As filed with the Securities and Exchange Commission August 5, 2008
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 CUSTODIAN FUNDS
(Exact Name of Registrant as Specified in Charter)
(650) 312-2000
(Registrant's Area Code and Telephone Number)
ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
(Address of Principal Executive Offices)
(Number, Street, City, State, Zip Code)
CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
(Name and Address of Agent for Service of Process)
(Number, Street, City, State, Zip Code)
Approximate Date of 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: Class A, Class B, Class C, Class R and
Advisor Class shares of beneficial interest, without par value, of Franklin
DynaTech Fund. 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 this filing will become effective on September 4, 2008
pursuant to Rule 488.
FRANKLIN TEMPLETON LOGO
FRANKLIN TECHNOLOGY FUND
FRANKLIN GLOBAL HEALTH CARE FUND
FRANKLIN GLOBAL COMMUNICATIONS FUND
IMPORTANT SHAREHOLDER INFORMATION
These materials are for a Special Meeting of Shareholders of Franklin
Technology Fund, Franklin Global Health Care Fund, and Franklin Global
Communications Fund, each of which is a series of Franklin Strategic Series,
scheduled for November 12, 2008 at 9:00 a.m., Pacific Time. They discuss a
proposal to be voted on at the meeting and contain a Notice of Special Meeting
of Shareholders, a Prospectus/Proxy Statement, and a proxy card for each Fund of
which you are a shareholder. A proxy card is, in essence, a ballot. When you
complete a proxy card, it tells us how you wish the individual(s) named on your
proxy to vote on important issues relating to your Fund. If you complete and
sign a proxy card, we'll vote it exactly as you tell us. If you simply sign and
return a proxy card, we'll vote it in accordance with the Board of Trustees'
recommendations on page [3] of the Prospectus/Proxy Statement.
WE URGE YOU TO SPEND A FEW MINUTES REVIEWING THE PROPOSAL IN THE
PROSPECTUS/PROXY STATEMENT. THEN, FILL OUT THE PROXY CARD(S) AND RETURN IT
(THEM) TO US SO THAT WE KNOW HOW YOU WOULD LIKE TO VOTE.
WE WELCOME YOUR COMMENTS. IF YOU HAVE ANY QUESTIONS, CALL FUND INFORMATION AT
1-800/DIAL BEN (800/342-5236).
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TELEPHONE AND INTERNET VOTING
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For your convenience, you may be able to vote by telephone or through the
Internet, 24 hours a day. If your account is eligible, separate instructions are
enclosed.
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FRANKLIN TEMPLETON LOGO
FRANKLIN TECHNOLOGY FUND
FRANKLIN GLOBAL HEALTH CARE FUND
FRANKLIN GLOBAL COMMUNICATIONS FUND
(EACH A SERIES OF FRANKLIN STRATEGIC SERIES)
ONE FRANKLIN PARKWAY
SAN MATEO, CA 94403-1906
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 12, 2008
To the Shareholders of the Franklin Technology Fund, Franklin Global Health Care
Fund, and Franklin Global Communications Fund:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Meeting")
of Franklin Technology Fund, Franklin Global Health Care Fund, and Franklin
Global Communications Fund (each a "Target Fund" and collectively the "Target
Funds"), each a series of Franklin Strategic Series ("FSS"), will be held at
FSS's offices, One Franklin Parkway, San Mateo, California, 94403-1906, November
12, 2008 at 9:00 a.m., Pacific Time. The Meeting is being called for the
following purposes:
1. With respect to each Target Fund, voting separately, to approve an Agreement
and Plan of Reorganization (the "Plan") between FSS, on behalf of such Target
Fund, and Franklin Custodian Funds (the "Acquiring Trust"), on behalf of
Franklin DynaTech Fund ("DynaTech Fund"), that provides for: (i) the acquisition
of substantially all of the assets of the Target Fund by DynaTech Fund in
exchange solely for shares of DynaTech Fund, (ii) the distribution of such
shares to the shareholders of the Target Fund, and (iii) the complete
liquidation and dissolution of the Target Fund. A shareholder of a Target Fund
that effects the Plan will receive Class A, Class B, Class C, Class R, or
Advisor Class shares of DynaTech Fund, as the case may be, with an aggregate net
asset value equal to the aggregate net asset value of such shareholder's Class
A, Class B, Class C, Class R or Advisor Class shares of the Target Fund.
2. To transact such other business as may properly come before the Meeting.
A copy of the form of the Plan, which more completely describes the
transaction proposed for each Target Fund, is attached as Exhibit A to the
Prospectus/Proxy Statement.
Shareholders of record as of the close of business on August 29, 2008 are
entitled to notice of, and to vote at, the Meeting or any adjournment of the
Meeting.
By Order of the Board of
Trustees,
Karen L. Skidmore SECRETARY
September [ ], 2008
YOU ARE INVITED TO ATTEND THE MEETING, BUT IF YOU CANNOT DO SO, THE BOARD OF
TRUSTEES OF FSS 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 PROMPTLY SO THAT A QUORUM MAY BE ENSURED. YOU MAY
REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS EXERCISED BY THE SUBSEQUENT EXECUTION
AND SUBMISSION OF A REVISED PROXY, BY GIVING WRITTEN NOTICE OF REVOCATION TO FSS
AT ANY TIME BEFORE THE PROXY IS EXERCISED OR BY VOTING IN PERSON AT THE MEETING.
PROSPECTUS/PROXY STATEMENT
When reading this Prospectus/Proxy Statement, you will see certain terms
beginning with capital letters. This means the term is explained in our glossary
section.
TABLE OF CONTENTS
PAGE
COVER PAGE Cover
SUMMARY [#]
What proposal will be voted on? [#]
How will the Transaction(s) affect me? [#]
How will the shareholder voting be handled? [#]
COMPARISONS OF SOME IMPORTANT FEATURES OF THE FUNDS [#]
How do the investment goals, strategies and policies of [#]
the Funds compare?
What are the principal risks of an investment in a Fund? [#]
What are the distribution and purchase procedures of the [#]
Funds?
What are the redemption procedures and exchange privileges [#]
of the Funds?
Who manages the Funds? [#]
What are the Funds' Investment Management and Fund [#]
Administration Fees?
What are the fees and expenses of each of the Funds and [#]
what might they be after the Transactions?
How do the performance records of the Funds compare? [#]
Where can I find more financial and performance [#]
information about the Funds?
What are other key features of the Funds? [#]
REASONS FOR THE TRANSACTIONS [#]
INFORMATION ABOUT THE TRANSACTIONS [#]
How will the Transactions be carried out? [#]
Who will pay the expenses of the Transactions? [#]
What are the tax consequences of the Transactions? [#]
What should I know about the shares of DynaTech Fund? [#]
What are the capitalizations of the Funds and what might [#]
the capitalization be after the Transactions?
COMPARISON OF INVESTMENT GOALS, STRATEGIES, POLICIES AND RISKS [#]
Are there any significant differences between the [#]
investment goals, strategies, policies and risks of the Funds?
How do the investment restrictions of the Funds differ? [#]
What are the principal risk factors associated with [#]
investments in the Funds?
INFORMATION ABOUT DYNATECH FUND [#]
INFORMATION ABOUT THE TARGET FUNDS [#]
FURTHER INFORMATION ABOUT THE FUNDS [#]
VOTING INFORMATION [#]
How many votes are necessary to approve a Target Fund's [#]
Plan?
How do I ensure my vote is accurately recorded? [#]
May I revoke my proxy? [#]
What other matters will be voted upon at the Meeting? [#]
Who is entitled to vote? [#]
How will proxies be solicited? [#]
Are there dissenters' rights? [#]
PRINCIPAL HOLDERS OF SHARES [#]
SHAREHOLDERS PROPOSALS [#]
ADJOURNMENT [#]
GLOSSARY--USEFUL TERMS AND DEFINITIONS [#]
EXHIBITS TO PROSPECTUS/PROXY STATEMENT [#]
EXHIBIT A--FORM OF AGREEMENT AND PLAN OF REORGANIZATION A-1
EXHIBIT B--PROSPECTUS OF FRANKLIN DYNATECH FUND--CLASS A, CLASS B, CLASS C,
CLASS R AND ADVISOR CLASS, DATED FEBRUARY 1, 2008, AS AMENDED AND
SUPPLEMENTED TO DATE
(ENCLOSED)
EXHIBIT C - PRINCIPAL HOLDERS OF SECURITIES C-1
PROSPECTUS/PROXY STATEMENT
DATED SEPTEMBER [ ], 2008
ACQUISITION OF SUBSTANTIALLY ALL OF THE ASSETS OF
FRANKLIN TECHNOLOGY FUND,
FRANKLIN GLOBAL HEALTH CARE FUND, AND
FRANKLIN GLOBAL COMMUNICATIONS FUND
(EACH A SERIES OF FRANKLIN STRATEGIC SERIES)
BY AND IN EXCHANGE FOR SHARES OF
FRANKLIN DYNATECH FUND
(A SERIES OF FRANKLIN CUSTODIAN FUNDS)
This Prospectus/Proxy Statement solicits proxies to be voted at a Special
Meeting of Shareholders (the "Meeting") of Franklin Technology Fund ("Technology
Fund"), Franklin Global Health Care Fund ("Health Care Fund"), and Franklin
Global Communications Fund ("Communications Fund") (each a "Target Fund" and
collectively the "Target Funds"), each of which is a series of Franklin
Strategic Series ("FSS"). At the Meeting, shareholders of each Target Fund will
be asked to approve or disapprove an Agreement and Plan of Reorganization (each
individually a "Plan" and collectively the "Plans") for that Target Fund. If
shareholders of a Target Fund vote to approve the Plan, substantially all of the
assets of that Target Fund will be acquired by Franklin DynaTech Fund ("DynaTech
Fund"), a series of Franklin Custodian Funds (the "Acquiring Trust"), in
exchange for shares of Franklin DynaTech Fund--Class A ("DynaTech Fund Class A
shares"), Franklin DynaTech Fund--Class B ("DynaTech Fund Class B shares"),
Franklin DynaTech Fund--Class C ("DynaTech Fund Class C shares"), Franklin
DynaTech Fund--Class R ("DynaTech Fund Class R shares"), and Franklin DynaTech
Fund--Advisor Class ("DynaTech Fund Advisor Class shares").
The principal offices of FSS and the Acquiring Trust are located at One
Franklin Parkway, San Mateo, CA 94403-1906. You can reach the offices of FSS and
the Acquiring Trust by telephone by calling 1-800-342-5236.
The Meeting will be held at FSS's offices, One Franklin Parkway, San Mateo,
California, on November 12, 2008 at 9:00 a.m., Pacific Time. The Board of
Trustees of FSS (the "FSS Board"), on behalf of each Target Fund, is soliciting
these proxies. This Prospectus/Proxy Statement will first be sent to
shareholders on or about [September ____, 2008].
If you are a shareholder of a Target Fund whose shareholders vote to approve
the Plan on behalf of that Target Fund, you will receive DynaTech Fund Class A
shares of equivalent aggregate net asset value ("NAV") to your investment in
Class A shares of that Target Fund, DynaTech Fund Class B shares of equivalent
aggregate NAV to your investment in Class B shares of that Target Fund, DynaTech
Fund Class C shares of equivalent aggregate NAV to your investment in Class C
shares of that Target Fund, DynaTech Fund Class R shares of equivalent aggregate
NAV to your investment in Class R shares of that Target Fund, and DynaTech Fund
Advisor Class shares of equivalent aggregate NAV to your investment in Advisor
Class shares of that Target Fund. That Target Fund will then be liquidated and
dissolved. Though shareholders of the Target Funds are voting on the same
proposal, each Plan represents a separate transaction.
The investment goals of Technology Fund and Health Care Fund are identical to
the investment goal of DynaTech Fund. Each has an investment goal of capital
appreciation. Communications Fund's investment goal is to seek to provide total
return, without undue risk, which varies from the investment goal of DynaTech
Fund by having some emphasis on current income.
This Prospectus/Proxy Statement includes information about the proposed
transactions and DynaTech Fund that you should know before voting on the Plan
with respect to your Target Fund. You should retain it for future reference.
Additional information about DynaTech Fund and the proposed transaction has been
filed with the SEC and can be found in the following documents:
o The Prospectus of DynaTech Fund--Class A, Class B, Class C, Class R and
Advisor Class dated February 1, 2008, as supplemented and amended to date (the
"DynaTech Fund Prospectus"), which is enclosed with and considered a part of
this Prospectus/Proxy Statement.
o A Statement of Additional Information ("SAI") dated September [__], 2008,
relating to this Prospectus/Proxy Statement, which has been filed with the SEC
and is considered a part of this Prospectus/Proxy Statement.
You may request a free copy of the SAI relating to this Prospectus/Proxy
Statement or the DynaTech Fund Prospectus without charge by calling
1-800/DIAL-BEN(R) or by writing to Franklin Templeton Investments at One
Franklin Parkway, San Mateo, CA 94403-1906.
[FOLLOWING TWO PARAGRAPHS TO GO AT BOTTOM OF FIRST PAGE:]
THE SEC 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.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER U.S. GOVERNMENT AGENCY.
MUTUAL FUND SHARES INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
SUMMARY
This is only a summary of certain information contained in this
Prospectus/Proxy Statement. You should read the more complete information in the
rest of this Prospectus/Proxy Statement, including the form of the Agreement and
Plan of Reorganization (each individually a "Plan" and collectively the "Plans")
(attached as Exhibit A) and the DynaTech Fund Prospectus (enclosed as Exhibit
B).
WHAT PROPOSAL WILL BE VOTED ON?
At a meeting held on July 10, 2008, the FSS Board, on behalf of each Target
Fund, considered a proposal to reorganize each Target Fund with and into
DynaTech Fund, approved the Plans, and voted to recommend that shareholders of
each Target Fund vote to approve their applicable Plan. In addition, at a
meeting also held on July 10, 2008, the Board of Trustees of the Acquiring
Trust, on behalf of DynaTech Fund, concluded that the Plans are in the best
interests of DynaTech Fund and its shareholders and approved the Plans.
If shareholders of a Target Fund vote to approve the applicable Plan,
substantially all of that Target Fund's assets will be transferred to DynaTech
Fund in exchange for shares of DynaTech Fund of equivalent aggregate NAV. If you
are a shareholder of a Target Fund that approves its Plan, your Class A, Class
B, Class C, Class R, or Advisor Class shares of that Target Fund will be
exchanged for shares of equivalent aggregate NAV of the corresponding class of
DynaTech Fund. Because each Target Fund and DynaTech Fund (each, a "Fund" and,
collectively, the "Funds") has a different NAV per share, the number of DynaTech
Fund shares that you receive will likely be different than the number of Target
Fund shares that you own even though the total value of your investment will be
the same immediately before and after the exchange. After shares of DynaTech
Fund are distributed to a Target Fund's shareholders, that Target Fund will be
completely liquidated and dissolved. (Each proposed transaction is referred to
in this Prospectus/Proxy Statement as a "Transaction," and collectively all
three are called the "Transactions") As a result of a Transaction, you will
cease to be a shareholder of a Target Fund and will become a shareholder of
DynaTech Fund. This exchange will occur on the closing date of the Transaction,
which is the specific date on which the Transaction takes place. The closing
date of the Transaction is expected to occur on or about December 4, 2008.
Franklin Advisers, Inc. ("FAI") serves as investment manager to each Fund.
The investment goals of Technology Fund, Health Care Fund, and DynaTech Fund are
identical. However, the investment goals of DynaTech Fund and Communications
Fund differ from each other in that Communications Fund has as part of its
investment goal some component of income. DynaTech Fund has investment policies
that are similar, but not identical, to those of each Target Fund, in that each
Target Fund has a fundamental policy requiring it to concentrate its investments
in the industry or sector suggested by its name, whereas DynaTech Fund is not
required to be so concentrated in its investments. For the reasons set forth in
the "Reasons for the Transactions" section of this Prospectus/Proxy Statement,
the FSS Board, including the Trustees who are not "interested persons" of FSS as
such term is defined in the 1940 Act (the "Independent Trustees"), on behalf of
each Target Fund, has determined that the Transactions are in the best interests
of the Target Funds and each Target Fund's shareholders. The FSS Board and the
Board of Trustees of the Acquiring Trust also concluded that no dilution in
value would result to the shareholders of any Target Fund or DynaTech Fund,
respectively, as a result of the Transaction.
It is expected that Target Fund shareholders will not recognize any gain or
loss for federal income tax purposes as a result of the exchange of their shares
for DynaTech Fund shares. You should, however, consult your tax adviser
regarding the effect, if any, of the Transaction, in light of your individual
circumstances. You should also consult your tax adviser about state and local
tax consequences. For more information about the tax consequences of the
Transaction, please see the section "Information About the Transaction--WHAT ARE
THE TAX CONSEQUENCES OF THE TRANSACTION?"
THE BOARD OF TRUSTEES OF FSS RECOMMENDS THAT YOU
VOTE TO APPROVE THE PLAN(S).
HOW WILL THE TRANSACTION(S) AFFECT ME?
If a Transaction is completed for a Fund of which you are a shareholder, you
will cease to be a shareholder of that Target Fund and become a shareholder of
DynaTech Fund. It is anticipated that the Transaction(s) will benefit you as
follows:
COST SAVINGS. The total annual operating expenses of DynaTech Fund are less
than the operating expenses of each Target Fund. In addition, each of the Target
Funds is relatively small, and has recently experienced only relatively modest
new sales. Thus, FAI believes that it is unlikely that any Target Fund will
experience significant future net sales that would allow such Fund's expenses to
decrease as a percentage of net assets by being spread across a larger asset
base. The following table compares the annualized net expense ratio, after fee
waivers and reimbursements, for each class of DynaTech Fund, based on the fiscal
year ended September 30, 2007, with those of each class of each Target Fund,
based on the fiscal year ended April 30, 2008:
----------------------------------------------------------------
Technology Health Care Communication DynaTech
Fund Fund Fund Fund
----------------------------------------------------------------
Class A 1.61% 1.20% 1.26% 0.99%
----------------------------------------------------------------
Class B 2.29% 1.95% 2.01% 1.75%
----------------------------------------------------------------
Class C 2.30% 1.95% 2.01% 1.74%
----------------------------------------------------------------
Class R 1.80% N/A N/A 1.25%(1)
----------------------------------------------------------------
Advisor 1.30% N/A N/A 0.75%(2)
Class
----------------------------------------------------------------
(1) Class R shares will be offered for the first time in connection with the
Transaction with respect to Technology Fund. Expense information is based
on the expenses for DynaTech Fund's Class A shares for the fiscal year
ended September 30, 2007.
(2) DynaTech Fund began offering Advisor Class shares on May 15, 2008. Expense
information is based on the expenses for DynaTech Fund's Class A shares
for the fiscal year ended September 30, 2007.
For a more detailed comparison of the Funds' fees and expenses, see the
sections below captioned "What are the Funds' Investment Management and Fund
Administration Fees?" and "What are the fees and expenses of each of the Funds
and what might they be after the Transactions?"
OPERATING EFFICIENCIES AND DIVERSIFICATION. Upon the reorganization of a
Target Fund into DynaTech Fund, the Target Fund's shareholders will become
shareholders of a larger fund that may be able to achieve greater operating
efficiencies. As of April 30, 2008, DynaTech Fund's total net assets were
approximately $573 million, Technology Fund's total net assets were
approximately $56 million, Health Care Fund's total net assets were
approximately $143 million, and Communications Fund's total net assets were
approximately $107 million.
DynaTech Fund has a science and technology focus that encompasses all three
industries in which the Target Funds focus but is more diversified, which may
provide shareholders of the Target Funds with lower volatility. FAI also
believes that being able to concentrate its investment management resources
dedicated to these sectors on one fund may benefit all Fund shareholders.
RELATIVE PERFORMANCE. DynaTech Fund has had stronger one year and ten year
average total returns (based upon performance of Class A shares) than any of the
Target Funds, and has outperformed or has performed substantially the same as
Technology Fund and Health Care Fund for the three- and five-year periods ended
April 30, 2008. Only Communications Fund materially out performed DynaTech Fund
for the three- and five-year periods ended April 30, 2008.
It is anticipated that the Transaction(s) may disadvantage you as follows:
UNREALIZED APPRECIATION. A Target Fund's shareholders that receive shares of
DynaTech Fund would be "buying into" greater unrealized appreciation in value of
investments relative to what they are presently exposed to. Such net unrealized
gain, when realized on sale of portfolio securities (minus any available capital
loss carryovers) is paid to Fund shareholders each calendar year, and any income
taxes payable by Fund shareholders on receipt of such payments would reduce
their return on investment on an after-tax basis. For more information, please
see the section "What are the tax consequences of the Transactions?" in this
Prospectus/Proxy Statement.
COSTS OF THE TRANSACTIONS. Each Target Fund will bear its portion of the
costs of the Transaction.
HOW WILL SHAREHOLDER VOTING BE HANDLED?
Shareholders that own shares at the close of business on August 3, 2008, 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 Transaction by a Target Fund requires the affirmative
vote of the lesser of: (i) a majority of the outstanding shares of that Target
Fund or (ii) 67% or more of the outstanding shares of that Target Fund present
at or represented by proxy at the Meeting if the holders of more than 50% of the
outstanding shares of that Target Fund are present or represented by proxy
("Affirmative Majority Vote"). [_________] has been retained by each Target Fund
to collect and tabulate shareholder votes.
Please vote by proxy as soon as you receive this Prospectus/Proxy Statement.
You may place your vote by completing and signing the enclosed proxy card,
voting by telephone or through the Internet. If you vote by any of these
methods, the persons appointed as proxies will officially cast your votes at the
Meeting.
You can revoke your proxy or change your voting instructions at any time
until the vote is taken at the Meeting. You may also attend the Meeting and cast
your vote in person at the Meeting. For more details about shareholder voting,
see the "Voting Information" section of this Prospectus/Proxy Statement.
COMPARISONS OF SOME IMPORTANT FEATURES OF THE FUNDS
HOW DO THE INVESTMENT GOALS, STRATEGIES AND POLICIES OF THE FUNDS
COMPARE?
INVESTMENT GOALS. The investment goals of Technology Fund and Health Care
Fund are identical to the investment goal of DynaTech Fund; each has an
investment goal of capital appreciation. The investment goal of Communications
Fund is to seek to provide total return, without undue risk, which varies from
the investment goal of the other Funds because it has some emphasis on current
income. At the present time, however, many of the securities of communications
companies in which Communications Fund invests do not pay dividends.
PRINCIPAL INVESTMENT STRATEGIES. Many aspects of the principal investment
strategies of the Target Funds are similar to the principal investment
strategies of DynaTech Fund. All of the Funds invest principally in equity
securities, although there are some differences in their stock selection styles.
When choosing equity investments for DynaTech Fund, FAI applies a "bottom-up,"
value-oriented, long-term approach, focusing on the market price of a company's
securities relative to the manager's evaluation of the company's long-term
earnings, asset value and cash flow potential. FAI also considers a company's
price/earnings ratio, profit margins and liquidation value. For the Target
Funds, FAI applies a "bottom-up," growth-oriented approach, focusing primarily
on individual securities of companies that have identifiable drivers of future
earnings growth and that present, in FAI's opinion, the best tradeoff between
earnings growth, business and financial risk, and valuation.
The most significant difference between the investment strategies of the
Target Funds and that of DynaTech Fund is that each Target Fund concentrates its
investments within the particular industry or sector suggested by its name,
whereas DynaTech Fund is not required to be so concentrated in its investments.
Under normal market conditions, Technology Fund invests at least 80% of its net
assets in equity securities of companies expected to benefit from the
development, advancement, and use of technology. Under normal market conditions,
Communications Fund invests at least 80% of its net assets in securities of
companies that are involved in the development, manufacture, or sale of
communications services and communications equipment. Under normal market
conditions, Health Care Fund invests at least 80% of its net assets in the
securities of healthcare companies. DynaTech Fund invests in securities of
companies in all three sectors in which the Target Funds invest, but also
invests in other industries and sectors as well. Under normal market conditions,
DynaTech Fund invests substantially in equity securities of companies that
emphasize scientific or technological development or that are in fast-growing
industries. Therefore, each Target Fund is likely to be impacted to a greater
extent than DynaTech Fund by market events and developments affecting its
particular industry or sector.
Unlike the other Target Funds or DynaTech Fund, Health Care Fund is
non-diversified, meaning that it may invest a larger portion of its assets in
securities of one or more issuers than a fund that is diversified. Therefore,
Health Care Fund may also be affected to a greater extent than any of the other
Funds to market events and developments affecting one or more specific issuers
whose securities are held by Health Care Fund.
Each of the Funds is permitted to invest in foreign securities to a
significant degree. However, the Funds' level of investment in these types of
securities varies. For example, Communications Fund has generally invested to a
greater degree in foreign securities than the other Funds. In contrast,
Technology Fund has historically had a much smaller investment in foreign
securities. As a result, Communications Fund has generally been subject to a
greater degree to the risks associated with foreign investing than the other
Funds, while Health Care Fund and DynaTech Fund have each been subject to such
risks to a smaller degree and Technology Fund has had even less exposure to such
risks.
Similarly, the Funds have had different levels of investment in companies of
different sizes. Technology Fund has had the largest investment to small- and
mid-cap companies and thus has been subject to a greater degree to the risks
associated with small- and mid-cap companies. Communications Fund and Health
Care Fund have generally invested somewhat less in such companies than
Technology Fund. DynaTech Fund has had a greater emphasis on large-cap
companies, with a more modest investment in small- and mid-cap companies.
WHAT ARE THE PRINCIPAL RISKS OF AN INVESTMENT IN A FUND?
An investment in any of the Funds involves risks common to most mutual
funds. There is no guarantee against losses resulting from an investment in any
Fund, or that any Fund will achieve its investment goal. Each of the Funds is
generally subject to similar risks, specifically the risks associated with
investing in equity securities. In addition, each Fund, to varying degrees as
described above, is subject to the risks associated with investing in foreign
securities and small- and mid-cap companies. FAI believes the greatest
difference among the Funds relates to the extent to which each Fund focuses on
different sectors or industries and therefore is subject to changes or
developments in such sectors or industries. Such focus may also result in
relatively greater volatility in performance and share price for the Target
Funds. Because DynaTech Fund invests across a broader range of sectors, FAI
believes that it provides greater diversification and potentially less
volatility.
For more information about the investment goals, strategies, policies, and
risks of the Target Funds and DynaTech Fund, please see the section "Comparison
of Investment Goals, Strategies, Policies and Risks" in this Prospectus/Proxy
Statement.
WHAT ARE THE DISTRIBUTION AND PURCHASE PROCEDURES OF THE FUNDS?
Shares of each Fund are sold on a continuous basis by Franklin Templeton
Distributors, Inc. ("Distributors"). Class A shares of each Fund are generally
sold at NAV per share plus a sales charge. Class C shares of each Fund are sold
at NAV subject to a contingent deferred sales charge ("CDSC") according to an
identical CDSC schedule. Class B shares, which are no longer offered to new
investors, are subject to a CDSC according to the same schedule for all Funds.
Technology Fund has outstanding Class R and Advisor Class shares, which are not
subject to a sales charge. Holders of Class A shares of a Target Fund will not
be assessed a sales charge on their receipt of DynaTech Fund Class A shares in
connection with the Transaction. Holders of Class B and Class C shares of a
Target Fund will be given credit for their holding period in the Target Fund in
determining any applicable CDSC, and Class B shareholders will be given credit
for their holding period of the Class B shares in determining the date of
conversion of their DynaTech Fund Class B shares to Class A shares.
WHAT ARE THE REDEMPTION PROCEDURES AND EXCHANGE PRIVILEGES OF THE
FUNDS?
Each Fund offers the same redemption features pursuant to which proceeds of
a redemption are remitted by check after prompt receipt of proper documents,
including under certain circumstances signature guarantees. Each Fund has the
same exchange privileges. Shares of each Fund may be redeemed at their
respective NAV per share. However, redemptions of Class A shares that were
purchased without an initial sales charge generally are subject to a 1% CDSC if
redeemed within 18 months following their purchase. A CDSC may also apply when
redeeming Class B or C shares of each Fund. Effective September 1, 2008, a
previously imposed redemption fee of 2%, which applied to redemptions of any
class of shares of any Fund if redeemed within 7 days following their purchase
date, was eliminated.
WHO MANAGES THE FUNDS?
The management of the business and affairs of the Target Funds is the
responsibility of the FSS Board, while the management and the business and
affairs of DynaTech Fund is the responsibility of the Board of Trustees of the
Acquiring Trust. Each Fund is a series of an open-end, registered management
investment company, commonly referred to as a "mutual fund." FSS was organized
as a Delaware statutory trust on January 25, 1991. The Acquiring Trust was
organized as a Delaware corporation in 1947, reincorporated as a Maryland
corporation in 1979, and was reorganized as a Delaware statutory trust on
February 1, 2008.
FAI is a wholly owned subsidiary of Franklin Resources, Inc. ("Resources").
Resources is a publicly owned global investment organization operating as
Franklin Templeton Investments. Franklin Templeton Investments provides global
and domestic investment management services through its Franklin, Templeton,
Mutual Series and Fiduciary Trust subsidiaries. FAI and its respective
affiliates serve as investment manager or administrator to [46] registered
investment companies, with approximately [156] U.S.-based funds or series.
Resources has more than [$621] billion in assets under management as of [January
31], 2008. The principal shareholders of Resources are Charles B. Johnson and
Rupert H. Johnson, Jr., who are trustees and/or officers of FSS and the
Acquiring Trust.
DynaTech Fund's portfolio managers are Rupert H. Johnson, Jr., Director of
FAI, and Matthew J. Moberg, CPA, Vice President of FAI. Mr. Johnson has been a
manager of DynaTech Fund since its inception. He joined Franklin Templeton
Investments in 1965. Mr. Moberg has been a manager of DynaTech Fund since 2004.
He joined Franklin Templeton Investments in 1998. The managers of DynaTech Fund
have equal authority over all aspects of DynaTech Fund's investment portfolio,
including but not limited to, purchases and sales of individual securities,
portfolio risk assessment, and the management of daily cash balances in
accordance with anticipated management requirements. The degree to which each
manager may perform these functions, and the nature of these functions, may
change from time to time.
The Statement of Additional Information for DynaTech Fund dated February 1,
2008, as amended and supplemented to date (the "DynaTech SAI"), provides
additional information about the portfolio managers' compensation, other
accounts managed by the portfolio managers, and the portfolio managers'
ownership of securities in DynaTech Fund. For information on how to obtain a
copy of the DynaTech SAI, please see the section entitled "Information About
DynaTech Fund."
Technology Fund's portfolio manager is John P. Scandalios, Vice President of
FAI. Mr. Scandalios has been a manager of the Fund since 2003. He has primary
responsibility for the investments of Technology Fund. He has final authority
over all aspects of Technology Fund's investment portfolio, including but not
limited to, purchases and sales of individual securities, portfolio risk
assessment, and the management of daily cash balances in accordance with
anticipated management requirements. The degree to which he may perform these
functions, and the nature of these functions, may change from time to time. He
joined Franklin Templeton Investments in 1996.
Health Care Fund's portfolio manager is Matthew Willey, CFA, Portfolio
Manager of FAI. Mr. Willey has been portfolio manager of Health Care Fund since
2003. He has primary responsibility for the investments of Health Care Fund. He
has final authority over all aspects of Health Care Fund's investment portfolio,
including but not limited to, purchases and sales of individual securities,
portfolio risk assessment, and the management of daily cash balances in
accordance with anticipated management requirements. The degree to which he may
perform these functions, and the nature of these functions, may change from time
to time. He joined Franklin Templeton Investments in 2002. Evan McCulloch, CFA,
Vice President of FAI, has secondary portfolio management responsibilities for
Health Care Fund. Mr. McCulloch has been portfolio manager of Health Care Fund
since 1994, providing research and advice on the purchases and sales of
individual securities and portfolio risk assessment. He joined Franklin
Templeton Investments in 1992.
Communications Fund's portfolio manager is Grant Bowers, Vice President of
FAI. Mr. Bowers has been a manager of Communications Fund since 2003. He has
primary responsibility for the investments of Communications Fund. He has final
authority over all aspects of Communications Fund's investment portfolio,
including but not limited to, purchases and sales of individual securities,
portfolio risk assessment, and the management of daily cash balances in
accordance with anticipated management requirements. The degree to which he may
perform these functions, and the nature of these functions, may change from time
to time. He joined Franklin Templeton Investments in 1993. Mr. Scandalios, who
is also the portfolio manager for Technology Fund, has secondary portfolio
management responsibilities for Communications Fund and has been a manager for
Communications Fund since October 2007, providing research and advice on the
purchases and sales of individual securities and portfolio risk assessment.
The Statement of Additional Information for the Target Funds dated September
1, 2008 (the "Target Funds SAI") provides additional information about the
portfolio managers' compensation, other accounts managed by the portfolio
managers, and the portfolio managers' ownership of securities in each Target
Fund. For information on how to obtain a copy of the Target Funds SAI, please
see the section entitled "Information About the Target Funds."
WHAT ARE THE FUNDS' INVESTMENT MANAGEMENT AND FUND ADMINISTRATION
FEES?
The terms of each Fund's investment management agreement with FAI are
substantially the same, although the fee structure and certain services differ
for Technology Fund. As displayed in the table below, each Fund, except
Technology Fund, has a "bundled" investment management arrangement, whereby FAI
pays Franklin Templeton Services, LLC ("FT Services") for providing
administrative services to the Fund out of the investment management fee it
receives from the Fund. The following table shows the fee structure for these
Funds.
- -----------------------------------------------------------------------
COMMUNICATIONS, HEALTH CARE AND DYNATECH FUNDS
- -----------------------------------------------------------------------
INVESTMENT MANAGEMENT FEE FUND ADMINISTRATION FEE (PAID BY FAI)
- -----------------------------------------------------------------------
o 0.625% of the value of net o 0.15% of the net assets up to
assets up to and including $100 and including $200 million but
million; not more than $700 million;
o 0.500% of the value of net o 0.135% of net assets over
assets over $100 million but $200 million but not more than
not over $250 million; $700 million;
o 0.450% of the value of net o 0.100% net assets over $700
assets over $250 million but million but not more than $1.2
not over $7.5 billion; billion; and
o 0.440% of the value of net o 0.075% of net assets over
assets over $7.5 billion but $1.2 billion
not over $10 billion;
o 0.430% of the value of net
assets over $10 billion but not
over $12.5 billion;
o 0.420% of the value of net
assets over $12.5 billion but
not over $15 billion; and
o 0.40% of the value of net
assets over $15 billion.(1)
(1) The investment management agreement for DynaTech Fund provides for the
following additional breakpoints: 0.380% of net assets over $17.5 billion but
not over $20 billion; 0.360% of net assets over $20 billion but not over $35
billion; 0.355% of net assets over $35 billion but not over $50 billion; and
0.350% of net assets over $50 billion.
- -----------------------------------------------------------------------
Technology Fund has an unbundled arrangement and pays a separate fund
administration fee directly to FT Services. The following table shows the fee
structure for Technology Fund.
- -----------------------------------------------------------------------
TECHNOLOGY FUND (UNBUNDLED ARRANGEMENT)
- -----------------------------------------------------------------------
INVESTMENT MANAGEMENT FEE FUND ADMINISTRATION FEE (PAID BY
TECHNOLOGY FUND)
- -----------------------------------------------------------------------
o 0.550% of the value of net o 0.20%
assets up to and including $500
million;
o 0.450% of the value of net
assets over $500 million but
not over $1 billion;
o 0.400% of the value of net
assets over $1 billion but not
over $1.5 billion;
o 0.350% of the value of net
assets over $1.5 billion and
not over $6.5 billion;
o 0.325% of the value of net
assets over $6.5 billion but
not over $11.5 billion;
o 0.300% of the value of net
assets over $11.5 billion but
not over $16.5 billion;
o 0.290% of the value of net
assets over $16.5 billion but
not over $19 billion;
o 0.280% of the value of net
assets over $19 billion but not
over $21.5 billion; and
o 0.270% of the value of net
assets over $21.5 billion.
- -----------------------------------------------------------------------
For the fiscal year ended September 30, 2007, DynaTech Fund paid FAI
$3,041,448, or 0.49% of DynaTech Fund's average daily net assets. A discussion
regarding the basis for the Board of Trustees of the Acquiring Trust approving
the investment management agreement of DynaTech Fund is available in DynaTech
Fund's most recent Semiannual Report to Shareholders for the six-month period
ended March 31, 2008.
For the fiscal year ended April 30, 2008, Technology Fund paid FAI management
fees, net of fee waivers, in the amount of $291,578, or 0.53% of Technology
Fund's average daily net assets and paid FT Services administrative fees in the
amount of $110,460, or 0.20% of Technology Fund's average daily net assets.
For the fiscal year ended April 30, 2008, Health Care Fund paid FAI management
fees, net of fee waivers, in the amount of $835,914, or 0.57% of Health Care
Fund's average daily net assets. For the fiscal year ended April 30, 2008,
Communications Fund paid FAI management fees, net of fee waivers, in the amount
of $649,369, or 0.61% of Communications Fund's average daily net assets. A
discussion regarding the basis for the FSS Board approving the investment
management contract for each of the Target Funds is available in Target Funds'
most recent Annual Report to shareholders for the fiscal year ended April 30,
2008.
WHAT ARE THE FEES AND EXPENSES OF EACH OF THE FUNDS AND WHAT
MIGHT THEY BE AFTER THE TRANSACTIONS?
The tables below describe the fees and expenses that you may pay if you buy
and hold shares of the Funds. The tables also show the estimated fees and
expenses for DynaTech Fund, assuming that all three Target Funds approve their
respective Plans and all three Transactions had been completed as of the
beginning of DynaTech Fund's last completed fiscal year. The Funds' management
believes that this is the most likely result. The tables also show the estimated
fees and expenses for DynaTech Fund assuming that only the shareholders of
Technology and Communications Funds approve the Transactions and that such
Transactions had been completed. This alternative demonstrates the least
reduction in overall expenses that a shareholder in a Target Fund is likely to
experience in becoming a shareholder of DynaTech Fund, assuming that not all of
the Transactions are approved by the shareholders and completed. The purpose of
the tables is to assist you in understanding the various costs and expenses that
you will bear directly or indirectly as a shareholder of DynaTech Fund.
You will not pay any initial or deferred sales charge in connection with the
Transactions.
TABLE OF SHAREHOLDER FEES (ALL FUNDS)
You will not pay any initial or deferred sales charge in connection with the
Transactions. The following table shows shareholder fees paid directly from a
new investment, which will remain the same after the Transactions.
- -----------------------------------------------------------------------------
SHAREHOLDER FEES Class A Class B Class C Class R Advisor Class
- -----------------------------------------------------------------------------
Maximum sales charge 5.75%(2) 4.00% 1.00% None None
(load)
as a percentage of
offering price
- -----------------------------------------------------------------------------
Load imposed on 5.75%(2) None None None None
purchases
- -----------------------------------------------------------------------------
Maximum deferred None (3) 4.00%(4) 1.00% None None
sales charge (load)
- -----------------------------------------------------------------------------
Redemption Fee (1) None None None None None
- -----------------------------------------------------------------------------
(1) Prior to September 1, 2008, each class of each Fund charged a 2.00%
redemption fee for shares redeemed within seven days of purchase.
(2) The dollar amount of the sales charge is the difference between the
offering price of the shares purchased (which factors in the applicable
sales charge in this table) and the net asset value of those shares.
Because the offering price is calculated to two decimal places using
standard rounding criteria, the number of shares purchased and the dollar
amount of the sales charge as a percentage of the offering price and of
your net investment may be higher or lower depending on whether there was
a downward or upward rounding.
(3) There is a 1% contingent deferred sales charge ("CDSC") that applies to
investments of $1 million or more and purchases by certain retirement
plans without an initial sales charge.
(4) Declines to 1% over the course of six years, and is eliminated thereafter.
ANNUAL OPERATING EXPENSE TABLE FOR CLASS A SHARES OF
THE FUNDS, AND PROJECTED FEES AFTER THE TRANSACTION(S)
- ------------------------------------------------------------------------------------------------
DynaTech Fund
Projected
DynaTech (assumes only
Fund Transactions
Projected with -
ANNUAL FUND (assumes Technology
OPERATING all three Fund and
EXPENSES Transactions Communications
(expenses are Fund
deducted from Technology Health Care Communications DynaTech completed) are
Fund assets) Fund(1) Fund(1) Fund(1) Fund(1) (2) completed)(3)
- ------------------------------------------------------------------------------------------------
Management 0.55% 0.59% 0.62% 0.49% 0.47% 0.48%
fees
- ------------------------------------------------------------------------------------------------
Distribution
and Service 0.31%(4) 0.25% 0.25% 0.24% 0.24% 0.24%
(12b-1) Fees
- ------------------------------------------------------------------------------------------------
Other 0.75%(5) 0.36% 0.39% 0.26% 0.28% 0.28%
Expenses
- ------------------------------------------------------------------------------------------------
Acquired fund
fees and 0.02% 0.02% 0.01% - 0.01 -
expenses
- ------------------------------------------------------------------------------------------------
TOTAL
ANNUAL FUND
OPERATING 1.63% 1.22% 1.27% 0.99% 1.00% 1.00%
EXPENSES
- ------------------------------------------------------------------------------------------------
Management -0.02% -0.02% -0.01% - -0.01% -
fee
reduction(6)
- ------------------------------------------------------------------------------------------------
NET ANNUAL
FUND
OPERATING 1.61% 1.20% 1.26% 0.99% 0.99% 1.00%
EXPENSES
- ------------------------------------------------------------------------------------------------
(1) Expense ratios reflect annual fund operating expenses for the most recent
fiscal year of the Fund (April 30, 2008 for each of the Target Funds and
September 30, 2007 for DynaTech Fund).
(2) Expense ratios reflect annual fund operating expenses for the period from
October 1, 2006 through September 30, 2007 for all Funds. Excluded from
Other Expenses are the one-time estimated costs of the Transactions of
$168,068 to be borne by DynaTech Fund. Other Expenses for DynaTech Fund
increase on a projected basis due to higher transfer agency fees as a
result of an increase in sub-transfer agency costs.
(3) Expense ratios reflect annual fund operating expenses for the period from
October 1, 2006 through September 30, 2007 for all Funds. Excluded from
Other Expenses are the one-time estimated costs of the Transactions of
$114,039 to be borne by DynaTech Fund. Other Expenses for DynaTech Fund
increase on a projected basis due to higher transfer agency fees as a
result of an increase in sub-transfer agency costs.
(4) Effective March 31, 2008, the FSS Board set the level of Rule 12b-1 fees
for Class A shares of Technology Fund at 0.30% for the period ending
January 31, 2009.
(5) Includes administration fees, as more fully described above under "What
are the Funds' Investment Management and Fund Administration Fees?"
(6) FAI has agreed in advance to reduce its fee to reflect reduced services
resulting from each Fund's investment in a Franklin Templeton money fund.
This reduction is required by the Fund's board of trustees and an
exemptive order by the SEC. For DynaTech Fund, this fee reduction amounted
to less than 0.01% of the Fund's average net assets.
EXAMPLE
This example can help you compare the cost of investing in each Target Fund's
Class A shares with the cost of investing in DynaTech Fund's Class A shares,
both before and after the Transactions. It assumes:
o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year;
o The Fund's operating expenses remain the same; and
o You sell your shares at the end of the period.
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
------------------------------------
Technology Fund--Class A $729(1) $1,054 $1,401 $2,376
Health Care Fund--Class A $690(1) $934 $1,197 $1,976
Communications Fund--Class A $696(1) $952 $1,227 $2,010
DynaTech Fund--Class A $670(1) $872 $1,091 $1,718
Projected DynaTech Fund--Class A $670(1) $872 $1,091 $1,718
(assuming all three
Transactions are completed)
Projected DynaTech Fund--Class A $671(1) $875 $1,096 $1,729
(assuming only the Transactions
with Technology Fund and
Communications Fund are
completed)
- ----------------------------------------------------------------------
(1) Assumes a CDSC will not apply.
ANNUAL OPERATING EXPENSE TABLE FOR CLASS B SHARES OF
THE FUNDS, AND PROJECTED FEES AFTER THE TRANSACTION(S)
- ------------------------------------------------------------------------------------------------
DynaTech Fund
Projected
DynaTech (assumes only
Fund Transactions
Projected with -
ANNUAL FUND (assumes Technology
OPERATING all three Fund and
EXPENSES Transactions Communications
(expenses are Fund
deducted from Technology Health Care Communications DynaTech completed) are
Fund assets) Fund(1) Fund(1) Fund(1) Fund(1) (2) completed)(3)
- ------------------------------------------------------------------------------------------------
Management fees 0.55% 0.59% 0.62% 0.49% 0.47% 0.48%
- ------------------------------------------------------------------------------------------------
Distribution
and Service 0.99% 1.00% 1.00% 1.00% 1.00% 1.00%
(12b-1) Fees
- ------------------------------------------------------------------------------------------------
Other Expenses 0.75%(4) 0.36% 0.39% 0.26% 0.28% 0.28%
- ------------------------------------------------------------------------------------------------
Acquired fund
fees and 0.02% 0.02% 0.01% - 0.01% -
expenses
- ------------------------------------------------------------------------------------------------
TOTAL
ANNUAL FUND
OPERATING 2.31% 1.97% 2.02% 1.75% 1.76% 1.76%
EXPENSES
- ------------------------------------------------------------------------------------------------
Management fee
reduction -0.02% -0.02% -0.01% - -0.01% -
(5)
- ------------------------------------------------------------------------------------------------
NET ANNUAL
FUND
OPERATING 2.29% 1.95% 2.01% 1.75% 1.75% 1.76%
EXPENSES
- ------------------------------------------------------------------------------------------------
(1) Expense ratios reflect annual fund operating expenses for the most recent
fiscal year of the Fund (April 30, 2008 for each of the Target Funds and
September 30, 2007 for DynaTech Fund).
(2) Expense ratios reflect annual fund operating expenses for the period from
October 1, 2006 through September 30, 2007 for all Funds. Excluded from
Other Expenses are the one-time estimated costs of the Transactions of
$168,068 to be borne by DynaTech Fund. Other Expenses for DynaTech Fund
increase on a projected basis due to higher transfer agency fees as a
result of an increase in sub-transfer agency costs.
(3) Expense ratios reflect annual fund operating expenses for the period from
October 1, 2006 through September 30, 2007 for all Funds. Excluded from
Other Expenses are the one-time estimated costs of the Transactions of
$114,039 to be borne by DynaTech Fund. Other Expenses for DynaTech Fund
increase on a projected basis due to higher transfer agency fees as a
result of an increase in sub-transfer agency costs.
(4) Includes administration fees, as more fully described above under "What
are the Funds' Investment Management and Fund Administration Fees?"
(5) FAI has agreed in advance to reduce its fee to reflect reduced services
resulting from each Fund's investment in a Franklin Templeton money fund.
This reduction is required by the Fund's board of trustees and an
exemptive order by the SEC. For DynaTech Fund, this fee reduction amounted
to less than 0.01% of the Fund's average net assets.
EXAMPLE
This example can help you compare the cost of investing in each Target Fund's
Class B shares with the cost of investing in DynaTech Fund's Class B shares,
both before and after the Transactions. It assumes:
o You invest $10,000 for the periods shown; o Your investment has a 5% return
each year; and o The Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------------------
If you sell your shares at the end of the period:
Technology Fund--Class B $632 $1,015 $1,425 $2,455(1)
Health Care Fund--Class B $598 $912 $1,252 $2,080(1)
Communications Fund--Class B $604 $930 $1,283 $2,144(1)
DynaTech Fund--Class B $578 $851 $1,149 $1,862(1)
Projected DynaTech Fund--Class B $578 $851 $1,149 $1,862(1)
(assuming all three
Transactions are completed)
Projected DynaTech Fund--Class B $579 $854 $1,154 $1,873(1)
(assuming only the
Transactions with Technology
Fund and Communications Fund are
completed)
If you do not sell your shares:
Technology Fund--Class B $232 $715 $1,225 $2,455(1)
Health Care Fund--Class B $198 $612 $1,052 $2,080(1)
Communications Fund--Class B $204 $630 $1,083 $2,144(1)
DynaTech Fund--Class B $178 $551 $949 $1,862(1)
Projected DynaTech Fund--Class B $178 $551 $949 $1,862(1)
(assuming all three
Transactions are completed)
Projected DynaTech Fund--Class B $179 $554 $954 $1,873(1)
(assuming only the Transactions
with Technology Fund and
Communications Fund are
completed)
- ----------------------------------------------------------------------
(1) Assumes conversion of Class B shares to Class A shares after eight years,
lowering your annual expenses from that time on.
ANNUAL OPERATING EXPENSE TABLE FOR CLASS C SHARES OF
THE FUNDS, AND PROJECTED FEES AFTER THE TRANSACTION(S)
- ------------------------------------------------------------------------------------------------
DynaTech Fund
Projected
DynaTech (assumes only
Fund Transactions
Projected with -
ANNUAL FUND (assumes Technology
OPERATING all three Fund and
EXPENSES Transactions Communications
(expenses are Fund
deducted from Technology Health Care Communications DynaTech completed) are
Fund assets) Fund(1) Fund(1) Fund(1) Fund(1) (2) completed)(3)
- ------------------------------------------------------------------------------------------------
Management 0.55% 0.59% 0.62% 0.49% 0.47% 0.48%
fees
- ------------------------------------------------------------------------------------------------
Distribution
and Service 1.00% 1.00% 1.00% 0.99% 0.99% 0.99%
(12b-1) Fees
- ------------------------------------------------------------------------------------------------
Other 0.75%(4) 0.36% 0.39% 0.26% 0.28% 0.28%
Expenses
- ------------------------------------------------------------------------------------------------
Acquired fund
fees and 0.02% 0.02% 0.01% - 0.01% -
expenses
- ------------------------------------------------------------------------------------------------
TOTAL
ANNUAL FUND
OPERATING 2.32% 1.97% 2.02% 1.74% 1.75% 1.75%
EXPENSES
- ------------------------------------------------------------------------------------------------
Management
fee
reduction -0.02% -0.02% -0.01% - -0.01% -
(5)
- ------------------------------------------------------------------------------------------------
NET ANNUAL
FUND
OPERATING 2.30% 1.95% 2.01% 1.74% 1.74% 1.75%
EXPENSES
- ------------------------------------------------------------------------------------------------
(1) Expense ratios reflect annual fund operating expenses for the most recent
fiscal year of the Fund (April 30, 2008 for each of the Target Funds and
September 30, 2007 for DynaTech Fund).
(2) Expense ratios reflect annual fund operating expenses for the period from
October 1, 2006 through September 30, 2007 for all Funds. Excluded from
Other Expenses are the one-time estimated costs of the Transactions of
$168,068 to be borne by DynaTech Fund. Other Expenses for DynaTech Fund
increase on a projected basis due to higher transfer agency fees as a
result of an increase in sub-transfer agency costs.
(3) Expense ratios reflect annual fund operating expenses for the period from
October 1, 2006 through September 30, 2007 for all Funds. Excluded from
Other Expenses are the one-time estimated costs of the Transactions of
$114,039 to be borne by DynaTech Fund. Other Expenses for DynaTech Fund
increase on a projected basis due to higher transfer agency fees as a
result of an increase in sub-transfer agency costs.
(4) Includes administration fees, as more fully described above under "What
are the Funds' Investment Management and Fund Administration Fees?"
(5) FAI has agreed in advance to reduce its fee to reflect reduced services
resulting from each Fund's investment in a Franklin Templeton money fund.
This reduction is required by the Fund's board of trustees and an
exemptive order by the SEC. For DynaTech Fund, this fee reduction amounted
to less than 0.01% of the Fund's average net assets.
EXAMPLE
This example can help you compare the cost of investing in each Target Fund's
Class C shares with the cost of investing in DynaTech Fund's Class C shares,
both before and after the Transactions. It assumes:
o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year; and
o The Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------------------
If you sell your shares at the end of the period:
Technology Fund--Class C $333 $718 $1,230 $2,636
Health Care Fund--Class C $298 $612 $1,052 $2,275
Communications Fund--Class C $304 $630 $1,083 $2,338
DynaTech Fund--Class C $277 $548 $,944 $2,052
Projected DynaTech Fund--Class C $277 $548 $944 $2,052
(assuming all three
Transactions are completed)
Projected DynaTech Fund--Class C $278 $551 $949 $2,062
(assuming only the
Transactions with Technology
Fund and Communications Fund
are completed)
If you do not sell your shares:
Technology Fund--Class C $233 $718 $1,230 $2,636
Health Care Fund--Class C $198 $612 $1,052 $2,275
Communications Fund--Class C $204 $630 $1,083 $2,338
DynaTech Fund--Class C $177 $548 $944 $2,052
Projected DynaTech Fund--Class C $177 $548 $944 $2,052
(assuming all three
Transactions are completed)
Projected DynaTech Fund--Class C $178 $551 $949 $2,062
(assuming only the
Transactions with Technology
Fund and Communications Fund
are completed)
- ---------------------------------------------------------------------
ANNUAL OPERATING EXPENSE TABLE FOR CLASS R SHARES OF
TECHNOLOGY FUND AND DYNATECH FUND, AND PROJECTED FEES AFTER THE
TRANSACTION(S)
- --------------------------------------------------------------------------------
DynaTech Fund
Projected
DynaTech (assumes only
Fund Transactions
Projected with -
ANNUAL FUND (assumes Technology
OPERATING all three Fund and
EXPENSES Transactions Communications
(expenses are Fund
deducted from Technology DynaTech completed) are
Fund assets) Fund(1) Fund(1) (2) completed)(3)
- --------------------------------------------------------------------------------
Management
fees 0.55% 0.49% 0.47% 0.48%
- --------------------------------------------------------------------------------
Distribution
and Service 0.50% 0.50% 0.50% 0.50%
(12b-1) Fees
- --------------------------------------------------------------------------------
Other
Expenses 0.75% (3) 0.26% 0.28% 0.28%
- --------------------------------------------------------------------------------
Acquired fund
fees and 0.02% - 0.01% -
expenses
- --------------------------------------------------------------------------------
TOTAL ANNUAL
FUND 1.82% 1.25% 1.26% 1.26%
OPERATING
EXPENSES
- --------------------------------------------------------------------------------
Management
fee
reduction(4) -0.02% - -0.01% -
- --------------------------------------------------------------------------------
NET ANNUAL
FUND
OPERATING 1.80% 1.25% 1.25% 1.26%
EXPENSES
- ----------------------------------------------------------------------
(1) Expense ratios reflect annual fund operating expenses for the most recent
fiscal year of each Fund (April 30, 2008 for Technology Fund and September
30, 2007 for DynaTech Fund).
(2) Class R shares will be offered by DynaTech Fund for the first time in
connection with the Transaction with respect to Technology Fund. Expense
information is based on the expenses for DynaTech Fund's Class A shares
for the fiscal year ended September 30, 2007.
(3) Includes administration fees, as more fully described above under "What
are the Funds' Investment Management and Fund Administration Fees?"
(4) FAI has agreed in advance to reduce its fee to reflect reduced services
resulting from each Fund's investment in a Franklin Templeton money fund.
This reduction is required by the Fund's board of trustees and an
exemptive order by the SEC. For DynaTech Fund, this fee reduction amounted
to less than 0.01% of the Fund's average net assets.
(5) Expense ratios reflect annual fund operating expenses for the period from
October 1, 2006 through September 30, 2007 for all Funds. Excluded from
Other Expenses are the one-time estimated costs of the Transactions of
$168,068 to be borne by DynaTech Fund. Other Expenses for DynaTech Fund
increase on a projected basis due to higher transfer agency fees as a
result of an increase in sub-transfer agency costs.
(6) Expense ratios reflect annual fund operating expenses for the period from
October 1, 2006 through September 30, 2007 for all Funds. Excluded from
Other Expenses are the one-time estimated costs of the Transactions of
$114,039 to be borne by DynaTech Fund. Other Expenses for DynaTech Fund
increase on a projected basis due to higher transfer agency fees as a
result of an increase in sub-transfer agency costs.
EXAMPLE
This example can help you compare the cost of investing in Technology Fund's
Class R shares with the cost of investing in DynaTech Fund's Class R shares,
both before and after the Transactions. It assumes:
o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year;
o The Fund's operating expenses remain the same; and
o You sell your shares at the end of the period.
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
------------------------------------
Technology Fund--Class R $183 $566 $975 $2,116
DynaTech Fund--Class R $127 $397 $686 $1,511
Projected DynaTech Fund--Class R $127 $397 $686 $1,511
(assuming all three
Transactions are completed)
Projected DynaTech Fund--Class R $128 $400 $692 $1,523
(assuming only the Transactions
with Technology Fund and
Communications Fund are
completed)
- ---------------------------------------------------------------------
ANNUAL OPERATING EXPENSE TABLE FOR ADVISOR CLASS SHARES OF
TECHNOLOGY FUND AND DYNATECH FUND, AND PROJECTED FEES AFTER THE
TRANSACTION(S)
- ----------------------------------------------------------------------
DynaTech Fund
Projected
DynaTech (assumes only
Fund Transactions
Projected with -
ANNUAL FUND (assumes Technology
OPERATING all three Fund and
EXPENSES Transactions Communications
(expenses are Fund
deducted from Technology DynaTech completed) are
Fund assets) Fund(1) Fund(1) (2) completed)(3)
- --------------------------------------------------------------------------------
Management fees 0.55% 0.49% 0.47% 0.48%
- --------------------------------------------------------------------------------
Distribution
and Service - - -
(12b-1) Fees
- --------------------------------------------------------------------------------
Other Expenses 0.75% (3) 0.26% 0.28% 0.28%
- --------------------------------------------------------------------------------
Acquired fund
fees and 0.02% - 0.01% -
expenses
- --------------------------------------------------------------------------------
TOTAL ANNUAL
FUND 1.32% 0.75% 0.76% 0.76%
OPERATING
EXPENSES
- --------------------------------------------------------------------------------
Management
fee
reduction (4) -0.02% - -0.01% -
- --------------------------------------------------------------------------------
NET ANNUAL FUND
OPERATING 1.30% 0.75% 0.75% 0.76%
EXPENSES
- ----------------------------------------------------------------------
(1) Expense ratios reflect annual fund operating expenses for the most recent
fiscal year of the Fund (April 30, 2008 for Technology Fund and September
30, 2007 for DynaTech Fund).
(2) DynaTech Fund began offering Advisor Class shares on May 15, 2008. Total
annual Fund operating expenses are based on the expenses for DynaTech
Fund's Class A shares for the fiscal year ended September 30, 2007.
(3) Includes administration fees, as more fully described above under "What
are the Funds' Investment Management and Fund Administration Fees?"
(4) FAI has agreed in advance to reduce its fee to reflect reduced services
resulting from such Fund's investment in a Franklin Templeton money fund.
This reduction is required by the Fund's board of trustees and an
exemptive order by the SEC. For DynaTech Fund, this fee reduction amounted
to less than 0.01% of the Fund's average net assets.
(5) Expense ratios reflect annual fund operating expenses for the period from
October 1, 2006 through September 30, 2007 for all Funds. Excluded from
Other Expenses are the one-time estimated costs of the Transactions of
$168,068 to be borne by DynaTech Fund. Other Expenses for DynaTech Fund
increase on a projected basis due to higher transfer agency fees as a
result of an increase in sub-transfer agency costs.
(6) Expense ratios reflect annual fund operating expenses for the period from
October 1, 2006 through September 30, 2007 for all Funds. Excluded from
Other Expenses are the one-time estimated costs of the Transactions of
$114,039 to be borne by DynaTech Fund. Other Expenses for DynaTech Fund
increase on a projected basis due to higher transfer agency fees as a
result of an increase in sub-transfer agency costs.
EXAMPLE
This example can help you compare the cost of investing in Technology Fund's
Advisor Class shares with the cost of investing in DynaTech Fund's Advisor Class
shares, both before and after the Transactions. It assumes:
o You invest $10,000 for the periods shown; o Your investment has a 5% return
each year; o The Fund's operating expenses remain the same; and o You sell your
shares at the end of the period.
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
------------------------------------
Technology Fund--Advisor Class $132 $412 $713 $1,568
DynaTech Fund--Advisor Class $77 $240 $417 $930
Projected DynaTech Fund--Advisor $77 $240 $417 $930
Class (assuming all three
Transactions are completed)
Projected DynaTech Fund--Advisor $78 $243 $422 $942
Class (assuming only the
Transactions with Technology
Fund and Communications Fund
are completed)
- ---------------------------------------------------------------------
HOW DO THE PERFORMANCE RECORDS OF THE FUNDS COMPARE? The performance of the
Funds, including sales charges and before taxes, as of December 31, 2007, is
shown below.
- ----------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS(1)
-----------------------------------------
1 YEAR 5 YEARS 10 YEARS/SINCE
INCEPTION
- ----------------------------------------------------------------
- ----------------------------------------------------------------
CLASS A
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Technology Fund--Class 10.03% 15.61% -6.46% (3)
A
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Health Care 6.78% 11.81% 4.53%
Fund--Class A
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Communications 17.03% 21.37% 2.82%
Fund--Class A
- ----------------------------------------------------------------
- ----------------------------------------------------------------
DynaTech Fund--Class A 15.98% 13.75% 7.35%
- ----------------------------------------------------------------
- ----------------------------------------------------------------
CLASS B
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Technology Fund--Class 11.87% 15.98% -6.32% (3)
B
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Health Care 8.47% 12.05% 5.96%
Fund--Class B
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Communications 19.14% 21.75% 2.44% ((4))
Fund--Class B
- ----------------------------------------------------------------
- ----------------------------------------------------------------
DynaTech Fund--Class B 18.15% 14.01% 1.80% ((5))
- ----------------------------------------------------------------
- ----------------------------------------------------------------
CLASS C
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Technology Fund--Class 14.93% 16.21% -6.36% (3)
C
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Health Care 11.41% 12.28% 4.38%
Fund--Class C
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Communications 22.21% 21.90% 2.67%
Fund--Class C
- ----------------------------------------------------------------
- ----------------------------------------------------------------
DynaTech Fund--Class C 21.10% 14.24% 7.17%
- ----------------------------------------------------------------
- ----------------------------------------------------------------
CLASS R
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Technology Fund--Class 16.45% 16.79% -5.88% (3)
R (2)
- ----------------------------------------------------------------
- ----------------------------------------------------------------
DynaTech Fund--Class R - - -
- ----------------------------------------------------------------
- ----------------------------------------------------------------
ADVISOR CLASS
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Technology 17.06% 17.35% -5.42% (3)
Fund--Advisor Class
- ----------------------------------------------------------------
- ----------------------------------------------------------------
DynaTech Fund--Advisor 23.08% 15.11% 17.17%
Class (6)
- ----------------------------------------------------------------
(1) Figures reflect the current maximum applicable sales charges. Effective
May 1, 2006, the Class R CDSC was discontinued. Returns shown are before
taxes on distributions and redemptions of Fund shares.
(2) Technology Fund began offering Class R shares on January 1, 2002. Class R
shares which do not have initial sales charges. Performance quotations for
this class reflect the following methods of calculation: (a) for periods
prior to January 1, 2002, a restated figure is used based on Technology
Fund's Class A performance, excluding the effect of Class A's maximum
initial sales charge and reflecting the Rule 12b-1 rate differential
between Class A and Class R; and (b) for periods after January 1, 2002,
actual Class R performance is used reflecting all charges and fees
applicable to that class.
(3) Share class first offered on May 1, 2000. (4) Share class first offered on
January 1, 1999. (5) Share class first offered on February 1, 2000.
(6) DynaTech Fund began offering Advisor Class shares on May 15, 2008. Advisor
Class shares do not have sales charges or a Rule 12b-1 plan fee.
Performance quotations for this class reflect the following methods of
calculation: (a) for periods prior to May 15, 2008, a restated figure is
used based on DynaTech Fund's Class A performance, excluding the effect of
Class A's maximum initial sales charge but reflecting the effect of the
Class A Rule 12b-1 fees; and (b) for periods after May 15, 2008, actual
Advisor Class performance is used reflecting all charges and fees
applicable to that class.
WHERE CAN I FIND MORE FINANCIAL AND PERFORMANCE INFORMATION
ABOUT THE FUNDS?
The DynaTech Fund Prospectus (enclosed as Exhibit B) contains additional
financial and performance information about DynaTech Fund, including DynaTech
Fund's financial performance for the past five years, under the heading
"Financial Highlights." Additional performance information as of the most recent
calendar year ended December 31, 2007, including after tax return information,
is contained in the DynaTech Fund Prospectus under the heading "Performance."
The Prospectus o the Target Funds, as well as the Annual Report to
Shareholders of the Target Funds for the year ended April 30, 2008, contain more
financial information about each Target Fund, including each Target Fund's
financial performance for the past five years under the heading "Financial
Highlights." Additional performance information as of the calendar year ended
December 31, 2007, including after tax return information, is contained in the
Prospectus of the Target Funds under the heading "Performance." These documents
are available free of charge upon request (see the section "Information About
the Target Funds").
WHAT ARE OTHER KEY FEATURES OF THE FUNDS?
SERVICE PROVIDERS. The Funds use the same service providers for
the following services:
o CUSTODY SERVICES. Bank of New York, Mutual Funds Division, 100 Church
Street, New York, NY 10286, acts as custodian of the securities and other
assets of the Funds.
o TRANSFER AGENCY SERVICES. Investor Services, an indirect wholly owned
subsidiary of Resources, is the shareholder servicing and transfer agent
and dividend-paying agent for the Funds.
o ADMINISTRATIVE SERVICES. FT Services, an indirect wholly
owned subsidiary of Resources, provides certain
administrative facilities and services to each Fund,
generally under the same terms and conditions, except that,
as discussed above, Technology Fund pays FT Services a
monthly fee for such facilities and services, while FAI pays
out of its management fee such fees to FT Services with
respect to Health Care Fund, Communications Fund, and
DynaTech Fund.
o DISTRIBUTION SERVICES. Distributors acts as the principal underwriter in
the continuous public offering of Funds' shares under the same terms and
conditions.
DISTRIBUTION AND SERVICE (12B-1) FEES. Class A, Class B, Class C, and Class R
shares of each Fund, as applicable, have a separate distribution or "Rule 12b-1"
plan. Under each Rule 12b-1 plan, the Fund may pay Distributors or others for
the expenses of activities that are primarily intended to sell shares of that
class. These expenses may include, among others, distribution or service fees
paid to securities dealers or others who have executed a servicing agreement
with the Fund, Distributors, or their affiliates; and the expenses of printing
prospectuses and reports used for sales purposes, and preparing and distributing
sales literature and advertisements. The distribution and service (12b-1) fees
charged to each class are based only on the expenses attributable to that
particular class.
The following table shows the maximum amount that each class of each Fund may
pay on an annual basis, as a percentage of its average daily net assets.
(Advisor Class shares have no Rule 12b-1 plan.) For more information regarding
DynaTech Fund's Rule 12b-1 plans, please see "The Underwriter--Distribution and
Service (12b-1) fees" in the DynaTech SAI.
---------------------------------------------------------------
TECHNOLOGY HEALTH COMMUNICATIONS DYNATECH
FUND CARE FUND FUND FUND
---------------------------------------------------------------
---------------------------------------------------------------
Class A 0.35%(1) 0.25% 0.25% 0.25%
---------------------------------------------------------------
---------------------------------------------------------------
Class B 1.00% 1.00% 1.00% 1.00%
---------------------------------------------------------------
---------------------------------------------------------------
Class C 1.00% 1.00% 1.00% 1.00%
---------------------------------------------------------------
---------------------------------------------------------------
Class R 0.50% N/A(2) N/A(2) 0.50%
---------------------------------------------------------------
(1) Effective March 31, 2008, the FSS Board set the level of Rule 12b-1 fees for
Class A shares of Technology Fund at 0.30% for the 12 month period ending
January 31, 2009.
(2) Neither Health Care Fund nor Communications Fund offers Class R shares.
PURCHASES AND REDEMPTIONS. The maximum front-end sales charge imposed on
purchases of Class A shares of each Fund is 5.75%, with reduced charges for
purchases of $50,000 or more and no front-end sales charges for purchases of $1
million or more. Class B shares are subject to a CDSC if they are redeemed
within six years of purchase. The maximum CDSC imposed on redemptions of Class B
shares of each Fund is 4%, decreasing incrementally to zero over six years.
After eight years, Class B shares of each Fund automatically convert to Class A
shares. Class B shares are no longer offered for sale, except in certain
instances to existing holders of Class B shares of a Fund. The maximum sales
charge imposed on redemptions of Class C shares of each Fund is 1%. Class C
shares are subject to a 1% CDSC if you redeem the shares within 12 months of
their purchase. Class R and Advisor Class shares are not subject to a sales
charge or CDSC.
Shares of each Fund may be redeemed at their respective NAV per share,
subject to any applicable CDSC. Redemptions of Class A shares that were
purchased without an initial sales charge generally are subject to a 1% CDSC if
you sell the shares within 18 months following their purchase. Additional
information and specific instructions explaining how to buy, redeem, and
exchange shares of each Fund are outlined in the Target Funds' Prospectus and in
the DynaTech Fund Prospectus under the heading "Your Account." The DynaTech Fund
Prospectus enclosed herewith also lists, under the heading "Questions," phone
numbers for you to call if you have any questions about your account.
DIVIDENDS AND DISTRIBUTIONS. Each Fund intends to pay a dividend at least
annually representing substantially all of its net investment income and to
distribute capital gains, if any, annually. The amount of these distributions
will vary and there is no guarantee a Fund will pay dividends.
Each Fund has qualified, and intends to continue to qualify, to be treated as
a regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code"). To qualify for taxation as a regulated investment company,
a mutual fund, among other things, must distribute 90% of its investment company
taxable income and net tax-exempt income, derive at least 90% of its gross
income from permitted sources and diversify its holdings as required by the
Code. While so qualified, so long as each Fund distributes all of its investment
company taxable income (if any) and tax-exempt net income and any net realized
gains to its shareholders, it is expected that a Fund will not be required to
pay any federal income taxes on the amounts distributed to its shareholders.
The tax implications of an investment in each Fund are generally the same.
For more information about the tax implications of investments in the Funds, see
each Fund's prospectus under the heading "Distributions and Taxes."
REASONS FOR THE TRANSACTIONS
The FSS Board, on behalf of each Target Fund, has recommended that each
Target Fund's shareholders approve the Transaction with respect to such Fund in
order to combine each Target Fund with a larger fund that has similar goals and
investment policies. Shareholders of each Target Fund may potentially benefit
from the lower expenses and being part of a larger mutual fund. DynaTech Fund
has had stronger one year and ten year average total returns (based upon
performance of Class A shares for the periods ended April 30, 2008) than any of
the Target Funds, and has outperformed or has performed substantially the same
as Technology Fund and Health Care Fund for the three- and five-year periods
ended April 30, 2008. Only Communications Fund materially out performed DynaTech
Fund for the three- and five-year periods ended April 30, 2008.
A meeting of the FSS Board was held on July 10, 2008 to consider the proposed
Transactions. The Independent Trustees and the FSS Board have been advised on
this matter by independent counsel to the Independent Trustees. In addition, a
meeting of the Acquiring Trust's Board was also held on July 10, 2008 to
consider the proposed Transactions.
The FSS Board requested and received from FAI written materials containing
relevant information about DynaTech Fund and the proposed Transactions,
including fee and expense information on an actual and future estimated basis,
and comparative performance data.
The FSS Board considered the potential benefits and costs of the Transactions
to shareholders of each Target Fund. The FSS Board reviewed detailed information
about: (1) the investment goal, strategies and policies of DynaTech Fund; (2)
the portfolio management of DynaTech Fund; (3) the financial and organizational
strength of FAI; (4) the comparability of the investment goals, policies,
restrictions and investments of each Target Fund with those of DynaTech Fund;
(5) the comparative short-term and long-term investment performance of each
Target Fund and DynaTech Fund; (6) the current expense ratios of each Fund; (7)
the relative asset size of each Fund, including the benefits to each Target Fund
of joining with a larger entity; (8) the agreement by FAI to pay a portion of
the expenses related to each Transaction; (9) the tax consequences of the
Transactions to each Target Fund and each Target Fund's shareholders; and (10)
the general characteristics of each Target Fund.
The FSS Board also considered that: (a) the combined investment advisory and
administrative fees for DynaTech Fund are less than those being paid by each
Target Fund; (b) the historical investment performance of DynaTech Fund has been
stronger than or at least comparable to the historical investment performance of
each Target Fund as of April 30, 2008 (with the exception of Communications Fund
for the three- and five-year period ended April 30, 2008); (c) the relatively
small asset size of each Target Fund had prevented any of them from realizing
significant economies of scale and thereby reducing its expense ratio; (d) based
on each Target Fund's historical asset growth and projected sales activity, no
Target Fund's assets were likely to grow sufficiently in the foreseeable future
to result in significant economies of scale; (e) benefits to shareholders,
including operating efficiencies, may be achieved from combining the Funds; and
(f) alternatives were available to shareholders of each Target Fund, including
the ability to redeem their shares.
Based upon their evaluation of the relevant information presented to them,
and in light of their fiduciary duties under federal and state law, the FSS
Board, including all of the Independent Trustees, concluded that completing the
Transactions is in the best interests of the shareholders of each Target Fund
and that no dilution of value would result to the shareholders of any Target
Fund from the Transactions. The FSS Board approved the Plans on July 10, 2008
and recommended that shareholders of each Target Fund vote to approve the Plan
with respect to their Target Fund.
The Board of Trustees of the Acquiring Trust, on behalf of DynaTech Fund,
also concluded that the Transactions are in the best interests of DynaTech Fund
and its shareholders and that no dilution of value would result to the
shareholders of DynaTech Fund from the Transactions. Consequently, the Board of
Trustees of the Acquiring Trust approved the Plans on behalf of DynaTech Fund.
FOR THE REASONS DISCUSSED ABOVE, THE FSS BOARD UNANIMOUSLY RECOMMENDS THAT
YOU VOTE FOR THE PLAN FOR YOUR FUND.
INFORMATION ABOUT THE TRANSACTIONS
This is only a summary of the Plan(s). You should read the form of the Plans,
which is attached as Exhibit A, for complete information about the Transactions.
HOW WILL THE TRANSACTIONS BE CARRIED OUT?
If the shareholders of a Target Fund approve the applicable
Plan, the Transaction for that Target Fund will take place after various
conditions are satisfied, including the preparation of certain documents. The
Target Funds Trust and DynaTech Fund will determine a specific date, called the
"closing date," for the actual Transaction(s) to take place. If the shareholders
of a Target Fund do not approve the Plan for such Fund, the Transaction for such
Target Fund will not take place, and that Target Fund will continue to operate
as it does currently even if the shareholders of other Target Funds approve the
Plan for such Funds and the Transactions for such other Target Funds proceed.
Each Target Fund no longer offers its shares for sale to the public. Existing
shareholders, however, are permitted to purchase additional shares until the
date of the Meeting. If shareholders of a Target Fund approve the Plan for such
Fund at the Meeting, such shareholders may continue to add to their existing
accounts until the close of business on December 12, 2008 through the
reinvestment of dividend and capital gain distributions or through established
automatic investment plans.
If the shareholders of a Target Fund approve the Plan for such Target Fund,
such Target Fund will transfer substantially all of its assets, free and clear
of all liens, encumbrances, and claims whatsoever (other than shareholders'
rights of redemption), to DynaTech Fund on the closing date, which is scheduled
to occur on or about December 3, 2008, but which may occur on an earlier or
later date as the Target Funds Trust and DynaTech Fund may agree.
Neither DynaTech Fund nor the Acquiring Trust shall assume any liability of a
Target Fund or FSS. In exchange, the Acquiring Trust will issue shares of
DynaTech Fund that have an aggregate NAV equal to the dollar value of the assets
delivered to DynaTech Fund by the Target Fund. FSS will distribute the DynaTech
Fund shares it receives to the shareholders of the Target Fund. Each shareholder
of the Target Fund will receive a number of DynaTech Fund shares with an
aggregate NAV equal to the aggregate NAV of his or her shares of the Target
Fund. The share transfer books of the Target Fund will be permanently closed as
of 1:00 p.m., Pacific Time, on the closing date. The Target Fund will accept
requests for redemptions only if received in proper form before 1:00 p.m.,
Pacific Time, on the closing date. Requests received after that time will be
considered requests to redeem shares of DynaTech Fund. As soon as reasonably
practicable after the transfer of its assets, the Target Fund will pay or make
provision for payment of all its remaining liabilities, if any. At the closing,
each shareholder of record of a Target Fund shall have the right to receive any
unpaid dividends or distributions declared prior to the closing, including any
declared dividend or distribution, with respect to shares of the Target Fund
that such shareholder had on the distribution record date. The Target Fund will
then terminate its existence as a separate series of FSS.
FSS and the Acquiring Trust may agree to amend each Plan without shareholder
approval, to the extent permitted by law. If any amendment is made to a Plan
that would have a material adverse effect on shareholders, such change will be
submitted to the affected shareholders for their approval.
Each of FSS and the Acquiring Trust has made representations and warranties
in the Plans that are customary in matters such as the Transactions. The
obligations under each Plan of FSS (separately with respect to each Target Fund)
and the Acquiring Trust (with respect to DynaTech Fund) are subject to various
conditions, including:
o the Acquiring Trust'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 and such Registration Statement
shall have become effective, and no stop-order suspending the
effectiveness of the Registration Statement shall have been issued, and
no proceeding for that purpose shall have been initiated or threatened
by the SEC (and not withdrawn or terminated);
o the shareholders of the applicable Target Fund shall have approved the
Transaction with respect to such Target Fund; and
o FSS and the Acquiring Trust shall have received the tax opinion
described below that the consummation of the Transaction will not result
in the recognition of gain or loss for federal income tax purposes for
such Target Fund, DynaTech Fund or their shareholders.
If FSS and the Acquiring Trust agree, the Plan for a Target Fund may be
terminated or abandoned at any time before or after the approval of the Plan by
the shareholders of such Target Fund.
Following the closing date, Target Fund share certificates shall be deemed
cancelled.
WHO WILL PAY THE EXPENSES OF THE TRANSACTIONS?
FSS, on behalf of each Target Fund, will pay 25% of the expenses resulting
from that Target Fund's participation in the Transaction, including the costs of
the proxy solicitation. The Acquiring Trust, on behalf of DynaTech Fund, will
pay 25% of such expenses for each Transaction. FAI will pay the remaining 50% of
such expenses for each Transaction.
WHAT ARE THE TAX CONSEQUENCES OF THE TRANSACTIONS?
Each Transaction is intended to qualify as a tax-free reorganization for
federal income tax purposes under Section 368(a)(1) of the Code. The tax
consequences of one Transaction are not dependent upon any other Transaction.
Based on certain assumptions and representations received from FSS, on behalf of
each Target Fund, and the Acquiring Trust, on behalf of DynaTech Fund, it is the
opinion of Stradley Ronon Stevens & Young, LLP, counsel to the Acquiring Trust
and FSS, (i) that shareholders of a Target Fund will not recognize any gain or
loss for federal income tax purposes as a result of the exchange of their shares
of the Target Fund for shares of DynaTech Fund and (ii) that neither DynaTech
Fund nor its shareholders will recognize any gain or loss upon DynaTech Fund's
receipt of the assets of a Target Fund. In addition, the holding period and
aggregate tax basis for DynaTech Fund shares that are received by a Target Fund
shareholder will be the same as the holding period and aggregate tax basis of
the shares of that Target Fund previously held by such shareholder.
Opinions of counsel are not binding upon the Internal Revenue Service or the
courts. If one or more of the Transactions is consummated but does not qualify
as a tax free reorganization under the Code, and thus is taxable, a Target Fund
in the case of a taxable Transaction would recognize gain or loss on the
transfer of its assets to DynaTech Fund and each shareholder of that Target Fund
would recognize a taxable gain or loss equal to the difference between its tax
basis in its Target Fund shares and the fair market value of the shares of
DynaTech Fund it received.
Capital losses can generally be carried forward to each of the eight (8)
taxable years succeeding the loss year to offset future capital gains. Following
the Transactions, any capital loss carryovers (together with any current year
loss and net unrealized depreciation in the value of investments) of a Target
Fund will be subject to an annual limitation for federal income tax purposes. At
their fiscal year ended April 30, 2008, the tax basis capital loss carryovers,
unrealized appreciation in value of investments and aggregate net asset values
of the Target Funds, as compared to DynaTech Fund at its fiscal year ended
September 30, 2007, and the approximate annual limitations on use of such
capital loss carryovers following the Transactions, are as follows:
- -----------------------------------------------------------------------------
Technology Communications Health DynaTech
Care
4/30/2008 4/30/2008 4/30/2008 3/31/2008
- -----------------------------------------------------------------------------
Capital loss Carryovers
- -----------------------------------------------------------------------------
Expiring (2010-2013) $43,502,890 $104,188,452 $3,784,201 $1,854,237
- -----------------------------------------------------------------------------
Unrealized Appreciation
(built-in gain) in
Value of Investments $7,770,112 $27,764,179 $18,138,676 $234,954,935
- -----------------------------------------------------------------------------
Net Asset Value $56,216,298 $106,530,115 $142,893,773 $533,365,117
- -----------------------------------------------------------------------------
Tax-exempt rate (July 4.71% 4.71% 4.71% n/a
2008)
- -----------------------------------------------------------------------------
Annual Limitation $2,647,788 $5,017,568 $6,730,297
(approximate) (1)
- -----------------------------------------------------------------------------
(1) The actual limitation will equal the aggregate net asset value of a
Target Fund on the closing date multiplied by the long-term tax-exempt
rate for ownership changes during the month in which a Transaction
closes; such limitation is increased by the amount of any built-in gain,
i.e., unrealized appreciation in value of investments, of a Target Fund
on the closing date that is recognized in a taxable year.
Given the approximate amount of the annual limitations (increased by the
amount of any built-in gain of a Target Fund on the closing date that is
recognized in a taxable year) relative to the amount of each Target Fund's
capital loss carryovers, this limitation likely will result in a material
portion of the capital loss carryovers of Technology Fund and Communications
Fund, which might otherwise have been utilized by such Funds to offset their
future capital gains, to expire unutilized. However, given the amount of the
capital loss carryovers of Technology Fund and Communications Fund relative to
their net asset values, it is also likely that a material amount of such
carryovers would expire unutilized in any event. Accordingly, this annual
limitation likely will cause a significant portion of the capital loss
carryovers of Technology Fund and Communications Fund to expire unutilized. With
respect to Heath Care Fund, the annual limitation on use of its capital loss
carryovers likely will not be material. The Transactions will not result in any
limitation on the use by DynaTech Fund of its capital loss carryovers.
Target Fund shareholders also should be aware that, as a result of the
Transactions, they will be "buying into" to greater unrealized appreciation in
value of investments (exacerbated by any limitation on use of a Target Fund's
capital loss carryovers) relative to what they are presently exposed to. As of
April 30, 2008, the net unrealized appreciation in the value of the investments
of Technology Fund, Communications Fund and Heath Care Fund on a tax basis as a
percentage of their respective net asset values on such date was 13.8%, 26.1%
and 12.7%, respectively. As of March 31, 2008, the net unrealized appreciation
in the value of the assets of DynaTech Fund on a tax basis as a percentage of
its net asset value was 44.1% and, approximately, 34.4% on a combined basis
following the Transactions. Net unrealized appreciation in value of investments
represents unrealized profits on securities currently held minus unrealized
losses on current holdings. Such net unrealized gain, when realized on sale of
portfolio securities, minus any available capital loss carryovers, is paid to
Fund shareholders each calendar year as income dividends and/or capital gains
distributions. Any income taxes payable by Fund shareholders on receipt of
dividends and distributions reduce their return on investment in a fund on an
after-tax basis. This, of course, is the same exposure that applies to anyone
when buying (or reinvesting dividends in) shares of DynaTech Fund.
After the Transactions, you will continue to be responsible for tracking the
adjusted tax basis and holding period of your shares for federal income tax
purposes. You should consult your tax adviser regarding the effect, if any, of
the Transactions in light of your particular circumstances, as well as the state
and local tax consequences, if any, of the Transactions because this discussion
only relates to the federal income tax consequences.
WHAT SHOULD I KNOW ABOUT THE SHARES OF DYNATECH FUND?
Class A, Class B, Class C, Class R, and Advisor Class shares of DynaTech Fund
will be distributed to Class A, Class B, Class C, Class R, and Advisor Class
shareholders of a Target Fund, respectively, and generally will have the same
legal characteristics as the shares of the Target Funds with respect to such
matters as voting rights, assessability, conversion rights, and transferability.
DynaTech Fund is a series of the Acquiring Trust, and each Target Fund is a
series of FSS. FSS and the Acquiring Trust are organized as Delaware statutory
trusts. Former shareholders of a Target Fund whose shares are represented by
outstanding share certificates will not receive certificates for shares in
DynaTech Fund and all outstanding Target Fund share certificates shall be
cancelled.
WHAT ARE THE CAPITALIZATIONS OF THE FUNDS AND WHAT MIGHT THE
CAPITALIZATION BE AFTER THE TRANSACTIONS?
The following table sets forth as of March 31, 2008 the capitalization of
each Target Fund and DynaTech Fund. The table also shows the projected
capitalization of DynaTech Fund as adjusted to give effect to the proposed
Transaction(s), assuming that (1) all three Transactions are completed, and (2)
only the proposed Transactions with Technology Fund and Communications Fund are
completed, which alternative demonstrates the least reduction in overall
expenses that a shareholder in a Target Fund might experience in becoming a
shareholder of DynaTech Fund (shown in the rightmost column). The capitalization
of DynaTech Fund and its classes is likely to be different when the
Transaction(s) are consummated.
- ------------------------------------------------------------------------------------------------
DYNATECH
FUND -
DYNATECH PROJECTED
FUND (assuming
-PROJECTED only
TECHNOLOGY HEALTH COMMUNICATIONS DYNATECH (assuming Transactions
FUND CARE FUND FUND all with
(UNAUDITED) FUND (UNAUDITED) (UNAUDITED three Technology
(UNAUDITED) Transacti) Transactions Fund and
are Communications
completed)(2) Fund are
(UNAUDITED) completed)(2)
(UNAUDITED)
- ------------------------------------------------------------------------------------------------
Net assets $51,228 $140,595 $94,707 $533,365 $819,727 $679,186
(all classes)
(thousands)
(1)
- ------------------------------------------------------------------------------------------------
Total shares 9,764,934 6,113,016 7,496,370 19,372,801 29,838,968 24,694,281
outstanding
(all classes)
(1)
- ------------------------------------------------------------------------------------------------
Class A net $29,870 $103,423 $75,499 $458,190 $666,845 $563,464
assets
(thousands)
- ------------------------------------------------------------------------------------------------
Class A 5,623,673 4,412,803 5,902,746 16,491,655 24,002,610 20,281,208
shares
outstanding
- ------------------------------------------------------------------------------------------------
Class A net $5.31 $23.44 $12.79 $27.78 $27.78 $27.78
asset value
per share
- ------------------------------------------------------------------------------------------------
Class B net $2,780 $9,212 $2,918 $13,743 $28,648 $19,439
assets
(thousands)
- ------------------------------------------------------------------------------------------------
Class B 550,079 418,235 242,306 522,156 1,088,447 738,539
shares
outstanding
- ------------------------------------------------------------------------------------------------
Class B net $5.05 $22.03 $12.04 $26.32 $26.32 $26.32
asset value
per share
- ------------------------------------------------------------------------------------------------
Class C net $9,067 $27,960 $16,290 $61,431 $114,726 $86,774
assets
(thousands)
- ------------------------------------------------------------------------------------------------
Class C 1,800,814 1,281,978 1,351,318 2,358,990 4,405,624 3,332,234
shares
outstanding
- ------------------------------------------------------------------------------------------------
Class C net $5.03 $21.81 $12.06 $26.04 $26.04 $26.04
asset value
per share
- ------------------------------------------------------------------------------------------------
Class R net $6,921 N/A N/A N/A $6,920 $6920
assets
(thousands)
- ------------------------------------------------------------------------------------------------
Class R 1,315,295 N/A N/A N/A 249,088 249,097
shares
outstanding
- ------------------------------------------------------------------------------------------------
Class R net $5.26 N/A N/A N/A $27.78 $27.78
asset value
per share
- ------------------------------------------------------------------------------------------------
Advisor Class $2,590 N/A N/A N/A $2,589 $2,589
net assets
(thousands)
- ------------------------------------------------------------------------------------------------
Advisor Class 475,073 N/A N/A N/A 93,199 93,203
shares
outstanding
- ------------------------------------------------------------------------------------------------
Advisor Class $5.45 N/A N/A N/A $27.78 $27.78
net asset
value per
share
- ------------------------------------------------------------------------------------------------
(1) Each Target Fund currently has Class A, Class B and Class C shares
outstanding. Only Technology Fund has Class R and Advisor Class shares
outstanding. DynaTech Fund had only Class A, Class B, and Class C shares
authorized and issued as of March 31, 2008. The Acquiring Trust's Board of
Trustees authorized the creation of Advisor Class shares of DynaTech Fund,
which were first offered to the public on May 15, 2008. The Acquiring
Trust's Board of Trustees has also authorized the creation and issuance of
Class R shares in order to complete the proposed reorganization of
Technology Fund with and into DynaTech Fund.
(2) Numbers are projected after the Transaction(s). The projected capitalization
of DynaTech Fund after the Transaction(s) includes the estimated expenses of
the Transaction(s) borne by DynaTech Fund and the applicable Target Funds.
At the actual closing of the reorganizations, shareholders of the Target
Funds will receive DynaTech Fund Shares based on the relative net asset values
of the Funds as of 1:00 p.m., Pacific Time, on the closing date.
COMPARISON OF INVESTMENT GOALS, STRATEGIES, POLICIES AND RISKS
This section describes and compares the key differences between the
investment goals, strategies and principal policies of the Funds, as well as the
risks associated with such goals, strategies and policies. The investment goal
and most of the investment restrictions of each Fund are fundamental, which
means that they cannot be changed without the Affirmative Majority Vote of that
Fund's outstanding voting securities. Unless otherwise noted, the investment
policies of each Fund are non-fundamental and may be changed without shareholder
approval. For a complete description of DynaTech Fund's investment policies and
risks, you should read the DynaTech Fund Prospectus, which accompanies this
Prospectus/Proxy Statement, and the DynaTech SAI, which is available upon
request.
ARE THERE ANY SIGNIFICANT DIFFERENCES BETWEEN THE INVESTMENT
GOALS, STRATEGIES, POLICIES AND RISKS OF THE FUNDS?
The investment goals of Technology Fund and Health Care Fund are identical to
the investment goal of DynaTech Fund. Each has an investment goal of capital
appreciation. The investment goal of Communications Fund varies from the
investment goal of the other Funds by having some emphasis on current income;
Communications Fund's investment goal is to seek to provide total return,
without undue risk. There are, however, some important differences among the
investment strategies of each Fund.
MARKET CAPITALIZATION. The Target Funds and DynaTech Fund may invest in similar
sized companies. The Target Funds and DynaTech Fund may invest in companies of
any size, and may invest a significant portion of their assets in securities of
smaller companies. However, as of December 31, 2007, DynaTech Fund had invested
approximately 75% of its total assets in large cap companies, while none of the
Target Funds invested more than 60% in large cap companies. As of such date,
DynaTech Fund invested only approximately 24% of its total assets in small- and
mid- cap companies, while Communications Fund invested almost 42% and Technology
Fund and Health Care Fund each invested over 42% in small and mid cap companies.
Therefore, each Target Fund has historically had greater exposure to small and
mid cap companies, and their related risks, than DynaTech Fund.
FOREIGN EXPOSURE. The Target Funds and DynaTech Fund are permitted to invest in
foreign securities to a similar extent. Technology Fund may invest up to 35% of
its total assets in such securities. Communications Fund may buy communications
companies anywhere in the world, including emerging markets, but generally
invests a greater percentage of its assets in U.S. companies than any other
single country. Health Care Fund invests in securities of issuers in at least
three different countries, and it will not invest more than 40% of its net
assets in any one country other than the U.S. Health Care Fund expects that a
significant portion of its investments will be in securities of U.S. issuers,
many of which may derive substantial revenues from activities outside the U.S.
DynaTech Fund may invest in companies both inside and outside the United States.
Although DynaTech Fund has no limitation on the amount it may invest in foreign
securities, DynaTech Fund presently intends to invest no more than 25% of its
net assets in foreign securities not publicly traded in the U.S. Within the past
year, Communications Fund has had greater investment in foreign securities than
any of the other Funds, with Technology Fund having the least amount of
exposure.
STOCK SELECTION. For the Target Funds, FAI applies a "bottom-up,"
growth-oriented approach, focusing primarily on individual securities of
companies that have identifiable drivers of future earnings growth and that
present, in FAI's opinion, the best tradeoff between earnings growth, business
and financial risk, and valuation. Target Fund portfolio managers rely on teams
of analysts to help provide in-depth industry expertise and use both qualitative
and quantitative analysis to evaluate companies for distinct and sustainable
competitive advantages likely to lead to growth in earnings and/or share price.
Competitive advantages such as a particular product niche, proven technology,
sound financial position, and strong management are all factors the portfolio
managers believe may contribute to strong growth potential.
When choosing equity investments for DynaTech Fund, FAI applies a "bottom-up,"
value-oriented, long-term approach, focusing on the market price of a company's
securities relative to the manager's evaluation of the company's long-term
earnings, asset value and cash flow potential. FAI also considers a company's
price/earnings ratio, profit margins and liquidation value. Although FAI will
search for investments across a large number of sectors, it expects to have
significant positions in particular sectors. These sectors may include, for
example, technology (including computers and telecommunications) and health care
(including biotechnology).
INDUSTRY CONCENTRATION. The Target Funds do not have the same fundamental
investment restrictions on industry concentration as DynaTech Fund. Each Target
Fund focuses its investments in the particular industry or sector suggested by
its name and has a fundamental investment restriction requiring it to be so
concentrated, while DynaTech Fund has a policy against concentrating in any
particular industry. Each Target Fund may not invest more than 25% of its net
assets in securities of issuers in any one industry (other than securities
issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities or securities of other investment companies), except that,
under normal market conditions, Technology Fund will invest more than 25% of its
net assets in securities issued by domestic and foreign companies operating
within the technology industries, Communications Fund does so within the
communications industries, and Health Care Fund does so within the health care
industry and related industries. DynaTech Fund may not invest more than 25% of
its net assets in securities of issuers in any one industry (other than
securities issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities or securities of other investment companies).
DIVERSIFICATION. Health Care Fund is a non-diversified fund that may invest a
greater portion of its assets in the securities of any one or more issuer(s)
than a diversified fund. As a result, Health Care Fund may be more sensitive to
economic, business, political or other changes affecting similar issuers or
securities than funds that are more diversified, which may result in greater
fluctuation in the value of Health Care Fund's shares. In contrast, DynaTech
Fund and the other Target Funds are diversified funds that have a more limited
ability to invest their assets in any one issuer.
HOW DO THE INVESTMENT RESTRICTIONS OF THE FUNDS DIFFER?
The Funds' fundamental investment restrictions with respect to borrowing,
underwriting, lending, real estate investments, commodities investments, and
issuing senior securities are identical. Their policies with respect to
investment goals and investment restrictions with respect to industry
concentration and diversification differ, as discussed above.
WHAT ARE THE PRINCIPAL RISK FACTORS ASSOCIATED WITH INVESTMENTS
IN THE FUNDS?
Like all investments, an investment in any Fund involves risk. There is no
assurance that the any Fund will meet its investment goals. The achievement of
the Funds' goals depends upon market conditions, generally, and on the
investment managers' analytical and portfolio management skills. For more
information about the principal risk factors associate with investments in the
Funds, see each Fund's prospectus under the heading "Main Risks" and the
DynaTech SAI and the Target Funds SAI under the heading "Goals, Strategies and
Risks."
COMMON STOCKS. Stocks historically have outperformed other types of investments
over the long term. Individual stock prices, however, tend to go up and down
more dramatically. These price movements may result from factors affecting
individual companies or industries, or the relevant securities market as a
whole. A slower-growth or recessionary economic environment could have an
adverse effect on the price of the various stocks held by a Fund.
SMALLER AND MIDSIZE COMPANIES. While smaller and midsize companies may offer
substantial opportunities for capital growth, they also involve substantial
risks and should be considered speculative. Historically, smaller and midsize
company securities have been more volatile in price than larger company
securities, especially over the short term. Among the reasons for the greater
price volatility are the less certain growth prospects of smaller and midsize
companies, the lower degree of liquidity in the markets for such securities, and
the greater sensitivity of smaller and midsize companies to changing economic
conditions. In addition, smaller and midsize companies may lack depth of
management, be unable to generate funds necessary for growth or development, or
be developing or marketing new products or services for which markets are not
yet established and may never become established.
FOREIGN SECURITIES. Investing in foreign securities typically involves more
risks than investing in U.S. securities. Certain of these risks also may apply
to securities of U.S. companies with significant foreign operations. These risks
can increase the potential for losses in a Fund and may include, among others,
currency risks (fluctuations in currency exchange rates), country risks
(political, economic and social instability, diplomatic developments, regional
conflicts, terrorism, war, currency devaluations and policies that have the
effect of limiting or restricting foreign investment or the movement of assets),
different trading practices, including less government supervision, less
publicly available information, less liquid trading markets, and greater
volatility.
SECTOR FOCUS. To the extent a Fund invests a significant portion of its assets a
particular sector or sectors, the Fund will face a greater risk of loss due to
factors affecting that sector than if the Fund always maintained wide diversity
among the sectors. For example, technology companies involve risks due to
factors such as the rapid pace of product change, technological developments and
new competition. Their stocks historically have been volatile in price,
especially over the short term, often without regard to the merits of individual
companies. Health care companies, which are the focus of Health Care Fund, are
strongly affected by government activities, regulation, and legislation and to
the risks of lawsuits related to products liability and of rapid obsolescence.
Communications companies, which are the focus of Communications Fund, are
subject to significant competitive pressures and to the risk that consumers and
businesses will fail to accept their products or services. Each of the Target
Funds is highly focused on a particular sector, while DynaTech Fund has
relatively less exposure to risks that may apply to any one particular sector,
and thus may experience less volatility then the Target Funds.
TECHNOLOGY AND TELECOMMUNICATIONS COMPANIES. The technology and
telecommunications sector has historically been volatile due to the rapid pace
of product change and development within the sector. For example, their products
may not prove commercially successful or may become obsolete quickly. The
activities of these companies may also be adversely affected by changes in
government regulations. The stock prices of companies operating within this
sector may be subject to abrupt or erratic movements. Although DynaTech Fund
intends to focus its investments in rapidly developing industries, including
technology and telecommunications companies, it historically has had less
exposure to such companies than either Technology Fund or Communications Fund.
HEALTH CARE COMPANIES. The activities of health care companies may be funded or
subsidized by federal and state governments. If government funding and subsidies
are reduced or discontinued, the profitability of these companies could be
adversely affected. Health care companies may also be affected by government
policies on health care reimbursements, regulatory approval for new drugs and
medical instruments, and similar matters. They are also subject to legislative
risk, i.e., the risk of a reform of the health care system through legislation.
Because DynaTech Fund historically has had less exposure to health care
companies than the Target Funds, in particular Health Care Fund, DynaTech Fund
may be less susceptible than Health Care Fund to the risks that accompany a
concentrated investment in health care companies.
GROWTH STYLE INVESTING. Each of the Target Funds is subject to the risks of
growth style investing. Growth stock prices reflect projections of future
earnings or revenues, and can, therefore, fall dramatically if the company fails
to meet those projections. Growth stocks may also be more expensive relative to
their earnings or assets compared to value or other stocks, and if their
valuations return to more typical norms, their prices may moderate or fall.
Prices of these companies' securities historically have been more volatile than
other securities, especially over the short term.
VALUE STYLE INVESTING. DynaTech Fund is subject to the risks of value style
investing. A value stock may not increase in price as anticipated by the manager
if other investors fail to recognize the company's value and bid up the price,
the markets favor faster-growing companies, or the factors that the manager
believes will increase the price of the security do not occur.
PORTFOLIO TURNOVER. Because of the Funds' investment strategies, some
Funds' portfolio turnover rate may be higher than that for other Funds. Higher
portfolio turnover may involve additional expenses, including transaction costs
for purchases and sales of securities. These transactions may result in
realization of taxable capital gains, including short-term capital gains, which
are generally taxed at ordinary income tax rates. DynaTech Fund has historically
had a portfolio turnover rate lower than that of any of the Target Funds.
INFORMATION ABOUT DYNATECH FUND
Information about DynaTech Fund is included in the DynaTech Fund Prospectus,
which is enclosed with and incorporated by reference into (is considered a part
of) this Prospectus/Proxy Statement. Additional information about DynaTech Fund
is included in the DynaTech SAI, which is incorporated into the DynaTech Fund
Prospectus and into the SAI dated September [___], 2008 relating to this
Prospectus/Proxy Statement, which has been filed with the SEC and is considered
part of this Prospectus/Proxy Statement. You may request a free copy of the
DynaTech SAI, DynaTech Fund's Annual Report to Shareholders for the fiscal year
ended September 30, 2007, DynaTech Fund's Semi-Annual Report to Shareholders for
the six-month period ended March 31, 2008, the SAI relating to this
Prospectus/Proxy Statement, and other information by calling 1-800/DIAL-BEN(R)
or by writing to DynaTech Fund at P.O. Box 997151, Sacramento, CA 95899-9983.
The Acquiring Trust files proxy materials, reports and other information with
the SEC in accordance with the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act. These materials can be inspected and
copied at the public reference facilities maintained by the SEC, 100 F Street,
N.E., Room 1580, Washington, D.C. You can also obtain copies of this
information, after paying a duplicating fee at prescribed rates, by writing to
the SEC's Public Reference Branch, Office of Consumer Affairs and Information
Services, Washington, DC 20549 or from the SEC's Internet site at
HTTP://WWW.SEC.GOV or by electronic request at the following email address:
PUBLICINFO@SEC.GOV.
INFORMATION ABOUT THE TARGET FUNDS
Information about the Target Funds is included in their current Prospectus,
which is incorporated into this Prospectus/Proxy Statement by reference, as well
as the Target Funds SAI dated September 1, 2008, and FSS's Annual Report to
Shareholders for the fiscal year ended April 30, 2008. These documents have been
filed with the SEC. You may request free copies of these documents and other
information relating to the Target Funds by calling 1-800/DIAL BEN or by writing
to the Target Funds at P.O. Box 997151, Sacramento, CA 95899-9983. Reports and
other information filed by FSS can be inspected and copied at the public
reference facilities maintained by the SEC, 100 F Street, N.E., Room 1580,
Washington, D.C. You can also obtain copies of this information, after paying a
duplicating fee at prescribed rates, by writing to the SEC's Public Reference
Branch, Office of Consumer Affairs and Information Services, Washington, DC
20549 or from the SEC's Internet site at HTTP://WWW.SEC.GOV or by electronic
request at the following email address: PUBLICINFO@SEC.GOV.
FURTHER INFORMATION ABOUT THE FUNDS
The following is a discussion of certain principal differences between the
organization of each Fund and, where applicable, of FSS and the Acquiring Trust.
More detailed information about each Fund's current corporate structure is
contained in each Fund's SAI.
COMPARISON OF CAPITAL STRUCTURE. Each Target Fund is one series of FSS, which
was organized as a Delaware business trust (now referred to as a Delaware
statutory trust) pursuant to an Agreement and Declaration of Trust dated January
25, 1991, as amended and restated as of April 11, 2007. The number of shares of
each Target Fund is unlimited, each without par value, and each Target Fund may
issue fractional shares.
DynaTech Fund is one series of the Acquiring Trust, which was incorporated in
Delaware in 1947, reincorporated as a Maryland corporation in 1979 under the
Maryland General Corporation Law, and reorganized as a Delaware statutory trust
on February 1, 2008. The number of shares of DynaTech Fund is unlimited, each
without par value, and DynaTech Fund may issue fractional shares.
Shares of each Fund are fully paid and nonassessable and have no preference,
preemptive or subscription rights. Target Fund and DynaTech Fund shareholders
have no appraisal rights. COMPARISON OF VOTING RIGHTS. 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. Shareholders
of the Funds are not entitled to cumulative voting in the election of Trustees.
Quorum for a shareholders' meeting of FSS, the Acquiring Trust, or any of their
series is generally forty per cent of the shares entitled to vote, which are
present in person or by proxy.
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), approval of investment
advisory agreements and 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 the laws governing Delaware statutory trusts and by their
Agreements and Declarations of Trust. The rights to vote on these matters are
the same for FSS and the Acquiring Trust. For example, the Agreements and
Declarations of Trust ("Trust Instrument") and bylaws for both FSS and the
Acquiring Trust give shareholders the power to vote: (1) for the election of
Trustees at a meeting called for the purpose of electing Trustees, (2) with
respect to certain amendments to the Trust Instrument as required by the Trust
Instrument, the 1940 Act or the requirements of any securities exchanges on
which shares are listed for trading, and (3) on such matters as required by the
Trust Instrument, the bylaws and any registration statement filed with the SEC
or any State, or as the Trustees may consider necessary or desirable.
Under the Trust Instruments of FSS and the Acquiring Trust, to the extent a
larger vote is not required by applicable law, a majority of the votes cast at a
meeting at which a quorum is present generally shall decide any questions, with
the exception that Trustees of FSS and the Acquiring Trust are elected by not
less than a plurality of the votes cast at such a meeting.
The Trust Instruments for each Fund establish the maximum number of days
prior to a shareholders' meeting during which a record date may be set by that
Fund's Board. The maximum number of days is 120 for both FSS and the Acquiring
Trust.
LEGAL STRUCTURES. Mutual funds formed under the Delaware Statutory Trust Act,
such as FSS and the Acquiring Trust, are granted a significant amount of
operational flexibility to adopt features, rights and obligations of the
statutory trust and its trustees and shareholders in their organizational
instruments. Investment companies organized as Delaware statutory trusts have
been able to benefit from this flexibility to streamline their operations and
minimize expenses. For example, funds organized as Delaware statutory trusts are
not 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 any special
voting requirements of the 1940 Act.
LIMITED LIABILITY FOR SHAREHOLDERS. Under the Delaware Statutory Trust Act,
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 Delaware General Corporation Law.
BOARDS OF TRUSTEES. Pursuant to the Delaware Statutory Trust Act and FSS's and
the Acquiring Trust's Trust Instruments, the responsibility for the management
of each of FSS and the Acquiring Trust is vested in its Board of Trustees,
which, among other things, is empowered by the 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 liable for any act or omission or any conduct
whatsoever in his 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 office.
INSPECTION RIGHTS. Each Fund provides certain inspection rights to shareholders
of its books and records, to at least the extent required by applicable law.
LEGAL PROCEEDINGS. For information about material pending legal proceedings and
regulatory matters, please see the sections entitled "Management" and
"Additional Management Information" in the Prospectuses of DynaTech Fund and the
Target Funds.
VOTING INFORMATION
HOW MANY VOTES ARE NECESSARY TO APPROVE A TARGET FUND'S PLAN?
An Affirmative Majority Vote, as defined herein, of the
outstanding voting securities of a Target Fund is required to approve the Plan
for that Target Fund. 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 August 29, 2008 (the
"Record Date"). If sufficient votes to approve the Plan for a Target Fund are
not received by the date of the Meeting, the Meeting for that Target Fund may be
adjourned to permit further solicitations of proxies.
Forty percent (40%) of a 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 by that Target Fund at the Meeting. Under relevant state law and
FSS'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. Abstentions and broker non-votes, therefore, will be included for
purposes of determining whether a quorum is present but will have the same
effect as a vote against the Plan for a Target Fund.
HOW DO I ENSURE MY VOTE IS ACCURATELY RECORDED?
You can vote in any one of four ways:
o By mail, with the enclosed proxy card;
o In person at the Meeting;
o By telephone; or
o Through the Internet.
If your account is eligible for voting by telephone or through the Internet,
separate instructions are enclosed.
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 your Fund. If you simply
sign, date and return the proxy card but give no voting instructions, your
shares will be voted in favor of your Target Fund's Plan 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 in person 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 FSS expressly revoking your proxy, by signing and forwarding to FSS a
later-dated proxy card that is received at or prior to the Meeting, or by
attending the Meeting and voting in person. 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 FSS Board does not
intend to bring any matters before the
Meeting other than those described in this Prospectus/Proxy Statement. It is not
aware of any other matters to be brought before the Meeting by others. If any
other matter legally comes before the Meeting, proxies for which discretion has
been granted will be voted in accordance with the views of management.
WHO IS ENTITLED TO VOTE?
Shareholders of record of a 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 Fund as of the Record
Date:
- ----------------------------------------------------------------------
Technology Health Care CommunicationDynaTech Fund
Fund Fund Fund
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Class A
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Class B
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Class C
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Class R - - -
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Advisor Class - -
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
TOTAL
- ----------------------------------------------------------------------
HOW WILL PROXIES BE SOLICITED?
[__________________], a professional proxy solicitation firm (the
"Solicitor"), has been engaged to assist in the solicitation of proxies, at an
estimated cost of approximately $[______] to $[______]. FSS expects that the
solicitation will be primarily by mail. As the date of the Meeting approaches,
however, certain Target Fund shareholders 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 a Target Fund. Proxies that are
obtained telephonically will be recorded in accordance with the procedures set
forth below. FSS's Board believes that these procedures are 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. If the shareholder is a corporation or other entity, the Solicitor
representative is required to ask for the person's title and 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 the card. Within 72
hours, the shareholder will be sent a letter or mailgram 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 over the Internet, the shareholder may still submit
the proxy card originally sent with this Prospectus/Proxy Statement or attend in
person.
Each Target Fund will request broker-dealer firms, custodians, nominees, and
fiduciaries to forward proxy material to the beneficial owners of the shares of
record. FSS 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 FSS or its
affiliates, who will receive no extra compensation for their services, may
solicit proxies by telephone, telegram, or personally.
ARE THERE DISSENTERS' RIGHTS?
Shareholders of a Target Fund will not be entitled to any "dissenters'
rights" because each proposed Transaction involves two open-end investment
companies registered under the 1940 Act (commonly called mutual funds), and thus
you have the right to redeem your shares of a Target Fund at NAV until the
closing date. After the closing date, you may redeem your DynaTech Fund shares
or exchange them for shares of certain other funds in Franklin Templeton
Investments. Redemptions are subject to the terms and conditions in the
prospectus of the respective Fund.
PRINCIPAL HOLDERS OF SHARES
As of the Record Date, the officers and trustees of FSS, as a group, owned of
record and beneficially [less than 1%] of the outstanding voting shares of each
Target Fund. As of the Record Date, the officers and trustees of the Acquiring
Trust, as a group, owned of record and beneficially [less than 1%] of the
outstanding voting shares of DynaTech Fund.
From time to time, the number of Fund shares held in the "street name"
accounts of various securities dealers for the benefit of their clients or in
centralized securities depositories may exceed 5% of the total shares
outstanding. To the knowledge of the Funds, no other person owned (beneficially
or of record) 5% or more of the outstanding shares of any class of a Target Fund
or of DynaTech Fund as of the Record Date, except as listed in Exhibit C to this
Prospectus/Proxy Statement. Upon completion of the Transactions, it is not
expected that those persons disclosed in Exhibit C as owning 5% or more of a
Target Fund's outstanding Class A, Class B, or Class C shares will own in excess
of 5% of the then outstanding shares of such classes of DynaTech Fund. Because
DynaTech Fund has no outstanding Class R [or Advisor Class] shares, persons
owning 5% or more of Technology Fund's Class R [or Advisor Class] shares will,
upon completion of the Transactions, own the same percentage of the then
outstanding shares of such classes of DynaTech Fund. [It is not expected that
the percentage ownership of DynaTech Fund by those persons listed in Exhibit C
as owning shares of DynaTech Fund will materially change as a result of the
Transaction.]
SHAREHOLDER PROPOSALS
FSS is not required to hold, and does not intend to hold, regular annual
meetings of shareholders. A shareholder who wishes to submit a proposal for
consideration for inclusion in FSS's proxy statement for the next meeting of
shareholders should send a written proposal to FSS's offices at One Franklin
Parkway, San Mateo, California 94403-1906, Attention: Secretary, so that it is
received within a reasonable time in advance of such meeting in order to be
included in FSS's proxy statement 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 proxy rules, state law, and other governing
instruments.
Submission of a proposal by a shareholder does not guarantee that the
proposal will be included in FSS's proxy statement or presented at the meeting.
ADJOURNMENT
The holders of a majority of the shares present (in person or by proxy) and
entitled to vote with respect to a Target Fund at the Meeting, whether or not a
quorum is present, or the chairperson of the FSS Board, the president of FSS (in
the absence of the chairperson of the Board), or any vice president or other
authorized officer of FSS (in the absence of the president) may adjourn the
Meeting with respect to one or more Target Funds. Such authority to adjourn the
Meeting may be used for any reason whatsoever, including to allow time for the
further solicitation of proxies from shareholders of a Target Fund that had not
received proxies from a sufficient number of shareholders. Any adjournment will
not delay or otherwise affect the effectiveness and validity of any business
transacted at the Meeting prior adjournment. The persons designated as proxies
may use their discretionary authority to vote as instructed by management of FSS
on questions of adjournment.
By Order of the Board of
Trustees,
Karen L. Skidmore, SECRETARY
September [_ ], 2008
GLOSSARY
USEFUL TERMS AND DEFINITIONS
1940 ACT--The Investment Company Act of 1940, as amended.
ACQUIRING TRUST - Franklin Custodian Funds
AFFIRMATIVE MAJORITY VOTE-- the affirmative vote of the lesser of: (i) a
majority of the outstanding shares of a Target Fund, or (ii) 67% or more of the
outstanding shares of a Target Fund present at or represented by proxy at the
Meeting if the holders of more than 50% of the outstanding shares of a Target
Fund are present or represented by proxy.
CDSC - contingent deferred sales charge
DISTRIBUTORS--Franklin Templeton Distributors, Inc., One
Franklin Parkway, San Mateo, CA 94403-1906, the principal
underwriter for the Funds.
FAI--Franklin Advisers, Inc., the investment manager for the
Funds.
FRANKLIN TEMPLETON FUNDS--The U.S. registered mutual funds in Franklin
Templeton Investments, excluding Franklin Templeton Variable Insurance Products
Trust and Franklin Mutual Recovery Fund.
FRANKLIN TEMPLETON INVESTMENTS--Resources is a publicly owned global
investment management organization operating as Franklin Templeton Investments.
Franklin Templeton Investments provides global and domestic investment
management services through its Franklin, Templeton, Mutual Series and Fiduciary
Trust subsidiaries.
FSS - Franklin Strategic Series
FT SERVICES--Franklin Templeton Services, LLC, the administrator for the
Funds. FT Services is an indirect, wholly owned subsidiary of Resources and is
an affiliate to each Fund's investment manager and principal underwriter.
INDEPENDENT TRUSTEES - The Trustees who are not "interested persons" of a
Fund as such term is defined in the 1940 Act.
INVESTOR SERVICES--Franklin Templeton Investor Services, LLC, One Franklin
Parkway, San Mateo, CA, the shareholder servicing, transfer agent and
dividend-paying agent for the Funds.
MEETING - The Special Meeting of Shareholders of the Target Funds concerning
approval of the Plans.
NET ASSET VALUE (NAV)--The value of a mutual 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 between FSS, on behalf of a
Target Fund, and Franklin Custodian Funds on behalf of Franklin DynaTech Fund
RESOURCES--Franklin Resources, Inc., One Franklin Parkway, San
Mateo, CA 94403-1906.
SAI--Statement of Additional Information, a document that supplements
information found in a mutual fund's prospectus.
SEC--U.S. Securities and Exchange Commission.
SECURITIES DEALER--A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Funds. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
TARGET FUNDS - Franklin Technology Fund, Franklin Global Health
Care Fund, and Franklin Global Communications Fund
TRANSACTION - The proposed transaction contemplated for a Target Fund by the
Plan.
U.S.--United States.
EXHIBITS TO PROSPECTUS/PROXY STATEMENT
EXHIBIT
A Form of Agreement and Plan of Reorganization
B Prospectus of Franklin DynaTech Fund--Class A, Class B, Class C, Class R
and Advisor Class shares, dated February 1, 2008, as amended and
supplemented to date (enclosed)
C Principal Holders of Securities
A
A - 17
EXHIBIT A
FORM OF
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Plan"), is made as of this
__ day of _______, 2008, by and between Franklin Custodian Funds, a statutory
trust created under the laws of the State of Delaware ("Acquiring Trust"), with
its principal place of business at One Franklin Parkway, San Mateo, CA
94403-1906, on behalf of one of its series, Franklin DynaTech Fund ("Acquiring
Fund"), and Franklin Strategic Series, a statutory trust created under the laws
of the State of Delaware("Target Trust"), with its principal place of business
at One Franklin Parkway, San Mateo, CA 94403-1906, on behalf of its series,
Franklin [Technology] [Global Communications] [Global Health Care] Fund ("Target
Fund").
PLAN OF REORGANIZATION
The reorganization (hereinafter referred to as the "Plan of
Reorganization") will consist of the following: (i) the acquisition by Acquiring
Trust, on behalf of Acquiring Fund, of substantially all of the property, assets
and goodwill of Target Fund in exchange solely for full and fractional [Class A,
Class B, and Class C] [Class A, Class B, Class C, Class R, and Advisor Class]
common shares, with no par value, of Acquiring Fund ("Acquiring Fund Shares");
(ii) the distribution of Acquiring Fund Shares to the holders of [Class A, Class
B, and Class C] [Class A, Class B, Class C, Class R, and Advisor Class] shares
of Target Fund (the "Target Fund Shares"), respectively, according to their
respective interests in Target Fund in complete liquidation of Target Fund; and
(iii) the dissolution of Target Fund as soon as is practicable after the closing
(as defined in Section 3, hereinafter called the "Closing"), all upon and
subject to the terms and conditions of the Plan hereinafter set forth.
AGREEMENT
In order to consummate the Plan of Reorganization and in consideration of the
premises and of the covenants and agreements hereinafter set forth, and
intending to be legally bound, the parties hereto covenant and agree as follows:
1. SALE AND TRANSFER OF ASSETS, LIQUIDATION AND DISSOLUTION OF TARGET FUND.
(a) Subject to the terms and conditions of the Plan, and in reliance on the
representations and warranties of Acquiring Trust, on behalf of Acquiring Fund,
herein contained, and in consideration of the delivery by Acquiring Trust of the
number of Acquiring Fund Shares hereinafter provided, Target Trust on behalf of
Target Fund agrees that it will convey, transfer and deliver to Acquiring Trust,
for the benefit of Acquiring Fund, at the Closing all of Target Fund's then
existing assets, free and clear of all liens, encumbrances, and claims
whatsoever (other than shareholders' rights of redemption), except for cash,
bank deposits, or cash equivalent securities in an estimated amount necessary
to: (i) pay 25% of the costs and expenses of carrying out the Plan (including,
but not limited to, fees of counsel and accountants, and expenses of its
liquidation and dissolution contemplated hereunder), in accordance with Section
9 of the Plan, which costs and expenses shall be established on Target Fund's
books as liability reserves; (ii) discharge its unpaid liabilities on its books
at the closing date (as defined in Section 3, hereinafter called the "Closing
Date"), including, but not limited to, its income dividends and capital gains
distributions, if any, payable for the period prior to, and through, the Closing
Date; and (iii) pay such contingent liabilities as the Board of Trustees of
Target Trust shall reasonably deem to exist against Target Fund, if any, at the
Closing Date, for which contingent and other appropriate liability reserves
shall be established on Target Fund's books (hereinafter "Net Assets"). Neither
Acquiring Trust nor Acquiring Fund shall assume any liability of Target Fund or
Target Trust, and Target Fund shall use its reasonable best efforts to discharge
all of its known liabilities, so far as may be possible, from the cash, bank
deposits and cash equivalent securities described above.
(b) Subject to the terms and conditions of the Plan, and in reliance on the
representations and warranties of Target Trust, on behalf of Target Fund, herein
contained, and in consideration of such sale, conveyance, transfer, and
delivery, Acquiring Trust agrees at the Closing to deliver to Target Trust the
number of Acquiring Fund Shares, determined by dividing the net asset value per
share of each [Class A, Class B, and Class C] [Class A, Class B, Class C, Class
R, and Advisor Class] shares of Target Fund by the net asset value per share of
each of [Class A, Class B, and Class C] [Class A, Class B, Class C, Class R, and
Advisor Class] shares of Acquiring Fund, respectively, and separately
multiplying the result thereof by the number of outstanding [Class A, Class B,
and Class C] [Class A, Class B, Class C, Class R, and Advisor Class] shares of
Target Fund as of 1:00 p.m., Pacific Time, on the Closing Date. Acquiring Fund
Shares delivered to Target Trust at the Closing shall have an aggregate net
asset value equal to the value of Target Fund's Net Assets, all determined as
provided in Section 2 of the Plan and as of the date and time specified herein.
(c) Immediately following the Closing, Target Trust shall dissolve Target
Fund and distribute pro rata to Target Fund's shareholders of record, as of the
close of business on the Closing Date, Acquiring Fund Shares received by Target
Fund pursuant to this Section 1. Such dissolution and distribution shall be
accomplished by the establishment of accounts on the share records of Acquiring
Fund in the amounts due such shareholders based on their respective holdings as
of the close of business on the Closing Date. Fractional Acquiring Fund Shares
shall be carried to the third decimal place. As promptly as practicable after
the Closing, each holder of any outstanding certificate or certificates
representing shares of beneficial interest of Target Fund shall be entitled to
surrender the same to the transfer agent for Acquiring Fund in exchange for the
number of Acquiring Fund Shares into which Target Fund Shares theretofore
represented by the certificate or certificates so surrendered shall have been
converted. Certificates for Acquiring Fund Shares shall not be issued, unless
specifically requested by the shareholders. Until so surrendered, each
outstanding certificate which, prior to the Closing, represented shares of
beneficial interest of Target Fund shall be deemed for all Acquiring Fund
purposes to evidence ownership of the number of Acquiring Fund Shares into which
Target Fund Shares (which prior to the Closing were represented thereby) have
been converted.
(d) At the Closing, each shareholder of record of Target Fund as of the
record date (the "Distribution Record Date") with respect to any unpaid
dividends and other distributions that were declared prior to the Closing,
including any dividend or distribution declared pursuant to Section 8(e) hereof,
shall have the right to receive such unpaid dividends and distributions with
respect to the shares of Target Fund that such person had on the Distribution
Record Date.
(e) All books and records relating to Target Fund, including all books and
records required to be maintained under the Investment Company Act of 1940, as
amended (the "1940 Act"), and the rules and regulations thereunder, shall be
available to Acquiring Trust from and after the date of the Plan, and shall be
turned over to Acquiring Trust on or prior to the Closing.
2. VALUATION.
(a) The net asset value of Acquiring Fund Shares and Target Fund Shares and
the value of Target Fund's Net Assets to be acquired by Acquiring Fund hereunder
shall in each case be computed as of 1:00 p.m., Pacific Time, on the Closing
Date, unless on such date: (a) the New York Stock Exchange ("NYSE") is not open
for unrestricted trading; or (b) the reporting of trading on the NYSE or
elsewhere is disrupted; or (c) any other extraordinary financial event or market
condition occurs (all such events described in (a), (b) or (c) are each referred
to as a "Market Disruption"). The net asset value per share of Acquiring Fund
Shares and Target Fund Shares and the value of Target Fund's Net Assets shall be
computed in accordance with the valuation procedures set forth in the most
recent respective prospectuses of Acquiring Fund and Target Fund, or amendments
thereto.
(b) In the event of a Market Disruption on the proposed Closing Date, so
that an accurate appraisal of the net asset value of Acquiring Fund Shares or
Target Fund Shares or the value of Target Fund's Net Assets is impracticable,
the Closing Date shall be postponed until the first business day when regular
trading on the NYSE shall have been fully resumed and reporting shall have been
restored and other trading markets are otherwise stabilized.
3. CLOSING AND CLOSING DATE.
The Closing Date shall be ______ __, 2008 or such later date as the parties
may mutually agree. The Closing shall take place at the principal office of
Acquiring Trust at 2:00 p.m., Pacific Time, on the Closing Date. Target Trust on
behalf of Target Fund shall have provided for delivery as of the Closing of
those Net Assets of Target Fund to be transferred to the account of Acquiring
Fund's Custodian, Bank of New York, Mutual Funds Division, 100 Church Street,
New York, NY 10286. Also, Target Trust, on behalf of Target Fund, shall deliver
at the Closing a list of names and addresses of the shareholders of record of
Target Fund Shares as of the Distribution Record Date and the number of full and
fractional shares of beneficial interest owned by each such shareholder,
indicating thereon which such shares are represented by outstanding certificates
and which by book-entry accounts, all as of 1:00 p.m., Pacific Time, on the
Closing Date, certified by its transfer agent or by its President to the best of
its or his knowledge and belief. Acquiring Trust on behalf of Acquiring Fund
shall provide evidence satisfactory to Target Trust that such Acquiring Fund
Shares have been registered in an account on the books of Acquiring Fund in such
manner as the officers of Target Trust on behalf of Target Fund may reasonably
request.
4. REPRESENTATIONS AND WARRANTIES BY ACQUIRING TRUST ON BEHALF OF ACQUIRING
FUND.
Acquiring Trust, on behalf of Acquiring Fund, represents and warrants to
Target Trust that:
(a) Acquiring Fund is a series of Acquiring Trust, a statutory trust
organized originally as a Delaware corporation in September 1947, reincorporated
as a Maryland corporation in 1979, and converted into a Delaware statutory trust
effective February 1, 2008. Acquiring Trust is duly registered under the 1940
Act as an open-end, management investment company and all of Acquiring Fund
Shares sold were sold pursuant to an effective registration statement filed
under the Securities Act of 1933, as amended (the "1933 Act"), except for those
shares sold pursuant to the private offering exemption for the purpose of
raising initial capital.
(b) Acquiring Trust is authorized to issue an unlimited number shares of
beneficial interest, without par value, of Acquiring Fund, each outstanding
share of which is, and each share of which when issued pursuant to and in
accordance with the Plan will be, fully paid, non-assessable, and has or will
have full voting rights. Acquiring Trust currently issues shares of five (5)
series, including Acquiring Fund. Acquiring Fund issues five class of shares:
Class A, Class B, Class C, Class R, and Advisor Class shares. No shareholder of
Acquiring Trust shall have any preemptive or other right to subscribe for
Acquiring Fund Shares.
(c) The financial statements appearing in Acquiring Fund's Annual Report to
Shareholders for the fiscal year ended September 30, 2007, audited by
PricewaterhouseCoopers LLP, copies of which have been delivered to Target Trust,
and any interim unaudited financial statements, copies of which may be furnished
to Target Trust, fairly present the financial position of Acquiring Fund as of
their respective dates and the results of Acquiring Fund's operations for the
period indicated in conformity with Generally Accepted Accounting Principles
applied on a consistent basis.
(d) The books and records of Acquiring Fund accurately summarize the
accounting data represented and contain no material omissions with respect to
the business and operations of Acquiring Fund.
(e) Acquiring Trust, on behalf of Acquiring Fund, is not a party to or
obligated under any provision of its Agreement and Declaration of Trust or
By-laws, or any contract or any other commitment or obligation and is not
subject to any order or decree that would be violated by its execution of or
performance under the Plan, and no consent, approval, authorization or order of
any court or governmental authority is required for the consummation by
Acquiring Fund or Acquiring Trust of the transactions contemplated by the Plan,
except for the registration of Acquiring Fund Shares under the 1933 Act, the
1940 Act, or as may otherwise be required under the federal and state securities
laws or the rules and regulations thereunder.
(f) Acquiring Trust has elected to treat Acquiring Fund as a regulated
investment company ("RIC") for federal income tax purposes under Part I of
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
Acquiring Fund is a "fund" as defined in Section 851(g)(2) of the Code, has
qualified as a RIC for each taxable year since its inception, and intends to
continue to qualify as a RIC as of the Closing Date, and consummation of the
transactions contemplated by the Plan will not cause it to fail to be qualified
as a RIC as of the Closing Date.
(g) Acquiring Fund is not under jurisdiction of a Court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
(h) Acquiring Fund does not have any unamortized or unpaid organizational
fees or expenses.
(i) Acquiring Fund does not have any known liabilities, costs or expenses of
a material amount, contingent or otherwise, other than those incurred in the
ordinary course of business as an investment company.
(j) There is no intercorporate indebtedness existing between Target Fund and
Acquiring Fund that was issued, acquired, or will be settled at a discount.
(k) Acquiring Fund does not own, directly or indirectly, nor has it owned
during the past five (5) years, directly or indirectly, any shares of Target
Fund.
(l) Acquiring Trust has no plan or intention to issue additional shares of
Acquiring Fund following the Plan of Reorganization except for shares issued in
the ordinary course of Acquiring Fund's business as a series of an open-end
investment company; nor does Acquiring Trust have any plan or intention to
redeem or otherwise reacquire any shares of Acquiring Fund issued pursuant to
the Plan of Reorganization, either directly or through any transaction,
agreement, or arrangement with any other person, other than in the ordinary
course of its business or to the extent necessary to comply with its legal
obligation under Section 22(e) of the 1940 Act.
(m) Acquiring Fund is in the same line of business as Target Fund before the
Plan of Reorganization and did not enter into such line of business as part of
the Plan of Reorganization. Acquiring Fund will actively continue Target Fund's
business in substantially the same manner that Target Fund conducted that
business immediately before the Plan of Reorganization and has no plan or
intention to change such business. On the Closing Date, Acquiring Fund expects
that at least 33 1/3% of Target Fund's portfolio assets will meet the investment
objectives, strategies, policies, risks and restrictions of Acquiring Fund.
Acquiring Fund has no plan or intention to change any of its investment
objectives, strategies, policies, risks and restrictions after the Plan of
Reorganization. Acquiring Fund has no plan or intention to sell or otherwise
dispose of any of the former assets of Target Fund, except for dispositions made
in the ordinary course of its business or dispositions necessary to maintain its
qualification as a RIC, although in the ordinary course of its business,
Acquiring Fund will continuously review its investment portfolio (as Target Fund
did before the Closing) to determine whether to retain or dispose of particular
stocks or securities, including those included among the former assets of Target
Fund.
(n) The registration statement on Form N-14 referred to in Section 7(g)
hereof (the "Registration Statement"), and any prospectus or statement of
additional information of Acquiring Fund contained or incorporated therein by
reference, and any supplement or amendment to the Registration Statement or any
such prospectus or statement of additional information, on the effective and
clearance dates of the Registration Statement, on the date of the Special
Meeting of Target Fund shareholders, and on the Closing Date: (i) shall comply
in all material respects with the provisions of the 1933 Act, the Securities
Exchange Act of 1934, as amended (the "1934 Act"), the 1940 Act, the rules and
regulations thereunder, and all applicable state securities laws and the rules
and regulations thereunder; and (ii) shall not contain 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 the statements were made, not misleading.
5. REPRESENTATIONS AND WARRANTIES BY TARGET TRUST ON BEHALF OF TARGET FUND.
Target Trust, on behalf of Target Fund, represents and warrants to Acquiring
Trust that:
(a) Target Fund is series of Target Trust, a statutory trust originally
organized under the laws of Delaware on January 25, 1991. Target Trust is duly
registered under the 1940 Act as an open-end, management investment company and
all of Target Fund Shares sold were sold pursuant to an effective registration
statement filed under the 1933 Act, except for those shares sold pursuant to the
private offering exemption for the purpose of raising the required initial
capital.
(b) Target Trust is authorized to issue an unlimited number of shares of
beneficial interest, without par value, of Target Fund, each outstanding share
of which is fully paid, non-assessable, and has full voting rights. Target Trust
issues shares of eleven (11) series, including Target Fund. Target Fund has
[three][five] classes of shares [(Class A, Class B, and Class C)] [(Class A,
Class B, Class C, Class R, and Advisor Class)] and an unlimited number of shares
of beneficial interest of Target Trust have been allocated and designated to
each share class of Target Fund. No shareholder of Target Trust has or will have
any option, warrant, or preemptive rights of subscription or purchase with
respect to Target Fund Shares.
(c) The financial statements appearing in Target Fund's Annual Report to
Shareholders for the fiscal year ended April 30, 2008, audited by
PricewaterhouseCoopers LLP, copies of which have been delivered to Acquiring
Trust, and any interim financial statements for Target Fund that may be
furnished to Acquiring Trust, fairly present the financial position of Target
Fund as of their respective dates and the results of Target Fund's operations
for the period indicated in conformity with generally accepted accounting
principles applied on a consistent basis.
(d) Target Trust, on behalf of Target Fund, is not a party to or obligated
under any provision of its Agreement and Declaration of Trust or Bylaws, as
amended, or any contract or any other commitment or obligation, and is not
subject to any order or decree, that would be violated by its execution of or
performance under the Plan. Target Fund has no material contracts or other
commitments (other than the Plan or agreements for the purchase of securities
entered into in the ordinary course of business and consistent with its
obligations under the Plan) which will not be terminated by Target Fund in
accordance with their terms at or prior to the Closing Date, or which will
result in a penalty or additional fee to be due or payable by Target Fund.
(e) Target Trust has elected to treat Target Fund as a RIC for federal
income tax purposes under Part I of Subchapter M of the Code. Target Fund is a
"fund" as defined in Section 851(g)(2) of the Code, has qualified as a RIC for
each taxable year since its inception, and will qualify as a RIC as of the
Closing Date, and consummation of the transactions contemplated by the Plan will
not cause it to fail to be qualified as a RIC as of the Closing Date.
(f) Target Fund is not under jurisdiction of a Court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
(g) Target Fund does not have any unamortized or unpaid organization fees or
expenses.
(h) Target Fund does not have any known liabilities, costs or expenses of a
material amount, contingent or otherwise, other than those reflected in the
financial statements referred to in Section 5(c) hereof and those incurred in
the ordinary course of business as an investment company and of a nature and
amount similar to, and consistent with, those shown in such financial statements
since the dates of those financial statements.
(i) Since April 30, 2008, there has not been any material adverse change in
Target Fund's financial condition, assets, liabilities, or business other than
changes occurring in the ordinary course of its business.
(j) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by Target Fund or Target
Trust of the transactions contemplated by the Plan, except the necessary Target
Fund shareholder approval, or as may otherwise be required under the federal or
state securities laws or the rules and regulations thereunder.
(k) There is no intercorporate indebtedness existing between Target Fund and
Acquiring Fund that was issued, acquired, or will be settled at a discount.
(l) During the five-year period ending on the Closing Date, (i) Target Fund
has not acquired, and will not acquire, Target Fund Shares with consideration
other than Acquiring Fund Shares or Target Fund Shares, except for redemptions
in the ordinary course of Target Fund's business or to the extent necessary to
comply with its legal obligation under Section 22(e) of the 1940 Act, and (ii)
no distributions have been made with respect to Target Fund Shares (other than
regular, normal dividend distributions made pursuant to Target Fund's historic
dividend paying practice), either directly or through any transaction,
agreement, or arrangement with any other person, except for distributions
described in Sections 852 and 4982 of the Code.
(m) As of the Closing Date, Target Fund will not have outstanding any
warrants, options, convertible securities, or any other type of rights pursuant
to which any person could acquire shares of Target Fund, except for the right of
investors to acquire its shares at the applicable stated offering price in the
normal course of its business as an open-end management investment company
operating under the 1940 Act.
(n) Throughout the five year period ending on the Closing Date, Target Fund
will have conducted its historic business within the meaning of Section
1.368-1(d) of the Income Tax Regulations under the Code. Target Fund did not
enter into (or expand) a line of business as part of the Plan of Reorganization.
Target Fund will not alter its investment portfolio in connection with the Plan
of Reorganization.
6. REPRESENTATIONS AND WARRANTIES BY TARGET TRUST AND ACQUIRING
TRUST.
Target Trust, on behalf of Target Fund, and Acquiring Trust, on behalf of
Acquiring Fund, each represents and warrants to the other that:
(a) The statement of assets and liabilities to be furnished by it as of 1:00
p.m., Pacific Time, on the Closing Date for the purpose of determining the
number of Acquiring Fund Shares to be issued pursuant to Section 1 of the Plan,
will accurately reflect Target Fund's Net Assets and outstanding shares, as of
such date, in conformity with generally accepted accounting principles applied
on a consistent basis.
(b) At the Closing, it will have good and marketable title to all of the
securities and other assets shown on the statement of assets and liabilities
referred to in (a) above, free and clear of all liens or encumbrances of any
nature whatsoever, except such imperfections of title or encumbrances as do not
materially detract from the value or use of the assets subject thereto, or
materially affect title thereto.
(c) Except as disclosed in its currently effective prospectus relating to
Target Fund, in the case of Target Trust, and Acquiring Fund, in the case of
Acquiring Trust, there is no material suit, judicial action, or legal or
administrative proceeding pending or threatened against it. Neither Acquiring
Trust nor Target Trust is a party to or subject to the provisions of any order,
decree or judgment of any court or governmental body which materially and
adversely affects Acquiring Fund's or Target Fund's business or their ability to
consummate the transactions herein contemplated.
(d) There are no known actual or proposed deficiency assessments with
respect to any taxes payable by it.
(e) The execution, delivery, and performance of the Plan have been duly
authorized by all necessary action of its Board of Trustees and the Plan,
subject to the approval of Target Fund's shareholders in the case of Target
Trust, constitutes a valid and binding obligation enforceable in accordance with
its terms, subject as to enforcement to bankruptcy, insolvency, reorganization
arrangement, moratorium, and other similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
(f) It anticipates that consummation of the Plan will not cause either
Target Fund, in the case of Target Trust, or Acquiring Fund, in the case of
Acquiring Trust, to fail to conform to the requirements of Subchapter M of the
Code for federal income taxation qualification as a RIC at the end their
respective fiscal years.
7. COVENANTS OF TARGET TRUST AND ACQUIRING TRUST.
(a) Target Trust, on behalf of Target Fund, and Acquiring Trust, on behalf
of Acquiring Fund, each covenants to operate its respective business as
presently conducted between the date hereof and the Closing, it being understood
that such ordinary course of business will include the distribution of customary
dividends and distributions and any other distribution necessary or desirable to
minimize federal income or excise taxes.
(b) Target Trust, on behalf of Target Fund, undertakes that it will not
acquire Acquiring Fund Shares for the purpose of making distributions thereof to
anyone other than Target Fund's shareholders.
(c) Target Trust, on behalf of Target Fund, undertakes that, if the Plan is
consummated, it will liquidate and dissolve Target Fund.
(d) Target Trust, on behalf of Target Fund, and Acquiring Trust, on behalf
of Acquiring Fund, each agree that, by the Closing, all of their federal and
other tax returns and reports required by law to be filed on or before such date
shall have been filed, and all federal and other taxes shown as due on said
returns shall have either been paid or adequate liability reserves shall have
been provided for the payment of such taxes, and to the best of their knowledge
no such tax return is currently under audit and no tax deficiency or liability
has been asserted with respect to such tax returns or reports by the Internal
Revenue Service or any state or local tax authority.
(e) At the Closing, Target Trust, on behalf of Target Fund, will provide
Acquiring Fund with a copy of the shareholder ledger accounts, certified by
Target Fund's transfer agent or its President to the best of its or his
knowledge and belief, for all the shareholders of record of Target Fund Shares
as of 1:00 p.m., Pacific Time, on the Closing Date who are to become
shareholders of Acquiring Fund as a result of the transfer of assets that is the
subject of the Plan.
(f) The Board of Target Trust shall call and Target Trust shall hold, a
Special Meeting of Target Fund's shareholders to consider and vote upon the Plan
(the "Special Meeting") and Target Trust shall take all other actions reasonably
necessary to obtain approval of the transactions contemplated herein. Target
Trust agrees to mail to each shareholder of record of Target Fund entitled to
vote at the Special Meeting at which action on the Plan is to be considered, in
sufficient time to comply with requirements as to notice thereof, a combined
Prospectus/Proxy Statement that complies in all material respects with the
applicable provisions of the 1933 Act, Section 14(a) of the 1934 Act and Section
20(a) of the 1940 Act, and the rules and regulations thereunder.
(g) Acquiring Trust [has filed/will file] the Registration Statement with
the SEC and will use its best efforts to provide that the Registration Statement
becomes effective as promptly as is practicable. At the time it becomes
effective, the Registration Statement will: (i) comply in all material respects
with the applicable provisions of the 1933 Act and the rules and regulations
promulgated thereunder; and (ii) not contain any untrue statement of material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading. At the time the Registration
Statement becomes effective, at the time of the Special Meeting, and at the
Closing Date, the prospectus and statement of additional information included in
the Registration Statement will not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
(h) Subject to the provisions of the Plan, Acquiring Trust and Target Trust
each shall take, or cause to be taken, all action, and do or cause to be done,
all things reasonably necessary, proper or advisable to consummate the
transactions contemplated by the Plan.
(i) Target Trust shall deliver to Acquiring Trust at the Closing Date
confirmation or other adequate evidence as to the tax costs and holding periods
of the assets and property of Target Fund transferred to Acquiring Trust in
accordance with the terms of the Plan.
8. CONDITIONS PRECEDENT TO BE FULFILLED BY TARGET TRUST AND ACQUIRING TRUST.
The consummation of the Plan hereunder shall be subject to the following
respective conditions:
(a) That: (i) all the representations and warranties of the other party
contained herein shall be true and correct as of the Closing with the same
effect as though made as of and at such date; (ii) the other party shall have
performed all obligations required by the Plan to be performed by it prior to
the Closing; and (iii) the other party shall have delivered to such party a
certificate signed by the President and by the Secretary or equivalent officer
to the foregoing effect.
(b) That each party shall have delivered to the other party a copy of the
resolutions approving the Plan adopted and approved by the appropriate action of
the Board of Trustees certified by its Secretary or equivalent officer of each
of the Funds.
(c) That the SEC shall have declared effective the Registration Statement
and not have issued an unfavorable management report under Section 25(b) of the
1940 Act or instituted or threatened to institute any proceeding seeking to
enjoin consummation of the Plan under Section 25(c) of the 1940 Act. And,
further, no other legal, administrative or other proceeding shall have been
instituted or threatened that would materially affect the financial condition of
either party or would prohibit the transactions contemplated hereby.
(d) That the Plan and the Plan of Reorganization contemplated hereby shall
have been adopted and approved by the appropriate action of the shareholders of
Target Fund at a meeting or any adjournment thereof.
(e) That a distribution or distributions shall have been declared for Target
Fund prior to the Closing Date that, together with all previous distributions,
shall have the effect of distributing to its shareholders: (i) all of its
ordinary income and all of its capital gain net income, if any, for the period
from the close of its last fiscal year to 1:00 p.m. Pacific Time on the Closing
Date; and (ii) any undistributed ordinary income and capital gain net income
from any prior period to the extent not otherwise declared for distribution.
Capital gain net income has the meaning given such term by Section 1222(9) of
the Code.
(f) That all required consents of other parties and all other consents,
orders, and permits of federal, state and local authorities (including those of
the SEC and of state Blue Sky securities authorities, including any necessary
"no-action" positions or exemptive orders from such federal and state
authorities) to permit consummation of the transaction contemplated hereby shall
have been obtained, except where failure to obtain any such consent, order, or
permit would not involve a risk of material adverse effect on the assets and
properties of Target Fund or Acquiring Fund.
(g) That there shall be delivered to Target Trust, on behalf of Target Fund,
and Acquiring Trust, on behalf of Acquiring Fund, an opinion in form and
substance satisfactory to them from the law firm of Stradley Ronon Stevens &
Young, LLP, counsel to Acquiring Trust and Target Trust, to the effect that,
provided the transaction contemplated hereby is carried out in accordance with
the Plan, the laws of the State of Delaware, and based upon certificates of the
officers of Target Trust and Acquiring Trust with regard to matters of fact:
(1) The acquisition by Acquiring Fund of substantially all the assets of
Target Fund, as provided for herein, in exchange for Acquiring Fund Shares
followed by the distribution by Target Fund to its shareholders of Acquiring
Fund Shares in complete liquidation of Target Fund will qualify as a
reorganization within the meaning of Section 368(a)(1) of the Code, and
Target Fund and Acquiring Fund will each be a "party to the reorganization"
within the meaning of Section 368(b) of the Code;
(2) No gain or loss will be recognized by Target Fund upon the transfer
of substantially all of its assets to Acquiring Fund in exchange solely for
voting shares of Acquiring Fund (Sections 361(a) and 357(a) of the Code);
(3) Acquiring Fund will recognize no gain or loss upon the receipt of
substantially all of the assets of Target Fund in exchange solely for voting
shares of Acquiring Fund (Section 1032(a) of the Code);
(4) No gain or loss will be recognized by Target Fund upon the
distribution of Acquiring Fund Shares to its shareholders in liquidation of
Target Fund, in pursuance of the Plan (Section 361(c)(1) of the Code);
(5) The basis of the assets of Target Fund received by Acquiring Fund
will be the same as the basis of such assets to Target Fund immediately
prior to the Plan of Reorganization (Section 362(b) of the Code);
(6) The holding period of the assets of Target Fund received by Acquiring
Fund will include the period during which such assets were held by Target
Fund (Section 1223(2) of the Code);
(7) No gain or loss will be recognized by the shareholders of Target Fund
upon the exchange of their shares in Target Fund for voting shares of
Acquiring Fund including fractional shares to which they may be entitled
(Section 354(a) of the Code);
(8) The basis of Acquiring Fund Shares received by the shareholders of
Target Fund shall be the same as the basis of Target Fund Shares exchanged
therefor (Section 358(a)(1) of the Code);
(9) The holding period of Acquiring Fund Shares received by shareholders
of Target Fund (including fractional shares to which they may be entitled)
will include the holding period of Target Fund Shares surrendered in
exchange therefor, provided that Target Fund Shares were held as a capital
asset on the effective date of the exchange (Section 1223(1) of the Code);
and
(10) Acquiring Fund will succeed to and take into account as of the date
of the transfer (as defined in Section 1.381(b)-1(b) of the regulations
issued by the United States Treasury ("Treasury Regulations")) the items of
Target Fund described in Section 381(c) of the Code, subject to the
conditions and limitations specified in Sections 381, 382, 383 and 384 of
the Code and the Treasury Regulations.
(h) That there shall be delivered to Acquiring Trust, on behalf of Acquiring
Fund, an opinion in form and substance satisfactory to it from Stradley Ronon
Stevens & Young, LLP, counsel to Target Trust, on behalf of Target Fund, to the
effect that, subject in all respects to the effects of bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, and other laws now or
hereafter affecting generally the enforcement of creditors' rights:
(1) Target Fund is a series of Target Trust and that Target Trust is a
validly existing statutory trust in good standing under the laws of the
State of Delaware;
(2) Target Trust is an open-end investment company of the management type
registered as such under the 1940 Act;
(3) The execution and delivery of the Plan and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
trust action on the part of Target Trust on behalf of Target Fund; and
(4) The Plan is the legal, valid and binding obligation of Target Trust,
on behalf of Target Fund, and is enforceable against Target Trust, on behalf
of Target Fund, in accordance with its terms.
In giving the opinions set forth above, this counsel may state that it is
relying on certificates of the officers of Target Trust with regard to matters
of fact, and certain certifications and written statements of governmental
officials with respect to the good standing of Target Trust.
(i) That there shall be delivered to Target Trust, on behalf of Target Fund,
an opinion in form and substance satisfactory to it from the law firm of
Stradley Ronon Stevens & Young, LLP, counsel to Acquiring Trust, on behalf of
Acquiring Fund, to the effect that, subject in all respects to the effects of
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and
other laws now or hereafter affecting generally the enforcement of creditors'
rights:
(1) Acquiring Fund is a series of Acquiring Trust and Acquiring Trust is
a validly existing statutory trust in good standing under the laws of the
State of Delaware;
(2) Acquiring Trust is authorized to issue an unlimited number of shares
of beneficial interest, without par value, of Acquiring Fund;
(3) Acquiring Trust is an open-end investment company of the management
type registered as such under the 1940 Act;
(4) Acquiring Fund Shares to be issued pursuant to the terms of the Plan
have been duly authorized and, when issued and delivered as provided in the
Plan and the Registration Statement, will have been validly issued and fully
paid and will be non-assessable by Acquiring Trust, on behalf of Acquiring
Fund;
(5) The execution and delivery of the Plan and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Acquiring Trust, on behalf of Acquiring
Fund;
(6) The Plan is the legal, valid and binding obligation of Acquiring
Trust, on behalf of Acquiring Fund, and is enforceable against Acquiring
Trust, on behalf of Acquiring Fund, in accordance with its terms; and
(7) The registration statement of Acquiring Trust, of which the
prospectus dated November 1, 2007 of Acquiring Fund is a part (the
"Prospectus"), is, at the time of the signing of the Plan, effective under
the 1933 Act, and, to the best knowledge of such counsel, no stop order
suspending the effectiveness of such registration statement has been issued,
and no proceedings for such purpose have been instituted or are pending
before or threatened by the SEC under the 1933 Act.
In giving the opinions set forth above, this counsel may state that it is
relying on certificates of the officers of Acquiring Trust with regard to
matters of fact, and certain certifications and written statements of
governmental officials with respect to the good standing of Acquiring Trust, and
an opinion of local Delaware counsel as to matters of Delaware law.
(j) That Acquiring Trust's prospectus contained in the Registration
Statement with respect to Acquiring Fund Shares to be delivered to Target Fund's
shareholders in accordance with the Plan shall have become effective, and no
stop order suspending the effectiveness of the Registration Statement or any
amendment or supplement thereto shall have been issued prior to the Closing Date
or shall be in effect at Closing, and no proceedings for the issuance of such an
order shall be pending or threatened on that date.
(k) That Acquiring Fund Shares to be delivered hereunder shall be eligible
for sale with each state commission or agency with which such eligibility is
required in order to permit Acquiring Fund Shares lawfully to be delivered to
each holder of Target Fund Shares.
(l) That, at the Closing, there shall be transferred to Acquiring Trust, on
behalf of Acquiring Fund, aggregate Net Assets of Target Fund comprising at
least 90% in fair market value of the total net assets and 70% of the fair
market value of the total gross assets recorded on the books of Target Fund on
the Closing Date.
(m) That there be delivered to Acquiring Trust, on behalf of Acquiring Fund,
information concerning the tax basis of Target Fund in all securities
transferred to Acquiring Fund, together with shareholder information including:
the names, addresses, and taxpayer identification numbers of the shareholders of
Target Fund as of the Closing Date; the number of shares held by each
shareholder; the dividend reinvestment elections applicable to each shareholder;
and the backup withholding and nonresident alien withholding certifications,
notices or records on file with Target Fund with respect to each shareholder.
9. EXPENSES.
The expenses of entering into and carrying out the provisions of the Plan
shall be borne as follows: each of Target Trust, on behalf of Target Fund, and
Acquiring Trust, on behalf of Acquiring Fund, will pay 25% of the costs of the
Plan of Reorganization, and Franklin Advisers, Inc., the investment manager for
both Acquiring Fund and Target Fund, will pay 50% of the costs of the Plan of
Reorganization.
10. TERMINATION; POSTPONEMENT; WAIVER; ORDER.
(a) Anything contained in the Plan to the contrary notwithstanding, the Plan
may be terminated and the Plan of Reorganization abandoned at any time (whether
before or after approval thereof by shareholders of Target Fund) prior to the
Closing, or the Closing may be postponed as follows:
(1) by mutual consent of Target Trust, on behalf of Target Fund, and
Acquiring Trust, on behalf of Acquiring Fund;
(2) by Acquiring Trust, on behalf of Acquiring Fund, if any condition of
its obligations set forth in Section 8 has not been fulfilled or waived and
it reasonably appears that such condition or obligation will not or cannot
be met; or
(3) by Target Trust, on behalf of Target Fund, if any conditions of its
obligations set forth in Section 8 has not been fulfilled or waived and it
reasonably appears that such condition or obligation will not or cannot be
met.
(b) If the transactions contemplated by the Plan have not been consummated
by ____, 2009, the Plan shall automatically terminate on that date, unless a
later date is agreed to by both Acquiring Trust and Target Trust.
(c) In the event of termination of the Plan prior to its consummation,
pursuant to the provisions hereof, the Plan shall become void and have no
further effect, and neither Target Trust, Acquiring Trust, Target Fund nor
Acquiring Fund, nor their trustees, trustees, officers, or agents or the
shareholders of Target Fund or Acquiring Fund shall have any liability in
respect of the Plan, but all expenses incidental to the preparation and carrying
out of the Plan shall be paid as provided in Section 9 hereof.
(d) At any time prior to the Closing, any of the terms or conditions of the
Plan may be waived by the party who is entitled to the benefit thereof if, in
the judgment of such party, such action or waiver will not have a material
adverse effect on the benefits intended under the Plan to its shareholders, on
behalf of whom such action is taken.
(e) The respective representations and warranties contained in Sections 4 to
6 hereof shall expire with and be terminated by the Plan on the Closing Date,
and neither Target Trust nor Acquiring Trust, nor any of their officers,
trustees, trustees, agents or shareholders shall have any liability with respect
to such representations or warranties after the Closing Date.
(f) If any order or orders of the SEC with respect to the Plan shall be
issued prior to the Closing and shall impose any terms or conditions that are
determined by action of the Board of Trustees of Target Trust, on behalf of
Target Fund, or the Board of Trustees of Acquiring Trust, on behalf of Acquiring
Fund, to be acceptable, such terms and conditions shall be binding as if a part
of the Plan without a vote or approval of the shareholders of Target Fund,
unless such terms and conditions shall result in a change in the method of
computing the number of Acquiring Fund Shares to be issued to Target Fund in
which event, unless such terms and conditions shall have been included in the
proxy solicitation material furnished to the shareholders of Target Fund prior
to the meeting at which the transactions contemplated by the Plan shall have
been approved, the Plan shall not be consummated and shall terminate unless
Target Trust shall promptly call a special meeting of the shareholders of Target
Fund at which such conditions so imposed shall be submitted for approval.
11. LIABILITY OF ACQUIRING TRUST AND TARGET TRUST.
(a) Each party acknowledges and agrees that all obligations of Acquiring
Trust under the Plan are binding only with respect to Acquiring Fund; that any
liability of Acquiring Trust under the Plan with respect to Acquiring Trust, or
in connection with the transactions contemplated herein with respect to
Acquiring Fund, shall be discharged only out of the assets of Acquiring Fund;
that no other series of Acquiring Trust shall be liable with respect to the Plan
or in connection with the transactions contemplated herein; and that neither
Target Trust nor Target Fund shall seek satisfaction of any such obligation or
liability from the shareholders of Acquiring Trust, the trustees, officers,
employees or agents of Acquiring Trust, or any of them.
(b) Each party acknowledges and agrees that all obligations of Target Trust
under the Plan are binding only with respect to Target Fund; that any liability
of Target Trust under the Plan with respect to Target Fund, or in connection
with the transactions contemplated herein with respect to Target Fund, shall be
discharged only out of the assets of Target Fund; that no other series of Target
Trust shall be liable with respect to the Plan or in connection with the
transactions contemplated herein; and that neither Acquiring Trust nor Acquiring
Fund shall seek satisfaction of any such obligation or liability from the
shareholders of Target Trust, the trustees, officers, employees or agents of
Target Trust, or any of them.
12. ENTIRE AGREEMENT AND AMENDMENTS.
The Plan embodies the entire agreement between the parties and there are no
agreements, understandings, restrictions, or warranties relating to the
transactions contemplated by the Plan other than those set forth herein or
herein provided for. The Plan may be amended only by mutual consent of the
parties in writing. Neither the Plan nor any interest herein may be assigned
without the prior written consent of the other party.
13. COUNTERPARTS.
The Plan may be executed in any number of counterparts, each of which shall
be deemed to be an original, but all such counterparts together shall constitute
but one instrument.
14. NOTICES.
Any notice, report, or demand required or permitted by any provision of the Plan
shall be in writing and shall be deemed to have been given if delivered or
mailed, first class postage prepaid, addressed to Franklin DynaTech Fund, at
Franklin Custodian Funds, One Franklin Parkway, San Mateo, CA 94403-1906,
Attention: Secretary, or Franklin [Technology] [Global Communications] [Global
Health Care] Fund, at Franklin Strategic Series, One Franklin Parkway, San
Mateo, CA 94403-1906, Attention: Secretary, as the case may be.
15. GOVERNING LAW.
The Plan shall be governed by and carried out in accordance with the laws of
the State of Delaware.
IN WITNESS WHEREOF, Target Trust, on behalf of Target Fund, and Acquiring
Trust, on behalf of Acquiring Fund, have each caused the Plan to be executed on
its behalf by its duly authorized officers, all as of the date and year
first-above written.
FRANKLIN CUSTODIAN FUNDS on behalf
of FRANKLIN DYNATECH FUND
By:
-------------------------------
(Name) (Title)
FRANKLIN STRATEGIC SERIES, on
behalf of FRANKLIN [TECHNOLOGY]
[GLOBAL COMMUNICATIONS] [GLOBAL
HEALTH CARE] FUND
By:
-------------------------------
(Name) (Title)
EXHIBIT B - PROSPECTUS (enclosed)
EXHIBIT C - PRINCIPAL HOLDERS OF SECURITIES
NAME AND PERCENTAGE
ADDRESS CLASS (%)
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TECHNOLOGY FUND:
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HEALTH CARE FUND:
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COMMUNICATIONS
FUND:
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DYNATECH FUND:
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EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR
PROXY TODAY
PROXY PROXY
SPECIAL MEETING OF SHAREHOLDERS
FRANKLIN TECHNOLOGY FUND
NOVEMBER 12, 2008
The undersigned hereby revokes all previous proxies for his/her shares and
appoints Craig S. Tyle, David P. Goss and Karen L. Skidmore, and each of them,
proxies of the undersigned with full power of substitution to vote all shares of
Franklin Technology Fund (the "Technology Fund") that the undersigned is
entitled to vote at the Technology Fund's Meeting of Shareholders to be held at
One Franklin Parkway, San Mateo, California 94403-1906, on November 12, 2008 at
2:00 p.m., Pacific Time, including any adjournments thereof, upon such business
as may properly be brought before the Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF FRANKLIN STRATEGIC
SERIES ("TRUST") ON BEHALF OF THE TECHNOLOGY FUND. It will be voted as
specified. If no specification is made, this proxy shall be voted FOR the
Proposal regarding the reorganization of the Technology Fund pursuant to the
Agreement and Plan of Reorganization between the Trust, on behalf of Technology
Fund, and Franklin Custodian Funds, on behalf of Franklin DynaTech Fund. If any
other matters properly come before the Meeting to be voted on, the proxy holders
will vote, act and consent on those matters in accordance with the views of
management.
IMPORTANT: PLEASE SEND IN YOUR PROXY TODAY.
YOU ARE URGED TO DATE AND SIGN THIS PROXY AND RETURN IT
PROMPTLY. THIS WILL SAVE THE EXPENSE OF FOLLOW-UP LETTERS TO
SHAREHOLDERS WHO HAVE NOT RESPONDED.
VOTE VIA THE INTERNET:
WWW.FRANKLINTEMPLETON.COM
VOTE VIA THE TELEPHONE:[ ]
CONTROL NUMBER:
Note: Please sign exactly as your name
appears on the proxy. If signing for
estates, trusts or corporations, your title
or capacity should be stated. If shares are
held jointly, each holder must sign.
-----------------------------------
Signature
-----------------------------------
Signature (if held
jointly)
-----------------------------------
Date
(Please see reverse side)
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR
PROXY TODAY
PLEASE DETACH AT PERFORATION BEFORE MAILING.
- --------------------------------------------------------------------------------
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE
PROPOSAL.
Please mark votes as in this example: [X]
FOR AGAINST ABSTAIN
1. To approve an Agreement and Plan of
Reorganization between Franklin Strategic [] [] []
Series, on behalf of Franklin Technology
Fund, and Franklin Custodian Funds, on
behalf of Franklin DynaTech Fund
("DynaTech Fund"), that provides for (i)
the acquisition of substantially all of
the assets of the Technology Fund by
DynaTech Fund in exchange solely for
shares of DynaTech Fund, (ii) the
distribution of such shares to
the shareholders of Technology
Fund, and (iii) the complete liquidation
and dissolution of Technology Fund.
Shareholders of Technology Fund will
receive Class A, Class B, Class C,
Class R or Advisor Class shares of DynaTech
Fund, as the case may be, with
an aggregate net asset value equal to
the aggregate net asset value of such
shareholders' shares in Class A, Class B,
Class C, Class R or Advisor Class
shares of the Technology Fund.
IMPORTANT: PLEASE SEND IN YOUR PROXY TODAY.
PLEASE SIGN AND PROMPTLY RETURN IN THE ACCOMPANYING
ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE U.S.
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR
PROXY TODAY
PROXY PROXY
SPECIAL MEETING OF SHAREHOLDERS
FRANKLIN GLOBAL COMMUNICATIONS FUND
NOVEMBER 12, 2008
The undersigned hereby revokes all previous proxies for his/her shares and
appoints Craig S. Tyle, David P. Goss and Karen L. Skidmore, and each of them,
proxies of the undersigned with full power of substitution to vote all shares of
Franklin Global Communications Fund (the "Global Communications Fund") that the
undersigned is entitled to vote at the Global Communications Fund's Meeting to
be held at One Franklin Parkway, San Mateo, California 94403-1906, on November
12, 2008 at 2:00 p.m., Pacific Time, including any adjournments thereof, upon
such business as may properly be brought before the Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF FRANKLIN STRATEGIC
SERIES ("TRUST") ON BEHALF OF THE GLOBAL COMMUNICATIONS FUND. It will be voted
as specified. If no specification is made, this proxy shall be voted FOR the
Proposal regarding the reorganization of the Global Communications Fund pursuant
to the Agreement and Plan of Reorganization between the Trust, on behalf of the
Global Communications Fund, and Franklin Custodian Funds, on behalf of Franklin
DynaTech Fund. If any other matters properly come before the Meeting to be voted
on, the proxy holders will vote, act and consent on those matters in accordance
with the views of management.
IMPORTANT: PLEASE SEND IN YOUR PROXY TODAY.
YOU ARE URGED TO DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY. THIS WILL
SAVE THE EXPENSE OF FOLLOW-UP LETTERS TO SHAREHOLDERS WHO HAVE NOT RESPONDED.
VOTE VIA THE INTERNET:
WWW.FRANKLINTEMPLETON.COM
VOTE VIA THE TELEPHONE:[ ]
CONTROL NUMBER:
Note: Please sign exactly as your name
appears on the proxy. If signing for
estates, trusts or corporations, your title
or capacity should be stated. If shares are
held jointly, each holder must sign.
-----------------------------------
Signature
-----------------------------------
Signature (if held jointly)
-----------------------------------
Date
(Please see reverse side)
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR
PROXY TODAY
PLEASE DETACH AT PERFORATION BEFORE MAILING.
- --------------------------------------------------------------------------------
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE
PROPOSAL.
Please mark votes as in this example: [X]
FOR AGAINST ABSTAIN
1. To approve an Agreement and Plan
of Reorganization between [] [] []
Franklin Strategic Series, on behalf
of Franklin Global Communications Fund,
and Franklin Custodian Funds, on behalf
of Franklin DynaTech Fund ("DynaTech
Fund"), that provides for (i) the
acquisition of substantially all of the
assets of Global Communications Fund by
DynaTech Fund in exchange solely for
shares of DynaTech Fund, (ii) the
distribution of such shares to the
shareholders of Global Communications
Fund, and (iii) the complete
liquidation and dissolution of Global
Communications Fund. Shareholders of
Global Communications Fund will receive
Class A, Class B or Class C shares of
DynaTech Fund, as the case may be, with
an aggregate net asset value equal to
the aggregate net asset value of such
shareholders' shares in Class A, Class
B or Class C shares of the Global
Communications Fund.
IMPORTANT: PLEASE SEND IN YOUR PROXY TODAY.
PLEASE SIGN AND PROMPTLY RETURN IN THE ACCOMPANYING ENVELOPE. NO POSTAGE IS
REQUIRED IF MAILED IN THE U.S.
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR
PROXY TODAY
PROXY PROXY
SPECIAL MEETING OF SHAREHOLDERS
FRANKLIN GLOBAL HEALTH CARE FUND
NOVEMBER 12, 2008
The undersigned hereby revokes all previous proxies for his/her shares and
appoints Craig S. Tyle, David P. Goss and Karen L. Skidmore, and each of them,
proxies of the undersigned with full power of substitution to vote all shares of
Franklin Global Health Care Fund (the "Global Health Care Fund") that the
undersigned is entitled to vote at the Global Health Care Fund's Meeting of
Shareholders to be held at One Franklin Parkway, San Mateo, California
94403-1906, on November 12, 2008 at 2:00 p.m., Pacific Time, including any
adjournments thereof, upon such business as may properly be brought before the
Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF FRANKLIN STRATEGIC
SERIES ("TRUST") ON BEHALF OF THE GLOBAL HEALTH CARE FUND. It will be voted as
specified. If no specification is made, this proxy shall be voted FOR the
Proposal regarding the reorganization of the Global Health Care Fund pursuant to
the Agreement and Plan of Reorganization between the Trust, on behalf of Global
Health Care Fund, and Franklin Custodian Funds, on behalf of Franklin DynaTech
Fund. If any other matters properly come before the Meeting to be voted on, the
proxy holders will vote, act and consent on those matters in accordance with the
views of management.
IMPORTANT: PLEASE SEND IN YOUR PROXY TODAY.
YOU ARE URGED TO DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY. THIS WILL
SAVE THE EXPENSE OF FOLLOW-UP LETTERS TO SHAREHOLDERS WHO HAVE NOT RESPONDED.
VOTE VIA THE INTERNET:
WWW.FRANKLINTEMPLETON.COM
VOTE VIA THE TELEPHONE:[ ]
CONTROL NUMBER:
Note: Please sign exactly as your name
appears on the proxy. If signing for
estates, trusts or corporations, your title
or capacity should be stated. If shares are
held jointly, each holder must sign.
-----------------------------------
Signature
-----------------------------------
Signature (if held jointly)
-----------------------------------
Date
(Please see reverse side)
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR
PROXY TODAY
PLEASE DETACH AT PERFORATION BEFORE MAILING.
- --------------------------------------------------------------------------------
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE
PROPOSAL.
Please mark votes as in this example: [X]
FOR AGAINST ABSTAIN
1. To approve an Agreement and Plan of
Reorganization between Franklin [] [] []
Strategic Series, on behalf of
Franklin Global Health Care Fund, and
Franklin Custodian Funds, on behalf
of Franklin DynaTech Fund ("DynaTech
Fund"), that provides for (i) the
acquisition of substantially all of the
assets of Global Health Care Fund by
DynaTech Fund in exchange solely for
shares of DynaTech Fund, (ii) the
distribution of such shares to the
shareholders of Global Health Care
Fund, and (iii) the complete liquidation
and dissolution of Global Health Care
Fund. Shareholders of Global Health
Care Fund will receive Class A, Class B
or Class C shares of DynaTech Fund,
as the case may be, with an aggregate
net asset value equal to the aggregate
net asset value of such shareholders'
shares in Class A, Class B or Class C
shares of the Global Health Care Fund.
PART B
STATEMENT OF ADDITIONAL INFORMATION
FOR
FRANKLIN DYNATECH FUND,
A SERIES OF
FRANKLIN CUSTODIAN FUNDS
DATED SEPTEMBER [ ], 2008
Acquisition of Substantially All of the Assets of:
FRANKLIN TECHNOLOGY FUND
FRANKLIN GLOBAL HEALTH CARE FUND
FRANKLIN GLOBAL COMMUNICATIONS FUND
(each a series of Franklin Strategic Series)
By and in exchange for shares of
FRANKLIN DYNATECH FUND
(a series of Franklin Custodian Funds)
This Statement of Additional Information ("SAI") relates specifically to the
proposed acquisition of substantially all of the assets of Franklin Technology
Fund, Franklin Global Health Care Fund, and Franklin Global Communications Fund
(the "Target Funds") by and in exchange for Class A, Class B, Class C, Class R,
and Advisor Class shares of Franklin DynaTech Fund ("DynaTech Fund").
This SAI consists of this Cover Page, the accompanying pro forma financial
statements and related notes, and the following documents, each of which was
filed electronically with the Securities and Exchange Commission and is
incorporated by reference herein (is legally considered to be part of this SAI):
1. Statement of Additional Information of DynaTech Fund dated February 1,
2008, as previously filed via EDGAR is incorporated herein by reference to
Franklin Custodian Funds' filing under Rule 485(b) [Accession No.
0000038721-08-000002] filed January 25, 2008 and will be mailed to any
Shareholder who requests this SAI.
2. Supplement dated February 1, 2008, to Statement of Additional
Information of DynaTech Fund dated February 1, 2008, as previously filed via
EDGAR is incorporated herein by reference to Franklin Custodian Funds' filing
under Rule 497 [Accession No. 0001217951-08-000006] filed January 1, 2008,
and will be mailed to any Shareholder who requests this SAI.
3. Supplement dated May 15, 2008, to Statement of Additional Information of
DynaTech Fund dated February 1, 2008, as previously filed via EDGAR is
incorporated herein by reference to Franklin Custodian Funds' filing under
Rule 485(b) [Accession No. 0000038721-08-000012] filed May 12, 2008, and will
be mailed to any Shareholder who requests this SAI.
4. Supplement dated June 25, 2008, to Statement of Additional Information
of DynaTech Fund dated February 1, 2008, as previously filed via EDGAR is
incorporated herein by reference to Franklin Custodian Funds' filing under
Rule 497 [Accession No. 0000225375-08-000015] filed June 25, 2008, and will
be mailed to any Shareholder who requests this SAI.
5. Supplement dated September 2, 2008, to Statement of Additional
Information of DynaTech Fund dated February 1, 2008, as previously filed via
EDGAR is incorporated herein by reference to Franklin Custodian Funds' filing
under Rule 485(a) [Accession No. 0000038721-08-000022] filed July 14, 2008
and will be mailed to any Shareholder who requests this SAI.
6. Annual Report of DynaTech Fund for the fiscal year ended September 30,
2007 as previously filed on EDGAR is incorporated herein by reference to
Franklin Custodian Funds' Form N-CSR [Accession No. 0000038721-07-000218]
filed November 30, 2007 and will be mailed to any Shareholder who requests
this SAI.
7. Semi-Annual Report of DynaTech Fund for the period ended March 31, 2008
as previously field on EDGAR is incorporated herein by reference to Franklin
Custodian Funds' Form N-CSR [Accession No. 0000038721-08-000018] filed May
28, 2008 and will be mailed to any Shareholder who requests this SAI.
8. Annual Report of the Target Funds for the fiscal year ended April 30,
2008 as previously filed on EDGAR is incorporated herein by reference to
Franklin Strategic Series' Form N-CSR [Accession No. 00000872625-08-000011]
filed July 1, 2008 and will be mailed to any Shareholder who requests this
SAI.
9. Pro Forma Financial Statements for the Reorganization of the Target
Funds into DynaTech Fund.
This SAI is not a Prospectus; you should read this SAI in conjunction with the
Prospectus/Proxy Statement dated September [ ], 2008, relating to the above-
referenced transactions. You can request a copy of the Prospectus/Proxy
Statement by calling 1-800/DIAL BEN or by writing to Dynatech Fund at P.O. Box
997151, Sacramento, CA 95899-9983.
FRANKLIN TECHNOLOGY FUND
FRANKLIN GLOBAL COMMUNICATIONS FUND
FRANKLIN GLOBAL HEALTH CARE FUND
FRANKLIN DYNATECH FUND
PRO FORMA COMBINING STATEMENTS, MARCH 31, 2008
(UNAUDITED)
The following unaudited Pro Forma Combining Statements give effect to the
proposed reorganizations, accounted as if the reorganizations had occurred as of
April 1, 2007. In addition, each Pro Forma Combining Statement has been
prepared based upon the proposed fee and expense structure after the
combination, as discussed in the combined proxy statement/prospectus.
The unaudited Pro Forma Combining Statements should be read in conjunction with
the historical financial statements and notes thereto of the Franklin Technology
Fund, the Franklin Global Communications Fund, the Franklin Global Health Care
Fund and the Franklin DynaTech Fund which are incorporated by reference in this
Statement of Additional Information. Each combination will be accounted for as a
tax-free reorganization.
Franklin Strategic Series - Franklin Technology Fund
Franklin Strategic Series - Franklin Global Communications Fund
Franklin Strategic Series - Franklin Global Health Care Fund
Franklin Custodian Funds - Franklin DynaTech Fund
Pro Forma Combining Statements of Investments, March 31, 2008
Franklin DynaTech Fund Franklin Technology Fund
--------------------------- --------------------------
Country Shares Value Shares Value
-------------- ----------- ------------- ---------- -------------
Long Term Investments 96.2%
Common Stocks and Warrants 96.1%
Aerospace & Defense 0.2%
(a) Orbital Sciences Corp. United States $ $
Air Freight & Logistics 1.0%
C.H. Robinson Worldwide Inc. United States 150,000 8,160,000
-------------
Biotechnology 8.1%
(a) Acadia Pharmaceuticals Inc. United States
(a) Amgen Inc. United States
(a) Celgene Corp. United States 200,000 12,258,000 14,600 894,834
(a) Cephalon Inc. United States
(a, b) CytRx Corp., 144A United States
(a) Genentech Inc. United States 250,000 20,295,000
(a) Genzyme Corp. United States
(a) Gilead Sciences Inc. United States 300,000 15,459,000 7,900 407,087
(a) Indevus Pharmaceuticals Inc. United States
(a) Millennium Pharmaceuticals Inc. United States 200,000 3,092,000
(a) Myriad Genetics Inc. United States
(a) Orexigen Therapeutics Inc. United States
(a) PDL BioPharma Inc. United States
(a) RXi Pharmaceuticals Corp. United States
------------- ------------
51,104,000 1,301,921
------------- ------------
Capital Markets 0.5%
The Goldman Sachs Group Inc. United States 25,000 4,134,750
-------------
Chemicals 4.1%
Monsanto Co. United States 100,000 11,150,000
(a) The Mosaic Co. United States 40,000 4,104,000
Potash Corp. of Saskatchewan Inc. Canada 20,000 3,104,200
Sigma-Aldrich Corp. United States 250,000 14,912,500
-------------
33,270,700
-------------
Commercial Services & Supplies 0.5%
(a) Stericycle Inc. United States 85,000 4,377,500
-------------
Communications Equipment 7.2%
(a) Cisco Systems Inc. United States 450,000 10,840,500 65,200 1,570,668
(a) Comverse Technology Inc. United States 39,800 612,920
Corning Inc. United States 53,300 1,281,332
Telefonaktiebolaget LM Ericsson, B, ADR Sweden
(a) F5 Networks Inc. United States 47,900 870,343
Harris Corp. United States 10,500 509,565
(a) Ixia United States 118,900 922,664
Nokia Corp., ADR Finland 220,000 7,002,600 13,900 442,437
QUALCOMM Inc. United States 200,000 8,200,000 39,000 1,599,000
(a) Research In Motion Ltd. Canada 60,000 6,733,800 10,900 1,223,307
(a) Riverbed Technology Inc. United States 36,900 548,334
(a) ViaSat Inc. United States 37,400 812,328
------------- ------------
32,776,900 10,392,898
------------- ------------
Computers & Peripherals 5.8%
(a) Apple Inc. United States 165,000 23,677,500 9,500 1,363,250
(a) EMC Corp. United States 43,700 626,658
Hewlett-Packard Co. United States 340,000 15,524,400 20,700 945,162
(a) NetApp Inc. United States 36,300 727,815
Franklin Franklin Global Franklin DynaTech Fund
Global Communications Fund Health Care Fund Pro Forma Combined
-------------------------- ------------------------- --------------------------
Shares Value Shares Value Shares Value
----------- ------------ ---------- ------------- ---------- -------------
Long Term Investments 96.2%
Common Stocks and Warrants 96.1%
Aerospace & Defense 0.2%
(a) Orbital Sciences Corp. 55,700 $ 1,342,370 $ 55,700 $ 1,342,370
------------ -------------
Air Freight & Logistics 1.0%
C.H. Robinson Worldwide Inc. 150,000 8,160,000
-------------
Biotechnology 8.1%
(a) Acadia Pharmaceuticals Inc. 45,700 414,042 45,700 414,042
(a) Amgen Inc. 15,600 651,768 15,600 651,768
(a) Celgene Corp. 37,600 2,304,504 252,200 15,457,338
(a) Cephalon Inc. 22,700 1,461,880 22,700 1,461,880
(a, b) CytRx Corp., 144A 82,000 94,300 82,000 94,300
(a) Genentech Inc. 250,000 20,295,000
(a) Genzyme Corp. 23,900 1,781,506 23,900 1,781,506
(a) Gilead Sciences Inc. 56,100 2,890,833 364,000 18,756,920
(a) Indevus Pharmaceuticals Inc. 236,100 1,126,197 236,100 1,126,197
(a) Millennium Pharmaceuticals Inc. 200,000 3,092,000
(a) Myriad Genetics Inc. 39,600 1,595,484 39,600 1,595,484
(a) Orexigen Therapeutics Inc. 63,700 656,110 63,700 656,110
(a) PDL BioPharma Inc. 77,100 816,489 77,100 816,489
(a) RXi Pharmaceuticals Corp. 4,091 38,861 4,091 38,861
------------- -------------
13,831,974 66,237,895
------------- -------------
Capital Markets 0.5%
The Goldman Sachs Group Inc. 25,000 4,134,750
-------------
Chemicals 4.1%
Monsanto Co. 100,000 11,150,000
(a) The Mosaic Co. 40,000 4,104,000
Potash Corp. of Saskatchewan Inc. 20,000 3,104,200
Sigma-Aldrich Corp. 250,000 14,912,500
-------------
33,270,700
-------------
Commercial Services & Supplies 0.5%
(a) Stericycle Inc. 85,000 4,377,500
-------------
Communications Equipment 7.2%
(a) Cisco Systems Inc. 89,600 2,158,464 604,800 14,569,632
(a) Comverse Technology Inc. 62,100 956,340 101,900 1,569,260
Corning Inc. 53,300 1,281,332
Telefonaktiebolaget LM Ericsson, B, ADR 21,100 414,615 21,100 414,615
(a) F5 Networks Inc. 69,900 1,270,083 117,800 2,140,426
Harris Corp. 40,500 1,965,465 51,000 2,475,030
(a) Ixia 118,900 922,664
Nokia Corp., ADR 98,700 3,141,621 332,600 10,586,658
QUALCOMM Inc. 76,700 3,144,700 315,700 12,943,700
(a) Research In Motion Ltd. 14,400 1,616,112 85,300 9,573,219
(a) Riverbed Technology Inc. 63,100 937,666 100,000 1,486,000
(a) ViaSat Inc. 37,400 812,328
------------ -------------
15,605,066 58,774,864
------------ -------------
Computers & Peripherals 5.8%
(a) Apple Inc. 25,700 3,687,950 200,200 28,728,700
(a) EMC Corp. 43,700 626,658
Hewlett-Packard Co. 360,700 16,469,562
(a) NetApp Inc. 36,300 727,815
(a) Synaptics Inc. United States 25,600 611,328
------------- ------------
39,201,900 4,274,213
------------- ------------
Diversified Telecommunication
Services 1.6%
AT&T Inc. United States 150,000 5,745,000
PT Telekomunikasi Indonesia, B Indonesia
Singapore Telecommunications Ltd. Singapore
(a) Telenor ASA Norway
Telus Corp. Canada
(a) Time Warner Telecom Inc., A United States
-------------
5,745,000
-------------
Electrical Equipment 0.8%
ABB Ltd., ADR Switzerland 200,000 5,384,000
(a) Polypore International Inc. United States
(a) SunPower Corp., A United States 9,100 678,041
------------- ------------
5,384,000 678,041
------------- ------------
Electronic Equipment & Instruments 1.2%
(a) Agilent Technologies Inc. United States 38,100 1,136,523
(a) Coherent Inc. United States 18,300 510,387
(a) Dolby Laboratories Inc., A United States 100,000 3,626,000
(a) FLIR Systems Inc. United States 20,000 601,800 17,400 523,566
(a) Itron Inc. United States 1,600 144,368
------------- ------------
4,227,800 2,314,844
------------- ------------
Energy Equipment & Services 3.4%
(a) FMC Technologies Inc. United States 200,000 11,378,000
Schlumberger Ltd. United States 150,000 13,050,000
(a) Weatherford International Ltd. United States 50,000 3,623,500
-------------
28,051,500
-------------
Food & Staples Retailing 0.4%
(a) China Nepstar Chain Drugstore Ltd., ADR China
CVS Caremark Corp. United States
Drogasil SA Brazil
Health Care Equipment & Supplies 7.5%
Alcon Inc. Switzerland 100,000 14,225,000
Baxter International Inc. United States
C. R. Bard Inc. United States
DENTSPLY International Inc. United States
(a) Enteromedics Inc. United States
(a) Greatbatch Inc. United States
Hillenbrand Industries Inc. United States
(a) Hologic Inc. United States
(a) Intuitive Surgical Inc. United States 10,000 3,243,500
Medtronic Inc. United States 150,000 7,255,500
Mentor Corp. United States
Mindray Medical International Ltd., ADR China
Smith & Nephew PLC, ADR United Kingdom
(a) St. Jude Medical Inc. United States
Stryker Corp. United States 200,000 13,010,000
(a) Tomotherapy Inc. United States
(a) Zimmer Holdings Inc. United States
-------------
37,734,000
-------------
Health Care Providers & Services 3.9%
(a) Amedisys Inc. United States
Brookdale Senior Living Inc. United States
(a) DaVita Inc. United States
Diagnosticos DA America SA Brazil
Ensign Group Inc. United States
(a) Express Scripts Inc. United States 40,000 2,572,800
(a) Genoptix Inc. United States
(a) Healthways Inc. United States
(a) Henry Schein Inc. United States
(a) LifePoint Hospitals Inc. United States
(a) Medco Health Solutions Inc. United States
(a) Synaptics Inc. 25,600 611,328
------------ -------------
3,687,950 47,164,063
------------ -------------
Diversified Telecommunication
Services 1.6%
AT&T Inc. 39,582 1,515,991 189,582 7,260,991
PT Telekomunikasi Indonesia, B 707,100 741,284 707,100 741,284
Singapore Telecommunications Ltd. 233,000 661,965 233,000 661,965
(a) Telenor ASA 129,100 2,471,723 129,100 2,471,723
Telus Corp. 32,300 1,351,755 32,300 1,351,755
(a) Time Warner Telecom Inc., A 65,000 1,006,850 65,000 1,006,850
------------ -------------
7,749,568 13,494,568
------------ -------------
Electrical Equipment 0.8%
ABB Ltd., ADR 200,000 5,384,000
(a) Polypore International Inc. 32,800 678,632 32,800 678,632
(a) SunPower Corp., A 9,100 678,041
------------- -------------
678,632 6,740,673
------------- -------------
Electronic Equipment & Instruments 1.2%
(a) Agilent Technologies Inc. 38,100 1,136,523
(a) Coherent Inc. 18,300 510,387
(a) Dolby Laboratories Inc., A 100,000 3,626,000
(a) FLIR Systems Inc. 112,600 3,388,134 150,000 4,513,500
(a) Itron Inc. 1,600 144,368
------------ -------------
3,388,134 9,930,778
------------ -------------
Energy Equipment & Services 3.4%
(a) FMC Technologies Inc. 200,000 11,378,000
Schlumberger Ltd. 150,000 13,050,000
(a) Weatherford International Ltd. 50,000 3,623,500
-------------
28,051,500
-------------
Food & Staples Retailing 0.4%
(a) China Nepstar Chain Drugstore Ltd., ADR 12,000 163,200 12,000 163,200
CVS Caremark Corp. 72,600 2,941,026 72,600 2,941,026
Drogasil SA 35,000 259,997 35,000 259,997
------------- -------------
3,364,223 3,364,223
------------- -------------
Health Care Equipment & Supplies 7.5%
Alcon Inc. 100,000 14,225,000
Baxter International Inc. 49,300 2,850,526 49,300 2,850,526
C. R. Bard Inc. 18,100 1,744,840 18,100 1,744,840
DENTSPLY International Inc. 35,800 1,381,880 35,800 1,381,880
(a) Enteromedics Inc. 93,900 391,563 93,900 391,563
(a) Greatbatch Inc. 36,900 679,329 36,900 679,329
Hillenbrand Industries Inc. 21,400 549,980 21,400 549,980
(a) Hologic Inc. 18,044 1,003,246 18,044 1,003,246
(a) Intuitive Surgical Inc. 10,000 3,243,500
Medtronic Inc. 121,000 5,852,770 271,000 13,108,270
Mentor Corp. 4,806 123,610 4,806 123,610
Mindray Medical International Ltd., ADR 18,200 526,708 18,200 526,708
Smith & Nephew PLC, ADR 14,500 956,855 14,500 956,855
(a) St. Jude Medical Inc. 33,900 1,464,141 33,900 1,464,141
Stryker Corp. 43,900 2,855,695 243,900 15,865,695
(a) Tomotherapy Inc. 23,600 338,660 23,600 338,660
(a) Zimmer Holdings Inc. 38,700 3,013,182 38,700 3,013,182
------------- -------------
23,732,985 61,466,985
------------- -------------
Health Care Providers & Services 3.9%
(a) Amedisys Inc. 23,734 933,696 23,734 933,696
Brookdale Senior Living Inc. 50,200 1,199,780 50,200 1,199,780
(a) DaVita Inc. 54,100 2,583,816 54,100 2,583,816
Diagnosticos DA America SA 64,200 1,275,412 64,200 1,275,412
Ensign Group Inc. 44,100 408,807 44,100 408,807
(a) Express Scripts Inc. 36,600 2,354,112 76,600 4,926,912
(a) Genoptix Inc. 8,500 212,585 8,500 212,585
(a) Healthways Inc. 28,300 1,000,122 28,300 1,000,122
(a) Henry Schein Inc. 28,300 1,624,420 28,300 1,624,420
(a) LifePoint Hospitals Inc. 56,900 1,563,043 56,900 1,563,043
(a) Medco Health Solutions Inc. 54,800 2,399,692 54,800 2,399,692
(a, b) Medial Saude SA, ADR, 144A Brazil
(a) MWI Veterinary Supply Inc. United States
(a) Nighthawk Radiology Holdings Inc. United States
(a) PSS World Medical Inc. United States
(a) Skilled Healthcare Group Inc. United States
(a) Triple-S Management Corp., B United States
UnitedHealth Group Inc. United States
(a) VCA Antech Inc. United States 150,000 4,102,500
(a) Virtual Radiologic Corp. United States
(a) WellPoint Inc. United States
-------------
6,675,300
-------------
Health Care Technology 0.3%
(a) Cerner Corp. United States
(a) MedAssets Inc. United States
(a) Phase Forward Inc. United States
Hotels, Restaurants & Leisure 0.7%
International Game Technology United States 150,000 6,031,500
-------------
Household Durables 0.2%
Garmin Ltd. Cayman Islands 17,000 918,170
Harman International Industries Inc. United States 7,400 322,196
Sony Corp., ADR Japan
------------
1,240,366
------------
Insurance 0.2%
(a, b) Amil Participacoes SA, 144A Brazil
(a, b) Sul America SA, 144A Brazil
Internet & Catalog Retail 1.1%
(a) Amazon.com Inc. United States 60,000 4,278,000 11,500 819,950
(a) Priceline.com Inc. United States 30,000 3,625,800
------------- ------------
7,903,800 819,950
------------- ------------
Internet Software & Services 4.8%
(a) Baidu.com Inc., ADR China 10,000 2,396,300 1,700 407,371
(a) Digital River Inc. United States
(a) Equinix Inc. United States 11,000 731,390
(a) Google Inc., A United States 40,000 17,618,800 2,600 1,145,222
(a) Mercadolibre Inc. Argentina 50,000 1,988,000
(a) Omniture Inc. United States 150,000 3,481,500 20,100 466,521
(a) Sohu.com Inc. China 60,000 2,707,800
(a) VeriSign Inc. United States 24,600 817,704
------------- ------------
28,192,400 3,568,208
------------- ------------
IT Services 3.4%
(a) Alliance Data Systems Corp. United States 13,400 636,634
(a) Cognizant Technology Solutions Corp., A United States 13,900 400,737
MasterCard Inc., A United States 20,000 4,459,800
Paychex Inc. United States 25,400 870,204
(a) VeriFone Holdings Inc. United States 31,300 496,731
(a) Visa Inc., CL A United States 309,600 19,306,656 25,900 1,615,124
------------- ------------
23,766,456 4,019,430
------------- ------------
Life Sciences Tools & Services 4.1%
(a) Covance Inc. United States 45,000 3,733,650
(a) Helicos Biosciences Corp. United States 13,700 82,748
(a) Millipore Corp. United States
Pharmaceutical Product Development Inc. United States 120,000 5,028,000
(a) Sequenom Inc. United States
(a) Thermo Fisher Scientific Inc. United States 18,000 1,023,120
(a) Waters Corp. United States 200,000 11,140,000 12,400 690,680
(a) Wuxi Pharmatech Cayman Inc., ADR China
------------- ------------
19,901,650 1,796,548
------------- ------------
Media 0.7%
(a) The DIRECTV Group Inc. United States 34,900 865,171
(a) Focus Media Holding Ltd., ADR China
(a, b) Medial Saude SA, ADR, 144A 95,000 892,273 95,000 892,273
(a) MWI Veterinary Supply Inc. 26,900 948,494 26,900 948,494
(a) Nighthawk Radiology Holdings Inc. 35,100 328,536 35,100 328,536
(a) PSS World Medical Inc. 68,700 1,144,542 68,700 1,144,542
(a) Skilled Healthcare Group Inc. 51,700 567,666 51,700 567,666
(a) Triple-S Management Corp., B 55,000 970,750 55,000 970,750
UnitedHealth Group Inc. 36,030 1,237,991 36,030 1,237,991
(a) VCA Antech Inc. 150,000 4,102,500
(a) Virtual Radiologic Corp. 18,200 278,096 18,200 278,096
(a) WellPoint Inc. 82,300 3,631,899 82,300 3,631,899
------------- -------------
25,555,732 32,231,032
------------- -------------
Health Care Technology 0.3%
(a) Cerner Corp. 28,200 1,051,296 28,200 1,051,296
(a) MedAssets Inc. 42,200 625,404 42,200 625,404
(a) Phase Forward Inc. 40,300 688,324 40,300 688,324
------------- -------------
2,365,024 2,365,024
------------- -------------
Hotels, Restaurants & Leisure 0.7%
International Game Technology 150,000 6,031,500
-------------
Household Durables 0.2%
Garmin Ltd. 17,000 918,170
Harman International Industries Inc. 7,400 322,196
Sony Corp., ADR 13,400 536,938 13,400 536,938
------------ -------------
536,938 1,777,304
------------ -------------
Insurance 0.2%
(a, b) Amil Participacoes SA, 144A 190,000 1,208,083 190,000 1,208,083
(a, b) Sul America SA, 144A 40,000 578,341 40,000 578,341
------------- -------------
1,786,424 1,786,424
------------- -------------
Internet & Catalog Retail 1.1%
(a) Amazon.com Inc. 71,500 5,097,950
(a) Priceline.com Inc. 30,000 3,625,800
-------------
8,723,750
-------------
Internet Software & Services 4.8%
(a) Baidu.com Inc., ADR 4,000 958,520 15,700 3,762,191
(a) Digital River Inc. 19,100 591,527 19,100 591,527
(a) Equinix Inc. 23,300 1,549,217 34,300 2,280,607
(a) Google Inc., A 6,800 2,995,196 49,400 21,759,218
(a) Mercadolibre Inc. 50,000 1,988,000
(a) Omniture Inc. 170,100 3,948,021
(a) Sohu.com Inc. 11,600 523,508 71,600 3,231,308
(a) VeriSign Inc. 31,300 1,040,412 55,900 1,858,116
------------ -------------
7,658,380 39,418,988
------------ -------------
IT Services 3.4%
(a) Alliance Data Systems Corp. 13,400 636,634
(a) Cognizant Technology Solutions Corp., A 13,900 400,737
MasterCard Inc., A 20,000 4,459,800
Paychex Inc. 25,400 870,204
(a) VeriFone Holdings Inc. 31,300 496,731
(a) Visa Inc., CL A 335,500 20,921,780
-------------
27,785,886
-------------
Life Sciences Tools & Services 4.1%
(a) Covance Inc. 17,200 1,427,084 62,200 5,160,734
(a) Helicos Biosciences Corp. 41,500 250,660 55,200 333,408
(a) Millipore Corp. 20,700 1,395,387 20,700 1,395,387
Pharmaceutical Product Development Inc. 63,400 2,656,460 183,400 7,684,460
(a) Sequenom Inc. 38,500 250,250 38,500 250,250
(a) Thermo Fisher Scientific Inc. 64,168 3,647,309 82,168 4,670,429
(a) Waters Corp. 27,300 1,520,610 239,700 13,351,290
(a) Wuxi Pharmatech Cayman Inc., ADR 20,700 462,852 20,700 462,852
------------- -------------
11,610,612 33,308,810
------------- -------------
Media 0.7%
(a) The DIRECTV Group Inc. 34,900 865,171
(a) Focus Media Holding Ltd., ADR 36,700 1,290,005 36,700 1,290,005
Grupo Televisa SA, ADR Mexico
News Corp., A United States
(a) Outdoor Channel Holdings Inc. United States
The Walt Disney Co. United States
(a) XM Satellite Radio Holdings Inc., A United States
------------
865,171
------------
Metals & Mining 0.2%
Nucor Corp. United States 30,000 2,032,200
-------------
Pharmaceuticals 8.8%
Abbott Laboratories United States
Allergan Inc. United States 80,000 4,511,200
(a) Cadence Pharmaceuticals Inc. United States
(a) Endo Pharmaceuticals Holdings Inc. United States
Johnson & Johnson United States 100,000 6,487,000
(a) MacroChem Corp. United States
(a, b) MacroChem Corp., wts., PIPES, 144A,
2/01/49 United States
Merck & Co. Inc. United States
Merck KGaA Germany
Novartis AG Switzerland
Novo-Nordisk AS, ADR Denmark 100,000 6,924,000
Roche Holding AG Switzerland
Schering-Plough Corp. United States
Shire PLC, ADR United Kingdom
Teva Pharmaceutical Industries Ltd.,
ADR Israel 250,000 11,547,500
(a) ViroPharma Inc. United States
Wyeth United States
-------------
29,469,700
-------------
Real Estate Management &
Development 0.1%
Hillenbrand Inc. United States
Semiconductors & Semiconductor
Equipment 7.7%
(a) Advanced Analogic Technologies Inc. United States 41,100 230,982
(a) Atheros Communications United States 24,800 516,832
(a) FormFactor Inc. United States 36,900 704,790
(a) Hittite Microwave Corp. United States 60,000 2,245,200
Intel Corp. United States 1,125,000 23,827,500 12,800 271,104
Intersil Corp., A United States 11,000 282,370
KLA-Tencor Corp. United States 100,000 3,710,000
(a) Lam Research Corp. United States 125,000 4,777,500
Maxim Integrated Products Inc. United States 56,900 1,160,191
(a) MEMC Electronic Materials Inc. United States 60,000 4,254,000 2,600 184,340
Microchip Technology Inc. United States 46,300 1,515,399
(a) Microsemi Corp. United States 77,000 1,755,600
(a) Netlogic Microsystems Inc. United States 58,200 1,404,948
(a) NVIDIA Corp. United States 300,000 5,937,000
(a) Power Integrations Inc. United States 16,800 491,568
(a) Silicon Laboratories Inc. United States 14,700 463,638
(a) Varian Semiconductor Equipment
Associates Inc. United States 200,000 5,630,000 15,100 425,065
------------- ------------
50,381,200 9,406,827
------------- ------------
Software 9.2%
(a) Activision Inc. United States 50,000 1,365,500 38,666 1,055,968
(a) Adobe Systems Inc. United States 350,000 12,456,500 22,800 811,452
(a) ANSYS Inc. United States 8,900 307,228
(a) Autodesk Inc. United States 100,000 3,148,000
Grupo Televisa SA, ADR 41,700 1,010,808 41,700 1,010,808
News Corp., A 58,700 1,100,625 58,700 1,100,625
(a) Outdoor Channel Holdings Inc. 60,600 445,410 60,600 445,410
The Walt Disney Co. 28,030 879,581 28,030 879,581
(a) XM Satellite Radio Holdings Inc., A 28,500 331,170 28,500 331,170
------------ -------------
5,057,599 5,922,770
------------ -------------
Metals & Mining 0.2%
Nucor Corp. 30,000 2,032,200
-------------
Pharmaceuticals 8.8%
Abbott Laboratories 52,600 2,900,890 52,600 2,900,890
Allergan Inc. 22,780 1,284,564 102,780 5,795,764
(a) Cadence Pharmaceuticals Inc. 47,200 280,840 47,200 280,840
(a) Endo Pharmaceuticals Holdings Inc. 23,800 569,772 23,800 569,772
Johnson & Johnson 116,800 7,576,816 216,800 14,063,816
(a) MacroChem Corp. 250,000 80,000 250,000 80,000
(a, b) MacroChem Corp., wts., PIPES, 144A,
2/01/49 75,000 0 75,000 0
Merck & Co. Inc. 122,100 4,633,695 122,100 4,633,695
Merck KGaA 36,000 4,471,071 36,000 4,471,071
Novartis AG 58,600 3,002,557 58,600 3,002,557
Novo-Nordisk AS, ADR 100,000 6,924,000
Roche Holding AG 37,900 7,130,572 37,900 7,130,572
Schering-Plough Corp. 279,100 4,021,831 279,100 4,021,831
Shire PLC, ADR 28,800 1,669,248 28,800 1,669,248
Teva Pharmaceutical Industries Ltd.,
ADR 40,200 1,856,838 290,200 13,404,338
(a) ViroPharma Inc. 71,500 639,210 71,500 639,210
Wyeth 69,900 2,919,024 69,900 2,919,024
------------- -------------
43,036,928 72,506,628
------------- -------------
Real Estate Management &
Development 0.1%
Hillenbrand Inc. 21,400 472,940 21,400 472,940
------------- -------------
Semiconductors & Semiconductor
Equipment 7.7%
(a) Advanced Analogic Technologies Inc. 41,100 230,982
(a) Atheros Communications 24,800 516,832
(a) FormFactor Inc. 42,000 802,200 78,900 1,506,990
(a) Hittite Microwave Corp. 60,000 2,245,200
Intel Corp. 1,137,800 24,098,604
Intersil Corp., A 11,000 282,370
KLA-Tencor Corp. 100,000 3,710,000
(a) Lam Research Corp. 125,000 4,777,500
Maxim Integrated Products Inc. 63,400 1,292,726 120,300 2,452,917
(a) MEMC Electronic Materials Inc. 62,600 4,438,340
Microchip Technology Inc. 46,300 1,515,399
(a) Microsemi Corp. 33,600 766,080 110,600 2,521,680
(a) Netlogic Microsystems Inc. 58,200 1,404,948
(a) NVIDIA Corp. 300,000 5,937,000
(a) Power Integrations Inc. 16,800 491,568
(a) Silicon Laboratories Inc. 14,700 463,638
(a) Varian Semiconductor Equipment
Associates Inc. 215,100 6,055,065
------------ -------------
2,861,006 62,649,033
------------ -------------
Software 9.2%
(a) Activision Inc. 117,800 3,217,118 206,466 5,638,586
(a) Adobe Systems Inc. 372,800 13,267,952
(a) ANSYS Inc. 8,900 307,228
(a) Autodesk Inc. 100,000 3,148,000
(a) Bottomline Technologies Inc. United States 49,000 617,400
(a) Concur Technologies Inc. United States 135,000 4,191,750 8,200 254,610
(a) Electronic Arts Inc. United States 140,000 6,988,800
Microsoft Corp. United States 425,000 12,061,500 28,900 820,182
Nintendo Co. Ltd., ADR Japan 150,000 9,723,000
Nintendo Co. Ltd. Japan 500 257,657
(a) Nuance Communications Inc. United States 48,900 851,349
(a) Oracle Corp. United States 38,200 747,192
(a) Salesforce.com Inc. United States 100,000 5,787,000 8,600 497,682
(a) UbiSoft Entertainment SA France 75,000 6,459,587
------------- ------------
62,181,637 6,220,720
------------- ------------
Wireless Telecommunication
Services 8.4%
America Movil SAB de CV, L, ADR Mexico 140,000 8,916,600
(a) American Tower Corp., A United States 185,000 7,253,850 39,900 1,564,479
(a) Bharti Airtel Ltd. India
Cellcom Israel Ltd. Israel
(a) Centennial Communications Corp., A United States
China Mobile (Hong Kong) Ltd., ADR China 85,000 6,375,850
(a) Crown Castle International Corp. United States 21,800 751,882
Globe Telecom Inc. Philippines
(a) Leap Wireless International Inc. United States
(a) MetroPCS Communications Inc. United States
Mobile TeleSystems, ADR Russia 30,000 2,275,500
(a) NII Holdings Inc. United States
Reliance Communication Ltd. India
Rogers Communications Inc., B Canada
(a) SBA Communications Corp. United States
Sprint Nextel Corp. United States
Taiwan Mobile Co. Ltd. Taiwan
Vimpel-Communications, ADR Russia 120,000 3,586,800
------------- ------------
28,408,600 2,316,361
------------- ------------
Total Common Stocks and Warrants
(Cost $516,906,523) 519,112,493 49,215,498
------------- ------------
Preferred Stock (Cost $289,500) 0.1%
Communications Equipment 0.1%
(a, c) Dilithium Networks Inc., depository
receipt, D, pfd., 144A, PIPES United States
------------- ------------
Total Long Term Investments
(Cost $517,196,023) 519,112,493 49,215,498
------------- ------------
Short Term Investment
(Cost $32,143,244) 3.9%
Money Market Fund 3.9%
(d) Franklin Institutional Fiduciary Trust
Money Market Portfolio, 2.50% United States 15,195,393 15,195,393 2,337,814 2,337,814
------------- ------------
Total Investments (Cost $549,339,267)
100.1% 534,307,886 51,553,312
Other Assets, less Liabilites (0.1)% (942,769) (325,249)
------------- ------------
Net Assets 100% 533,365,117 51,227,963
------------- ------------
(a) Bottomline Technologies Inc. 49,000 617,400
(a) Concur Technologies Inc. 143,200 4,446,360
(a) Electronic Arts Inc. 140,000 6,988,800
Microsoft Corp. 453,900 12,881,682
Nintendo Co. Ltd., ADR 150,000 9,723,000
Nintendo Co. Ltd. 6,300 3,246,479 6,800 3,504,136
(a) Nuance Communications Inc. 48,900 851,349
(a) Oracle Corp. 38,200 747,192
(a) Salesforce.com Inc. 108,600 6,284,682
(a) UbiSoft Entertainment SA 6,800 585,669 81,800 7,045,256
------------ -------------
7,049,266 75,451,623
------------ -------------
Wireless Telecommunication
Services 8.4%
America Movil SAB de CV, L, ADR 99,800 6,356,262 239,800 15,272,862
(a) American Tower Corp., A 98,635 3,867,478 323,535 12,685,807
(a) Bharti Airtel Ltd. 78,205 1,613,918 78,205 1,613,918
Cellcom Israel Ltd. 16,600 521,738 16,600 521,738
(a) Centennial Communications Corp., A 258,700 1,528,917 258,700 1,528,917
China Mobile (Hong Kong) Ltd., ADR 38,100 2,857,881 123,100 9,233,731
(a) Crown Castle International Corp. 58,038 2,001,731 79,838 2,753,613
Globe Telecom Inc. 16,600 601,131 16,600 601,131
(a) Leap Wireless International Inc. 26,900 1,253,540 26,900 1,253,540
(a) MetroPCS Communications Inc. 215,300 3,660,100 215,300 3,660,100
Mobile TeleSystems, ADR 30,000 2,275,500
(a) NII Holdings Inc. 107,300 3,409,994 107,300 3,409,994
Reliance Communication Ltd. 32,400 411,414 32,400 411,414
Rogers Communications Inc., B 125,700 4,521,477 125,700 4,521,477
(a) SBA Communications Corp. 120,100 3,582,583 120,100 3,582,583
Sprint Nextel Corp. 138,700 927,903 138,700 927,903
Taiwan Mobile Co. Ltd. 585,994 1,128,135 585,994 1,128,135
Vimpel-Communications, ADR 120,000 3,586,800
------------ -------------
38,244,202 68,969,163
------------ ------------- -------------
Total Common Stocks and Warrants
(Cost $516,906,523) 93,180,479 126,435,474 787,943,944
------------ ------------- -------------
Preferred Stock (Cost $289,500) 0.1%
Communications Equipment 0.1%
(a, c) Dilithium Networks Inc., depository
receipt, D, pfd., 144A, PIPES 124,248 428,656 124,248 428,656
------------ ------------- -------------
Total Long Term Investments
(Cost $517,196,023) 93,609,135 126,435,474 788,372,600
------------ ------------- -------------
Short Term Investment
(Cost $32,143,244) 3.9%
Money Market Fund 3.9%
(d) Franklin Institutional Fiduciary Trust
Money Market Portfolio, 2.50% 1,203,602 1,203,602 13,406,435 13,406,435 32,143,244 32,143,244
------------ ------------- -------------
Total Investments (Cost $549,339,267)
100.1% 94,812,737 139,841,909 820,515,844 (e)
Other Assets, less Liabilites (0.1)% (105,324) (752,985) (788,525)(e)
------------ ------------- -------------
Net Assets 100% 94,707,413 140,594,894 819,727,319
------------ ------------- -------------
FOOTNOTE LEGEND
(a) Non-income producing for the twelve months ended March 31, 2008.
(b) Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may be sold in transactions exempt from registration only to
qualified institutional buyers or in a public offering registered under the
Securities Act of 1933. These securities have been deemed liquid under
guidelines approved by the Trust's Board of Trustees. At March 31, 2008,
the aggregate value of these securities was $2,772,997, representing 0.34%
of net assets.
(c) Security is restricted as of March 31, 2008.
(d) The Franklin Institutional Fiduciary Trust Money Market Portfolio is
managed by the Fund's investment manager. The rate shown is the annualized
seven-day yield at period end.
(e) Includes the estimated expenses of the Transactions borne by the Target
Funds and the Franklin DynaTech Fund.
ABBREVIATION LEGEND
ADR - American Depository Receipt
PIPES - Private Investment in Public Equity Security
See notes to Pro Forma combining statements
FRANKLIN TECHNOLOGY FUND
FRANKLIN GLOBAL COMMUNICATIONS FUND
FRANKLIN GLOBAL HEALTH CARE FUND
FRANKLIN DYNATECH FUND
FINANCIAL STATEMENTS
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
AS OF MARCH 31, 2008
(UNAUDITED)
FRANKLIN GLOBAL
FRANKLIN DYNATECH FRANKLIN TECHNOLOGY COMMUNICATIONS
FUND FUND FUND
(UNAUDITED) (UNAUDITED) (UNAUDITED)
----------------- ------------------- --------------
Assets:
Investments in securities:
Cost - Unaffiliated issuers $284,157,558 $ 46,484,526 $ 73,878,682
Cost - Sweep Money Fund 15,195,393 2,337,814 1,203,602
------------ ------------ ------------
Total cost of investments 299,352,951 48,822,340 75,082,284
============ ============ ============
Value - Unaffiliated issuers 519,112,493 49,215,498 93,609,135
Value - Sweep Money Fund 15,195,393 2,337,814 1,203,602
------------ ------------ ------------
Total value of Investments 534,307,886 51,553,312 94,812,737
Cash 48,789 28,562
Receivables:
Investment securities sold 5,050,354 143,414 --
Capital shares sold 397,538 4,555 32,086
Dividends and Interest 130,405 11,143 136,039
------------ ------------ ------------
Total assets 539,886,183 51,761,213 95,009,424
------------ ------------ ------------
Liabilities:
Payables:
Investment securities purchased 4,953,090 260,831 --
Capital shares redeemed 813,228 123,420 52,432
Affiliates 571,433 68,763 109,322
Unaffiliated transfer agent fees 105,015 23,178 31,189
Distributions to shareholders -- 8,353 67,876
Other liabilities 78,300 48,705 41,192
------------ ------------ ------------
Total liabilities 6,521,066 533,250 302,011
------------ ------------ ------------
Net assets, at value $533,365,117 $ 51,227,963 $ 94,707,413
============ ============ ============
Net assets consist of:
Undistributed net investment income (loss) $ (1,104,421) $ (567,921) $ (279,076)
Net unrealized appreciation (depreciation) 234,954,935 2,729,151 19,730,175
Accumulated net realized gain (loss) 22,232,334 (45,432,274) (106,460,689)
Capital shares 277,282,269 94,499,007 181,717,003
------------ ------------ ------------
Net assets, at value $533,365,117 $ 51,227,963 $ 94,707,413
============ ============ ============
CLASS A:
Net assets, at value $458,190,481 $ 29,870,156 $ 75,498,589
============ ============ ============
Shares outstanding(b) 16,491,655 5,623,673 5,902,746
============ ============ ============
Net asset value per share(c) $ 27.78 $ 5.31 $ 12.79
============ ============ ============
Maximum offering price per share (net asset value / 94.25%) $ 29.47 $ 5.63 $ 13.57
============ ============ ============
CLASS B:
Net assets, at value $ 13,743,446 $ 2,780,334 $ 2,918,331
============ ============ ============
Shares outstanding(b) 522,156 550,079 242,306
============ ============ ============
Net asset value and maximum offering price per share(c) $ 26.32 $ 5.05 $ 12.04
============ ============ ============
CLASS C:
Net assets, at value $ 61,431,190 $ 9,066,885 $ 16,290,493
============ ============ ============
Shares outstanding(b) 2,358,990 1,800,814 1,351,318
============ ============ ============
Net asset value and maximum offering price per share(c) $ 26.04 $ 5.03 $ 12.06
============ ============ ============
CLASS R:
Net assets, at value $ 6,920,980
============
Shares outstanding(b) 1,315,295
============
Net asset value and maximum offering price per share(c) $ 5.26
============
ADVISOR CLASS:
Net assets, at value $ 2,589,608
============
Shares outstanding(b) 475,073
============
Net asset value and maximum offering price per share(c) $ 5.45
============
FRANKLIN DYNATECH
FRANKLIN GLOBAL PRO FORMA FUND PRO FORMA
HEALTH CARE FUND ADJUSTMENTS COMBINED
(UNAUDITED) (UNAUDITED) (UNAUDITED)
--------------- ----------- -----------------
Assets:
Investments in securities:
Cost - Unaffiliated issuers $112,675,257 $ -- $ 517,196,023
Cost - Sweep Money Fund 13,406,435 -- 32,143,244
------------ -------------
Total cost of investments 126,081,692 -- 549,339,267
============ ========== =============
Value - Unaffiliated issuers 126,435,474 -- 788,372,600
Value - Sweep Money Fund 13,406,435 -- 32,143,244
------------ -------------
Total value of Investments 139,841,909 -- 820,515,844
Cash 69,368 146,719
Receivables: -- --
Investment securities sold 1,634,987 -- 6,828,755
Capital shares sold 54,209 -- 488,388
Dividends and Interest 395,004 -- 672,591
------------ ---------- -------------
Total assets 141,995,477 -- 828,652,297
------------ ---------- -------------
Liabilities:
Payables:
Investment securities purchased 970,976 -- 6,184,897
Capital shares redeemed 122,614 -- 1,111,694
Affiliates 167,645 -- 917,163
Unaffiliated transfer agent fees 48,668 -- 208,050
Distributions to shareholders 31,252 -- 107,481
Other liabilities 59,428 168,068(a) 395,693
------------ ---------- -------------
Total liabilities 1,400,583 168,068 8,924,978
------------ ---------- -------------
Net assets, at value $140,594,894 $ (168,068) $ 819,727,319
============ ========== =============
Net assets consist of:
Undistributed net investment income (loss) $ (436,945) $ (168,068) $ (2,556,431)
Net unrealized appreciation (depreciation) 13,774,411 -- 271,188,672
Accumulated net realized gain (loss) (2,972,141) -- (132,632,770)
Capital shares 130,229,569 -- 683,727,848
------------ ---------- -------------
Net assets, at value $140,594,894 $ (168,068) $ 819,727,319
============ ========== =============
CLASS A:
Net assets, at value $103,422,958 $ (137,375) $ 666,844,810
============ ========== =============
Shares outstanding(b) 4,412,803 (8,428,267) 24,002,610
============ ========== =============
Net asset value per share(c) $ 23.44 $ 27.78
============ =============
Maximum offering price per share (net asset value / 94.25%) $ 24.87 $ 29.47
============ =============
CLASS B:
Net assets, at value $ 9,212,362 $ (6,251) $ 28,648,222
============ ========== =============
Shares outstanding(b) 418,235 (644,329) 1,088,447
============ ========== =============
Net asset value and maximum offering price per share(c) $ 22.03 $ 26.32
============ =============
CLASS C:
Net assets, at value $ 27,959,573 $ (22,602) $ 114,725,539
============ ========== =============
Shares outstanding(b) 1,281,978 (2,387,476) 4,405,624
============ ========== =============
Net asset value and maximum offering price per share(c) $ 21.81 $ 26.04
============ =============
CLASS R:
Net assets, at value $ (1,304) $ 6,919,676
========== =============
Shares outstanding(b) (1,066,207) 249,088
========== =============
Net asset value and maximum offering price per share(c) $ 27.78
=============
ADVISOR CLASS:
Net assets, at value $ (536) $ 2,589,072
========== =============
Shares outstanding(b) (381,874) 93,199
========== =============
Net asset value and maximum offering price per share(c) $ 27.78
=============
(a) Reorganization costs
(b) See note 2 in the accompanying notes to pro forma combining financial
statements.
(c) Redemption price is equal to the net asset value less contingent sales
charges, if applicable, and redemption fees retained by the Fund.
See notes to Pro Forma combining statements
FRANKLIN TECHNOLOGY FUND
FRANKLIN GLOBAL COMMUNICATIONS FUND
FRANKLIN GLOBAL HEALTH CARE FUND
FRANKLIN DYNATECH FUND
FINANCIAL STATEMENTS
PRO FORMA COMBINING STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED MARCH 31, 2008
(UNAUDITED)
FRANKLIN GLOBAL
FRANKLIN DYNATECH FRANKLIN TECHNOLOGY COMMUNICATIONS
FUND FUND FUND
(UNAUDITED) (UNAUDITED) (UNAUDITED)
----------------- ------------------- ---------------
Investment Income:
Dividends:
Unaffiliated issuers $ 3,888,974 $ 348,049 $ 1,077,067
Sweep Money Fund 305,260 -- --
Interest: 546 -- --
Unaffiliated issuers -- -- 21,733
Income from securities loaned 48,590 -- --
------------ ----------- ------------
Total investment income 4,243,370 348,049 1,098,800
------------ ----------- ------------
Expenses:
Management fees 2,908,288 290,376 645,223
Administrative fees -- 110,140 --
Distribution fees:
Class A 1,232,130 101,452 211,238
Class B 157,397 34,816 37,948
Class C 661,194 96,233 177,935
Class R -- 35,215 --
Transfer agent fees 1,123,169 199,254 266,067
Custodian fees 11,023 2,947 24,991
Reports to shareholders 112,918 22,968 30,205
Registration and filing fees 38,102 57,064 37,988
Professional fees 33,466 24,468 31,530
Trustee's fees and expenses 1,723 722 1,504
Other 10,038 5,469 8,318
------------ ----------- ------------
Total expense 6,289,448 981,124 1,472,947
Expense reductions (239) (387) (6)
------------ ----------- ------------
Net expenses 6,289,209 980,737 1,472,941
------------ ----------- ------------
Net investment income (2,045,839) (632,688) (374,141)
------------ ----------- ------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments:
Unaffiliated issuers 81,882,717 2,720,298 7,375,392
Foreign currency transactions (23,136) 13,023 170,742
------------ ----------- ------------
Net realized gain (loss) 81,859,581 2,733,321 7,546,134
------------ ----------- ------------
Net change in unrealized appreciation (depreciation)
Investments: (50,933,542) (6,287,552) (10,766,660)
Translation of assets and liabilities denominated in foreign
currencies -- 23,299 46,410
------------ ----------- ------------
Net change in unrealized appreciation (depreciation) (50,933,542) (6,264,253) (10,720,250)
------------ ----------- ------------
Net realized and unrealized gain (loss) 30,926,039 (3,530,932) (3,174,116)
------------ ----------- ------------
Net increase (decrease) in net assets resulting from operations $ 28,880,200 $(4,163,620) $ (3,548,257)
------------ ----------- ------------
FRANKLIN DYNATECH
FRANKLIN GLOBAL PRO FORMA FUND PRO FORMA
HEALTH CARE FUND ADJUSTMENTS* COMBINED
(UNAUDITED) (UNAUDITED) (UNAUDITED)
---------------- ------------ -----------------
Investment Income:
Dividends:
Unaffiliated issuers $ 1,670,715 $ -- $ 6,984,805
Sweep Money Fund -- -- 305,260
Interest: -- -- 546
Unaffiliated issuers 10 -- 21,743
Income from securities loaned -- -- 48,590
------------ --------- ------------
Total investment income 1,670,725 -- 7,360,944
------------ --------- ------------
Expenses:
Management fees 838,068 (531,105)(a) 4,150,850
Administrative fees -- (110,140)(b) --
Distribution fees:
Class A 273,915 -- 1,818,735
Class B 106,072 -- 336,233
Class C 281,397 -- 1,216,759
Class R -- -- 35,215
Transfer agent fees 399,921 -- 1,988,411
Custodian fees 9,243 -- 48,204
Reports to shareholders 40,211 (82,092)(c) 124,210
Registration and filing fees 38,288 (125,720)(d) 45,722
Professional fees 37,269 (91,594)(e) 35,139
Trustee's fees and expenses 1,891 (4,117)(f) 1,723
Other 8,368 (22,155)(g) 10,038
------------ --------- ------------
Total expense 2,034,643 (966,923) 9,811,239
Expense reductions (923) -- (1,555)
------------ --------- ------------
Net expenses 2,033,720 (966,923) 9,809,684
------------ --------- ------------
Net investment income (362,995) 966,923 (2,448,740)
------------ --------- ------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments:
Unaffiliated issuers 10,635,410 -- 102,613,817
Foreign currency transactions 13,904 -- 174,533
------------ --------- ------------
Net realized gain (loss) 10,649,314 -- 102,788,350
------------ --------- ------------
Net change in unrealized appreciation (depreciation)
Investments: (17,709,002) -- (85,696,756)
Translation of assets and liabilities denominated in foreign
currencies 10,651 -- 80,360
------------ --------- ------------
Net change in unrealized appreciation (depreciation) (17,698,351) -- (85,616,396)
------------ --------- ------------
Net realized and unrealized gain (loss) (7,049,037) -- 17,171,954
------------ --------- ------------
Net increase (decrease) in net assets resulting from operations $ (7,412,032) $ 966,923 $ 14,723,214
------------ --------- ------------
* Projected Expenses are based on current and anticipated expenses and do not
include the estimated costs of the transaction of approximately $168,068 to
be borne by the Funds.
(a) Pro Forma adjustment for increase in average net assets and sweep reduction
in calculation of management fees.
(b) Pro Forma adjustment for removal of administrative fees.
(c) Pro Forma adjustment for removal of duplicative reports to shareholders
fees.
(d) Pro Forma adjustment for removal of duplicative registration and filing
fees.
(e) Pro Forma adjustment for removal of duplicative professional fees.
(f) Pro Forma adjustment for removal of duplicative trustee's fees and
expenses.
(g) Pro Forma adjustment for removal of duplicative other fees.
See notes to Pro Forma combining statements
NOTES TO PRO FORMA COMBINING STATEMENTS (UNAUDITED)
1. BASIS OF COMBINATION
Subject to approval of the proposed Agreements and Plans of Reorganization
(the "Agreement and Plan") by the shareholders of the Franklin Technology
Fund, the Franklin Global Communications Fund and the Franklin Global Health
Care Fund, the Franklin DynaTech Fund will acquire substantially all of the
assets of the Franklin Technology Fund, the Franklin Global Communications
Fund and the Franklin Global Health Care Fund in exchange for the Class A, B,
C, R and Advisor Class shares of the Franklin DynaTech Fund. Each
reorganization will be accounted for by the method of accounting for tax-free
business combinations of investment companies. The accompanying Pro Forma
Combining Statements are presented to show the effect of the proposed
reorganizations as if such reorganization had occurred on April 1, 2007. The
Pro Forma Combining Statement of Assets and Liabilities and Statement of
Investments for the Franklin DynaTech Fund, the Franklin Technology Fund, the
Franklin Global Communications Fund and the Franklin Global Health Care Fund
have been combined to reflect balances as of March 31, 2008. The Pro Forma
Combining Statement of Operations for the Franklin DynaTech Fund, the
Franklin Technology Fund, the Franklin Global Communications Fund and the
Franklin Global Health Care Fund have been combined to reflect twelve months
ended March 31, 2008. The Pro Forma Combining Statements are presented for
the information of the reader, and should be read in conjunction with the
historical financial statements of the funds.
2. SHARES OF BENEFICIAL INTEREST
The number of Class A shares issued was calculated by dividing the Class A net
assets of the Franklin Technology Fund, the Franklin Global Communications Fund
and the Franklin Global Health Care Fund at March 31, 2008 by the Class A net
asset value per share of the Franklin DynaTech Fund at March 31, 2008.
The number of Class B shares issued was calculated by dividing the Class B net
assets of the Franklin Technology Fund, the Franklin Global Communications Fund
and the Franklin Global Health Care Fund at March 31, 2008 by the Class B net
asset value per share of the Franklin DynaTech Fund at March 31, 2008.
The number of Class C shares issued was calculated by dividing the Class C net
assets of the Franklin Technology Fund, the Franklin Global Communications Fund
and the Franklin Global Health Care Fund at March 31, 2008 by the Class C net
asset value per share of the Franklin DynaTech Fund at March 31, 2008.
DynaTech does not have Class R and Advisor Class shares outstanding as of March
31, 2008. Management intends to exchange Franklin Technology Fund's Class R and
Advisor Class shares for newly-issued shares of Class R and Advisor Class
DynaTech using the Class A net asset value per share on the actual acquisition
date.
The number of Class R shares issued was calculated by dividing the Class R net
assets of the Franklin Technology Fund at March 31, 2008 by the Class A net
asset value per share of the Franklin DynaTech Fund at March 31, 2008.
The number of Advisor Class shares issued was calculated by dividing the Advisor
Class net assets of the Franklin Technology Fund at March 31, 2008 by the Class
A net asset value per share of the Franklin DynaTech Fund at March 31, 2008.
At the actual closing of the reorganizations, shareholders of Franklin
Technology Fund, Franklin Global Health Care Fund, and Franklin Global
Communications Fund will receive shares of Franklin DynaTech Fund based on the
relative net asset values of the Funds as of 1:00 p.m., Pacific Time, on the
closing date. The actual exchange ratios may be higher or lower than those used
in these pro forma statements.
3. INVESTMENT RESTRICTIONS
None of the securities held by the Franklin Technology Fund, the Global
Communications Fund and the Franklin Global Health Care Fund as of the closing
date will violate the investment restrictions of the Franklin DynaTech Fund.
4. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the amounts of income
and expenses during the reporting period. Actual results could differ from those
estimates.
5. SECURITY VALUATION
Securities listed on a securities exchange or on the NASDAQ National Market
System are valued at the last quoted sale price or the official closing price of
the day, respectively. Over-the-counter securities and listed securities for
which there is no reported sale are valued within the range of the most recent
quoted bid and ask prices. Securities that trade in multiple markets or on
multiple exchanges are valued according to the broadest and most representative
market. Investments in open-end mutual funds are valued at the closing net asset
value.
Foreign securities are valued as of the close of trading on the foreign stock
exchange on which the security is primarily traded, or the NYSE, whichever is
earlier. If no sale is reported at that time, the foreign security will be
valued within the range of the most recent quoted bid and ask prices. The value
is then converted into its U.S. dollar equivalent at the foreign exchange rate
in effect at the close of the NYSE on the day that the value of the foreign
security is determined.
Each Fund has procedures to determine the fair value of individual securities
and other assets for which market prices are not readily available or which may
not be reliably priced. Methods for valuing these securities may include:
fundamental analysis, matrix pricing, discounts from market prices of similar
securities, or discounts applied due to the nature and duration of restrictions
on the disposition of the securities. Due to the inherent uncertainty of
valuations of such securities, the fair values may differ significantly from the
values that would have been used had a ready market for such investments
existed. Occasionally, events occur between the time at which trading in a
security is completed and the close of the NYSE that might call into question
the availability (including the reliability) of the value of a portfolio
security held by the fund. The investment manager monitors price movements
following the close of trading in foreign stock markets through a series of
country specific market proxies (such as baskets of American Depository
Receipts, futures contracts and exchange traded funds). These price movements
are measured against established trigger thresholds for each specific
market proxy to assist in determining if an event has occurred. If such an event
occurs, the securities may be valued using fair value procedures, which may
include the use of independent pricing services. All security valuation
procedures are approved by each Fund's Board of Trustees.
FRANKLIN CUSTODIAN FUNDS
FORM N-14
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 such 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, these persons shall not be responsible
or liable for any act or omission of any other agent of
such Trust or its investment adviser or principal
underwriter to the fullest extent that limitations of
liability are permitted by the Delaware statutory trust
Act (the "Delaware Act"). Moreover, except in these
instances, none of these persons, 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
such Trust or any trustee thereof.
The Trust shall indemnify, out of its assets, to the fullest extent
permitted under applicable law, any of these persons who was or is a
party, or is threatened to be made a party, 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,
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, settlement 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 (the "1933 Act" or "Securities
Act"), 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, 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 Registrant's previously filed
registration statements on Form N-1A indicated below,
except as noted:
(1) Copies of the charter of the Registrant as now in effect;
(a) Agreement and Declaration of Trust of Franklin Custodian
Funds, a Delaware statutory trust dated October 18, 2006
Filing: Post-Effective Amendment No. 91 to Registration
Statement on Form N-1A
File No. 002-11346
Filing Date: January 25, 2008
(b) Certificate of Amendment dated December 4, 2006 of
Agreement and Declaration of Trust dated October 18, 2006
Filing: Post-Effective Amendment No. 91 to Registration
Statement on Form N-1A File No. 002-11346 Filing Date:
January 25, 2008
(c) Certificate of Trust of Franklin Custodian Funds dated
October 18, 2006 Filing: Post-Effective Amendment No. 91 to
Registration Statement on Form N-1A File No. 002-11346
Filing Date: January 25, 2008
(d) Certificate of Amendment dated December 4, 2006 to the
Certificate of Trust dated October 18, 2006 Filing:
Post-Effective Amendment No. 91 to Registration Statement
on Form N-1A File No. 002-11346 Filing Date: January 25,
2008
(2) Copies of the existing bylaws or corresponding instrument of the
Registrant;
(a) By-Laws of Franklin Custodian Funds, a Delaware statutory
trust, dated October 18, 2006 Filing: Post-Effective
Amendment No. 91 to Registration Statement on Form N-1A
File No. 002-11346 Filing Date: January 25, 2008
(b) Certificate of Amendment dated December 4, 2006 of By-Laws
dated October 18, 2006 Filing: Post-Effective Amendment No.
91 to Registration Statement on Form N-1A File No.
002-11346 Filing Date: January 25, 2008
(3) Copies of any voting trust agreement affecting more than 5
percent of any class of equity securities of the Registrant;
Not applicable.
(4) Copies of the agreement of acquisition, reorganization, merger,
liquidation and any amendments to it;
(a) Form of Agreement and Plan of Reorganization between the
Registrant, on behalf of Franklin DynaTech Fund, and
Franklin Strategic Series, on behalf of Franklin Global
Communications Fund, Franklin Global Health Care Fund and
Franklin Technology Fund, is filed herewith as Exhibit A to
the Prospectus/Proxy Statement.
(5) Copies of all instruments defining the rights of holders of the
securities being registered including, where applicable, the
relevant portion of the articles of incorporation or by-laws of
the Registrant;
(a) Articles III, V, VI, VII, VIII and IX of the Agreement and
Declaration of Trust of Franklin Custodian Funds, a
Delaware statutory trust dated October 18, 2006 Filing:
Post-Effective Amendment No. 91 to Registration Statement
on Form N-1A File No. 002-11346 Filing Date: January 25,
2008
(b) Articles II, VI and VII of the By-Laws of Franklin
Custodian Funds, a Delaware statutory trust, dated October
18, 2006 Filing: Post-Effective Amendment No. 91 to
Registration Statement on Form N-1A
File No. 002-11346
Filing Date: January 25, 2008
(6) Copies of all investment advisory contracts relating to the
management of the assets of the Registrant;
(a) Investment Management Agreement between the Registrant on
behalf of the Franklin DynaTech Fund and Franklin Advisers,
Inc. dated February 1, 2008 Filing: Post-Effective
Amendment No. 92 to Registration Statement on Form N-1A
File No. 002-11346 Filing Date: May 12, 2008
(b) Investment Management Agreement between the Registrant on
behalf of the Franklin Income Fund and Franklin Advisers,
Inc. dated February 1, 2008 Filing: Post-Effective
Amendment No. 92 to Registration Statement on Form N-1A
File No. 002-11346 Filing Date: May 12, 2008
(c) Investment Management Agreement between the Registrant on
behalf of the Franklin Growth Fund and Franklin Investment
Advisory Services, LLC dated February 1, 2008 Filing:
Post-Effective Amendment No. 92 to Registration Statement
on Form N-1A File No. 002-11346 Filing Date: May 12, 2008
(d) Investment Management Agreement between the Registrant on
behalf of the Franklin U.S. Government Securities Fund and
Franklin Advisers, Inc. dated February 1, 2008 Filing:
Post-Effective Amendment No. 92 to Registration Statement
on Form N-1A File No. 002-11346 Filing Date: May 12, 2008
(e) Investment Management Agreement between the Registrant on
behalf of the Franklin Utilities Fund and Franklin
Advisers, Inc. dated February 1, 2008
Filing: Post-Effective Amendment No. 92 to
Registration Statement on Form N-1A
File No. 002-11346
Filing Date: May 12, 2008
(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) Distribution Agreement between Registrant and
Franklin/Templeton Distributors, Inc. dated
February 1, 2008
Filing: Post-Effective Amendment No. 92 to
Registration Statement on Form N-1A
File No. 002-11346
Filing Date: May 12, 2008
(b) Form of Selling Agreements between Franklin/Templeton
Distributors, Inc. and Securities Dealers dated November 1,
2003 Filing: Post-Effective Amendment No. 88 to
Registration Statement on Form N-1A File No. 002-11346
Filing Date: November 29, 2004
(c) Amendment dated May 15, 2006 to Form of Selling Agreements
between Franklin/Templeton Distributors, Inc. and
Securities Dealers dated November 1, 2003
Filing: Post-Effective Amendment No. 91 to
Registration Statement on Form N-1A
File No. 002-11346
Filing Date: January 25, 2008
(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 Investment Company Act of 1940, as
amended (the "1940 Act") for securities and similar investments
of the Registrant, including the schedule of remuneration;
(a) Master Custody Agreement between Registrant and Bank of New
York dated February 16, 1996 Filing: Post-Effective
Amendment No. 74 to Registration Statement on Form N-1A
File No. 002-11346 Filing Date: August 19, 1996
(b) Amendment dated May 7, 1997 to the Master Custody Agreement
dated February 16, 1996 between the Registrant and Bank of
New York Filing: Post-Effective Amendment No. 77 to
Registration Statement on Form N-1A File No. 002-11346
Filing Date: January 29, 1998
(c) Amendment dated February 27, 1998 to Master Custody
Agreement between the Registrant and Bank of New York dated
February 16, 1996 Filing: Post-Effective Amendment No. 78
to Registration Statement on Form N-1A File No. 002-11346
Filing Date: November 27, 1998
(d) Amendment dated June 3, 2008 to Exhibit A of the Master
Custody Agreement between Registrant and Bank of New York
made as of February 16, 1996
Filing: Post-Effective Amendment No. 93 to
Registration Statement on Form N-1A
File No. 002-11346
Filing Date: July 14, 2008
(e) Amended and Restated Foreign Custody Manager Agreement
between the Registrant and Bank of New York made as of May
16, 2001 Filing: Post-Effective Amendment No. 83 to
Registration Statement on Form N-1A File No. 002-11346
Filing Date: October 29, 2001
(f) Amendment dated June 3, 2008 to Schedule 1 of the Amended
and Restated Foreign Custody Manager Agreement between the
Registrant and Bank of New York Filing: Post-Effective
Amendment No. 93 to Registration Statement on Form N-1A
File No. 002-11346 Filing Date: July 14, 2008
(g) Amendment dated March 19, 2007 to Schedule 2 of the Amended
and Restated Foreign Custody Manager Agreement between the
Registrant and Bank of New York made as May 16, 2001
Filing: Post-Effective Amendment No. 91 to Registration
Statement on Form N-1A File No. 002-11346 Filing Date:
January 25, 2008
(h) Terminal Link Agreement between Registrant and Bank of New
York dated February 16, 1996 Filing: Post-Effective
Amendment No. 74 to Registration Statement on Form N-1A
File No. 002-11346 Filing Date: August 19, 1996
(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) Distribution Plan pursuant to Rule 12b-1 between the
Registrant, on behalf of Franklin DynaTech Fund - Class A
and Franklin/Templeton Distributors, Inc. dated
February 1, 2008
Filing: Post-Effective Amendment No. 92 to
Registration Statement on Form N-1A
File No. 002-11346
Filing Date: May 12, 2008
(b) Distribution Plan pursuant to Rule 12b-1 between the
Registrant, on behalf of Franklin Growth Fund - Class A,
and Franklin/Templeton Distributors, Inc. dated February 1,
2008 Filing: Post-Effective Amendment No. 92 to
Registration Statement on Form N-1A File No. 002-11346
Filing Date: May 12, 2008
(c) Distribution Plan pursuant to Rule 12b-1 between the
Registrant, on behalf of Franklin Income Fund - Class A,
and Franklin/Templeton Distributors, Inc. dated February 1,
2008 Filing: Post-Effective Amendment No. 92 to
Registration Statement on Form N-1A File No. 002-11346
Filing Date: May 12, 2008
(d) Distribution Plan pursuant to Rule 12b-1 between the
Registrant, on behalf of Franklin U.S. Government
Securities Fund - Class A and Franklin/Templeton
Distributors, Inc. dated February 1, 2008 Filing:
Post-Effective Amendment No. 92 to Registration Statement
on Form N-1A File No. 002-11346 Filing Date: May 12, 2008
(e) Distribution Plan pursuant to Rule 12b-1 between the
Registrant, on behalf of Franklin Utilities Fund - Class A,
and Franklin/Templeton Distributors, Inc. dated
February 1, 2008
Filing: Post-Effective Amendment No. 92 to
Registration Statement on Form N-1A
File No. 002-11346
Filing Date: May 12, 2008
(f) Distribution Plan pursuant to Rule 12b-1 between the
Registrant, on behalf of Franklin DynaTech Fund, Franklin
Growth Fund, Franklin Income Fund, Franklin U.S. Government
Securities Fund and Franklin Utilities Fund - Class C, and
Franklin/Templeton Distributors, Inc. dated February 1,
2008 Filing: Post-Effective Amendment No. 92 to
Registration Statement on Form N-1A File No. 002-11346
Filing Date: May 12, 2008
(g) Distribution Plan pursuant to Rule 12b-1 between the
Registrant on behalf of Franklin DynaTech Fund, Franklin
Growth Fund and Franklin Income Fund - Class B, and
Franklin/Templeton Distributors, Inc. dated
February 1, 2008
Filing: Post-Effective Amendment No. 92 to
Registration Statement on Form N-1A
File No. 002-11346
Filing Date: May 12, 2008
(h) Distribution Plan pursuant to Rule 12b-1 between
Registrant, on behalf of Franklin Income Fund - Class B1,
Franklin U.S. Government Securities Fund and Franklin
Utilities Fund - Class B, and Franklin/Templeton
Distributors, Inc. dated February 1, 2008 Filing:
Post-Effective Amendment No. 92 to Registration Statement
on Form N-1A File No. 002-11346 Filing Date: May 12, 2008
(i) Distribution Plan pursuant to Rule 12b-1 between the
Registrant, on behalf of Franklin Growth Fund, Franklin
Income Fund, Franklin U.S. Government Securities Fund and
Franklin Utilities Fund - Class R, and Franklin/Templeton
Distributors, Inc. dated February 1, 2008 Filing:
Post-Effective Amendment No. 92 to Registration Statement
on Form N-1A File No. 002-11346 Filing Date: May 12, 2008
(j) Form of Distribution Plan pursuant to Rule 12b-1 between
the Registrant, on behalf of Franklin DynaTech Fund - Class
R, and Franklin/Templeton Distributors, Inc. Filing:
Post-Effective Amendment No. 93 to Registration Statement
on Form N-1A File No. 002-11346 Filing Date: July 14, 2008
(k) Form of Multiple Class Plan on behalf of Franklin DynaTech
Fund Filing: Post-Effective Amendment No. 93 to
Registration Statement on Form N-1A
File No. 002-11346
Filing Date: July 14, 2008
(l) Multiple Class Plan on behalf of Franklin Growth Fund dated
October 17, 2006 Filing: Post-Effective Amendment No. 91 to
Registration Statement on Form N-1A File No. 002-11346
Filing Date: January 25, 2008
(m) Multiple Class Plan on behalf of Franklin Income Fund dated
October 17, 2006 Filing: Post-Effective Amendment No. 91 to
Registration Statement on Form N-1A File No. 002-11346
Filing Date: January 25, 2008
(n) Multiple Class Plan on behalf of Franklin U.S. Government
Securities Fund dated October 17, 2006
Filing: Post-Effective Amendment No. 91 to
Registration Statement on Form N-1A
File No. 002-11346
Filing Date: January 25, 2008
(o) Multiple Class Plan on behalf of Franklin Utilities Fund
dated October 17, 2006 Filing: Post-Effective Amendment No.
91 to Registration Statement on Form N-1A File No.
002-11346 Filing Date: January 25, 2008
(11) An opinion and consent of counsel as to the legality of the
securities being registered, indicating whether they will, when
sold, be legally issued, fully paid and nonassessable;
(a) Opinion and Consent of Counsel dated July 31, 2008
(12) An opinion, and consent to their use, of counsel or, in lieu of
an opinion, a copy of the revenue ruling from the Internal
Revenue Service, supporting the tax matters and consequences to
shareholders discussed in the prospectus;
(a) To be filed by amendment.
(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) Form of Subcontract for Fund Administrative Services dated
March 1, 2008 between Franklin Advisers, Inc., on behalf of
Franklin DynaTech Fund, Franklin Income Fund, Franklin U.S.
Government Securities Fund and Franklin Utilities Fund, and
Franklin Templeton Services, LLC
Filing: Post-Effective Amendment No. 93 to
Registration Statement on Form N-1A
File No. 002-11346
Filing Date: July 14, 2008
(b) Subcontract for Fund Administrative Services dated February
1, 2008 between Franklin Investment Advisory Services, LLC,
on behalf of Franklin Growth Fund, and Franklin Templeton
Services, LLC
(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;
(a) Consent of Independent Registered Public
Accounting Firm
(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; and
(a) Powers of Attorney dated July 10, 2008
(17) Any additional exhibits which the Registrant may wish to file.
(a) Code of Ethics dated May, 2008 Filing: Post-Effective Amendment
No. 93 to Registration Statement on Form N-1A
File No. 002-11346
Filing Date: July 14, 2008
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 opinions and consents of counsel regarding the tax
consequences of the proposed reorganizations required by Item
16(12) of Form N-14 within a reasonable time after receipt of
such opinions.
SIGNATURES
As required by the Securities Act of 1933, as amended, (the "1933 Act"),
this Registration Statement has been signed on behalf of the Registrant in the
City of San Mateo and the State of California on the 31st day of July, 2008.
FRANKLIN CUSTODIAN FUNDS
a Delaware statutory trust
(Registrant)
By: /s/ David P. Goss
David P. Goss
Vice President
As required by the 1933 Act, this Registration Statement has been signed
by the following persons in the capacities and on the dates indicated:
CHARLES B. JOHNSON* Chief Executive Officer-
Charles B. Johnson Investment Management and
Trustee
Dated: July 31, 2008
GALEN G. VETTER* Chief Executive Officer-
Galen G. Vetter Finance and Administration
Dated: July 31, 2008
LAURA F. FERGERSON* Chief Financial Officer and
Laura F. Fergerson Chief Accounting Officer
Dated: July 31, 2008
HARRIS J. ASHTON* Trustee
Harris J. Ashton Dated: July 31, 2008
ROBERT F. CARLSON* Trustee
Robert F. Carlson Dated: July 31, 2008
SAM GINN* Trustee
Sam Ginn Dated: July 31, 2008
EDITH E. HOLIDAY* Trustee
Edith E. Holiday Dated: July 31, 2008
RUPERT H. JOHNSON, JR.* Trustee
Rupert H. Johnson, Jr. Dated: July 31, 2008
FRANK W.T. LAHAYE* Trustee
Frank W.T. LaHaye Dated: July 31, 2008
FRANK A. OLSON* Trustee
Frank A. Olson Dated: July 31, 2008
LARRY D. THOMPSON* Trustee
Larry D. Thompson Dated: July 31, 2008
JOHN B WILSON* Trustee
John B. Wilson Dated: July 31, 2008
*By /s/ David P. Goss
David P. Goss, Attorney-in-Fact
(Pursuant to Powers of Attorney filed herewith)
FRANKLIN CUSTODIAN FUNDS
REGISTRATION STATEMENT
EXHIBITS INDEX
EXHIBIT NO. DESCRIPTION LOCATION
EX-99.(1)(a) Agreement and Declaration of *
Trust of Franklin Custodian Funds,
a Delaware statutory
trust, dated October 18, 2006
EX-99.(1)(b) Certificate of Amendment dated *
December 4, 2006 of Agreement and
Declaration of Trust
dated October 18, 2006
EX-99.(1)(c) Certificate of Trust of Franklin *
Custodian Funds dated October
18, 2006
EX-99.(1)(d) Certificate of Amendment dated *
December 4, 2006 to the Certificate
of Trust dated October 18, 2006
EX-99.(2)(a) By-Laws of Franklin Custodian *
Funds, a Delaware statutory trust,
dated October 18, 2006
EX-99.(2)(b) Certificate of Amendment dated *
December 4, 2006 of By-Laws
dated October 18, 2006
EX-99.(5)(a) Articles III, V, VI, VII, VIII *
and IX of the Agreement and
Declaration of Trust of
Franklin Custodian Funds, a
Delaware statutory trust dated
October 18, 2006
EX-99.(5)(b) Articles II, VI and VII of the *
By-Laws of Franklin Custodian Funds,
a Delaware statutory trust,
dated October 18, 2006
EX-99.(6)(a) Investment Management Agreement *
between the Registrant on behalf
of the Franklin DynaTech Fund
and Franklin Advisers, Inc.
dated February 1, 2008
EX-99.(6)(b) Investment Management Agreement *
between the Registrant on behalf of the
Franklin Income
Fund and Franklin Advisers, Inc.
dated February 1, 2008
EX-99.(6)(c) Investment Management Agreement *
between the Registrant on behalf
of the Franklin Growth Fund and
Franklin Investment Advisory
Services, LLC dated February 1,
2008
EX-99.(6)(d) Investment Management Agreement *
between the Registrant on behalf
of the Franklin U.S. Government
Securities Fund and Franklin
Advisers, Inc. dated February 1,
2008
EX-99.(6)(e) Investment Management Agreement *
between the Registrant on behalf
of the Franklin Utilities Fund
and Franklin Advisers, Inc.
dated February 1, 2008
EX-99.(7)(a) Distribution Agreement between *
Registrant and Franklin/Templeton
Distributors, Inc.
dated February 1, 2008
EX-99.(7)(b) Form of Selling Agreements *
between Franklin/Templeton
Distributors, Inc. and
Securities Dealers dated
November 1, 2003
EX-99.(7)(c) Amendment dated May 15, 2006 to *
Form of Selling Agreements
between Franklin/Templeton
Distributors, Inc. and
Securities Dealers dated
November 1, 2003
EX-99.(8)(a) Master Custody Agreement between *
Registrant and Bank of New York
dated February 16, 1996
EX-99.(8)(b) Amendment dated May 7, 1997 to *
the Master Custody Agreement
dated February 16, 1996 between
the Registrant and Bank of New
York
EX-99.(8)(c) Amendment dated February 27, *
1998 to the Master Custody
Agreement dated February 16,
1996 between the Registrant and
Bank of New York
EX-99.(8)(d) Amendment dated June 3, 2008 to *
Exhibit A of the Master Custody
Agreement between Registrant and
Bank of New York made as of
February 16, 1996
EX-99.(8)(e) Amended and Restated Foreign *
Custody Manager Agreement between the
Registrant and Bank of New York
made as of May 16, 2001
EX-99.(8)(f) Amendment dated June 3, 2008, to *
Schedule 1 of the Amended and
Restated Foreign Custody Manager
Agreement between the Registrant
and Bank of New York as of May
16, 2003
EX-99.(8)(g) Amendment dated March 19, 2007, *
to Schedule 2 of the Amended and
Restated Foreign Custody Manager
Agreement between the Registrant
and Bank of New York as of May
16, 2001
EX-99.(8)(h) Terminal Link Agreement between *
Registrant and Bank of New York
dated February 16, 1996
EX-99.(10)(a) Distribution Plan pursuant to *
Rule 12b-1 between the
Registrant, on behalf of
Franklin DynaTech Fund - Class
A, and Franklin/Templeton
Distributors, Inc. dated
February 1, 2008
EX-99.(10)(b) Distribution Plan pursuant to *
Rule 12b-1 between the
Registrant, on behalf of
Franklin Growth Fund - Class A,
and Franklin/Templeton
Distributors, Inc. dated
February 1, 2008
EX-99.(10)(c) Distribution Plan pursuant to *
Rule 12b-1 between the
Registrant, on behalf of
Franklin Income Fund - Class A,
and Franklin/Templeton
Distributors, Inc. dated
February 1, 2008
EX-99.(10)(d) Distribution Plan pursuant to *
Rule 12b-1 between the
Registrant, on behalf of
Franklin U.S. Government
Securities Fund - Class A, and
Franklin/Templeton Distributors,
Inc. dated February 1, 2008
EX-99.(10)(e) Distribution Plan pursuant to *
Rule 12b-1 between the
Registrant, on behalf of the
Franklin Utilities Fund - Class
A, and Franklin/Templeton
Distributors, Inc. dated
February 1, 2008
EX-99.(10)(f) Distribution Plan pursuant to *
Rule 12b-1 between the
Registrant, on behalf of
Franklin DynaTech Fund, Franklin
Growth Fund, Franklin Income
Fund, Franklin U.S. Government
Securities Fund and Franklin
Utilities Fund - Class C, and
Franklin/Templeton Distributors,
Inc. dated February 1, 2008
EX-99.(10)(g) Distribution Plan pursuant to *
Rule 12b-1 between the
Registrant, on behalf of
Franklin DynaTech Fund, Franklin
Growth Fund and Franklin Income
Fund - Class B, and
Franklin/Templeton Distributors,
Inc. dated February 1, 2008
EX-99.(10)(h) Distribution Plan pursuant to *
Rule 12b-1 between the
Registrant, on behalf of
Franklin Income Fund - Class B1,
Franklin U.S. Government
Securities Fund and Franklin
Utilities Fund - Class B, and
Franklin/Templeton Distributors,
Inc. dated February 1, 2008
EX-99.(10)(i) Distribution Plan pursuant to *
Rule 12b-1 between the
Registrant, on behalf of
Franklin Growth Fund, Franklin
Income Fund, Franklin U.S.
Government Securities Fund and
Franklin Utilities Fund - Class
R, and Franklin/Templeton
Distributors, Inc. dated
February 1, 2008
EX-99.(10)(j) Form of Distribution Plan *
pursuant to Rule 12b-1 between
the Registrant, on behalf of
Franklin DynaTech Fund - Class
R, and Franklin/Templeton
Distributors, Inc
EX-99.(10)(k) Form of Multiple Class Plan on *
behalf of Franklin DynaTech Fund
EX-99.(10)(l) Multiple Class Plan on behalf of *
Franklin Growth Fund dated
October 17, 2006
EX-99.(10)(m) Multiple Class Plan on behalf of *
Franklin Income Fund dated
October 17, 2006
EX-99.(10)(n) Multiple Class Plan on behalf of *
U.S. Government Securities Fund
dated October 17, 2006
EX-99.(10)(o) Multiple Class Plan on behalf of *
Franklin Utilities Fund dated
October 17, 2006
EX-99.(11)(a) Opinion and Consent of Counsel Attached
dated July 31, 2008
EX-99.(13)(a) Subcontract for Fund *
Administrative Services dated
March 1, 2008 between Franklin
Advisers, Inc., on behalf of
Franklin DynaTech Fund, Franklin
Income Fund, Franklin U.S.
Government Securities Fund and
Franklin Utilities Fund, and
Franklin Templeton Services, LLC
EX-99.(13)(b) Form of Subcontract for Fund Attached
Administrative Services dated
February 1, 2008 between
Franklin Investment Advisory
Services, LLC, on behalf of
Franklin Growth Fund, and
Franklin Templeton Services, LLC
EX-99.(14)(a) Consent of Independent Attached
Registered Public Accounting Firm
EX-99.(16)(a) Powers of Attorney dated Attached
July 10, 2008
EX-99.(17)(a) Code of Ethics dated May, 2008 *
*Incorporated By Reference