and the Acquiring Fund. The condition that the parties to the Reorganization receive such an opinion may not be waived.
Neither of the Funds have requested nor will request an advance ruling from the IRS as to the U.S. federal income tax consequences of the Reorganization. An opinion of counsel is not binding on the IRS or a court, and no assurance can be given that the IRS would not assert, or a court would not sustain, a contrary position. A copy of the opinion will be filed with the SEC and will be available for public inspection after the Closing Date of the Reorganization. See “INFORMATION ABOUT THE FUNDS.”
By reason of the Reorganization, the Acquiring Fund will succeed to and take into account any capital loss carryforwards of the Target Fund. The Reorganization is not expected to independently result in limitations on the Acquiring Fund’s ability to use any capital loss carryforwards of the Target Fund. However, the capital loss carryforwards may subsequently become subject to an annual limitation as a result of sales of the Acquiring Fund Shares or other reorganization transactions in which the Acquiring Fund might engage post-Reorganization.
State and Local Tax Considerations. Shareholders should consult their tax advisors about potential state and local tax considerations as a result of the Reorganization.
INFORMATION ABOUT THE FUNDS
Information about each Fund is included in each Fund’s Prospectus. The Acquiring Fund Prospectus and the Target Fund Prospectus are each incorporated by reference into and are considered a part of this Prospectus/Proxy Statement. The Acquiring Fund Prospectus also accompanies this Prospectus/Proxy Statement. Additional information about the Funds is included in each Funds’ SAI. Each Fund’s SAI is incorporated into its respective Prospectus and into the SAI dated [April__, 2023] relating to this Prospectus/Proxy Statement, each of which has been filed with the SEC. The SAI relating to this Prospectus/Proxy Statement is also considered part of this Prospectus/Proxy Statement and is incorporated by reference into this Prospectus/Proxy Statement. Information about the Target Fund is also included in the Target Fund’s Annual Report to Shareholders (for the fiscal year ended September 30, 2022).
You may request a free copy of each Fund’s Prospectus and SAI, and the Target Fund’s Annual or Semi-Annual Report to Shareholders, the SAI relating to this Prospectus/Proxy Statement, and
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other information by calling (800) DIAL-BEN/(800) 342-5236 or by writing to a Fund at One Franklin Parkway, San Mateo, CA 94403-1906.
The Custodian Funds Trust, on behalf of the Target Fund, and the ETF Trust, on behalf of the Acquiring Fund, file 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 viewed on the EDGAR database on the SEC’s Internet site at http://www.sec.gov, and may be obtained, after paying a duplicating fee, by electronic request at the following email address: publicinfo@sec.gov.
FURTHER INFORMATION ABOUT THE FUNDS
The following is a discussion of the organization of the Funds and, where applicable, of the Custodian Funds Trust and ETF Trust. More detailed information about each Fund’s current structure is contained in each Fund’s SAI.
Comparison of Capital Structure. The Target Fund is a diversified series of Custodian Funds Trust. Custodian Funds Trust was originally organized as a Delaware corporation in 1947, reincorporated as a Maryland corporation in 1979, converted to a Delaware statutory trust effective February 1, 2008 and is registered with the SEC.
The Acquiring Fund is a Non-Diversified series of the ETF Trust. The ETF Trust was organized as a Delaware statutory trust effective October 9, 2015 and is registered with the SEC.
The authorized number of shares of each Fund is unlimited, each without par value. Each Fund may issue fractional shares, but the Acquiring Fund does not intend to issue fractional shares. Shares of each Fund are fully paid and nonassessable and have no preference, preemptive or subscription rights. The Target Fund’s and the Acquiring Fund’s shareholders have no appraisal rights.
Comparison of Voting Rights. Shares of each class of a Fund represent proportionate interests in such Fund's assets. For each Fund, each whole share is entitled to one vote as to any matter on which it is entitled to vote and each fractional share carries a proportionate fractional vote. On matters that affect a Fund as a whole, each class has the same voting and other rights and preferences as any other class. On matters that affect only one series of a Fund, only shareholders of that series may vote. On matters that affect only one class of a Fund, only shareholders of that class may vote. Each class votes separately on matters affecting only that series, that class, or matters expressly required to be voted on separately by class, by state or federal law. Shares of each class of each Fund have the same voting and other rights and preferences as the other classes and series of their respective Trust for matters that affect such Trust as a whole. There is no cumulative voting on any matter submitted to a vote of the shareholders of either the Target Fund or Acquiring Fund. For board member elections, this gives holders of more than 50% of the shares voting of a Trust the ability to elect all of the members of such Trust’s Board. If this happens, holders of the remaining shares voting will not be able to elect anyone to that Trust’s board.
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Proposals Subject to Shareholder Approval. The 1940 Act provides that shareholders of the Funds have the power to vote with respect to certain matters; specifically, for the election of trustees, the selection of auditors (under certain circumstances), the approval of investment management agreements and certain amendments to plans of distribution, and amendments to policies, goals or restrictions deemed to be fundamental. In addition, shareholders of each Fund are granted the power to vote on certain matters by each Fund’s Declaration of Trust (each, a “Trust Instrument” and together, the “Trust Instruments”), and the laws governing Delaware statutory trusts. For example, each Fund’s Trust Instrument has a provision granting its respective Fund’s shareholders the power to vote only on such matters required by such Trust Instrument, the respective Fund’s bylaws, the 1940 Act, other applicable law and any registration statement filed with the SEC, the registration of which is effective; and on such other matters as the respective Board may consider necessary or desirable.
Quorum and Vote Required to Approve a Proposal. Quorum for a shareholders’ meeting of each Fund is forty percent (40%) of the shares entitled to vote which are present at the Meeting or by proxy. Under each Trust Instrument, to the extent a larger vote is not required by applicable law, a majority of the votes cast generally shall decide any questions, with the exception that trustees of each Fund are elected by not less than a plurality of the votes cast at such a meeting.
Setting a Record Date. Each Fund’s Trust Instrument establishes the maximum number of days prior to a shareholders’ meeting during which a record date may be set by the Fund’s respective Board. For each Fund, the minimum number of days is 10 and the maximum number of days is 120. A determination of shareholders of record entitled to notice of or to vote at a respective Fund’s shareholder meeting applies to any adjournment of such meeting. However, the Boards may each fix a new record date for the adjourned meeting and shall fix a new record date for any meeting that is adjourned for more than one hundred and eighty (180) days from the record date set for the original meeting.
Legal Structures. Open-end funds formed under the Delaware Statutory Trust Act (the “DSTA”), such as the Funds, are granted a significant amount of operational flexibility with respect to features, rights and obligations of the statutory trust and its trustees and shareholders in their organizational instruments. Funds organized under the DSTA have benefited from this flexibility to streamline their operations and minimize expenses. For example, funds organized under the DSTA are not typically required to hold annual shareholders’ meetings if meetings are not otherwise required by the federal securities laws or their declarations of trust or bylaws, and such funds may create new classes or series of shares without having to obtain the approval of shareholders. In addition, a fund may provide in its governing documents that certain fund transactions, such as certain mergers, reorganizations and liquidations, may go forward with only trustee approval and not a shareholder vote; such funds are still subject, however, to the voting requirements of the 1940 Act.
Limited Liability for Shareholders. Under the DSTA, shareholders of the Funds are entitled to the same limitation of personal liability as is extended to shareholders of a corporation organized for profit under the Delaware General Corporation Law.
Boards of Trustees. Pursuant to the DSTA and the Trust Instruments, the responsibility for the general oversight of each Fund is vested in its respective Board, which, among other things, is
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empowered by its respective Trust Instrument to elect officers and provide for the compensation of agents, consultants and other professionals to assist and advise in such management. Pursuant to the Trust Instruments, no Trustee shall be held liable to its respective Trust or any shareholder of the respective Fund for any act or omission or any conduct whatsoever in his or her capacity as Trustee, except for an act or omission that constitutes a bad faith violation of the implied contractual covenant of good faith and fair dealing, willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his or her office.
Inspection Rights. Each respective Trust provides shareholders certain inspection rights of its books and records, to at least the extent required by applicable law.
VOTING INFORMATION
How many votes are necessary to approve the Plan?
A 1940 Act Majority Vote, as defined herein, of the outstanding shares of the Target Fund is required to approve the Reorganization. Each Target Fund shareholder will be entitled to one vote for each full share, and a proportionate fractional vote for each fractional share, of the Target Fund held at the close of business on the Record Date. If sufficient votes to approve the Reorganization are not received by the date of the Meeting, the Meeting may be adjourned to permit further solicitation of proxies.
Forty percent (40%) of the Target Fund’s outstanding shares entitled to vote in person or by proxy as of the Record Date shall be a quorum for the transaction of business at the Meeting. Under relevant state law and the Target Fund’s Trust Instrument, abstentions and broker non-votes (that is, proxies from brokers or nominees indicating that such persons have not received instructions from the beneficial owner or other persons entitled to vote shares on a particular matter with respect to which the brokers or nominees do not have discretionary power) will be treated as votes present at the Meeting; abstentions and broker non-votes, however, will not be treated as votes cast at such Meeting. Thus, under the Trust Instruments, abstentions and broker non-votes will be included for purposes of determining whether a quorum is present but will have the same effect as a vote against the Reorganization. However, there are unlikely to be any “broker non-votes” at the Meeting because broker-dealers, in the absence of specific authorization from their customers, will not have discretionary authority to vote any shares held beneficially by their customers on the matter expected to be presented at the Meeting.
How do I ensure my vote is accurately recorded?
You can vote in any one of four ways:
• | By mail, with the enclosed proxy card(s); |
• | At the Meeting (which is being conducted exclusively online via live webcast); |
• | By telephone; or |
• | Online. |
A proxy card is, in essence, a ballot. When you vote your proxy, it tells us how you want to vote on important issues relating to the Target Fund. If you simply sign, date and return a proxy card
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but give no voting instructions, your shares will be voted in favor of the Reorganization and in accordance with the views of management upon any unexpected matters that come before the Meeting or adjournment of the Meeting. If your shares are held of record by a broker-dealer and you wish to vote at the Meeting, you should obtain a legal proxy from your broker of record and present it at the Meeting.
May I revoke my proxy?
You may revoke your proxy at any time before it is voted by sending a written notice to Custodian Funds Trust expressly revoking your proxy, by signing and forwarding to the Custodian Funds Trust a later-dated proxy card that is received at or prior to the Meeting, or by attending the Meeting and voting at the Meeting. If your shares are held in the name of your broker, you will have to make arrangements with your broker to revoke a previously executed proxy.
What other matters will be voted upon at the Meeting?
The Board does not intend to bring any matters before the Meeting other than that described in this Prospectus/Proxy Statement. The Board 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 the Target Fund on the Record Date will be entitled to vote at the Meeting. The following table shows the number of shares of each class and the total number of outstanding shares of each class of the Target Fund as of the Record Date:
Class | Shares Outstanding |
Class A | [ ] |
Class C | [ ] |
Class R | [ ] |
Class R6 | [ ] |
Advisor Class | [ ] |
Total | [ ] |
How will proxies be solicited?
AST Fund Solutions, LLC, a professional proxy solicitation firm (the “Solicitor”), has been engaged to assist in the solicitation of proxies, at an estimated cost of approximately $76,000 which will be borne by FAV. The Custodian Funds Trust, on behalf of the Target Fund, expects that the solicitation will be primarily by mail. As the date of the Meeting approaches, however, certain shareholders of the Target Fund may receive a telephone call from a representative of the Solicitor if their votes have not yet been received. Authorization to permit the Solicitor to execute proxies may be obtained by telephonic instructions from shareholders of the Target Fund. Proxies that are obtained telephonically will be recorded in accordance with the procedures set forth below. The Custodian Funds Trust believes that these procedures are
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reasonably designed to ensure that both the identity of the shareholder casting the vote and the voting instructions of the shareholder are accurately determined.
In all cases where a telephonic proxy is solicited, the Solicitor representative is required to ask for each shareholder’s full name and address and to confirm that the shareholder has received the proxy materials in the mail or by other acceptable means. If the shareholder is a corporation or other entity, the Solicitor representative is required to ask for the person’s title and for confirmation that the person is authorized to direct the voting of the shares. If the information solicited agrees with the information provided to the Solicitor, then the Solicitor representative may ask for the shareholder’s instructions on the proposal described in this Prospectus/Proxy Statement. Although the Solicitor representative is permitted to answer questions about the process, he or she is not permitted to recommend to the shareholder how to vote, other than by reading any recommendation set forth in this Prospectus/Proxy Statement. The Solicitor representative will record the shareholder’s instructions on a proxy card. Within 72 hours, the shareholder will be sent a letter to confirm his or her vote and asking the shareholder to call the Solicitor immediately if his or her instructions are not correctly reflected in the confirmation.
If a shareholder wishes to participate in the Meeting, but does not wish to give a proxy by telephone or online, the shareholder may submit the proxy card(s) originally sent with this Prospectus/Proxy Statement or attend the Meeting.
The Custodian Funds Trust, on behalf of the Target Fund, will request broker-dealer firms, custodians, nominees, and fiduciaries to forward proxy material to the beneficial owners of the shares of record. FAV may reimburse broker-dealer firms, custodians, nominees, and fiduciaries for their reasonable expenses incurred in connection with such proxy solicitation. In addition, certain officers and representatives of the Custodian Funds Trust or its affiliates, who will receive no extra compensation for their services, may solicit proxies by telephone or personally.
The Custodian Funds Trust, on behalf of the Target Fund, expects that, before the Meeting, broker-dealer firms holding shares of the Target Fund in “street name” for their customers will request voting instructions from their customers and beneficial owners. If these instructions are not received by the date specified in the broker-dealer firms’ proxy solicitation materials, the Custodian Funds Trust understands that current New York Stock Exchange rules do not permit the broker-dealers to vote on the Plan, on behalf of their customers and beneficial owners.
May I attend the Meeting?
The Meeting will be conducted exclusively online via live webcast. Shareholders as of the Record Date (March 10, 2023) may request the Meeting credentials by following the instructions below. In each case, the request should be received no later than May 31, 2023] at 3:00 p.m., Eastern time.
If you were a registered holder of Target Fund Shares as of the Record Date (i.e., you held shares in your own name directly with the Fund’s transfer agent), please include your full name, address and the control number found on your enclosed proxy form in an email to the Solicitor at attendameeting@astfinancial.com. The Solicitor will then email you the instructions
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to register for the Meeting. After you register for the Meeting, you will receive an email confirmation of your registration.
If you held Target Fund Shares through an intermediary (such as a bank, broker or other custodian) as of the Record Date, you must first register in advance to access your individual control number in order to attend the Meeting. To register and receive your individual control number, you must email proof of your proxy power (“Legal Proxy”) from your intermediary indicating that you are the beneficial owner of the shares in the Target Fund on the Record Date and authorizing you to vote (you may forward the email from your intermediary or attach an image of your Legal Proxy), along with your name and email address, to the Solicitor at attendameeting@astfinancial.com with “Legal Proxy” included in the subject line. The email must also state whether before the Meeting you authorized a proxy to vote for you and, if so, how you instructed such proxy to vote. The Solicitor will then email you the instructions to register for the Meeting. After you register, you will receive a confirmation of your registration and an individual control number by email from the Solicitor. The Solicitor also will email your Meeting credentials for participation in the Meeting and instructions for voting during the Meeting.
The Meeting will begin promptly at 11:00 a.m., Eastern time. The Funds encourage you to access the Meeting a few minutes prior to the start time leaving ample time for the check in. For technical assistance in accessing the Meeting, shareholders can email attendameeting@astfinancial.com. During the Meeting, instructions will be provided for shareholders in attendance to submit comments and questions.
How do I sign a proxy card?
Individual Accounts: Shareholders should sign exactly as their names appear on the account registration shown on the proxy card(s) or voting instruction.
Joint Accounts: Either owner may sign, but the name of the person signing should conform exactly to a name appearing on the account registration as shown on the proxy card(s) or voting instruction form(s).
All Other Accounts: The person signing must indicate his or her capacity. For example, a trustee for a trust or other entity should sign, “Ann B. Collins, Trustee.”
Are there dissenters’ rights?
The Trust Instrument of the Target Fund does not provide for dissenters’ rights. Therefore, if the Reorganization is approved at the Meeting, shareholders of the Target Fund will not have the right to dissent and obtain payment of the fair value of their shares. Shareholders of the Target Fund, however, will be able to redeem or exchange shares of the Target Fund at NAV (without any applicable CDSC) until the Closing Date of the Reorganization. After the Closing Date, shareholders may sell their shares on Cboe BZX, other national securities exchanges, electronic crossing networks and other alternative trading systems through their broker-dealer.
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PRINCIPAL HOLDERS OF SHARES
As of the Record Date, the officers and trustees of the Custodian Funds Trust, as a group, owned of record and beneficially less than 1% of the outstanding shares of the Target Fund’s outstanding shares. As of the Record Date, the Acquiring Fund was not operational and, therefore, had no shareholders.
From time to time, the number of Fund shares held in “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. To the knowledge of the Target Fund, no other persons owned (beneficially or of record) 5% or more of the outstanding shares of any class of the Target Fund as of the Record Date, except as listed in Exhibit C to this Prospectus/Proxy Statement. Upon completion of the Reorganization, it is expected that those persons disclosed in Exhibit C as owning 5% or more of the Target Fund’s outstanding Class A, Class C, Class R, Class R6 or Advisor Class shares will no longer own in excess of 5% of the then outstanding shares of the Acquiring Fund.
SHAREHOLDER PROPOSALS
Neither the Target Fund nor the Acquiring Fund is required to hold, or intends to hold, regular annual meetings of shareholders. A shareholder who wishes to submit a proposal for consideration for inclusion in a proxy statement of the Target Fund for the next meeting of shareholders (if any) should send a written proposal to the Custodian Fund Trust’s offices, One Franklin Parkway, San Mateo, CA 94403-1906, Attention: Secretary, Franklin Focused Growth Fund at Franklin Custodian Funds, so that it is received within a reasonable time in advance of such meeting in order to be included in the proxy statement of the Target Fund and proxy card relating to that meeting and presented at the meeting. A shareholder proposal may be presented at a meeting of shareholders only if such proposal concerns a matter that may be properly brought before the meeting under applicable federal securities laws, state law, and other governing instruments.
Submission of a proposal by a shareholder does not guarantee that the proposal will be included in a Fund’s proxy statement or presented at the meeting.
ADJOURNMENT
The Meeting with respect to the Target Fund may, by action of the chair of the Meeting and without any action by shareholders, be adjourned from time to time with respect to one or more matters to be considered at the Meeting, whether or not a quorum is present with respect to such matter. Such authority to adjourn the Meeting may be used for any reason whatsoever, including to allow time for further solicitation of proxies in the event that a quorum is not present at the Meeting or in the event that a quorum is present but sufficient votes have not been received to approve the Proposal. Any adjournment will not delay or otherwise affect the effectiveness and validity of any business transacted at the Meeting prior to adjournment and any business may be transacted at the adjourned meeting that might have been transacted at the Meeting. Unless otherwise instructed by a shareholder granting a proxy, the persons designated as proxies may use their discretionary authority to vote as instructed by management of the Target Fund on
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questions of adjournment, to the extent permitted under applicable federal securities laws, state law, and the Trust’s governing instruments. If the Meeting is adjourned to another time or place, written notice need not be given of the adjourned meeting if the time and place is announced at the Meeting, unless a new record date is fixed.
By Order of the Board of Trustees of the Custodian Funds Trust, | |
Steven J. Gray | |
Vice President and Co-Secretary | |
[April __, 2023] |
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GLOSSARY
Useful Terms and Definitions
1940 Act — The Investment Company Act of 1940, as amended.
1940 Act Majority Vote — The affirmative vote of the lesser of: (i) a majority of the outstanding shares of the Target Fund or (ii) 67% or more of outstanding shares of the Target Fund present or represented by proxy at the Meeting if the holders of more than 50% of the outstanding shares of the Target Fund are present or represented by proxy.
Acquiring Fund — Franklin Focused Growth ETF.
Acquiring Fund Shares — Shares of the Acquiring Fund that will be issued in exchange for the assets and liabilities of the Target Fund.
Authorized Participant — Financial institutions that have entered into agreements permitting them to purchase and redeem large blocks of shares known as creation units from an ETF.
Cboe BZX — Cboe BZX Exchange, Inc., the primary market on which Acquiring Fund Shares will be traded.
CDSC — Contingent deferred sales charge.
Creation Unit — A block of new shares sold by an exchange-traded fund (ETF) company to an Authorized Participant for sale on the open market.
Custodian Funds Trust — Franklin Custodian Funds, the registered investment company of which the Target Fund is a series.
Distributors — Franklin Distributors, LLC, One Franklin Parkway, San Mateo, CA 94403-1906, the principal underwriter for each Fund.
ETF Trust — Franklin Templeton ETF Trust, the registered investment company of which the Acquiring Fund is a series.
FAV — Franklin Advisers, Inc., the investment manager for the Target Fund and the Acquiring Fund.
FRI — Franklin Resources, Inc., One Franklin Parkway, San Mateo, CA 94403-1906.
FT Services — Franklin Templeton Services, LLC, the administrator for the Funds. FT Services is an indirect, wholly owned subsidiary of FRI and is an affiliate to each Fund’s investment manager and principal underwriter.
Funds — The Acquiring Fund and the Target Fund.
Independent Trustees — The Trustees who are not “interested persons” of a Fund, as such term is defined in the 1940 Act.
IRS — U.S. Internal Revenue Service.
Management — FAV and Distributors.
Meeting — The Special Meeting of Shareholders of the Target Fund concerning approval of the Plan.
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Non-Diversified — the status of a fund that is not diversified as defined by Section 5(b) of the 1940 Act.
Net Asset Value (NAV) — The net asset value of a fund is determined by deducting a 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.
Plan — The Agreement and Plan of Reorganization adopted by the Custodian Funds Trust, on behalf of the Target Fund, and the ETF Trust on behalf of the Acquiring Fund.
Record Date — March 10, 2023 – The date selected for determining which shareholders of record of the Target Fund will be entitled to vote on the Reorganization.
Reorganization — The proposed reorganization contemplated by the Plan.
SAI — Statement of Additional Information, a document that supplements information found in a mutual fund’s or ETF’s prospectus.
SEC — U.S. Securities and Exchange Commission.
Target Fund— the Franklin Focused Growth Fund, a series of the Custodian Funds Trust.
Trusts — The Custodian Funds Trust and the ETF Trust, collectively.
U.S. — The United States of America.
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EXHIBITS TO PROSPECTUS/PROXY STATEMENT
Exhibit
A. | Agreement and Plan of Reorganization |
B. | Principal Holders of Securities of the Funds |
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EXHIBIT A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (“Agreement”) is adopted as of this day of December 14, 2022 by and among: (i) Franklin Custodian Funds (the “Target Entity”), on behalf of its series the Franklin Focused Growth Fund (the “Target Fund”); and (ii) Franklin Templeton ETF Trust (the “Acquiring Entity”), on behalf of its series the Franklin Focused Growth ETF (the “Acquiring Fund”). Franklin Advisers, Inc. (“FAV”) joins this Agreement solely for purposes of Section 9.2.
WHEREAS, the parties hereto intend for the Acquiring Fund and the Target Fund to enter into a transaction pursuant to which: (i) the Acquiring Fund will acquire the Assets (as such term is defined in Section 1.1(b)) of the Target Fund in exchange for shares of the Acquiring Fund of equal value to the net assets of the Target Fund being acquired and the assumption of the Liabilities (as such term is defined in Section 1.1(c)), and (ii) the Target Fund will distribute such shares of the Acquiring Fund to shareholders of the Target Fund, in connection with the complete liquidation of the Target Fund, all upon the terms and conditions hereinafter set forth in this Agreement (such transaction, the “Reorganization”). Following its liquidation, the Target Fund will be dissolved. The Acquiring Fund is, and will be immediately prior to Closing (as defined in Section 3.1), a shell series, without assets (other than seed capital, which shall be paid out in redemption of the Initial Shares prior to the Reorganization, pursuant to Section 4.2(q)) or liabilities, created for the purpose of acquiring the Assets and assuming the Liabilities of the Target Fund;
WHEREAS, each of the Target Entity and the Acquiring Entity is an open-end, registered investment company of the management type; and
WHEREAS, this Agreement is intended to be and is adopted as a plan of reorganization and liquidation with respect to the Reorganization within the meaning of Section 368(a)(1) of the United States Internal Revenue Code of 1986, as amended (“Code”) and as a plan of recapitalization.
NOW, THEREFORE, in consideration of the premises and of the covenants and agreements hereinafter set forth, the parties hereto, intending to be legally bound hereby, covenant and agree as follows:
1. | DESCRIPTION OF THE REORGANIZATION |
1.1. Provided that all conditions precedent to the Reorganization set forth herein have been satisfied or, to the extent legally permissible, waived as of the Closing Time (as defined in Section 3.1), and based on the representations and warranties each party provides to the others, the Target Entity and the Acquiring Entity agree to take the following steps with respect to the Reorganization:
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(a) The Target Fund shall transfer all of its Assets, as defined and set forth in Section 1.1(b), to the Acquiring Fund, and the Acquiring Fund in exchange therefor shall assume the Liabilities, as defined and set forth in Section 1.1(c), and deliver to the Target Fund for distribution to the shareholders of the Target Fund the number of Acquiring Fund shares, all as determined in the manner set forth in Section 2.
(b) The assets of the Target Fund to be transferred to the Acquiring Fund shall consist of all property, goodwill, and assets of every description and all interests, rights, privileges and powers of the Target Fund that are shown as an asset on the books and records of the Target Fund as of the Closing Time (collectively, the “Assets”). The Assets of the Target Fund shall be delivered to the Acquiring Fund free and clear of all liens, encumbrances, hypothecations and claims whatsoever (except for liens or encumbrances that do not materially detract from the value or use of the Target Fund Assets), and there shall be no restrictions on the full transfer thereof (except for those imposed by the federal or state securities laws).
(c) The Acquiring Fund shall assume and pay when due all obligations and liabilities of the Target Fund, existing on or after the Closing Date, whether absolute, accrued, contingent or otherwise (except that certain expenses of the Reorganization contemplated hereby to be paid by the persons as provided in Section 9.2 hereof shall not be assumed or paid by the Acquiring Fund) (collectively, the “Liabilities”), and such Liabilities shall become the obligations and liabilities of the Acquiring Fund. The Target Fund will use its reasonable best efforts to discharge all known Liabilities prior to or at the Valuation Date (as defined in Section 2.1(a)) to the extent permissible and consistent with its own investment objectives and policies. The Assets minus the Liabilities of the Target Fund shall be referred to herein as the Target Fund’s “Net Assets.”
(d) As soon as is reasonably practicable after the Closing, the Target Fund will distribute to its shareholders of record (“Target Fund Shareholders”) the shares of the Acquiring Fund received by the Target Fund pursuant to Section 1.1(a), on a pro rata basis, and without further notice the outstanding shares of the Target Fund will be redeemed and cancelled as permitted by its Governing Documents (as defined in Section 4.1(a)) and applicable law, and the Target Fund will as promptly as practicable completely liquidate and dissolve as permitted by its Governing Documents and applicable law. Such distribution to the Target Fund Shareholders and liquidation of the Target Fund will be accomplished by the transfer of the Acquiring Fund’s shares then credited to the account of the Target Fund on the books of the Acquiring Fund to open accounts on the share records of the Acquiring Fund in the names of the Target Fund Shareholders. The aggregate net asset value of the Acquiring Fund’s shares to be so credited to the Target Fund Shareholders shall be equal to the aggregate net asset value of the Target Fund’s shares owned by the Target Fund Shareholders on the Valuation Date (following the redemption of fractional shares pursuant to Section 5.1(p)). For Target Fund Shareholders that hold Target Fund shares through accounts that are not permitted to hold Acquiring Fund shares, Acquiring Fund shares may be held by a transfer agent of the Acquiring Fund for the benefit of such Target Fund Shareholders pending delivery of information with respect to accounts that are permitted to hold Acquiring Fund shares. The Acquiring Fund shall not issue certificates representing shares in connection with such exchange.
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(e) Any transfer taxes payable upon issuance of the Acquiring Fund’s shares in a name other than the registered holder of the Target Fund’s shares on the books and records of the Target Fund as of that time shall, as a condition of such issuance and transfer, be paid by the person to whom the Acquiring Fund’s shares are to be issued and transferred.
(f) Ownership of the Acquiring Fund’s shares will be shown on its books, as such are maintained by the Acquiring Fund’s transfer agent.
(g) Immediately after the Closing Time, the share transfer books relating to the Target Fund shall be closed and no transfer of shares shall thereafter be made on such books.
2. | VALUATION |
2.1. With respect to the Reorganization:
(a) The value of the Target Fund’s Assets shall be the value of such Assets computed as of immediately after the close of regular trading on the New York Stock Exchange (“NYSE”) less the value of any cash or other assets used to redeem fractional shares pursuant to Section 5.1(p), which shall reflect the declaration of any dividends, on the Closing Date (the “Valuation Date”), using the valuation procedures set forth in the then-current prospectus for the Target Fund and the valuation procedures established by the Target Entity’s board of trustees. On the Valuation Date, the Target Fund shall record the value of the Assets, as valued pursuant to this Section 2.1(a), on a valuation report (the “Valuation Report”) and deliver a copy of the Valuation Report to the Acquiring Fund by 7:00 p.m. (Eastern time) on the Valuation Date, or as soon as practicable thereafter.
(b) The net asset value per share of the Acquiring Fund shares issued in connection with the Reorganization shall be the net asset value per share of the Target Fund as of the close of business on the Valuation Date (following the redemption of fractional shares pursuant to Section 5.1(p)).
(c) The number of Acquiring Fund shares issued in exchange for the Target Fund’s Net Assets shall equal the number of shares of the Target Fund outstanding as of the Valuation Date (following the redemption of fractional shares pursuant to Section 5.1(p)). All Acquiring Fund shares delivered to a Target Fund shareholder will be delivered at net asset value without the imposition of a sales load, commission, transaction fee or other similar fee.
(d) All computations of value shall be made by the Target Fund or its designated recordkeeping agent using the valuation procedures described in this Section 2 and shall be subject to review by the Acquiring Fund and/or its recordkeeping agent, and, if requested by either the Target Entity or the Acquiring Entity, by the independent registered public accountant of the requesting party.
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3. | CLOSING AND CLOSING DATE |
3.1. The Reorganization shall close on November 3, 2023, or such other date as the authorized officers of the parties may agree (the “Closing Date”). All acts taking place at the closing of the Reorganization (“Closing”) shall, subject to the satisfaction or waiver of the conditions in this Agreement, be deemed to take place simultaneously as of the later of 7:01 p.m. Eastern time or the finalization of the Target Fund’s net asset value on the Closing Date of the Reorganization, unless otherwise agreed to by the parties (the “Closing Time”). The Closing of the Reorganization shall be held in person, by facsimile, email or such other communication means as the parties may reasonably agree. In respect of the Reorganization, the Target Fund shall notify the Acquiring Fund of any portfolio security held by the Target Fund in other than book-entry form at least five (5) business days prior to the Closing Date.
3.2. With respect to the Reorganization:
(a) The Target Fund’s portfolio securities, investments or other assets that are represented by a certificate or other written instrument shall be transferred and delivered by the Target Fund as of the Closing Time to the Acquiring Fund’s custodian for the account of the Acquiring Fund duly endorsed in proper form for transfer and in such condition as to constitute good delivery thereof. The Target Entity shall direct the Target Fund’s custodian (the “Target Custodian”) to deliver to the Acquiring Fund’s custodian as of the Closing Date by book entry, in accordance with the customary practices of Target Custodian and any securities depository (as defined in Rule 17f-4 under the Investment Company Act of 1940 (the “1940 Act”)), in which the Assets are deposited, the Target Fund’s portfolio securities and instruments so held. The Target Fund’s portfolio securities represented by a certificate or other written instrument shall be presented by the Target Custodian to the Acquiring Fund’s custodian. The cash to be transferred by the Target Fund shall be delivered to the Acquiring Fund’s custodian by wire transfer of federal funds or other appropriate means on the Closing Date. If the Target Fund is unable to make such delivery on the Closing Date in the manner contemplated by this Section for the reason that any of such securities or other investments purchased prior to the Closing Date have not yet been delivered to the Target Fund or its broker, then the Acquiring Fund may, in its sole discretion, waive the delivery requirements of this Section with respect to said undelivered securities or other investments if the Target Fund has, by or on the Closing Date, delivered to the Acquiring Fund or its custodian executed copies of an agreement of assignment and escrow and due bills executed on behalf of said broker or brokers, together with such other documents as may be required by the Acquiring Fund or its custodian, such as brokers’ confirmation slips.
(b) At such time prior to the Closing Date as the parties mutually agree, the Target Fund shall provide instructions and related information to the Acquiring Fund or its transfer agent with respect to the Target Fund Shareholders, including names, addresses, dividend reinvestment elections, if any, and tax withholding status of the Target Fund Shareholders as of the date agreed upon (such information to be updated as of the Closing Date, as necessary). The Acquiring Fund and its transfer agent shall have no obligation to inquire as to the validity, propriety or correctness of any such instruction, information or documentation, but shall, in each case, assume that such instruction, information or documentation is valid, proper, correct and complete.
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(c) At the Closing, each party shall deliver to the other such bills of sale, checks, assignments, certificates, if any, receipts or other documents as such other party or its counsel may reasonably request.
(d) In the event that on the Valuation Date or the Closing Date of the Reorganization (i) the NYSE or another primary trading market for portfolio securities of the Target Fund (each, an “Exchange”) shall be closed to trading or trading thereupon shall be restricted, or (ii) trading or the reporting of trading on such Exchange or elsewhere shall be disrupted so that, in the judgment of the board of trustees of the Acquiring Entity or the Target Entity or the authorized officers of such entities, accurate appraisal of the value of the net assets of the Target Fund is impracticable, the Valuation Date and the Closing Date shall be postponed until the first business day after the day when trading shall have been fully resumed and reporting shall have been restored or such later dates as may be mutually agreed in writing by an authorized officer of each party.
4. | REPRESENTATIONS AND WARRANTIES |
4.1. The Target Entity, on behalf of itself or, where applicable for the Target Fund, represents and warrants to the Acquiring Entity and the Acquiring Fund as follows:
(a) The Target Entity is a statutory trust duly formed, validly existing and in good standing under the laws of the State of Delaware, with power under the Target Entity’s declaration of trust and bylaws, as applicable (“Governing Documents”), to own all of its assets, to carry on its business as it is now being conducted and to enter into this Agreement and perform its obligations hereunder. The Target Fund is a duly established and designated separate series of the Target Entity;
(b) The Target Entity is a registered investment company classified as a management company of the open-end type, and its registration with the U.S. Securities and Exchange Commission (the “Commission”) as an investment company under the 1940 Act, and the registration of the shares of the Target Fund under the Securities Act of 1933, as amended (“1933 Act”), is in full force and effect, and will be in full force and effect on the Closing Date, and no action or proceeding to revoke or suspend such registrations is pending, or to the knowledge of the Target Fund, threatened. All issued and outstanding shares of the Target Fund have been offered for sale in conformity in all material respects with applicable federal and state securities laws;
(c) No consent, approval, authorization, or order of any court or governmental authority or the Financial Industry Regulatory Authority (“FINRA”) is required for the consummation by the Target Entity, on behalf of the Target Fund, of the transaction contemplated herein, except such as have been obtained or will be obtained at or prior to the Closing Date under the 1933 Act, the Securities Exchange Act of 1934, as amended (“1934 Act”), the 1940 Act, and state securities or blue sky laws (which term as used herein shall include the laws of the District of Columbia and of Puerto Rico), each of which, as required, shall have been obtained on or prior to the Closing Date. No consent of or notice to any other third party or entity is required for the consummation by the Target
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Fund of the transaction contemplated by this Agreement, except that such transaction will require approval of the Target Fund shareholders;
(d) The current prospectus and statement of additional information and current shareholder reports of the Target Fund prior to the date of this Agreement, conform or conformed at the time of their use in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations of the Commission thereunder and do not or did not at the time of their use include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not materially misleading;
(e) The Target Fund is in compliance in all material respects with, and during the three (3) years prior to the date of this Agreement was in compliance in all material respects with, the requirements of, and the rules and regulations under, the 1933 Act, the 1934 Act and the 1940 Act, state securities laws and all other applicable federal and state laws or regulations. The Target Fund is in compliance in all material respects with, and during the three (3) years prior to the date of this Agreement was in compliance in all material respects with, its investment objectives, policies, guidelines and restrictions and compliance procedures, and the value of the Net Assets of the Target Fund is, and during such period was, determined using portfolio valuation methods that, in the reasonable judgment of the Target Fund, comply in all material respects with the requirements of the 1940 Act and the rules and regulations of the Commission thereunder and the pricing and valuation policies of the Target Fund and there have been no material miscalculations of the net asset value of the Target Fund or the net asset value per share of the Target Fund during the twelve (12) month period preceding the date hereof that have not been remedied or will not be remedied prior to the Closing Date in accordance with the Target Fund’s policies and procedures that, individually or in the aggregate, would have a material adverse effect on the Target Fund or its Assets, and all such calculations have been made in accordance with the applicable provisions of the 1940 Act. All advertising and sales material used by the Target Fund during the twelve (12) months prior to the date of this Agreement complied in all material respects, at the time such material was used, with applicable law and the rules and regulations of the FINRA;
(f) Except as otherwise disclosed to and accepted, in writing, by or on behalf of the Acquiring Fund, the Target Fund will as of the Closing Time have good and marketable title to the Assets and full right, power, and authority to sell, assign, transfer and deliver such Assets free of adverse claims, including any liens or other encumbrances, and upon delivery and payment for such Assets, the Acquiring Fund will acquire good and marketable title thereto, free of adverse claims and subject to no restrictions on the full transfer thereof, including, without limitation, such restrictions as might arise under the 1933 Act;
(g) Except as otherwise disclosed to and accepted, in writing, by or on behalf of the Acquiring Fund, the Target Fund is not engaged currently, and the execution, delivery and performance of this Agreement will not result, in (i) a material violation of the Target Entity’s Governing Documents or of any agreement, indenture, instrument, contract,
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lease or other undertaking to which the Target Fund or the Target Entity is a party or by which it is bound, or (ii) the acceleration of any obligation, or the imposition of any lien, encumbrance, penalty or additional fee under any agreement, indenture, instrument, contract, lease, judgment or decree to which the Target Fund or Target Entity is a party or by which it is bound;
(h) Except as otherwise disclosed to and accepted, in writing, by or on behalf of the Acquiring Fund, all material contracts or other commitments of the Target Fund (other than this Agreement and certain investment contracts, including swap agreements, options, futures and forward contracts) will terminate or be terminated with respect to the Target Fund without liability to the Target Fund or may otherwise be assigned to the Acquiring Fund without the payment of any fee (penalty or otherwise) or acceleration of any obligations of the Target Fund on or prior to the Closing Date;
(i) Except as otherwise disclosed to and accepted, in writing, by or on behalf of the Acquiring Fund, no litigation or administrative proceeding or investigation of or before any court, tribunal, arbitrator, governmental body, regulatory agency or FINRA is presently pending or, to the Target Fund’s knowledge, threatened against the Target Fund that, if adversely determined, would materially and adversely affect the Target Fund’s financial condition or the conduct of its business or the Target Fund’s ability to consummate the transaction contemplated by this Agreement. The Target Fund and the Target Entity, without any special investigation or inquiry, know of no facts that might form the basis for the institution of such proceedings and neither the Target Entity nor the Target Fund is a party to or subject to the provisions of any order, decree or judgment of any court, governmental body, regulatory agency or FINRA that materially and adversely affects its business or its ability to consummate the transaction herein contemplated. The Target Fund is not in violation of, and has not violated within the past three years, nor, to the knowledge of the Target Entity, is the Target Fund under investigation with respect to or has the Target Fund been threatened to be charged with or given notice of any violation of, any applicable law or regulation. The Target Fund (i) does not have outstanding any option to purchase or other right to acquire shares of the Target Fund issued or granted by or on behalf of the Target Fund to any person; (ii) has not entered into any contract or agreement or amendment of any contract or agreement or terminated any contract or agreement, in each case material to the operation of the Target Fund, except as otherwise contemplated by this Agreement or as disclosed to the Acquiring Fund; (iii) has not incurred any indebtedness, other than in the ordinary course of business consistent with the investment objective and policies of the Target Fund; (iv) has not entered into any amendment of its Governing Documents that has not been disclosed to the Acquiring Fund; (v) does not have outstanding any grant or imposition of any lien, claim, charge or encumbrance (other than encumbrances arising in the ordinary course of business) upon any asset of the Target Fund other than any liens for taxes not yet due and payable; and (vi) has not entered into any agreement or made any commitment to do any of the foregoing except as disclosed to the Acquiring Fund;
(j) The financial statements of the Target Fund for the Target Fund’s most recently completed fiscal year have been audited by the independent registered public accounting firm identified in the Target Fund’s prospectus or statement of additional
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information included in the Target Fund’s registration statement on Form N-1A. Such statements, as well as the unaudited, semi-annual financial statements for the semi-annual period next succeeding the Target Fund’s most recently completed fiscal year, if any, were prepared in accordance with GAAP consistently applied, and such statements (copies of which have been furnished or made available to the Acquiring Fund) present fairly, in all material respects, the financial condition of the Target Fund as of such date in accordance with GAAP, and there are no known contingent liabilities of the Target Fund required to be reflected on a balance sheet (including the notes thereto) in accordance with GAAP as of such date not disclosed therein. No significant deficiency, material weakness, fraud, significant change or other factor that could significantly affect the internal controls of the Target Fund has been disclosed or is required to be disclosed in the Target Fund’s reports on Form N-CSR and, to the knowledge of the Target Fund, no such disclosure will be required as of the Closing Date;
(k) Since the last day of the Target Fund’s most recently completed fiscal year, there has not been any material adverse change in the Target Fund’s financial condition, assets, liabilities or business, other than changes occurring in the ordinary course of business, except as otherwise disclosed to and accepted by the Acquiring Fund in writing. For the purposes of this subparagraph, a decline in net asset value due to declines in market values of securities held by the Target Fund, the redemption of the Target Fund’s shares by shareholders of the Target Fund or the discharge of the Target Fund’s ordinary course liabilities shall not constitute a material adverse change;
(l) On the Closing Date, all material Tax Returns (as defined below) of the Target Fund required by law to have been filed by such date (including any extensions) shall have been filed and are or will be true, correct and complete in all material respects, and all Taxes (as defined below) shown as due or claimed to be due by any government entity shall have been paid or provision has been made for the payment thereof. To the Target Fund’s knowledge, no such Tax Return is currently under audit by any federal, state, local or foreign Tax authority; no assessment has been asserted with respect to such Tax Returns; there are no levies, liens or other encumbrances on the Target Fund or its assets resulting from the non-payment of any Taxes; no waivers of the time to assess any such Taxes are outstanding nor are any written requests for such waivers pending; and adequate provision has been made in the Target Fund financial statements for all Taxes in respect of all periods ended on or before the date of such financial statements. The Target Fund is in compliance in all material respects with applicable regulations of the Internal Revenue Service (the “Service”) pertaining to the reporting of distributions on and redemptions of its shares of beneficial interest and to withholding in respect of distributions to shareholders, and is not liable for any material penalties that could be imposed thereunder. As used in this Agreement, “Tax” or “Taxes” means any tax, governmental fee or other like assessment or charge of any kind whatsoever (including, but not limited to, excise tax and withholding on amounts paid to or by any person), together with any interest, penalty, addition to tax or additional amount imposed by any governmental authority (domestic or foreign) responsible for the imposition of any such tax. “Tax Return” means reports, returns, information returns, dividend reporting forms, elections, agreements, declarations, or other documents or reports of any nature or kind (including any attached schedules, supplements and additional or supporting material) filed or required to be filed or furnished
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or required to be furnished with respect to Taxes, including any claim for refund, amended return or declaration of estimated Taxes (and including any amendments with respect thereto);
(m) The Target Fund: (i) is not (and will not be as of the Closing Date) classified as a partnership, and instead is (and will be as of the Closing Date) classified as an association that is subject to tax as a corporation for federal tax purposes and either has elected the latter classification by filing Form 8832 with the Service or is a “publicly traded partnership” (as defined in Section 7704(b) of the Code) that is treated as a corporation for federal tax purposes, (ii) has elected to be a regulated investment company under Subchapter M of the Code, and (iii) is a “fund,” as defined in Section 851(g)(2) of the Code, that is treated as a separate corporation under Section 851(g)(1) of the Code. The Target Fund has qualified for treatment as a regulated investment company for each taxable year since inception (or since it was first treated as a separate corporation under Section 851(g) of the Code) that has ended prior to the Closing Date, and for each such taxable year (or portion thereof), the Target Fund has been eligible to compute its federal income tax under Section 852 of the Code. Subject to the accuracy of the representations set forth in Section 4.2(i), the Target Fund expects to satisfy the requirements of Part I of Subchapter M of the Code to maintain qualification for treatment as a regulated investment company for the taxable year that includes the Closing Date. Subject to the accuracy of the representations set forth in Section 4.2(i), the Target Fund does not expect that the consummation of the transaction contemplated by this Agreement will cause it to fail to qualify as a regulated investment company as of the Closing Date or as of the end of its taxable year that includes the Closing Date. The Target Fund has not at any time since its inception had any material tax liability under Sections 852 or 4982 of the Code that has not been timely paid. The Target Fund has no earnings or profits accumulated with respect to any taxable year in which the provisions of Subchapter M of the Code (or the corresponding provisions of prior law) did not apply to the Target Fund. The Target Fund does not own any “converted property” (as that term is defined in Treasury Regulation Section 1.337(d)‑7(a)(2)) that is subject to the rules of Section 1374 of the Code as a consequence of the application of Section 337(d)(1) of the Code and the Treasury Regulations promulgated thereunder;
(n) The Target Fund has not changed its taxable year end within the most recent 48-month period ending on the last day of the month immediately preceding the Closing Date of the Reorganization, and it does not intend to change its taxable year end prior to that Closing Date;
(o) The Target Fund has not been notified in writing that any examinations of the Tax Returns of the Target Fund are currently in progress or threatened, and, to the knowledge of the Target Fund, no such examinations are currently in progress or threatened, and no deficiencies have been asserted or assessed against the Target Fund as a result of any audit by the Service or any state, local or foreign taxing authority, and, to the knowledge of the Target Fund, no such deficiency has been proposed or threatened, and there are no levies, liens or other encumbrances related to Taxes existing or known to the Target Fund to be threatened or pending with respect to the Assets of the Target Fund;
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(p) The Target Fund has no actual liability for any Tax obligation of any taxpayer other than itself. The Target Fund is not currently and has never been a member of a group of corporations with which it has filed (or been required to file) consolidated, combined or unitary tax returns. The Target Fund is not a party to any Tax allocation, sharing, or indemnification agreement (other than agreements the principal purpose of which do not relate to Taxes);
(q) All issued and outstanding shares of the Target Fund are, and on the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable by the Target Entity, and are not, and on the Closing Date will not be, subject to preemptive or objecting shareholder rights. In every state where offered or sold, such offers and sales have been in compliance in all material respects with applicable registration and/or notice requirements of the 1933 Act and state and District of Columbia and of Puerto Rico securities laws. All of the issued and outstanding shares of the Target Fund will, at the time of Closing, be held by the persons and in the amounts set forth in the records of the transfer agent for the Target Fund (the “Target Transfer Agent”), on behalf of the Target Fund. The Target Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any of the shares of the Target Fund, nor is there outstanding any security convertible into any of the Target Fund’s shares;
(r) The Target Entity, on behalf of the Target Fund, has all requisite power and authority to enter into this Agreement and to consummate the transaction contemplated herein. The execution, delivery and performance of this Agreement has been duly authorized by all necessary action, if any, on the part of the trustees of the Target Entity and, subject to the approval of the shareholders of the Target Fund (only with respect to those obligations under this Agreement that are contingent on such shareholder approval) and the due authorization, execution and delivery of this Agreement by the other parties hereto, this Agreement will constitute a valid and binding obligation of the Target Fund, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors’ rights and to general equity principles;
(s) The information relating to the Target Fund furnished by the Target Fund for use in no-action letters, applications for orders, registration statements, proxy materials and other documents filed or to be filed with any federal, state or local regulatory or self-regulatory authority that are necessary in connection with the transaction contemplated hereby is and will be accurate and complete in all material respects and will comply in all material respects with federal securities laws and regulations thereunder and other applicable laws and regulations applicable thereto;
(t) As of the date of this Agreement or within a certain time thereafter as mutually agreed by the parties, the Target Fund has provided the Acquiring Fund with all information relating to the Target Fund reasonably necessary for the preparation of the N-14 Registration Statement (as defined in Section 5.1(b) hereof), in compliance with the 1933 Act, the 1934 Act and the 1940 Act in connection with the special meeting of the Target Fund’s shareholders (the “Special Meeting”) to approve this Agreement and the transaction contemplated hereby. As of the effective date of the N-14 Registration
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Statement, the date of the Special Meeting of the Target Fund and the Closing Date, such information provided by any Target Fund will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading; provided, however, that the representations and warranties in this subparagraph shall not apply to statements in or omissions from the N-14 Registration Statement made in reasonable reliance upon and in conformity with information that was furnished by the Acquiring Fund for use therein;
(u) The books and records of the Target Fund are true and correct in all material respects and contain no material omissions with respect to information required to be maintained under the laws, rules and regulations applicable to the Target Fund;
(v) The Target Entity has adopted and implemented written policies and procedures in accordance with Rule 38a-1 under the 1940 Act relating to the Target Fund;
(w) The Target Entity has adopted and implemented written policies and procedures related to insider trading and a code of ethics that complies with all applicable provisions of Section 17(j) of the 1940 Act and Rule 17j-1 thereunder;
(x) The Target Entity and the Target Fund have maintained any material license, permit, franchise, authorization, certification and approval required by any governmental entity in the conduct of the Target Fund’s business (the “Licenses and Permits”). Each License and Permit has been duly obtained, is valid and in full force and effect, and is not subject to any pending or, to the knowledge of the Target Entity, threatened administrative or judicial proceeding to revoke, cancel, suspend or declare such License and Permit invalid;
(y) The Target Entity is not under the jurisdiction of a court in a Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code, although it may have claims against certain debtors in such a Title 11 or similar case; and
(z) The Target Fund has no unamortized or unpaid organizational fees or expenses.
4.2. The Acquiring Entity, on behalf of itself or, where applicable for the Acquiring Fund, represents and warrants to the Target Entity and the Target Fund as follows:
(a) The Acquiring Entity is a statutory trust duly formed, validly existing, and in good standing under the laws of the State of Delaware, with power under its Governing Documents to own all of its properties and assets and to carry on its business as it is now being, and as it is contemplated to be, conducted and to enter into this Agreement and perform its obligations hereunder. The Acquiring Fund is a duly established and designated separate series of the Acquiring Entity;
(b) The Acquiring Entity is a registered investment company classified as a management company of the open-end type, and its registration with the Commission as an investment company under the 1940 Act and the registration of shares of the Acquiring
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Fund under the 1933 Act are in full force and effect, and will be in full force and effect on the Closing Date, and no action or proceeding to revoke or suspend such registrations is pending, or to the knowledge of the Acquiring Fund, threatened;
(c) No consent, approval, authorization, or order of any court, governmental authority or FINRA is required for the consummation by the Acquiring Fund and the Acquiring Entity of the transaction contemplated herein, except such as have been or will be (at or prior to the Closing Date) obtained under the 1933 Act, the 1934 Act, the 1940 Act and state securities or blue sky laws (which term as used herein shall include the laws of the District of Columbia and of Puerto Rico), each of which, as required, shall have been obtained on or prior to the Closing Date. No consent of or notice to any other third party or entity is required for the consummation by the Acquiring Fund of the transaction contemplated by this Agreement;
(d) The prospectus and statement of additional information of the Acquiring Fund to be used in connection with the Reorganization, and the prospectus and statement of additional information of the Acquiring Fund that will be in effect on the Closing Date and that is included in the Acquiring Entity’s registration statement on Form N-1A, will conform at the time of their use in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations of the Commission thereunder and will not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not materially misleading;
(e) The Acquiring Fund is not engaged currently, and the execution, delivery and performance of this Agreement will not result, in (i) a material violation of the Acquiring Entity’s Governing Documents or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Acquiring Fund or the Acquiring Entity is a party or by which it is bound, or (ii) the acceleration of any obligation, or the imposition of any lien, encumbrance, penalty, or additional fee under any agreement, indenture, instrument, contract, lease, judgment or decree to which the Acquiring Fund or the Acquiring Entity is a party or by which it is bound;
(f) Except as otherwise disclosed to and accepted, in writing, by or on behalf of the Target Fund, no litigation or administrative proceeding or investigation of or before any court, tribunal, arbitrator, governmental body, regulatory agency or FINRA is presently pending or, to the Acquiring Fund’s knowledge, threatened against the Acquiring Fund that, if adversely determined, would materially and adversely affect the Acquiring Fund’s financial condition or the conduct of its business or the Acquiring Fund’s ability to consummate the transaction contemplated by this Agreement. The Acquiring Fund and the Acquiring Entity, without any special investigation or inquiry, know of no facts that might form the basis for the institution of such proceedings and neither the Acquiring Entity nor the Acquiring Fund is a party to or subject to the provisions of any order, decree or judgment of any court, governmental body, regulatory agency or FINRA that materially and adversely affects its business or its ability to consummate the transaction herein contemplated;
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(g) The Acquiring Fund has not yet commenced operations. The Acquiring Fund is, and will be at the time of Closing, a new series portfolio of the Acquiring Entity created within the last twelve (12) months, without assets (other than seed capital, which shall be paid out in redemption of the Initial Shares prior to the Reorganization, pursuant to Section 4.2(q)) or liabilities, formed for the purpose of acquiring the Assets and assuming the Liabilities of the Target Fund in connection with the Reorganization and, accordingly, the Acquiring Fund has not prepared books of account and related records or financial statements or issued any shares except those issued in a private placement to FAV or its affiliate to secure any required initial shareholder approvals;
(h) As of the Closing Date, no federal, state or other Tax Returns of the Acquiring Fund will have been required by law to have been filed, and no Taxes will be due by the Acquiring Fund. As of the Closing Date, the Acquiring Fund will not have been required to pay any assessments and the Acquiring Fund will not have any Tax liabilities. Consequently, as of the Closing Date, the Acquiring Fund will not be under audit by any federal, state, local or foreign Tax authority and there will have been no Tax assessment asserted with respect to the Acquiring Fund, no levies, liens or other encumbrances on the Acquiring Fund, and no waivers of the time to assess any Taxes;
(i) The Acquiring Fund: (i) was formed for the purpose of the Reorganization, (ii) is not (and will not be as of the Closing Date) classified as a partnership, and either will timely elect to be classified as an association that is subject to tax as a corporation for federal tax purposes by filing Form 8832 with the Service or will be as of the Closing Date a “publicly traded partnership” (as defined in Section 7704(b) of the Code) that is treated as a corporation for federal tax purposes, (iii) has not filed any income tax return, and, subject to the accuracy of the representations and warranties in Section 4.1(m), intends to qualify to be a regulated investment company under Subchapter M of the Code for its taxable year which includes the Closing Date, holds and has held no property other than de minimis seed capital (which shall be paid out in redemption of the Initial Shares prior to the Reorganization, pursuant to Section 4.2(q) and has never had tax attributes, and (iv) is, or will be as of the Closing Date, a “fund,” as defined in Section 851(g)(2) of the Code, that is treated as a separate corporation under Section 851(g)(1) of the Code. The Acquiring Fund has no earnings or profits accumulated in any taxable year in which the provisions of Subchapter M of the Code did not apply to it;
(j) The Acquiring Entity, on behalf of the Acquiring Fund, has all requisite power and authority to enter into this Agreement and to consummate the transaction contemplated herein. The execution, delivery and performance of this Agreement will have been duly authorized prior to the Closing Date by all necessary action, if any, on the part of the trustees of the Acquiring Entity, on behalf of the Acquiring Fund, and subject to the approval of shareholders of the Target Fund and the due authorization, execution and delivery of the Agreement by the other parties thereto, this Agreement will constitute a valid and binding obligation of the Acquiring Fund, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors’ rights and to general equity principles;
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(k) The shares of the Acquiring Fund to be issued and delivered to the Target Fund, for the account of the Target Fund Shareholders, pursuant to the terms of this Agreement, have been duly authorized and, when so issued and delivered, will be duly and validly issued Acquiring Fund shares, and, upon receipt of the Target Fund’s Assets in accordance with the terms of this Agreement, will be fully paid and non-assessable by the Acquiring Entity;
(l) The Acquiring Entity has adopted and implemented written policies and procedures in accordance with Rule 38a-1 under the 1940 Act relating to the Acquiring Fund;
(m) The Acquiring Entity and the Acquiring Fund have adopted and implemented written policies and procedures related to insider trading and a code of ethics that complies with all applicable provisions of Section 17(j) of the 1940 Act and Rule 17j-1 thereunder;
(n) The Acquiring Entity is not under the jurisdiction of a court in a Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code, although it may have claims against certain debtors in such a Title 11 or similar case;
(o) The Acquiring Fund has no unamortized or unpaid organizational fees or expenses for which it does not expect to be reimbursed by FAV or its affiliates;
(p) There is no plan or intention for the Acquiring Fund to be dissolved or merged into another business or statutory trust or a corporation or any “fund” thereof (as defined in Section 851(g)(2) of the Code) following the Reorganization;
(q) There shall be no issued and outstanding shares of the Acquiring Fund prior to the Closing Date other than a nominal number of shares (“Initial Shares”) issued to a seed capital investor (which shall be the investment adviser of the Acquiring Fund or an affiliate thereof) to vote on the investment advisory contract and other agreements and plans as may be required by the 1940 Act and to take whatever action it may be required to take as the Acquiring Fund’s sole shareholder. The Initial Shares will be redeemed by the Acquiring Fund prior to the Closing for the price for which they were issued, and any price paid for the Initial Shares shall at all times have been held by the Acquiring Fund in a non-interest-bearing account; and
(r) As of the effective date of the N-14 Registration Statement, the date of the Special Meeting of shareholders of the Target Fund and the Closing Date, the information provided by any Acquiring Fund for use in the N-14 Registration Statement, including the documents contained or incorporated therein by reference will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading; provided, however, that the representations and warranties in this subparagraph shall not apply to statements in or omissions from the N-14 Registration Statement made in reasonable reliance upon and in conformity with information that was furnished by the Target Fund for use therein.
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4.3. With respect to the Reorganization, the Target Entity, on behalf of the Target Fund, and the Acquiring Entity, on behalf of the Acquiring Fund, represents and warrants as follows:
(a) The fair market value of the Acquiring Fund’s shares that the Target Fund shareholder receives will be approximately equal to the fair market value of the Target Fund shares it actually or constructively surrenders in exchange therefor;
(b) The fair market value of the Assets will equal or exceed the Liabilities to be assumed by the Acquiring Fund and those to which the Assets are subject;
(c) No expenses incurred by the Target Fund or on its behalf in connection with the Reorganization will be paid or assumed by the Acquiring Fund or any other third party unless those expenses are solely and directly related to the Reorganization (determined in accordance with the guidelines set forth in Rev. Rul. 73-54, 1973-1 C.B. 187) (“Reorganization Expenses”), and no cash or property other than Acquiring Fund shares will be transferred to the Target Fund or any of its shareholders with the intention that it be used to pay any expenses (even Reorganization Expenses) thereof; and
(d) Immediately following consummation of the Reorganization, other than shares of the Acquiring Fund issued to FAV or its affiliate representing de minimis assets related to the Acquiring Fund’s formation or maintenance of its legal status, (1) the shareholders of the Acquiring Fund will own all the Acquiring Fund shares and will own those shares solely by reason of their ownership of the Target Fund shares immediately before the Reorganization; (2) the Acquiring Fund will hold the same assets and will be subject to the same liabilities that the Target Fund held or was subject to immediately before the Reorganization; and (3) the amount of all distributions (other than regular, normal dividends) the Target Fund will make immediately preceding the Reorganization, will, in the aggregate, constitute less than 1% of its net assets.
5. | COVENANTS OF THE ACQUIRING ENTITY AND THE TARGET ENTITY |
5.1. With respect to the Reorganization:
(a) The Target Fund will (i) operate its business in the ordinary course and substantially in accordance with past practice between the date hereof and the Closing Date, it being understood that, with respect to the Target Fund, such ordinary course of business may include purchases and sales of portfolio securities and other instruments, sales and redemptions of the Target Fund’s shares, and the declaration and payment of customary dividends and distributions, and any other distribution that may be advisable, and (ii) use its reasonable best efforts to preserve intact its business organization and material assets and maintain the rights, franchises and business and customer relations necessary to conduct the business operations of the Target Fund in the ordinary course in all material respects. The Acquiring Fund shall take such actions as are customary to the organization of a new series prior to its commencement of operations. No party shall take any action that would, or would reasonably be expected to, result in any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect.
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(b) The parties hereto shall cooperate in preparing, and the Acquiring Entity shall file with the Commission, a registration statement on Form N-14 under the 1933 Act, which shall properly register the Acquiring Fund shares to be issued in connection with the Reorganization and include a proxy statement/prospectus with respect to the proxy solicitation to the shareholders of the Target Fund of the Reorganization (the “N-14 Registration Statement”). If at any time prior to the Closing Date a party becomes aware of any untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements made not misleading in light of the circumstances under which they were made in respect of the N-14 Registration Statement, such party shall notify each other party, and the parties shall cooperate in promptly preparing and filing with the Commission and, if appropriate, distributing to shareholders appropriate disclosure with respect to the item.
(c) The Acquiring Entity shall file the N-14 Registration Statement with the Commission and use its best efforts to provide that the N-14 Registration Statement becomes effective as promptly as practicable.
(d) The Target Entity, on behalf of the Target Fund, will call, convene and hold a meeting of shareholders of the Target Fund as soon as practicable, in accordance with applicable law and the Target Entity’s Governing Documents, for the purpose of approving this Agreement and the transaction contemplated herein as set forth in a proxy statement/prospectus, and for such other purposes as may be necessary or desirable. In the event that, for the Target Fund, insufficient votes are received from shareholders, the meeting may be adjourned as permitted under the Target Entity’s Governing Documents and applicable law, and as set forth in a proxy statement/prospectus in order to permit further solicitation of proxies.
(e) The Target Entity, on behalf of the Target Fund, agrees to mail or otherwise deliver (e.g., by electronic means consistent with applicable regulations governing their use) to its shareholders of record entitled to receipt of the proxy statement/prospectus, in sufficient time to comply with requirements of the 1934 Act, the proxy statement/prospectus contained in the N-14 Registration Statement and other documents as are necessary.
(f) The Target Fund covenants that the Acquiring Fund’s shares to be issued pursuant to this Agreement are not being acquired for the purpose of making any distribution thereof, other than in accordance with the terms of this Agreement.
(g) The Target Entity will assist the Acquiring Fund in obtaining such information as the Acquiring Fund reasonably requests concerning the beneficial ownership of the Target Fund’s shares, and will assist the Acquiring Fund in obtaining copies of any books and records of the Target Fund from its service providers reasonably requested by the Acquiring Entity.
(h) Subject to the provisions of this Agreement, the Acquiring Fund and the Target Fund will each take, or cause to be taken, all action, and do or cause to be done all
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things, reasonably necessary, proper or advisable to consummate and make effective the transaction contemplated by this Agreement.
(i) As soon as is reasonably practicable after the Closing, the Target Fund will make one or more distributions to its shareholders consisting of the shares of the Acquiring Fund received at the Closing, as set forth in Section 1.1(d) hereof.
(j) The Acquiring Fund and the Target Fund shall each use their reasonable best efforts prior to Closing to fulfill or obtain the fulfillment of the conditions precedent to effect the transaction contemplated by this Agreement.
(k) The Target Fund shall, from time to time, as and when reasonably requested by the Acquiring Fund, execute and deliver or cause to be executed and delivered all such assignments and other instruments, and will take or cause to be taken such further action, as the Acquiring Fund may reasonably deem necessary or desirable in order to vest in and confirm the Acquiring Fund’s title to and possession of all the Assets and otherwise to carry out the intent and purpose of this Agreement.
(l) The Acquiring Fund shall, from time to time, as and when reasonably requested by the Target Fund, execute and deliver or cause to be executed and delivered all such assumption agreements and other instruments, and will take or cause to be taken such further action, as the Target Fund may reasonably deem necessary or desirable in order for the Acquiring Fund to assume the Target Fund’s Liabilities and otherwise to carry out the intent and purpose of this Agreement.
(m) The Acquiring Fund will use all reasonable efforts to obtain the approvals and authorizations required by the 1933 Act, 1934 Act, the 1940 Act and such of the state blue sky or securities laws as may be necessary in order to continue its operations after the Closing Date.
(n) A statement of any capital loss carryovers, for U.S. federal income tax purposes, of the Target Fund, as of the most recent Tax year end of the Target Fund, along with supporting workpapers providing information regarding any limitations on the use of such capital loss carryovers including information on any built-in gains and built-in losses of the Target Fund for purposes of applying applicable limitations on the use of such items under the Code, shall be provided by the Target Entity on behalf of the Target Fund to the Acquiring Fund within sixty (60) days after the Closing Date.
(o) It is the intention of the parties that the Reorganization will qualify as a reorganization with the meaning of Section 368(a) of the Code. None of the parties to this Agreement shall take any action or cause any action to be taken (including, without limitation the filing of any Tax Return) that is inconsistent with such treatment or results in the failure of the Reorganization to qualify as a reorganization with the meaning of Section 368(a) of the Code.
(p) Prior to the Closing, the Target Fund (i) shall recapitalize so that it has a single class of shares outstanding and so that each holder of that single class of shares holds shares of that single class immediately after the recapitalization with an aggregate value
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equal to the aggregate value of any shares of the Target Fund held prior to the recapitalization, and (ii) following the recapitalization (but, for the avoidance of doubt, prior to the Closing), shall redeem all fractional shares of the Target Fund outstanding on the records of the Target Fund’s transfer agent.
6. | CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TARGET ENTITY |
6.1. With respect to the Reorganization, the obligations of the Target Entity, on behalf of the Target Fund, to consummate the transaction provided for herein shall be subject to the satisfaction, or at the Target Entity’s election, the Target Entity’s waiver, of the following conditions:
(a) All representations and warranties of the Acquiring Fund and the Acquiring Entity contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transaction contemplated by this Agreement, as of the Closing Time, with the same force and effect as if made on and as of the Closing Time;
(b) The Acquiring Entity and the Acquiring Fund shall have performed all of the covenants and complied with all of the provisions required by this Agreement to be performed or complied with by the Acquiring Entity and the Acquiring Fund, on or before the Closing Time;
(c) The Target Fund and the Acquiring Fund shall have agreed on the number of shares of the Acquiring Fund to be issued in connection with the Reorganization after such number has been calculated in accordance with Section 1.1 hereto;
(d) As of the Closing Date, there shall have been no material change in the investment objectives, policies and restrictions or any increase in the investment management fee rate or other fee rates that the Acquiring Fund is contractually obligated to pay for services provided to the Acquiring Fund from those described in the N-14 Registration Statement; and
(e) The Target Entity shall have received on the Closing Date the opinion of Stradley Ronon Stevens & Young, LLP (“Stradley Ronon”), counsel to the Acquiring Entity (which may rely on certificates of officers or trustees of the Acquiring Entity), dated as of the Closing Date, covering the following points:
(i) The Acquiring Entity is a statutory trust duly formed, validly existing and in good standing under the laws of the State of Delaware, and, with respect to the Acquiring Fund, has power under its Governing Documents to own all of its properties and assets, and to conduct its business as presently conducted as described in the N-14 Registration Statement;
(ii) The Acquiring Entity is a registered investment company classified as a management company of the open-end type with respect to each series of shares it offers, including the Acquiring Fund, under the 1940 Act, and its registration with the Commission as an investment company under the 1940 Act is in full force and effect;
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(iii) The execution and delivery of this Agreement has been duly authorized by the Acquiring Entity on behalf of the Acquiring Fund. This Agreement has been duly executed and delivered by the Acquiring Entity, on behalf of the Acquiring Fund and, assuming due authorization, execution and delivery of the Agreement by the Target Entity, the Target Fund, and FAV, is a valid and binding obligation of the Acquiring Entity, on behalf of the Acquiring Fund, enforceable against the Acquiring Entity, on behalf of the Acquiring Fund in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, fraudulent conveyance, reorganization, receivership, moratorium and other similar laws relating to or affecting creditors’ rights generally, general equity principles (whether considered in a proceeding in equity or at law) and to an implied covenant of good faith and fair dealing;
(iv) The Acquiring Fund shares to be issued to the Target Fund as provided by this Agreement are duly authorized, upon such delivery will be validly issued and upon receipt of the Target Fund’s Assets will be fully paid and non-assessable by the Acquiring Entity and no shareholder of the Acquiring Fund has any preemptive rights to subscription or purchase in respect thereof; and
(v) The execution and delivery of the Agreement by the Acquiring Entity, on behalf of the Acquiring Fund, did not, and the performance by the Acquiring Entity, on behalf of the Acquiring Fund, of its obligations hereunder will not (i) violate the Acquiring Entity’s Governing Documents; or (ii) breach in any material respect any provision of any agreement filed with the registration statement of the Acquiring Entity on Form N-1A to which the Acquiring Fund is a party or by which it is bound or, to the knowledge of such counsel, result in the acceleration of any obligation or the imposition of any penalty under any such agreement.
7. | CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING ENTITY |
7.1. With respect to the Reorganization, the obligations of the Acquiring Entity, on behalf of the Acquiring Fund, to consummate the transaction provided for herein shall be subject to the satisfaction, or at the Acquiring Entity’s election, the Acquiring Fund’s waiver, of the following conditions:
(a) All representations and warranties of the Target Entity and the Target Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transaction contemplated by this Agreement, as of the Closing Time, with the same force and effect as if made on and as of the Closing Time;
(b) The Target Entity and the Target Fund shall have performed all of the covenants and complied with all of the provisions required by this Agreement to be performed or complied with by the Target Entity and the Target Fund, on or before the Closing Time;
(c) The Target Fund and the Acquiring Fund shall have agreed on the number of shares of the Acquiring Fund to be issued in connection with the Reorganization after such number has been calculated in accordance with Section 1.1 hereto;
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(d) As of the Closing Date, there shall have been no material change in the investment objectives, policies and restrictions or any increase in the investment management fee rate or other fee rates that the Target Fund is contractually obligated to pay for services provided to the Target Fund from those described in the N-14 Registration Statement; and
(e) The Acquiring Entity shall have received on the Closing Date an opinion of counsel of Stradley Ronon, counsel to the Target Entity (which may rely on certificates of officers or trustees of the Target Entity), dated as of the Closing Date, covering the following points:
(i) The Target Entity is a statutory trust duly formed, validly existing and in good standing under the laws of the State of Delaware, and, with respect to the Target Fund, has power under its Governing Documents to own all of its properties and assets, and to conduct its business as presently conducted as described in the N-14 Registration Statement;
(ii) The Target Entity is a registered investment company classified as a management company of the open-end type with respect to itself and, if applicable, each series of shares it offers, including the Target Fund, under the 1940 Act, and its registration with the Commission as an investment company under the 1940 Act is in full force and effect;
(iii) The execution and delivery of this Agreement has been duly authorized by the Target Entity on behalf of Target Fund. This Agreement has been duly executed and delivered by the Target Entity, on behalf of the Target Fund and, assuming due authorization, execution and delivery of the Agreement by the Acquiring Entity and the Acquiring Fund, is a valid and binding obligation of the Target Entity, on behalf of the Target Fund, enforceable against the Target Entity, on behalf of the Target Fund, in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, fraudulent conveyance, reorganization, receivership, moratorium and other similar laws relating to or affecting creditors’ rights generally, general equity principles (whether considered in a proceeding in equity or at law) and to an implied covenant of good faith and fair dealing; and
(iv) The execution and delivery of the Agreement by the Target Entity, on behalf of the Target Fund, did not, and the performance by the Target Entity, on behalf of the Target Fund, of its obligations hereunder will not (i) violate the Target Entity’s Governing Documents (ii) breach in any material respect any provision of any agreement filed with the registration statement of the Target Entity on Form N-1A to which the Target Fund is a party or by which it is bound or, to the knowledge of such counsel, result in the acceleration of any obligation or the imposition of any penalty under any such agreement.
8. | FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING ENTITY AND THE TARGET ENTITY |
With respect to the Reorganization, if any of the conditions set forth below have not been satisfied on or before the Closing Date with respect to the Target Fund or the Acquiring Fund, the Acquiring Entity or Target Entity, respectively, shall, at its option, not be required to consummate the transaction contemplated by this Agreement:
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8.1. The Agreement and transaction contemplated herein shall have been approved by the board of trustees and shareholders of the Target Entity and the board of trustees of the Acquiring Entity. Notwithstanding anything herein to the contrary, neither the Target Fund nor the Acquiring Fund may waive the conditions set forth in this Section 8.1;
8.2. On the Closing Date, no action, suit or other proceeding shall be pending or, to the Target Entity’s or the Acquiring Entity’s knowledge, threatened before any court or governmental agency in which it is sought to restrain or prohibit, or obtain damages or other relief in connection with, this Agreement or the transaction contemplated herein;
8.3. All consents of other parties and all other consents, orders and permits of federal, state and local regulatory authorities deemed necessary by the Acquiring Fund or Target Fund to permit consummation, in all material respects, of the transaction contemplated hereby shall have been obtained, except where failure to obtain any such consent, order or permit would not result in a material adverse effect on the Acquiring Fund or the Target Fund, provided that either party hereto may for itself waive any of such conditions;
8.4. The N-14 Registration Statement shall have become effective under the 1933 Act and no stop orders suspending the effectiveness thereof shall have been issued and, to the best knowledge of the parties hereto, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act;
8.5. With respect to the Reorganization, the Acquiring Entity and the Target Entity shall have received the opinion of Stradley Ronon dated as of the Closing Date and addressed to the Acquiring Entity and the Target Entity, in a form satisfactory to them, substantially to the effect that, based upon certain facts, qualifications, certifications, representations and assumptions, for federal income tax purposes:
(a) The Reorganization will constitute a “reorganization” within the meaning of Section 368(a) of the Code, and each of the Target Fund and the Acquiring Fund will be a “party to a reorganization” within the meaning of Section 368(b) of the Code;
(b) No gain or loss will be recognized by the Target Fund upon the transfer of all the Assets of the Target Fund to the Acquiring Fund solely in exchange for shares of the Acquiring Fund and the assumption by the Acquiring Fund of all the Liabilities of the Target Fund, or upon the distribution of the shares of the Acquiring Fund to the Target Fund Shareholders, except for (A) gain or loss that may be recognized on the transfer of “section 1256 contracts” as defined in Section 1256(b) of the Code, (B) gain that may be recognized on the transfer of stock in a “passive foreign investment company” as defined in Section 1297(a) of the Code, and (C) any other gain or loss that may be required to be recognized upon the transfer of an asset regardless of whether such transfer would otherwise be a non-recognition transaction under the Code;
(c) The tax basis in the hands of the Acquiring Fund of each Asset transferred from the Target Fund to the Acquiring Fund in the Reorganization will be the same as the tax basis of such Asset in the hands of the Target Fund immediately prior to the transfer
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thereof, increased by the amount of gain (or decreased by the amount of loss), if any, recognized by the Target Fund on the transfer;
(d) The holding period in the hands of the Acquiring Fund of each Asset transferred from the Target Fund to the Acquiring Fund in the Reorganization, other than Assets with respect to which gain or loss is required to be recognized, will include the Target Fund’s holding period for such Asset (except where investment activities of the Acquiring Fund have the effect of reducing or eliminating the holding period with respect to an asset);
(e) No gain or loss will be recognized by the Acquiring Fund upon its receipt of all the Assets of the Target Fund solely in exchange for shares of the Acquiring Fund and the assumption by the Acquiring Fund of all the Liabilities of the Target Fund as part of the Reorganization;
(f) No gain or loss will be recognized by the Target Fund Shareholders upon the exchange of their shares of the Target Fund for shares of the Acquiring Fund as part of the Reorganization (except with respect to cash received by Target Fund Shareholders in redemption of fractional shares prior to the Reorganization);
(g) The aggregate tax basis of the shares of the Acquiring Fund Shares each Target Fund Shareholder receives in the Reorganization will be the same as the aggregate tax basis of the shares of the Target Fund exchanged therefor;
(h) Each Target Fund Shareholder’s holding period for the shares of the Acquiring Fund received in the Reorganization will include the Target Fund Shareholder’s holding period for the shares of the Target Fund exchanged therefor, provided that the Target Fund Shareholder held such shares of the Target Fund as capital assets on the date of the exchange; and
(i) The taxable year of the Target Fund will not be required to end solely as a result of the Reorganization.
Notwithstanding anything herein to the contrary, neither the Acquiring Entity nor the Target Entity may waive the conditions set forth in this paragraph 8.5.
9. | BROKERAGE FEES AND EXPENSES |
9.1. The parties hereto represent and warrant to each other that there are no brokers or finders entitled to receive any payments in connection with the transaction provided for herein.
9.2. Except as otherwise provided herein, FAV will bear 100% of the expenses relating to the Reorganization whether or not the Reorganization is consummated. The costs of the Reorganization shall include, but not be limited to, costs associated with obtaining any necessary order of exemption from the 1940 Act, if any, terminating any existing agreements or contracts to which the Target Entity is a party (including any penalties payable in connection with such termination), preparation, printing and distribution of the N-14 Registration Statement for the Reorganization (including the prospectus/proxy statement contained therein) and any
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supplements to the Target Fund’s current prospectus and statement of additional information, legal fees, accounting fees, and expenses of holding shareholders’ meetings. Any applicable transfer fees, stamp duty, brokerage commissions and other transaction costs relating to the (i) transfer of securities from the Target Fund to the Acquiring Fund at the time of the Reorganization and (ii) the sale and purchase of securities in those foreign markets that do not permit the in-kind transfer of securities shall be borne by the Target Fund. Notwithstanding the foregoing, expenses of the Reorganization will in any event be paid by the party directly incurring such expenses if and to the extent that the payment by another person of such expenses would result in a failure by either the Target Fund or the Acquiring Fund to qualify for treatment as a regulated investment company within the meaning of Section 851 of the Code or would prevent the Reorganization from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code or otherwise result in the imposition of tax on either the Target Fund or the Acquiring Fund or on any of their respective shareholders.
10. | COOPERATION AND EXCHANGE OF INFORMATION |
With respect to the Reorganization, prior to the Closing and for a reasonable time thereafter, the Target Entity and the Acquiring Entity will provide each other and their respective representatives with such cooperation, assistance and information as is reasonably necessary (i) for the filing of any Tax Return, for the preparation for any audit, and for the prosecution or defense of any claim, suit or proceeding relating to any proposed adjustment, or (ii) for any financial accounting purpose. Each such party or their respective agents will retain until the applicable period for assessment under applicable law (giving effect to any and all extensions or waivers) has expired all returns, schedules and work papers and all material records or other documents relating to Tax matters and financial reporting of tax positions of the Target Fund and the Acquiring Fund for its taxable period first ending after the Closing of the Reorganization and for all prior taxable periods for which the statute of limitation had not run at the time of the Closing, provided that the Target Entity shall not be required to maintain any such documents that it has delivered to the Acquiring Fund.
11. | INDEMNIFICATION |
11.1. With respect to the Reorganization, the Acquiring Entity, out of the assets of the Acquiring Fund, agrees to indemnify and hold harmless the Target Entity and each of the Target Entity’s officers and trustees from and against any and all losses, claims, damages, liabilities or expenses (including, without limitation, the payment of reasonable legal fees and reasonable costs of investigation) to which, jointly and severally, the Target Entity or any of its trustees or officers may become subject, insofar as such loss, claim, damage, liability or expense (or actions with respect thereto) arises out of or is based on any breach by the Acquiring Entity, on behalf of the Acquiring Fund, of any of its representations, warranties, covenants or agreements set forth in this Agreement. This indemnification obligation shall survive the termination of this Agreement and the closing of the Reorganization.
11.2. With respect to the Reorganization, the Target Entity, out of the assets of the Target Fund, agrees to indemnify and hold harmless the Acquiring Entity and its officers and trustees from and against any and all losses, claims, damages, liabilities or expenses (including, without limitation, the payment of reasonable legal fees and reasonable costs of investigation) to which,
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jointly and severally, the Acquiring Entity or any of its trustees or officers may become subject, insofar as such loss, claim, damage, liability or expense (or actions with respect thereto) arises out of or is based on any breach by the Target Entity, on behalf of the Target Fund, of any of its representations, warranties, covenants or agreements set forth in this Agreement. This indemnification obligation shall survive the termination of this Agreement and the closing of the Reorganization.
12. | ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES AND COVENANTS |
12.1. Each party agrees that no party has made any representation, warranty or covenant not set forth herein and that this Agreement constitutes the entire agreement between the parties.
12.2. The covenants to be performed after the Closing shall survive the Closing. The representations, warranties and all other covenants contained in this Agreement or in any document delivered pursuant hereto or in connection herewith shall not survive the consummation of the transaction contemplated hereunder.
13. | TERMINATION |
13.1. In addition, this Agreement may be terminated and the transaction contemplated hereby may be abandoned at any time prior to the Closing Date by: (i) resolution of either the board of trustees of the Acquiring Entity or the board of trustees of the Target Entity if circumstances should develop that, in the opinion of that board, make proceeding with the Agreement not in the best interests of the shareholders of the Acquiring Fund or the Target Fund, respectively; (ii) mutual agreement of the parties; (iii) either the Acquiring Entity or the Target Entity if the Closing shall not have occurred on or before December 31, 2023; unless such date is extended by mutual agreement of the Acquiring Entity and the Target Entity; or (iv) any party if one or more other parties shall have materially breached its obligations under this Agreement or made a material misrepresentation herein or in connection herewith which would render a condition set forth in this Agreement unable to be satisfied. In the event of any such termination, this Agreement shall become void and there shall be no liability hereunder on the part of any party or their respective trustees or officers, except for (a) any such material breach or intentional misrepresentation or (b) the parties’ respective obligations under Sections 9.2 and 11, as to each of which all remedies at law or in equity of the party adversely affected shall survive.
13.2. If any order of the Commission with respect to the Agreement shall be issued prior to the Closing that imposes any term or condition that is determined by action of the board of trustees of the Target Entity to be acceptable, such term or condition shall be binding as if it were a part of the Agreement without a vote or approval of the shareholders of the Target Fund; provided that, if such term or condition would result in a change in the method of computing the number of Acquiring Fund Shares to be issued to the Target Fund, and such term or condition had not been included in the prospectus/proxy statement or other proxy solicitation material furnished to the shareholders of the Target Fund prior to the Special Meeting, the Agreement shall not be consummated and shall terminate unless the Target Entity promptly calls a Special Meeting of its shareholders at which such condition shall be submitted for approval.
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14. | AMENDMENTS |
This Agreement may be amended, modified or supplemented in a writing signed by the parties hereto to be bound by such Amendment; provided, however, that following dissemination of the proxy statement/prospectus, no such amendment may have the effect of changing the provisions for determining the number of shares of the Acquiring Fund to be issued to the shareholders of the Target Fund under this Agreement to the detriment of such shareholders without their further approval.
15. | NOTICES |
Any notice, report, statement or demand required or permitted by any provisions of this Agreement shall be in writing and shall be given by facsimile, electronic delivery, personal service or prepaid or certified mail addressed to:
For the Target Entity:
Franklin Custodian Funds
One Franklin Parkway
San Mateo, California 94403-1906
For the Acquiring Entity:
Franklin Templeton ETF Trust
One Franklin Parkway
San Mateo, California 94403-1906
16. | HEADINGS; GOVERNING LAW; COUNTERPARTS; ASSIGNMENT; LIMITATION OF LIABILITY |
16.1. The Article and Section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
16.2. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware and applicable federal law, without regard to its principles of conflicts of laws.
16.3. This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, but no assignment or transfer hereof or of any rights or obligations hereunder shall be made by any party without the written consent of the other parties. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm or corporation, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement.
16.4. This agreement may be executed in any number of counterparts, each of which shall be considered an original. The execution and delivery of this Agreement may occur by facsimile or by email in portable document format (PDF) or by other means of electronic signature and electronic transmission, including DocuSign or other similar method, and originals or copies of signatures executed and delivered by such methods shall have the full force and effect of the original signatures.
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16.5. The Target Entity is a Delaware statutory trust organized in series of which the Target Fund constitutes one such series. With respect to the Reorganization, the Target Entity is executing this Agreement on behalf of the Target Fund only. It is expressly agreed that there is a limitation on liability of each series such that (a) the debts, liabilities, obligations and expenses incurred, contracted or otherwise existing with respect to the Target Fund are enforceable against the assets of the Target Fund only, and not against the assets of the Target Entity generally or the assets of any other series thereof, and (b) none of the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to the Target Entity generally or with respect to any other series thereof are enforceable against the assets of the Target Fund.
16.6. The Acquiring Entity is a Delaware statutory trust organized in series of which the Acquiring Fund constitutes one such series. With respect to the Reorganization, the Acquiring Entity is executing this Agreement on behalf of the Acquiring Fund only. It is expressly agreed that there is a limitation on liability of each series such that (a) the debts, liabilities, obligations and expenses incurred, contracted or otherwise existing with respect to the Acquiring Fund are enforceable against the assets of the Acquiring Fund only, and not against the assets of the Acquiring Entity generally or the assets of any other series thereof, and (b) none of the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to the Acquiring Entity generally or with respect to any other series thereof are enforceable against the assets of the Acquiring Fund.
16.7. It is expressly agreed that the obligations of the parties hereunder shall not be binding upon any of their respective trustees, shareholders, nominees, officers, agents, or employees personally, but, except as provided in Sections 9.2, 11.1 and 11.2 hereof, shall bind only the property of the Target Fund or the Acquiring Fund as provided in the Governing Documents of the Target Entity or the Acquiring Entity, respectively. The execution and delivery by such officers shall not be deemed to have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the property of such party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be approved on behalf of the Acquiring Fund and Target Fund.
Franklin Custodian Funds, on behalf of Franklin Focused Growth Fund | Franklin Templeton ETF Trust, on behalf of Franklin Focused Growth ETF | ||||||
By: | By: | ||||||
Name: | Name: | ||||||
Title: | Title: | ||||||
Franklin Advisers, Inc. | |||||||
By: | |||||||
Name: | |||||||
Title: |
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Exhibit B
PRINCIPAL HOLDERS OF SECURITIES
Listed below are the names, addresses and percent ownership of each person who, as of March 10, 2023 to the best knowledge of the Custodian Funds Trust, owned 5% or more of the outstanding shares of each class of the Target Fund. A shareholder who owns beneficially 25% or more of the outstanding securities of a Fund is presumed to “control” the Fund as defined in the 1940 Act. Such control may affect the voting rights of other shareholders.
Class | Name and Address | Share Amount | Percentage of Class (%) |
Class A Shares | |||
Class C Shares | |||
Class R Shares | |||
Class R6 Shares | |||
Advisor Class | |||
B-1
STATEMENT OF ADDITIONAL INFORMATION
FOR
FRANKLIN FOCUSED GROWTH ETF
One Franklin Parkway
San Mateo, CA 94403-1906
Dated [April __, 2023]
Acquisition of the Assets and Assumption of Liabilities of:
FRANKLIN FOCUSED GROWTH FUND
(a series of Franklin Custodian Funds) (the “Custodian Funds Trust”)
by and in Exchange for Shares of
FRANKLIN FOCUSED GROWTH ETF
(a series of Franklin Templeton ETF Trust) (the “ETF Trust”)
This Statement of Additional Information (“SAI”) relates specifically to the proposed acquisition of the assets and assumption of the liabilities of the Franklin Focused Growth Fund (the “Target Fund”), a series of the Custodian Funds Trust, by and in exchange for shares of the Franklin Focused Growth ETF (the “Acquiring Fund”).
This SAI, which is not a prospectus, supplements and should be read in conjunction with the Prospectus/Proxy Statement for the Acquiring Fund dated [April __, 2023] (the “Prospectus/Proxy Statement”) relating specifically to the Special Meeting of Shareholders of the Target Fund to be held on June 30, 2023. You may request a free copy of the Prospectus/Proxy Statement without charge by calling (800) DIAL-BEN ((800) 342-5236) or by writing to Franklin Templeton Investments at One Franklin Parkway, San Mateo, CA 94403-1906.
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Table of Contents
Page | ||
General Information | 2 | |
Incorporation of Documents by Reference into the SAI | 3 |
General Information
This SAI relates specifically to the proposed reorganization of the Target Fund into the Acquiring Fund. In connection with the Special Meeting of Shareholders of the Target Fund to be held on June 30, 2023 (the “Meeting”), shareholders of the Target Fund will be asked to approve a proposed Agreement and Plan of Reorganization (the “Plan”) providing for: (i) the acquisition of the assets of the Target Fund and the assumption of the liabilities of the Target Fund by the Acquiring Fund in exchange solely for shares of the Acquiring Fund, (ii) the pro rata distribution of such shares to the shareholders of the Target Fund, and (iii) the complete liquidation and dissolution of the Target Fund (the “Reorganization”). Additional information regarding the proposed Reorganization is included in the Prospectus/Proxy Statement relating to the Meeting and in the documents, listed below, that are incorporated by reference into this SAI. Further information about the Acquiring Fund is contained in the Acquiring Fund’s Statement of Additional Information dated [April __, 2023] for Franklin Templeton ETF Trust for the Acquiring Fund. [SEC Accession No. ________] which is incorporated herein by reference.
Supplemental Financial Information
The Target Fund shall be the accounting and performance survivor in the Reorganization. Additionally, there are no material differences in accounting policies of the Target Fund as compared to those of the Acquiring Fund.
A table showing the fees and expenses of the Acquiring Fund and Target Fund and the fees and expenses of the Acquiring Fund on a pro forma basis after giving effect to the proposed Reorganization is included in the section titled “Annual Operating Expense Table For Class A, Class C, Class R, Class R6 And Advisor Class Shares Of The Target Fund And Projected Fees For The Acquiring Fund After The Reorganization” of the Prospectus/Proxy Statement.
Because the Acquiring Fund has the same principal investment strategies as the Target Fund except that the Acquiring Fund, unlike the Target Fund, is a non-diversified fund within the meaning of the Investment Company Act of 1940, as amended, the Reorganization is not expected to result in a material change to the Target Fund’s investment portfolio due to the investment restrictions of the Acquiring Fund. Accordingly, a schedule of investments of the Target Fund modified to reflect such change is not included. In addition, at this time, the portfolio managers do not anticipate any changes to the investment portfolio as a result of the Reorganization, and if any do occur, it is expected they will be de minimis.
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Incorporation of Documents by Reference into the SAI
This SAI incorporates by reference the following documents, which have each been filed with the Securities and Exchange Commission and will be sent to any shareholder requesting this SAI:
Target Fund
1. | Statement of Additional Information (“SAI”) dated February 1, 2023 of Franklin Custodian Funds (the “Custodian Funds Trust”), with respect to the Target Fund. [SEC Accession No. 0001741773-23-000091] |
2. | The audited financial statements and related report of the independent public accounting firm included in the Custodian Funds Trust Annual Report to Shareholders for the fiscal year ended September 30, 2022, with respect to the Target Fund. [SEC Accession No. 0001868420-22-000233] |
Acquiring Fund
3. | Statement of Additional Information dated [April __, 2023] for Franklin Templeton ETF Trust for the Acquiring Fund. [SEC Accession No. ________] |
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FRANKLIN TEMPLETON ETF TRUST
PART C
Other Information
Item 15. | Indemnification. |
The Agreement and Declaration of Trust (the “Declaration”) provides that any person who is or was a Trustee, officer, employee or other agent, including the underwriter, of such Trust shall be liable to the Trust and its shareholders only for (1) any act or omission that constitutes a bad faith violation of the implied contractual covenant of good faith and fair dealing, or (2) the person’s own willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person (such conduct referred to herein as Disqualifying Conduct) and for nothing else. Except in these instances and to the fullest extent that limitations of liability of agents are permitted by the Delaware Statutory Trust Act (the “Delaware Act”), these Agents (as defined in the Declaration) shall not be responsible or liable for any act or omission of any other Agent of the Trust or any investment adviser or principal underwriter. Moreover, except and to the extent provided in these instances, none of these Agents, when acting in their respective capacity as such, shall be personally liable to any other person, other than such Trust or its shareholders, for any act, omission or obligation of the Trust or any trustee thereof.
The Trust shall indemnify, out of its property, to the fullest extent permitted under applicable law, any of the persons who was or is a party, potential party or non-party witness or is threatened to be made a party, potential party or non-party witness to any Proceeding (as defined in the Declaration) because the person is or was an Agent of such Trust. These persons shall be indemnified against any Expenses (as defined in the Declaration), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with the Proceeding if the person acted in good faith or, in the case of a criminal proceeding, had no reasonable cause to believe that the conduct was unlawful. The termination of any Proceeding by judgment, order, settlement, conviction or plea of nolo contendere or its equivalent shall not in itself create a presumption that the person did not act in good faith or that the person had reasonable cause to believe that the person’s conduct was unlawful. There shall nonetheless be no indemnification for a person’s own Disqualifying Conduct.
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to Trustees, officers and controlling persons of the Trust pursuant to the foregoing provisions, or otherwise, the Trust 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 Trust of expenses incurred or paid by a Trustee, officer or controlling person of the Trust 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 Trust may be required, unless in the opinion of its counsel the matter has been settled by controlling precedent, to submit to a court or 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 documents indicated below, except Exhibits 4(a), 11(a), 12(a), 14(a) and 16(a): |
(1) | Copies of the charter of the Registrant as now in effect; |
Filing: Initial Filing on Form N-1A
File No. 333-208873
Filing Date: January 5, 2016
(b) |
Filing: Post-Effective Amendment No. 42 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: June 14, 2019
(2) | Copies of the existing bylaws or corresponding instrument of the Registrant; |
(a) |
Filing: Post-Effective Amendment No. 42 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: June 14, 2019
(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; |
(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; |
(a) | Amended and Restated Agreement and Declaration of Trust |
Article III, Shares
Article V, Shareholders’ Voting Powers and Meetings
Article VI, Net Asset Value; Distributions; Redemptions; Transfers
Article VIII, Certain Transactions: Section 4
Article X, Miscellaneous: Section 4
(b) | Amended and Restated By-Laws |
Article II, Meetings of Shareholders
Article VI, Records and Reports: Section 1, 2 and 3
Article VII, General Matters: Section 3, 4, 6 and 7
Article VIII, Amendments: Section 1
(c) | Part B, Statement of Additional Information – Item 22 |
(6) | Copies of all investment advisory contracts relating to the management of the assets of the Registrant; |
(a) |
Filing: Post-Effective Amendment No. 37 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: July 27, 2018
(b) |
Filing: Post-Effective Amendment No. 37 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: July 27, 2018
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(c) |
Filing: Post-Effective Amendment No. 37 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: July 27, 2018
(d) |
Filing: Post-Effective Amendment No. 37 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: July 27, 2018
(e) |
Filing: Post-Effective Amendment No. 83 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: May 27, 2022
(f) |
Filing: Post-Effective Amendment No. 83 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: May 27, 2022
(g) |
Filing: Post-Effective Amendment No. 37 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: July 27, 2018
(h) |
Filing: Post-Effective Amendment No. 37 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: July 27, 2018
(i) |
Filing: Post-Effective Amendment No. 37 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: July 27, 2018
(j) |
Filing: Post-Effective Amendment No. 89 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: December 13, 2022
3
(k) |
Filing: Post-Effective Amendment No. 89 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: December 13, 2022
(l) |
Filing: Post-Effective Amendment No. 5 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: September 15, 2016
(m) |
Filing: Post-Effective Amendment No. 25 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: October 30, 2017
(n) |
Filing: Post-Effective Amendment No. 25 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: October 30, 2017
(o) |
Filing: Post-Effective Amendment No. 25 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: October 30, 2017
(p) |
Filing: Post-Effective Amendment No. 25 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: October 30, 2017
(q) |
Filing: Post-Effective Amendment No. 25 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: October 30, 2017
(r) |
Filing: Post-Effective Amendment No. 25 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: October 30, 2017
(s) |
Filing: Post-Effective Amendment No. 25 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: October 30, 2017
4
(t) |
Filing: Post-Effective Amendment No. 25 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: October 30, 2017
(u) |
Filing: Post-Effective Amendment No. 25 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: October 30, 2017
(v) |
Filing: Post-Effective Amendment No. 25 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: October 30, 2017
(w) |
Filing: Post-Effective Amendment No. 25 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: October 30, 2017
(x) |
Filing: Post-Effective Amendment No. 25 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: October 30, 2017
(y) |
Filing: Post-Effective Amendment No. 25 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: October 30, 2017
(z) |
Filing: Post-Effective Amendment No. 25 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: October 30, 2017
(aa) |
Filing: Post-Effective Amendment No. 25 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: October 30, 2017
(bb) |
Filing: Post-Effective Amendment No. 25 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: October 30, 2017
5
(cc) |
Filing: Post-Effective Amendment No. 25 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: October 30, 2017
(dd) |
Filing: Post-Effective Amendment No. 25 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: October 30, 2017
(ee) |
Filing: Post-Effective Amendment No. 25 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: October 30, 2017
(ff) |
Filing: Post-Effective Amendment No. 25 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: October 30, 2017
(gg) |
Filing: Post-Effective Amendment No. 83 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: May 27, 2022
(hh) |
Filing: Post-Effective Amendment No. 83 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: May 27, 2022
(ii) |
Filing: Post-Effective Amendment No. 83 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: May 27, 2022
(jj) |
Filing: Post-Effective Amendment No. 39 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: September 7, 2018
(kk) |
Filing: Post-Effective Amendment No. 40 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: September 7, 2018
6
(ll) |
Filing: Post-Effective Amendment No. 41 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: September 7, 2018
(mm) |
Filing: Post-Effective Amendment No. 43 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: July 26, 2019
(nn) |
Filing: Post-Effective Amendment No. 83 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: May 27, 2022
(oo) |
Filing: Post-Effective Amendment No. 84 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: July 26, 2022
(pp) |
Filing: Post-Effective Amendment No. 47 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: September 9, 2019
(qq) |
Filing: Post-Effective Amendment No. 83 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: May 27, 2022
(rr) |
Filing: Post-Effective Amendment No. 83 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: May 27, 2022
(ss) |
Filing: Post-Effective Amendment No. 83 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: May 27, 2022
7
(tt) |
Filing: Post-Effective Amendment No. 83 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: May 27, 2022
(uu) |
Filing: Post-Effective Amendment No. 65 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: June 1, 2020
(vv) |
Filing: Post-Effective Amendment No. 83 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: May 27, 2022
(ww) |
Filing: Post-Effective Amendment No. 73 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: January 11, 2021
(xx) |
Filing: Post-Effective Amendment No. 73 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: January 11, 2021
(yy) |
Filing: Post-Effective Amendment No. 73 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: January 11, 2021
(zz) |
Filing: Post-Effective Amendment No. 73 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: January 11, 2021
(aaa) |
Filing: Post-Effective Amendment No. 73 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: January 11, 2021
8
(bbb) |
Filing: Post-Effective Amendment No. 73 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: January 11, 2021
(ccc) |
Filing: Post-Effective Amendment No. 73 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: January 11, 2021
(ddd) |
Filing: Post-Effective Amendment No. 73 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: January 11, 2021
(eee) |
Filing: Post-Effective Amendment No. 73 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: January 11, 2021
(fff) |
Filing: Post-Effective Amendment No. 73 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: January 11, 2021
(ggg) |
Filing: Post-Effective Amendment No. 73 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: January 11, 2021
(hhh) |
Filing: Post-Effective Amendment No. 73 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: January 11, 2021
(iii) |
Filing: Post-Effective Amendment No. 73 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: January 11, 2021
9
(jjj) |
Filing: Post-Effective Amendment No. 73 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: January 11, 2021
(kkk) |
Filing: Post-Effective Amendment No. 73 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: January 11, 2021
(lll) |
Filing: Post-Effective Amendment No. 73 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: January 11, 2021
(mmm) |
Filing: Post-Effective Amendment No. 73 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: January 11, 2021
(nnn) |
Filing: Post-Effective Amendment No. 73 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: January 11, 2021
(ooo) |
Filing: Post-Effective Amendment No. 73 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: January 11, 2021
(ppp) |
Filing: Post-Effective Amendment No. 73 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: January 11, 2021
(qqq) |
Filing: Post-Effective Amendment No. 73 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: January 11, 2021
(rrr) |
Filing: Post-Effective Amendment No. 73 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: January 11, 2021
10
(sss) |
Filing: Post-Effective Amendment No. 73 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: January 11, 2021
(ttt) |
Filing: Post-Effective Amendment No. 73 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: January 11, 2021
(uuu) |
Filing: Post-Effective Amendment No. 73 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: January 11, 2021
(vvv) |
Filing: Post-Effective Amendment No. 73 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: January 11, 2021
(www) |
Filing: Post-Effective Amendment No. 73 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: January 11, 2021
(xxx) |
Filing: Post-Effective Amendment No. 73 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: January 11, 2021
(yyy) |
Filing: Post-Effective Amendment No. 73 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: January 11, 2021
(zzz) |
Filing: Post-Effective Amendment No. 73 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: January 11, 2021
(aaaa) |
Filing: Post-Effective Amendment No. 83 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: May 27, 2022
11
(bbbb) |
Filing: Post-Effective Amendment No. 80 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: April 7, 2022
(cccc) |
Filing: Post-Effective Amendment No. 80 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: April 7, 2022
(dddd) |
Filing: Post-Effective Amendment No. 86 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: September 26, 2022
(eeee) |
Filing: Post-Effective Amendment No. 86 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: September 26, 2022
(ffff) |
Filing: Post-Effective Amendment No. 86 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: September 26, 2022
(gggg) |
Filing: Post-Effective Amendment No. 86 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: September 26, 2022
(hhhh) |
Filing: Post-Effective Amendment No. 83 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: May 27, 2022
(iiii) |
Filing: Post-Effective Amendment No. 84 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: July 26, 2022
12
(jjjj) |
Filing: Post-Effective Amendment No. 84 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: July 26, 2022
(kkkk) |
Filing: Post-Effective Amendment No. 84 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: July 26, 2022
(llll) |
Filing: Post-Effective Amendment No. 89 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: December 13, 2022
(mmmm) |
Filing: Post-Effective Amendment No. 89 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: December 13, 2022
(nnnn) |
Filing: Post-Effective Amendment No. 90 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: January 20, 2023
(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) |
Filing: Post-Effective Amendment No. 89 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: December 13, 2022
(b) |
Filing: Pre-Effective Amendment No. 3 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: May 17, 2016
Filing: Post-Effective Amendment No. 91 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: January 26, 2023
13
(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) |
Filing: Pre-Effective Amendment No. 3 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: May 17, 2016
(b) |
Filing: Post-Effective Amendment No. 89 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: December 13, 2022
(c) |
Filing: Post-Effective Amendment No. 39 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: September 7, 2018
(d) |
Filing: Post-Effective Amendment No. 65 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: June 1, 2020
(e) |
Filing: Post-Effective Amendment No. 89 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: December 13, 2022
(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) |
Filing: Post-Effective Amendment No. 89 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: December 13, 2022
(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; |
14
(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; |
To be filed by Post-Effective Amendment pursuant to the undertaking in Item 17(3) below.
(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) |
Filing: Post-Effective Amendment No. 65 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: June 1, 2020
(b) |
Filing: Post-Effective Amendment No. 89 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: December 13, 2022
(c) |
Filing: Post-Effective Amendment No. 39 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: September 7, 2018
(d) |
Filing: Post-Effective Amendment No. 73 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: January 11, 2021
(e) |
Filing: Post-Effective Amendment No. 89 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: December 13, 2022
(f) |
Filing: Post-Effective Amendment No. 39 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: September 7, 2018
(g) |
Filing: Post-Effective Amendment No. 39 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: September 7, 2018
15
(h) |
Filing: Post-Effective Amendment No. 43 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: July 26, 2019
(i) |
Filing: Post-Effective Amendment No. 43 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: July 26, 2019
(j) |
Filing: Post-Effective Amendment No. 43 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: July 26, 2019
(k) |
Filing: Post-Effective Amendment No. 67 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: July 10, 2020
(l) |
Filing: Post-Effective Amendment No. 65 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: June 1, 2020
(m) |
Filing: Post-Effective Amendment No. 65 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: June 1, 2020
(n) |
Filing: Post-Effective Amendment No. 65 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: June 1, 2020
(o) |
Filing: Post-Effective Amendment No. 65 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: June 1, 2020
(p) |
Filing: Post-Effective Amendment No. 74 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: July 29, 2021
16
(q) |
Filing: Post-Effective Amendment No. 82 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: May 3, 2022
(r) |
Filing: Post-Effective Amendment No. 84 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: July 26, 2022
(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 Item 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; |
(17) | Any additional exhibits which the Registrant may wish to file; |
Filing: Post-Effective Amendment No. 90 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: January 20, 2023
Filing: Post-Effective Amendment No. 86 to Registration Statement on Form N-1A
File No. 333-208873
Filing Date: September 26, 2022
17
Item 17. | Undertakings |
(1) | The undersigned Registrant agrees that prior to any public reoffering of the securities registered through the use of a 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. |
(2) | 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 registration statement for the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them. |
(3) | The undersigned Registrant agrees to file by Post-Effective Amendment the opinion of counsel regarding the tax consequences of the proposed reorganization required by Item 16(12) of Form N-14 within a reasonable time after receipt of such opinion. |
SIGNATURES
As required by the Securities Act of 1933, as amended, this Registration Statement has been signed on behalf by the Registrant, in the City of San Mateo and the State of California, on the 6th day of March, 2023.
FRANKLIN TEMPLETON ETF TRUST | |||
(Registrant) | |||
BY: | /s/ NAVID J. TOFIGH | ||
Navid J. Tofigh | |||
Vice President and Secretary |
As required by the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
PATRICK O’CONNOR* | President and Chief Executive Officer – Investment Management | |
Patrick O’Connor | Dated: March 6, 2023 | |
MATTHEW T. HINKLE* | Chief Executive Officer – Finance and Administration | |
Matthew T. Hinkle | Dated: March 6, 2023 | |
VIVEK PAI* | Chief Financial Officer, Chief Accounting Officer and Treasurer | |
Vivek Pai | Dated: March 6, 2023 | |
JENNIFER M. JOHNSON* | Trustee | |
Jennifer M. Johnson | Dated: March 6, 2023 | |
ROHIT BHAGAT* | Trustee | |
Rohit Bhagat | Dated: March 6, 2023 | |
DEBORAH D. MCWHINNEY* | Trustee | |
Deborah D. McWhinney | Dated: March 6, 2023 | |
ANANTHA K. PRADEEP* | Trustee | |
Anantha K. Pradeep | Dated: March 6, 2023 |
*By | /s/ NAVID J. TOFIGH | |
Navid J. Tofigh | ||
Attorney-in-Fact | ||
(Pursuant to Powers of Attorney filed herewith) |
FRANKLIN TEMPLETON ETF TRUST
N-14 REGISTRATION STATEMENT
EXHIBITS INDEX
EXHIBIT NO. | DESCRIPTION |
EX-99 (4)(a) | |
EX-99 (11)(a) | |
EX-99 (14)(a) | |
EX-99 (16)(a) |