As filed with the Securities and Exchange Commission on December 19, 2008
File No.
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
Franklin Custodian Funds
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(Exact Name of Registrant as Specified in Charter)
(650) 312-2000
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(Registrant's Area Code and Telephone Number)
One Franklin Parkway, San Mateo, CA 94403-1906
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(Address of Principal Executive Offices: Number, Street, City, State, and Zip
Code)
CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
(Name and Address of Agent for Service)
Copies to:
Bruce G. Leto, Esquire
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103-7098
Approximate Date of Proposed Public Offering: As soon as practicable after
this Registration Statement becomes effective under the Securities Act of
1933, as amended.
Title of the securities being registered: Title of the securities being
registered: Class A, B, C, R and Advisor shares of beneficial interest, with
no par value, of Franklin Growth Fund. No filing fee is due because
Registrant is relying on Section 24(f) of the Investment Company Act of 1940,
as amended.
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until this Registration Statement shall
become effective on such date as the Commission, acting pursuant to such
Section 8(a), shall determine.
FRANKLIN TEMPLETON LOGO
FRANKLIN CAPITAL GROWTH FUND
IMPORTANT SHAREHOLDER INFORMATION
These materials are for a Special Meeting of Shareholders of
Franklin Capital Growth Fund scheduled for April 9, 2009, at 2:00
p.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. 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 the Fund. If you
complete, sign and return 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 [5] 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 AND
RETURN IT 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
(800) DIAL BEN(R) OR (800)342-5236.
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TELEPHONE AND INTERNET VOTING
For your convenience, you may be able to vote by telephone or
through the Internet, 24 hours a day. If your account is
eligible, separate instructions are enclosed.
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FRANKLIN TEMPLETON LOGO
FRANKLIN CAPITAL GROWTH FUND
ONE FRANKLIN PARKWAY
SAN MATEO, CA 94403-1906
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 9, 2009
To the Shareholders of Franklin Capital Growth Fund:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders
(the "Meeting") of Franklin Capital Growth Fund ("Target Fund")
will be held at Target Fund's offices, One Franklin Parkway, San
Mateo, California, 94403-1906, on April 9, 2009, at 2:00 p.m.,
Pacific Time. The Meeting is being called for the following
purposes:
1. To approve an Agreement and Plan of Reorganization (the
"Plan") between Target Fund and Franklin Custodian Funds
("Acquiring Trust"), on behalf of Franklin Growth Fund ("Growth
Fund"), that provides for: (i) the acquisition of substantially
all of the assets of Target Fund by Growth Fund in exchange
solely for shares of Growth Fund, (ii) the distribution of such
shares to the shareholders of Target Fund, and (iii) the complete
liquidation and dissolution of Target Fund. If Target Fund
effects the Plan, a Target Fund shareholder will receive Class A,
Class B, Class C, Class R, or Advisor Class shares of Growth
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 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 Target Fund, is attached as Exhibit
A to the Prospectus/Proxy Statement.
Shareholders of record as of the close of business on January 9,
2009 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
February [1], 2009
YOU ARE INVITED TO ATTEND THE MEETING, BUT IF YOU CANNOT DO SO,
THE BOARD OF TRUSTEES OF TARGET FUND URGES YOU TO COMPLETE, DATE,
SIGN, AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED
POSTAGE-PAID RETURN ENVELOPE. IT IS IMPORTANT THAT YOU RETURN
YOUR SIGNED PROXY CARD PROMPTLY SO THAT A QUORUM MAY BE ENSURED
AT THE MEETING. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT
IS EXERCISED BY THE SUBSEQUENT EXECUTION AND SUBMISSION OF A
REVISED PROXY, BY GIVING WRITTEN NOTICE OF REVOCATION TO TARGET
FUND 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 notice
that certain terms are capitalized. This means the term is
explained in our glossary section.
TABLE OF CONTENTS
PAGE
COVER PAGE Cover
SUMMARY.........................................................2
WHAT PROPOSAL WILL BE VOTED ON?...........................2
HOW WILL THE TRANSACTION AFFECT ME?.......................3
HOW WILL SHAREHOLDER VOTING BE HANDLED?...................4
COMPARISONS OF SOME IMPORTANT FEATURES OF THE FUNDS.............5
HOW DO THE INVESTMENT GOALS, STRATEGIES AND POLICIES OF THE
FUNDS COMPARE?.......................................5
WHAT ARE THE PRINCIPAL RISKS OF AN INVESTMENT IN A FUND?..6
WHAT ARE THE DISTRIBUTION AND PURCHASE PROCEDURES OF THE
FUNDS?...............................................6
WHAT ARE THE REDEMPTION PROCEDURES AND EXCHANGE PRIVILEGES
OF THE FUNDS?........................................7
WHO MANAGES THE FUNDS?....................................7
WHAT ARE THE FUNDS' INVESTMENT MANAGEMENT AND FUND
ADMINISTRATION FEES?.................................9
WHAT ARE THE FEES AND EXPENSES OF EACH FUND AND WHAT MIGHT
THEY BE AFTER THE TRANSACTION?......................10
HOW DO THE PERFORMANCE RECORDS OF THE FUNDS COMPARE?.....16
WHERE CAN I FIND MORE FINANCIAL AND PERFORMANCE INFORMATION
ABOUT THE FUNDS?....................................17
WHAT ARE OTHER KEY FEATURES OF THE FUNDS?................17
REASONS FOR THE TRANSACTION....................................18
INFORMATION ABOUT THE TRANSACTION..............................20
HOW WILL THE TRANSACTION BE CARRIED OUT?.................20
WHO WILL PAY THE EXPENSES OF THE TRANSACTION?............21
WHAT ARE THE TAX CONSEQUENCES OF THE TRANSACTION?........21
WHAT SHOULD I KNOW ABOUT GROWTH FUND SHARES?.............23
WHAT ARE THE CAPITALIZATIONS OF THE FUNDS AND WHAT MIGHT
GROWTH FUND'S CAPITALIZATION BE AFTER THE
TRANSACTION? .......................................23
COMPARISON OF INVESTMENT GOALS, STRATEGIES, POLICIES AND RISKS.24
ARE THERE ANY SIGNIFICANT DIFFERENCES BETWEEN THE INVESTMENT
GOALS, STRATEGIES, POLICIES AND RISKS OF THE FUNDS?.25
HOW DO THE INVESTMENT RESTRICTIONS OF THE FUNDS DIFFER?..26
WHAT ARE THE PRINCIPAL RISK FACTORS ASSOCIATED WITH
INVESTMENTS IN THE FUNDS?...........................26
INFORMATION ABOUT GROWTH FUND..................................28
INFORMATION ABOUT TARGET FUND..................................28
FURTHER INFORMATION ABOUT THE FUNDS............................29
VOTING INFORMATION.............................................30
HOW MANY VOTES ARE NECESSARY TO APPROVE TARGET
FUND'S PLAN?.............................................30
HOW DO I ENSURE MY VOTE IS ACCURATELY RECORDED?..........31
MAY I REVOKE MY PROXY?...................................31
WHAT OTHER MATTERS WILL BE VOTED UPON AT THE MEETING?....31
WHO IS ENTITLED TO VOTE?.................................32
HOW WILL PROXIES BE SOLICITED?...........................32
ARE THERE DISSENTERS' RIGHTS?............................33
PRINCIPAL HOLDERS OF SHARES....................................33
SHAREHOLDER PROPOSALS..........................................33
ADJOURNMENT....................................................34
GLOSSARY.......................................................35
EXHIBITS TO PROSPECTUS/PROXY STATEMENT.........................37
A. Form of Agreement and Plan of Reorganization
B. Prospectus of Franklin Growth Fund - Class A, Class B,
Class C, Class R and Advisor Class shares, dated February
1, 2009 (enclosed)
C. Principal Holders of Securities
PROSPECTUS/PROXY STATEMENT
DATED FEBRUARY [1], 2009
ACQUISITION OF SUBSTANTIALLY ALL OF THE ASSETS OF
FRANKLIN CAPITAL GROWTH FUND
(A DELAWARE STATUTORY TRUST)
BY AND IN EXCHANGE FOR SHARES OF
FRANKLIN GROWTH 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
Capital Growth Fund ("Target Fund"). At the Meeting,
shareholders of Target Fund will be asked to approve or
disapprove an Agreement and Plan of Reorganization (the "Plan").
If Target Fund shareholders vote to approve the Plan,
substantially all of the assets of Target Fund will be acquired
by Franklin Growth Fund ("Growth Fund"), a series of Franklin
Custodian Funds ("Acquiring Trust"), in exchange for shares of
Franklin Growth Fund - Class A ("Growth Fund Class A shares"),
Franklin Growth Fund - Class B ("Growth Fund Class B shares"),
Franklin Growth Fund - Class C ("Growth Fund Class C shares"),
Franklin Growth Fund - Class R ("Growth Fund Class R shares"),
and Franklin Growth Fund - Advisor Class ("Growth Fund Advisor
Class shares" and, all together, "Growth Fund Shares").
The principal offices of Target Fund and Acquiring Trust are
located at One Franklin Parkway, San Mateo, CA 94403-1906. You
can reach the offices of Target Fund and Acquiring Trust by
calling (800) 342-5236.
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THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The Meeting will be held at Target Fund's offices, One Franklin
Parkway, San Mateo, California, on April 9, 2009, at 2:00 p.m.,
Pacific Time. The Board of Trustees of Target Fund (the "Target
Fund Board") is soliciting these proxies. This Prospectus/Proxy
Statement will first be sent to shareholders on or about February
[2], 2009.
If Target Fund shareholders vote to approve the Plan, you will
receive Growth Fund Class A shares of equivalent aggregate net
asset value ("NAV") to your investment in Class A shares of
Target Fund, Growth Fund Class B shares of equivalent aggregate
NAV to your investment in Class B shares of Target Fund, Growth
Fund Class C shares of equivalent aggregate NAV to your
investment in Class C shares of Target Fund, Growth Fund Class R
shares of equivalent aggregate NAV to your investment in Class R
shares of Target Fund, and Growth Fund Advisor Class shares of
equivalent aggregate NAV to your investment in Advisor Class
shares of Target Fund. Target Fund will then be liquidated and
dissolved.
The primary investment goals of the Funds are identical. Each
Fund has capital appreciation as its primary investment goal.
Target Fund's secondary investment goal is to provide current
income return through the receipt of dividends or interest from
its investments.
This Prospectus/Proxy Statement includes information about the
Plan and Growth Fund that you should know before voting on the
Plan. You should retain this Prospectus/Proxy Statement for
future reference. Additional information about Growth Fund and
the proposed transaction has been filed with the U.S. Securities
and Exchange Commission ("SEC") and can be found in the following
documents:
o The Prospectus of Growth Fund - Class A, Class B, Class C,
Class R and Advisor Class dated February 1, 2009 (the "Growth
Fund Prospectus"), which is enclosed with and considered a
part of this Prospectus/Proxy Statement.
o A Statement of Additional Information ("SAI") dated February
[1], 2009, 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 Growth Fund Prospectus without
charge by calling (800) DIAL-BEN or by writing to Franklin
Templeton Investments at One Franklin Parkway, San Mateo, CA
94403-1906.
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 Plan (attached as Exhibit A) and the
Growth Fund Prospectus (enclosed as Exhibit B).
WHAT PROPOSAL WILL BE VOTED ON?
At a meeting held on December 1, 2008, the Target Fund Board
considered a proposal to reorganize Target Fund with and into
Growth Fund, approved the Plan, and voted to recommend that
shareholders of Target Fund vote to approve the Plan. In
addition, at a meeting also held on December 1, 2008, the Board
of Trustees of Acquiring Trust, on behalf of Growth Fund,
concluded that the Plan is in the best interests of Growth Fund
and its shareholders and approved the Plan.
If shareholders of Target Fund vote to approve the Plan,
substantially all of Target Fund's assets will be transferred to
Growth Fund in exchange for Growth Fund Shares of equivalent
aggregate NAV. If shareholders of Target Fund approve the Plan,
your Class A, Class B, Class C, Class R, or Advisor Class shares
of Target Fund will be exchanged for shares of equivalent
aggregate NAV of the corresponding class of Growth Fund. Because
Target Fund and Growth Fund (each, a "Fund" and, collectively,
the "Funds") have different NAVs per share, the number of Growth
Fund Shares that you receive will likely be different than the
number of Target Fund shares that you own, but the total value of
your investment will be the same immediately before and after the
exchange. After Growth Fund Shares are distributed to Target
Fund shareholders, Target Fund will be completely liquidated and
dissolved. (The proposed transaction is referred to in this
Prospectus/Proxy Statement as the "Transaction.") As a result of
the Transaction, you will cease to be a shareholder of Target
Fund and will become a shareholder of Growth Fund. This exchange
is expected to occur on or about May 6, 2009.
Franklin Advisers, Inc. ("FAI") serves as investment manager to
both Funds. The investment goals of Target Fund and Growth Fund
are similar, but they are not identical. Both Funds have capital
appreciation as their primary investment goal, but Target Fund
has as a secondary investment goal to provide current income
return through the receipt of dividends or interest from its
investments. For the reasons set forth in the "Reasons for the
Transaction" section of this Prospectus/Proxy Statement, the
Target Fund Board, including the Trustees who are not "interested
persons" of Target Fund as such term is defined in the 1940 Act
(the "Independent Trustees"), has determined that the Transaction
is in the best interests of Target Fund and Target Fund's
shareholders. The Target Fund Board and the Board of Trustees of
Acquiring Trust also concluded that no dilution in value would
result to the shareholders of Target Fund or Growth 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 Target Fund shares for Growth 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 TARGET FUND BOARD RECOMMENDS THAT YOU
VOTE TO APPROVE THE PLAN.
HOW WILL THE TRANSACTION AFFECT ME?
If the Transaction is completed, you will cease to be a
shareholder of Target Fund and become a shareholder of Growth
Fund. It is anticipated that the Transaction will benefit you as
follows:
POTENTIAL COST SAVINGS. The total annual operating expenses of
Growth Fund are less than those of Target Fund. In addition, FAI
believes that it is unlikely that Target Fund will experience
significant future net sales that would allow Target 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 any applicable management
fee reductions, for each class of Growth Fund, based on its
fiscal year ended September 30, 2008, with those of each class of
Target Fund, based on its fiscal year ended June 30, 2008:
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GROWTH FUND TARGET FUND
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Class A 0.89% 0.94%
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Class B 1.64% 1.70%
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Class C 1.64% 1.70%
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Class R 1.14% 1.20%
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Advisor 0.64% 0.70%
Class
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Upon the reorganization of Target Fund into Growth Fund, Target
Fund shareholders will become shareholders of a larger fund that
may be able to achieve greater operating efficiencies. As of
October 31, 2008, Growth Fund's total net assets were
approximately $1.93 billion and Target Fund's total net assets
were approximately $0.94 billion. The Transaction is not
projected to have a material impact on the expense ratio of
Growth Fund.
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 Transaction?"
RELATIVE PERFORMANCE. Growth Fund has outperformed Target Fund
over the most recent one-, five- and ten-year periods ended
October 31, 2008. The performance of each Fund's Class A shares
as of that date, without giving effect to applicable sales
charges or redemption fees, is shown in the following table:
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AVERAGE ANNUAL TOTAL TARGET FUND GROWTH FUND
RETURN
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1 Year (36.33%) (34.98%)
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5 Year (2.06%) (1.98%)
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10 Year 1.08% 1.43%
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More detailed performance information is included below under the
section "How do the performance records of the Funds compare?" in
this Prospectus/Proxy Statement.
It is anticipated that the Transaction may disadvantage you as
follows:
UNREALIZED APPRECIATION. Target Fund's shareholders that receive
Growth Fund Shares will 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 Transaction?" in this
Prospectus/Proxy Statement.
COSTS OF THE TRANSACTION. Target Fund will pay 25% of the
expenses of the Transaction, including proxy solicitation costs.
Acquiring Trust, on behalf of Growth Fund, will pay 25% of such
expenses. FAI will pay the remaining 50% of such expenses. The
total amount of such expenses for the Transaction is estimated to
be $286,288.
HOW WILL SHAREHOLDER VOTING BE HANDLED?
Shareholders who own shares of Target Fund at the close of
business on January 9, 2009, 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 Target Fund requires
the affirmative vote of the lesser of: (i) a majority of the
outstanding shares of Target Fund or (ii) 67% or more of the
outstanding shares of Target Fund present at or represented by
proxy at the Meeting if the holders of more than 50% of the
outstanding shares of Target Fund are present or represented by
proxy ("Affirmative Majority Vote"). Computershare Fund Services
has been retained by 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, signing, and
mailing the enclosed proxy card, by calling the number on the
enclosed proxy card, or via the Internet by following the
instructions on the enclosed proxy card. 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 primary investment goals of the Funds are
identical. Each Fund has capital appreciation as its primary
investment goal. Target Fund has, as a secondary investment
goal, the provision of current income return through the receipt
of dividends or interest from its investments. Historically,
however, Growth Fund and Target Fund have had a similar
proportion of their portfolios invested in dividend paying
investments. As of September 30, 2008, Target Fund and Growth
Fund held 96.8% and 99.9% of their respective net assets in
common stocks.
PRINCIPAL INVESTMENT STRATEGIES. The investment strategies of
Target Fund are substantially similar to the investment
strategies of Growth Fund. For both Funds, FAI applies a
"bottom-up," growth-oriented approach, focusing primarily on
individual securities and choosing companies that it believes are
positioned for growth in revenues, earnings or assets.
In choosing individual equity investments, each Fund's manager
considers sectors that have growth potential and fast-growing,
innovative companies within these sectors. Consequently, each
Fund may from time to time have significant positions in
particular sectors, which may include, for example, technology
(including computers and telecommunications), health care
(including biotechnology) and producer manufacturing. Due to
market appreciation, a Fund's investment in an industry sector or
the securities of a single company may come to represent a
significant portion of the Fund's portfolio. Nevertheless, a
Fund will maintain such a position so long as it believes that the
company or industry continues to meet its investment guidelines.
TURNOVER. Growth Fund generally pursues a "buy-and-hold" growth
strategy. Growth Fund has historically had relatively low
portfolio turnover, and its portfolio turnover has historically
been lower than that of Target Fund. Because Growth Fund uses a
"buy-and-hold" investment strategy, the Fund's portfolio
securities may have a higher level of unrealized capital
appreciation than if the Fund did not use this strategy. During
periods of net redemptions of Growth Fund Shares or when market
conditions warrant, the manager may sell these securities,
generating a higher level of taxable gain for shareholders than
would occur if the Fund had not used these strategies. In
contrast, Target Fund has historically experienced relatively
higher turnover, which may increase fund expenses and have
negative tax implications for shareholders.
MARKET CAPITALIZATION. Target Fund and Growth Fund may invest in
companies of any size. Both Funds focus primarily on
investments in large- and mid-capitalization companies, and have
done so historically. Both Funds may also invest in securities
of small-capitalization companies. Growth Fund may invest up to
40% of its assets in smaller companies, which it considers
generally to be those with market capitalizations of less than
$1.5 billion; Target Fund has no specific limit on such
investments. As of September 30, 2008, Target Fund did not have
any of its net assets invested in small-cap companies but had
16.8% of its net assets invested in mid-cap companies, while as
of that date Growth Fund had 4.4% of its net assets invested in
small-cap companies and 22.9% invested in mid-cap companies.
Therefore, Growth Fund has had greater exposure to small- and
mid-cap companies, and their related risks, than Target Fund.
FOREIGN SECURITIES. Growth Fund may invest up to 40% of its
assets in foreign securities, and had invested 5.1% of its
portfolio in foreign securities as of September 30, 2008. Target
Fund has no set limit on foreign securities, and invested 13.8%
of its portfolio in foreign securities as of September 30, 2008.
Growth Fund therefore has had less exposure to foreign
securities, and their related risks, than Target Fund.
WHAT ARE THE PRINCIPAL RISKS OF AN INVESTMENT IN A FUND?
An investment in either of the Funds involves risks common to
most mutual funds. 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. There is no guarantee against losses
resulting from an investment in either Fund, or that either Fund
will achieve its investment goal. Each of the Funds is also
generally subject to the risks associated with investing in
equity securities, and 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.
For more information about the investment goals, strategies,
policies, and risks of Target Fund and Growth 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 B shares, which are no longer offered to new
investors, are subject to a CDSC according to the same schedule
for both Funds. 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 R and Advisor Class shares
of each Fund are not subject to a sales charge. Holders of Class
A shares of Target Fund will not be assessed a sales charge on
their receipt of Growth Fund Class A shares in connection with
the Transaction. Holders of Class B and Class C shares of Target
Fund will be given credit for their holding period in Target Fund
in determining any applicable CDSC, and shareholders will be
given credit for their holding period of Target Fund Class B
shares in determining the date of conversion of their Growth Fund
Class B shares to Class A shares. No CDSC will be charged to
Target Fund shareholders in connection with the exchange of their
shares pursuant to the terms of the Transaction.
WHAT ARE THE REDEMPTION PROCEDURES AND EXCHANGE PRIVILEGES OF THE
FUNDS?
Each Fund offers the same redemption features pursuant to which
redemption proceeds are remitted by check after prompt receipt of
proper documents, including signature guarantees under certain
circumstances. Each Fund has the same exchange privileges.
Shares of each Fund may be redeemed at its 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 of their purchase. A
CDSC may also apply when redeeming Class B or C shares of a
Fund.
WHO MANAGES THE FUNDS?
The management of the business and affairs of each Fund is the
responsibility of its respective Board of Trustees. Growth Fund
is a series of Acquiring Trust. Acquiring Trust and Target Fund
are each an open-end, registered management investment company,
commonly referred to as a "mutual fund." 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. Target Fund was organized
as a California corporation in 1984 and was reorganized on
August 10, 2000 into a Delaware statutory trust (a form of entity
formerly known as a business trust) created on March 21, 2000.
FAI serves as investment manager for both Funds. 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 affiliates serve as
investment manager or administrator to 46 registered investment
companies, with approximately 155 U.S.-based funds or series.
Resources had more than $404 billion in assets under management
as of November 30, 2008. The principal shareholders of Resources
are Charles B. Johnson and Rupert H. Johnson, Jr., who are
trustees and/or officers of Target Fund and Acquiring Trust.
Growth Fund is subadvised by Franklin Investment Advisory
Services, LLC ("Investment Advisory"), One Franklin Parkway, San
Mateo, CA 94403-1906, an affiliate of FAI.
GROWTH FUND MANAGEMENT TEAM. Growth Fund is managed by a team of
dedicated professionals focused on investments in securities of
companies that are leaders in their industry. The portfolio
managers of the team are Vivian J. Palmieri, Serena Perin Vinton,
and Conrad B. Herrmann.
Mr. Palmieri is a Vice President of Investment Advisory and has
been a manager of Growth Fund since 1965. He has primary
responsibility for the investments of Growth Fund. He has final
authority over all aspects of Growth Fund's investment portfolio,
such as 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 1965.
Serena Perin Vinton, a Chartered Financial Analyst and a Vice
President of FAI, has been a manager of Growth Fund since 1996.
She joined Franklin Templeton Investments in 1991.
Mr. Herrmann, a Chartered Financial Analyst, is Senior Vice
President of FAI. Mr. Herrmann has been a manager of Growth Fund
since 1993, providing research and advice on purchases and sales
of individual securities and portfolio risk assessment. He
joined Franklin Templeton Investments in 1989.
The Statement of Additional Information for Growth Fund dated
February 1, 2009, as amended and supplemented to date (the
"Growth Fund SAI"), provides additional information about the
portfolio managers' compensation, other accounts managed by the
portfolio managers, and the portfolio managers' ownership of
securities in Growth Fund. For information on how to obtain a
copy of the Growth Fund SAI, please see the section entitled
"Information About Growth Fund."
TARGET FUND MANAGEMENT TEAM. Target Fund is managed by a team of
dedicated professionals focused on investments in equity
securities. The portfolio managers of the team are Ms. Vinton,
Steve Kornfeld, and Mr. Herrmann.
Ms. Perin Vinton has been lead portfolio manager of Target Fund
since 1996. She has primary responsibility for the investments
of Target Fund. She has final authority over all aspects of
Target Fund's investment portfolio, such as 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 she may perform
these functions, and the nature of these functions, may change
from time to time. Further biographical information for Ms.
Perin Vinton is included above in the discussion of her role in
managing Growth Fund.
Steve Kornfeld, a Chartered Financial Analyst and a Portfolio
Manager of FAI, has been a manager of Target Fund since 2002,
providing research and advice on the purchases and sales of
individual securities, and portfolio risk assessment. He joined
Franklin Templeton Investments in 2001.
Mr. Herrmann has been a manager of Target Fund since 1993,
providing research and advice on the purchases and sales of
individual securities, and portfolio risk assessment. Further
biographical information for Mr. Herrmann is included above in
the discussion of his role in managing Growth Fund.
The Statement of Additional Information for Target Fund dated
November 1, 2008 (the "Target Fund SAI") provides additional
information about the portfolio managers' compensation, other
accounts managed by the portfolio managers, and the portfolio
managers' ownership of securities in Target Fund. For
information on how to obtain a copy of Target Fund SAI, please
see the section entitled "Information About Target Fund."
WHAT ARE THE FUNDS' INVESTMENT MANAGEMENT AND FUND ADMINISTRATION
FEES?
The terms of each Fund's investment management agreement with FAI
are substantially similar, except that Growth Fund offers
additional breakpoints at asset levels above $17.5 billion. The
following table shows the investment management fees for the
Funds.
-----------------------------------------------------------------------
TARGET FUND GROWTH FUND
-----------------------------------------------------------------------
o 0.625% of the value of net o 0.625% of the value of net
assets up to and including $100 assets up to and including
million; $100 million;
o 0.500% of the value of net o 0.500% of the value of net
assets over $100 million and assets over $100 million and
not over $250 million; not over $250 million;
o 0.450% of the value of net o 0.450% of the value of net
assets over $250 million and assets over $250 million and
not over $7.5 billion; not over $7.5 billion;
o 0.440% of the value of net o 0.440% of the value of net
assets over $7.5 billion and assets over $7.5 billion not
not over $10 billion; over $10 billion; and
o 0.430 of the value of net o 0.430% of the value of net
assets over $10 billion and not assets over $10 billion and
over $12.5 billion; not over $12.5 billion;
o 0.420% of the value of net o 0.420% of the value of net
assets over $12.5 billion and assets over $12.5 billion and
not over $15 billion; and not over $15 billion;
o 0.400% of the value of net o 0.400% of the value of net
assets in excess of $15 billion. assets over $15 billion and
not over $17.5 billion;
o 0.380% of the value of net
assets over $17.5 billion and
not over $20 billion;
o 0.360% of the value of net
assets over $20 billion and
not over $35 billion;
o 0.355% of the value of net
assets over $35 billion and
not over $50 billion; and
o 0.350% of the value of net
assets in excess of $50
billion.
-----------------------------------------------------------------------
For the fiscal year ended September 30, 2008, Growth Fund paid
management fees of $12,544,223, or 0.45% of Growth Fund's average
daily net assets, to Investment Advisory. Prior to November 1,
2008, Investment Advisory served as Growth Fund's primary
investment adviser. Effective November 1, 2008, FAI was
appointed as the investment adviser for Growth Fund and
Investment Advisory was appointed subadviser for Growth Fund.
This change did not affect the calculation or payment of
management fees for Growth Fund. A discussion regarding the
basis for the Board of Trustees of Acquiring Trust approving the
investment management agreement of Growth Fund will be available
in Growth Fund's Semiannual Report to Shareholders for the
six-month period ending March 31, 2009.
For the fiscal year ended June 30, 2008, Target Fund paid
management fees, net of fee waivers, in the amount of $6,635,529,
or 0.45% of Target Fund's average daily net assets. A discussion
regarding the basis for the Target Fund Board approving the
investment management agreement for Target Fund is available in
Target Fund's most recent Annual Report to Shareholders for the
fiscal year ended June 30, 2008.
Each 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, at the
following rate schedule:
------------------------------------
FUND ADMINISTRATION FEE (PAID BY
FAI)
------------------------------------
o 0.15% of the net assets up
to and including $200 million;
o 0.135% of net assets over
$200 million but not more than
$700 million;
o 0.100% net assets over $700
million but not more than $1.2
billion; and
o 0.075% of net assets over
$1.2 billion
------------------------------------
WHAT ARE THE FEES AND EXPENSES OF EACH FUND AND WHAT MIGHT THEY
BE AFTER THE TRANSACTION?
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 Growth Fund, assuming that
Target Fund approves the Plan and that the Transaction had been
completed as of the beginning of Growth Fund's last completed
fiscal year. 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 Growth Fund.
You will not pay any initial or deferred sales charge in
connection with the Transaction.
TABLE OF SHAREHOLDER FEES (BOTH FUNDS)
The following table shows shareholder fees paid directly from a
new investment, which will remain the same after the
Transaction. You will not pay these charges in connection with
the Transaction.
------------------------------------------------------------------------
ADVISOR
SHAREHOLDER FEES CLASS A CLASS B CLASS C CLASS R CLASS
------------------------------------------------------------------------
Maximum sales charge 5.75%(1) 4.00% 1.00% None None
(load)
as a percentage of
offering price
------------------------------------------------------------------------
Load imposed on 5.75%(1) None None None None
purchases
------------------------------------------------------------------------
Maximum deferred None(2) 4.00%(3) 1.00% None None
sales charge (load)
------------------------------------------------------------------------
1. 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.
2. 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
if redeemed within 18 months of purchase.
3. 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
-------------------------------------------------------------
GROWTH FUND
PROJECTED
(ASSUMES
ANNUAL FUND OPERATING EXPENSES TRANSACTION
(EXPENSES DEDUCTED FROM FUND TARGET GROWTH WAS
ASSETS) FUND(1) FUND(1) COMPLETED)(2)
-------------------------------------------------------------
Management fees (3) 0.46% 0.45% 0.45%
-------------------------------------------------------------
Distribution and service 0.24% 0.25% 0.25%
(12b-1) fees
-------------------------------------------------------------
Other expenses 0.24% 0.19% 0.19%
-------------------------------------------------------------
Acquired fund fees and 0.01% - -
expenses (3)
-------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING 0.95% 0.89% 0.89%
EXPENSES
-------------------------------------------------------------
Management fee reduction (3) -0.01% - -
-------------------------------------------------------------
Net annual Fund operating 0.94%(40.89% 0.89%
expenses (3)
-------------------------------------------------------------
1. Expense ratios reflect annual fund operating expenses for
the most recent fiscal year of the Fund (June 30, 2008 for
Target Fund and September 30, 2008 for Growth Fund).
2. The projected expense ratios are calculated as if the
Transaction had been completed as of October 1, 2007.
Excluded from Other Expenses are the one-time estimated
costs of the Transaction of $71,572 to be borne by Growth
Fund.
3. 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 each Fund's Board of Trustees and an exemptive order from
the SEC. For Growth Fund, this fee reduction amounted to
less than 0.01% of the Fund's average net assets.
4. Net annual Fund operating expenses differ from the ratio of
expenses to average net assets shown in the Financial
Highlights in Target Fund's Annual Report to Shareholders
for the fiscal year ended June 30, 2008, which reflect the
operating expenses of Target Fund but do not include
acquired fund fees and expenses.
EXAMPLE
This example can help you compare the cost of investing in Target
Fund's Class A shares with the cost of investing in Growth Fund
Class A shares, both before and after the Transaction. 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, taking into
account any contractual waivers for the applicable period;
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
----------------------------------------------------------------------
Target Fund - Class A $665(1) $857 $1,065 $1,663
Growth Fund - Class A $661(1) $843 $1,040 $1,608
Projected Growth Fund - Class A $661(1) $843 $1,040 $1,608
(assuming the Transaction is
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
------------------------------------------------------------
GROWTH FUND
PROJECTED
(ASSUMES
TRANSACTION
ANNUAL FUND OPERATING EXPENSES WAS
(EXPENSES DEDUCTED FROM FUND TARGET GROWTH COMPLETED)
ASSETS) FUND(1) FUND(1) (2)
------------------------------------------------------------
Management fees (3) 0.46% 0.45% 0.45%
------------------------------------------------------------
Distribution and service 1.00% 1.00% 1.00%
(12b-1) fees
------------------------------------------------------------
Other expenses 0.24% 0.19% 0.19%
------------------------------------------------------------
Acquired fund fees and expenses 0.01% - -
(3)
------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING 1.71% 1.64% 1.64%
EXPENSES
------------------------------------------------------------
Management fee reduction (3) -0.01% - -
------------------------------------------------------------
Net annual Fund operating 1.70%(1.64% 1.64%
expenses (3)
------------------------------------------------------------
1. Expense ratios reflect annual fund operating expenses for
the most recent fiscal year of the Fund (June 30, 2008 for
Target Fund and September 30, 2008 for Growth Fund).
2. The projected expense ratios are calculated as if the
Transaction had been completed as of October 1, 2007.
Excluded from Other Expenses are the one-time estimated
costs of the Transaction of $71,572 to be borne by Growth
Fund.
3. 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 each Fund's Board of Trustees and an exemptive order from
the SEC. For Growth Fund, this fee reduction amounted to
less than 0.01% of the Fund's average net assets.
4. Net annual Fund operating expenses differ from the ratio of
expenses to average net assets shown in the Financial
Highlights in Target Fund's Annual Report to Shareholders
for the fiscal year ended June 30, 2008, which reflect the
operating expenses of Target Fund but do not include
acquired fund fees and expenses.
EXAMPLE
This example can help you compare the cost of investing in Target
Fund's Class B shares with the cost of investing in Growth Fund
Class B shares, both before and after the Transaction. 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, taking into
account any contractual waivers for the applicable period.
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 YEAR 3 5 10
YEARS YEARS YEARS
-------------------------------------------------------------------
If you sell your shares at the
end of the period:
Target Fund - Class B $573 $836 $1,123 $1,807(1)
Growth Fund - Class B $567 $817 $1,092 $1,743(1)
Projected Growth Fund - Class B $567 $817 $1,092 $1,743(1)
(assuming the Transaction is
completed)
If you do not sell your shares:
Target Fund - Class B $173 $536 $923 $1,807(1)
Growth Fund - Class B $167 $517 $892 $1,743(1)
Projected Growth Fund - Class B $167 $517 $892 $1,743(1)
(assuming the Transaction is
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
--------------------------------------------------------
GROWTH
FUND
PROJECTED
ANNUAL FUND OPERATING (ASSUMES
EXPENSES TRANSACTION
(EXPENSES DEDUCTED FROM TARGET GROWTH WAS
FUND ASSETS) FUND(1)FUND(1)COMPLETED)(2)
--------------------------------------------------------
Management fees (3) 0.46% 0.45% 0.45%
--------------------------------------------------------
Distribution and Service 1.00% 1.00% 1.00%
(12b-1) fees
--------------------------------------------------------
Other expenses 0.24% 0.19% 0.19%
--------------------------------------------------------
Acquired fund fees and 0.01% - -
expenses (3)
--------------------------------------------------------
TOTAL ANNUAL FUND 1.71% 1.64% 1.64%
OPERATING EXPENSES
--------------------------------------------------------
Management fee reduction -0.01% - -
(3)
--------------------------------------------------------
Net annual Fund operating 1.70%(4) 1.64% 1.64%
expenses (3)
------------------------------------------------------
1. Expense ratios reflect annual fund operating expenses for
the most recent fiscal year of the Fund (June 30, 2008 for
Target Fund and September 30, 2008 for Growth Fund).
2. The projected expense ratios are calculated as if the
Transaction had been completed as of October 1, 2007.
Excluded from Other Expenses are the one-time estimated
costs of the Transaction of $71,572 to be borne by Growth
Fund.
3. 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 each Fund's Board of Trustees and an exemptive order from
the SEC. For Growth Fund, this fee reduction amounted to
less than 0.01% of the Fund's average net assets.
4. Net annual Fund operating expenses differ from the ratio of
expenses to average net assets shown in the Financial
Highlights in Target Fund's Annual Report to Shareholders
for the fiscal year ended June 30, 2008, which reflect the
operating expenses of Target Fund but do not include
acquired fund fees and expenses.
EXAMPLE
This example can help you compare the cost of investing in Target
Fund's Class C shares with the cost of investing in Growth Fund
Class C shares, both before and after the Transaction. 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, taking into
account any contractual waivers for the applicable period.
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 YEAR 3 5 10
YEARS YEARS YEARS
---------------------------------------------------------------
If you sell your shares at the
end of the period:
Target Fund - Class C $273 $536 $923 $2,009
Growth Fund - Class C $267 $517 $892 $1,944
Projected Growth Fund - Class C $267 $517 $892 $1,944
(assuming the Transaction is
completed)
If you do not sell your shares:
Target Fund - Class C $173 $536 $923 $2,009
Growth Fund - Class C $167 $517 $892 $1,944
Projected Growth Fund - Class C $167 $517 $892 $1,944
(assuming the Transaction is
completed)
ANNUAL OPERATING EXPENSE TABLE FOR CLASS R SHARES OF
TARGET FUND AND GROWTH FUND, AND PROJECTED FEES AFTER THE
TRANSACTION
----------------------------------------------------------------
GROWTH
FUND
PROJECTED
(ASSUMES
TRANSACTION
ANNUAL FUND OPERATING EXPENSES WAS
(EXPENSES DEDUCTED FROM FUND TARGET GROWTH COMPLETED)
ASSETS) FUND(1) FUND (1) (2)
----------------------------------------------------------------
Management fees (3) 0.46% 0.45% 0.45%
----------------------------------------------------------------
Distribution and service 0.50% 0.50% 0.50%
(12b-1) fees
----------------------------------------------------------------
Other Expenses 0.24% 0.19% 0.19%
----------------------------------------------------------------
Acquired fund fees and 0.01% - -
expenses (3)
----------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING 1.21% 1.14% 1.14%
EXPENSES
----------------------------------------------------------------
Management fee reduction (3) -0.01% - -
----------------------------------------------------------------
Net annual Fund operating 1.20%(4) 1.14% 1.14%
expenses (3)
----------------------------------------------------------------
1. Expense ratios reflect annual fund operating expenses for
the most recent fiscal year of each Fund (June 30, 2008 for
Target Fund and September 30, 2008 for Growth Fund).
2. The projected expense ratios are calculated as if the
Transaction had been completed as of October 1, 2007.
Excluded from Other Expenses are the one-time estimated
costs of the Transaction of $71,572 to be borne by Growth
Fund.
3. 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 each Fund's Board of Trustees and an exemptive order from
the SEC. For Growth Fund, this fee reduction amounted to
less than 0.01% of the Fund's average net assets.
4. Net annual Fund operating expenses differ from the ratio of
expenses to average net assets shown in the Financial
Highlights in Target Fund's Annual Report to Shareholders
for the fiscal year ended June 30, 2008, which reflect the
operating expenses of Target Fund but do not include
acquired fund fees and expenses.
EXAMPLE
This example can help you compare the cost of investing in Target
Fund's Class R shares with the cost of investing in Growth Fund
Class R shares, both before and after the Transaction. 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, taking into
account any contractual waivers for the applicable period;
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
------------------------------------------------------------------
Target Fund - Class R $122 $381 $660 $1,455
Growth Fund - Class R $116 $362 $628 $1,386
Projected Growth Fund - Class R $116 $362 $628 $1,386
(assuming the Transaction is
completed)
ANNUAL OPERATING EXPENSE TABLE FOR ADVISOR CLASS SHARES OF
TARGET FUND AND GROWTH FUND, AND PROJECTED FEES AFTER THE
TRANSACTION
---------------------------------------------------------------
GROWTH
FUND
PROJECTED
(ASSUMES
TRANSACTION
ANNUAL FUND OPERATING EXPENSES WAS
(EXPENSES DEDUCTED FROM FUND TARGET GROWTH COMPLETED)
ASSETS) FUND(1) FUND(1) (2)
---------------------------------------------------------------
Management fees (3) 0.46% 0.45% 0.45%
---------------------------------------------------------------
Distribution and service - - -
(12b-1) fees
---------------------------------------------------------------
Other expenses 0.24% 0.19% 0.19%
---------------------------------------------------------------
Acquired fund fees and 0.01% - -
expenses (3)
---------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING 0.71% 0.64% 0.64%
EXPENSES
---------------------------------------------------------------
Management fee reduction (3) -0.01% - -
---------------------------------------------------------------
Net annual Fund operating 0.70%(4) 0.64% 0.64%
expenses (3)
---------------------------------------------------------------
1. Expense ratios reflect annual fund operating expenses for
the most recent fiscal year of the Fund (June 30, 2008 for
Target Fund and September 30, 2008 for Growth Fund).
2. The projected expense ratios are calculated as if the
Transaction had been completed as of October 1, 2007.
Excluded from Other Expenses are the one-time estimated
costs of the Transaction of $71,572 to be borne by Growth
Fund.
3. 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 each Fund's Board of Trustees and an exemptive order from
the SEC. For Growth Fund, this fee reduction amounted to
less than 0.01% of the Fund's average net assets.
4. Net annual Fund operating expenses differ from the ratio of
expenses to average net assets shown in the Financial
Highlights in Target Fund's Annual Report to Shareholders
for the fiscal year ended June 30, 2008, which reflect the
operating expenses of Target Fund but do not include
acquired fund fees and expenses.
EXAMPLE
This example can help you compare the cost of investing in Target
Fund's Advisor Class shares with the cost of investing in Growth
Fund Advisor Class shares, both before and after the
Transaction. 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, taking into
account any contractual waivers for the applicable period;
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
-----------------------------------------------------------------------
Target Fund - Advisor Class $72 $224 $390 $871
Growth Fund - Advisor Class $65 $205 $357 $798
Projected Growth Fund - Advisor $65 $205 $357 $798
Class
(assuming the Transaction is
completed)
HOW DO THE PERFORMANCE RECORDS OF THE FUNDS COMPARE?
The performance of the Funds, including sales charges and before
taxes, as of October 31, 2008, is shown below.
----------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (1)
-----------------------------------------
1 YEAR 5 YEARS 10 YEARS/SINCE
INCEPTION
----------------------------------------------------------------
CLASS A
----------------------------------------------------------------
Target Fund - Class A (39.97)% (3.21)% 0.48%
----------------------------------------------------------------
Growth Fund - Class A (38.72)% 0.78% 0.84%
----------------------------------------------------------------
CLASS B
----------------------------------------------------------------
Target Fund - Class B (39.27)% (3.16)% (0.89)%(2)
----------------------------------------------------------------
Growth Fund - Class B (38.05)% 0.84% 0.27%(2)
----------------------------------------------------------------
CLASS C
----------------------------------------------------------------
Target Fund - Class C (37.40)% (2.79)% 0.32%
----------------------------------------------------------------
Growth Fund - Class C (36.11)% 1.22% 0.67%
----------------------------------------------------------------
CLASS R
----------------------------------------------------------------
Target Fund - Class R (36.55)% (2.32)% 0.81%
(3)
----------------------------------------------------------------
Growth Fund - Class R (35.14)% 1.72% 1.18%
(3)
----------------------------------------------------------------
ADVISOR CLASS
----------------------------------------------------------------
Target Fund - Advisor (36.24)% (1.84)% 1.33%
Class
----------------------------------------------------------------
Growth Fund - Advisor (34.82)% 2.23% 1.68%
Class
----------------------------------------------------------------
1. Figures reflect the current maximum applicable sales
charges.
2. Share class first offered on January 1, 1999.
3. Effective January 1, 2002, the Fund began offering 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 the Fund's Class A
performance, excluding the effect of Class A's maximum
initial sales charge, reflecting the Rule 12b-1 rate
differential between Class A and R; and (b) for periods
after January 1, 2002, actual Class R 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 Growth Fund Prospectus (enclosed as Exhibit B) contains
additional financial and performance information about Growth
Fund, including Growth 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, 2008, including after-tax return information, is contained in
the Growth Fund Prospectus under the heading "Performance."
The Prospectus of Target Fund, the Annual Report to Shareholders
of Target Fund for the year ended June 30, 2008, and the
semi-annual report to shareholders of Target Fund for the period
ended December 31, 2008 (when available) contain more financial
information about Target Fund, including 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 Target Fund under
the heading "Performance." These documents are available free of
charge upon request (see the section "Information about Target
Fund").
WHAT ARE OTHER KEY FEATURES OF THE FUNDS?
SERVICE PROVIDERS. The Funds use the same service providers for
the following services:
o CUSTODY SERVICES. The Bank of New York Mellon, 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. Franklin Templeton Investor
Services, LLC ("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.
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. Each share class of each
Fund, other than Advisor Class Shares, has 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, 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
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 Growth Fund's Rule
12b-1 plans, please see "The Underwriter--Distribution and service
(12b-1) fees" in the Growth Fund SAI.
--------------------------------------
TARGET GROWTH FUND
FUND
--------------------------------------
Class A 0.25% 0.25%
--------------------------------------
Class B 1.00% 1.00%
--------------------------------------
Class C 1.00% 1.00%
--------------------------------------
Class R 0.50% 0.50%
--------------------------------------
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, which are no longer offered for sale except in
certain instances to existing holders of Class B shares of a
Fund, 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. 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 redeemed within
12 months of their purchase. Class R and Advisor Class shares
are not subject to a front-end sales charge or CDSC.
Shares of each Fund may be redeemed at the Fund's 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 sold 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 each Fund's prospectus under the
heading "Your Account." The Growth 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 that 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 must,
among other things, distribute at least 90% of its investment
company taxable income (if any), 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 any net realized gains to its shareholders, it is expected
that neither Fund will be required to pay any federal income
taxes on 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 TRANSACTION
The Target Fund Board has recommended that Target Fund's
shareholders approve the Transaction in order to combine Target
Fund with a larger fund that has similar goals and investment
policies. Shareholders of Target Fund may potentially benefit
from the lower expenses and being part of a larger mutual fund.
Growth Fund has had stronger average total returns than Target
Fund for the one-year, five-year and ten-year periods ended
October 31, 2008.
A meeting of the Target Fund Board was held on December 1, 2008
to consider the proposed Transaction. The Independent Trustees
and the Target Fund Board have been advised on this matter by
independent counsel to the Independent Trustees. In addition, a
meeting of Acquiring Trust's Board was also held on December 1,
2008 to consider the proposed Transaction.
The Target Fund Board requested and received from FAI written
materials containing relevant information about Growth Fund and
the proposed Transaction, including fee and expense information
on an actual and future estimated basis, and comparative
performance data.
The Target Fund Board considered the potential benefits and costs
of the Transaction to shareholders of Target Fund. The Target
Fund Board reviewed detailed information about: (1) the
investment goal, strategies and policies of Growth Fund; (2) the
portfolio management of Growth Fund; (3) the financial and
organizational strength of FAI; (4) the comparability of the
investment goals, policies, restrictions and investments of
Target Fund with those of Growth Fund; (5) the comparative
short-term and long-term investment performance of Target Fund
and Growth Fund; (6) the current expense ratios of each Fund; (7)
the relative asset size of each Fund, including the benefits to
Target Fund of joining with a larger fund; (8) FAI's agreement to
pay a portion of the expenses related to each Transaction; (9)
the tax consequences of the Transaction to Target Fund and Target
Fund's shareholders; and (10) the general characteristics of
Target Fund.
The Target Fund Board also considered that: (a) the combined
investment advisory and administrative fees for Growth Fund are
slightly less than those being paid by Target Fund; (b) the
historical investment performance of Growth Fund had been better
than the historical investment performance of Target Fund as of
October 31, 2008; (c) based on Target Fund's historical asset
growth and projected sales activity, Target Fund's assets were
not likely to grow sufficiently in the foreseeable future to
result in significant economies of scale; (d) benefits to
shareholders, including operating efficiencies, may be achieved
from combining the Funds; and (e) alternatives are available to
shareholders of 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 Target Fund Board, including all of the
Independent Trustees, concluded that completing the Transaction
is in the best interests of the shareholders of Target Fund and
that no dilution of value would result to the shareholders of
Target Fund from the Transaction. The Target Fund Board approved
the Plan on December 1, 2008 and recommended that shareholders of
Target Fund vote to approve the Plan.
The Board of Trustees of Acquiring Trust, on behalf of Growth
Fund, also concluded that the Transaction is in the best
interests of Growth Fund and its shareholders and that no
dilution of value would result to the shareholders of Growth Fund
from the Transaction. Consequently, the Board of Trustees of
Acquiring Trust approved the Plan on behalf of Growth Fund.
FOR THE REASONS DISCUSSED ABOVE, THE TARGET FUND BOARD
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE PLAN
INFORMATION ABOUT THE TRANSACTION
This is only a summary of the Plan. You should read the form of
the Plan, which is attached as Exhibit A, for complete
information about the Transaction.
HOW WILL THE TRANSACTION BE CARRIED OUT?
If the shareholders of Target Fund approve the Plan, the
Transaction will take place after various conditions are
satisfied, including the preparation of certain documents. If
the shareholders of Target Fund do not approve the Plan, the
Transaction will not take place, and Target Fund will continue to
operate as it currently does.
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
approve the Plan at the Meeting, they may continue to add to
their existing accounts until the close of business on [May 6,]
2009 through the reinvestment of dividend and capital gain
distributions or through established automatic investment plans.
If the shareholders of Target Fund approve the Plan, Target Fund
and Acquiring Trust will determine a specific date, called the
"closing date," for the actual Transaction to take place. 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 Growth Fund on the
closing date, which is scheduled to occur on or about May 6,
2009, but which may occur on an earlier or later date as Target
Fund and Acquiring Trust may agree. Neither Growth Fund nor
Acquiring Trust shall assume any liability of Target Fund. In
exchange, Acquiring Trust will issue Growth Fund Shares that have
an aggregate NAV equal to the dollar value of the assets
delivered to Growth Fund by Target Fund. Target Fund will
distribute to its shareholders the Growth Fund Shares it
receives. Each shareholder of Target Fund will receive Growth
Fund Shares with an aggregate NAV equal to the aggregate NAV of
his or her shares of Target Fund. The share transfer books of
Target Fund will be permanently closed as of 1:00 p.m., Pacific
Time, on the closing date. 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 Growth Fund Shares.
Prior to the closing date, Target Fund will pay or make provision
for payment of all its remaining liabilities, if any. At the
closing, each shareholder of record of 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 Target Fund that such
shareholder had on the distribution record date. Target Fund
will then terminate its existence, liquidate, and dissolve.
Target Fund and Acquiring Trust may agree to amend the Plan
without shareholder approval, except that any amendment made to
the Plan that would have a material adverse effect on
shareholders would be submitted to the affected shareholders for
their approval.
Each of Target Fund and Acquiring Trust has made representations
and warranties in the Plan that are customary in transactions
such as the Transaction. The obligations under the Plan of
Target Fund and Acquiring Trust (with respect to Growth Fund) are
subject to various conditions, including:
o 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, such Registration Statement shall have
become effective, 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 Target Fund shall have approved the
Transaction; and
o Target Fund and 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 Target Fund,
Growth Fund, or their shareholders.
If Target Fund and Acquiring Trust agree, the Plan may be
terminated or abandoned at any time before or after the approval
of the Plan by the shareholders of Target Fund.
Following the closing date, Target Fund share certificates shall
be deemed cancelled.
WHO WILL PAY THE EXPENSES OF THE TRANSACTION?
Target Fund will pay 25% of the expenses of the Transaction,
including the costs of the proxy solicitation. Acquiring Trust,
on behalf of Growth Fund, will pay 25% of such expenses. FAI
will pay the remaining 50% of such expenses. The total amount of
such costs and expenses for the Transaction is estimated to be
$286,288.
WHAT ARE THE TAX CONSEQUENCES OF THE TRANSACTION?
The Transaction is intended to qualify as a tax-free
reorganization for federal income tax purposes under Section
368(a)(1) of the Code. The Funds will procure an opinion from
Stradley Ronon Stevens & Young, LLP, counsel to Acquiring Trust
and Target Fund, based on certain assumptions and representations
received from Target Fund and Acquiring Trust, on behalf of
Growth Fund, that (i) shareholders of Target Fund will not
recognize any gain or loss for federal income tax purposes as a
result of the exchange of their shares of Target Fund for Growth
Fund Shares; (ii) neither Growth Fund nor its shareholders will
recognize any gain or loss upon Growth Fund's receipt of the
assets of Target Fund; and (iii) the holding period and aggregate
tax basis for Growth 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 Target Fund previously held
by such shareholder.
Opinions of counsel are not binding upon the Internal Revenue
Service or the courts. If the Transaction is consummated but
does not qualify as a tax free reorganization under the Code, and
thus is taxable, Target Fund would recognize gain or loss on the
transfer of its assets to Growth Fund and each shareholder of
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 Growth Fund Shares 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. The Transaction will result in a more than 50%
"change in ownership" of Target Fund, the smaller of the two
Funds. As a result, the capital loss carryovers (together with
any current year loss and net unrealized depreciation in the
value of investments, collectively referred to as "total capital
loss carryovers") of Target Fund will be subject to an annual
limitation for federal income tax purposes. At November 18,
2008, the tax basis capital loss carryovers, unrealized
appreciation in value of investments and aggregate net asset
value of Target Fund as compared to Growth Fund and the
approximate annual limitation on the use of Target Fund's total
capital loss carryovers following the Transaction are as follows:
------------------------------------------------------------
TARGET FUND GROWTH FUND
11/18/2008 11/18/2008
------------------------------------------------------------
Capital Loss Carryovers (1)
------------------------------------------------------------
Expiring 2009-2010 ($6,664,049)
------------------------------------------------------------
Expiring 2012 ($16,688,284)
------------------------------------------------------------
Net Unrealized (Depreciation) ($224,057,564) n/a
of Investments for tax
purposes
------------------------------------------------------------
Total Capital Loss ($230,721,613) ($16,688,284)
Carryovers
------------------------------------------------------------
Net Unrealized Appreciation n/a $651,886,606
for tax purposes
------------------------------------------------------------
Net Unrealized Appreciation -27.86% 38%
(Depreciation) for tax
purposes as Percentage of NAV
------------------------------------------------------------
Net Asset Value (NAV) $828,057,230 $1,723,774,371
------------------------------------------------------------
Tax-Exempt Rate (Dec. 2008) 5.40%
------------------------------------------------------------
Annual Limitation $44,715,090 N/A
(approximate) (2)
------------------------------------------------------------
1. As of the last fiscal year-end of Target Fund and Growth
Fund, 6/30/08 and 9/30/08, respectively.
2. The actual limitation will equal the aggregate net
asset value of Target Fund on the closing date
multiplied by the long-term tax-exempt rate for
ownership changes during the month in which the
Transaction closes; such limitation is increased by the
amount of any built-in gain, i.e., unrealized
appreciation in value of investments, of Target Fund on
the closing date that is recognized in a taxable year.
Given the amount of this annual limitation relative to the amount
of Target Fund's total capital loss carryovers and unrealized
depreciation in value of investments as of 11/18/08, this
limitation may be material. However, whether this annual
limitation is material will depend upon the facts at time of
closing of the Transaction. The Transaction will not result in
any material limitation on the use by Growth Fund of its capital
loss carryovers.
Target Fund shareholders also should be aware that, as a result
of the Transaction, they will be "buying into" Growth Fund's
greater unrealized appreciation in value of its investments
(exacerbated by any limitation on use of Target Fund's capital
loss carryovers). As of November 18, 2008, the net unrealized
depreciation in the value of the investments of Target Fund on a
tax basis as a percentage of its net asset value on such date was
(-27%). As of November 18, 2008, the net unrealized appreciation
in the value of the assets of Growth Fund on a tax basis as a
percentage of its net asset value was 38% and, approximately, 17%
of unrealized appreciation on a combined basis following the
Transaction. Net unrealized appreciation (depreciation) in value
of investments represents the net of unrealized gains (losses) on
portfolio securities currently held. Net unrealized losses, when
realized on sale of portfolio securities, generally either offset
any other realized gains or increase any capital loss
carryovers. Conversely, net unrealized gain, when realized on
sale of portfolio securities, as reduced by any available capital
loss carryovers, is paid to Fund shareholders each calendar year
as income dividends and/or capital gains distributions that are
subject to tax in the hands of taxable shareholders. 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)
Growth Fund Shares. One counterbalancing factor to consider is
that Growth Fund pursues a "buy-and-hold" growth strategy. This
strategy is evidenced by Growth Fund's average turnover rate of
approximately 2.2% for the past five years (5.64% for the fiscal
year ended September 30, 2008). A fund with a low turnover rate
tends to be more tax efficient than a fund with a high turnover
rate. A fund's turnover rate basically represents the percentage
of a fund's holdings that change every year.
After the Transaction, 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 Transaction in light
of your particular circumstances, as well as the state and local
tax consequences, if any, of the Transaction because this
discussion only relates to the federal income tax consequences.
WHAT SHOULD I KNOW ABOUT GROWTH FUND SHARES?
The Growth Fund Shares that will be distributed to Target Fund
shareholders generally will have the same legal characteristics
as the shares of Target Fund with respect to such matters as
voting rights, assessability, conversion rights, and
transferability. Growth Fund is a series of Acquiring Trust, a
Delaware statutory trust, and Target Fund is a Delaware statutory
trust. After the Transaction, shareholders of Target Fund whose
shares are represented by outstanding share certificates will not
receive certificates for Growth Fund Shares and all outstanding
Target Fund share certificates will be cancelled.
WHAT ARE THE CAPITALIZATIONS OF THE FUNDS AND WHAT MIGHT GROWTH
FUND'S CAPITALIZATION BE AFTER THE TRANSACTION?
The following table sets forth as of September 30, 2008 the
capitalizations of Target Fund and Growth Fund. The table also
shows the projected capitalization of Growth Fund as adjusted to
give effect to the proposed Transaction. The capitalization of
Growth Fund and its classes is likely to be different when the
Transaction is consummated.
-----------------------------------------------------------------
GROWTH FUND
-PROJECTED
TARGET GROWTH (assuming the
FUND FUND Transaction is
(UNAUDITED (AUDITED) completed)(1)
(UNAUDITED)
-----------------------------------------------------------------
Net assets (all classes) $1,150,424 $2,340,908 $3,491,260
(thousands)
-----------------------------------------------------------------
Total shares outstanding 114,781,320 63,485,382 94,611,367
(all classes)
-----------------------------------------------------------------
Class A net assets $614,326 $1,708,561 $2,322,849
(thousands)
-----------------------------------------------------------------
Class A shares 60,996,186 45,967,776 62,494,210
outstanding
-----------------------------------------------------------------
Class A net asset value $10.07 $37.17 $37.17
per share
-----------------------------------------------------------------
Class B net assets $39,610 $89,776 $129,383
(thousands)
-----------------------------------------------------------------
Class B shares outstanding 4,175,045 2,532,916 3,650,512
-----------------------------------------------------------------
Class B net asset value $9.49 $35.44 $35.44
per share
-----------------------------------------------------------------
Class C net assets $93,127 $255,417 $348,538
(thousands)
-----------------------------------------------------------------
Class C shares 9,924,197 7,268,101 9,918,109
outstanding
-----------------------------------------------------------------
Class C net asset value $9.38 $35.14 $35.14
per share
-----------------------------------------------------------------
Class R net assets $14,904 $30,174 $45,076
(thousands)
-----------------------------------------------------------------
Class R shares 1,496,989 818,448 1,222,637
outstanding
-----------------------------------------------------------------
Class R net asset value $9.96 $36.87 $36.87
per share
-----------------------------------------------------------------
Advisor Class net assets $388,457 $256,980 $645,414
(thousands)
-----------------------------------------------------------------
Advisor Class shares 38,188,903 $6,898,141 17,325,899
outstanding
-----------------------------------------------------------------
Advisor Class net asset $10.17 $37.25 $37.25
value per share
-----------------------------------------------------------------
1. Numbers are projected after the Transaction. The projected
capitalization of Growth Fund after the Transaction with
Target Fund includes the costs of the Transaction that will
be borne by Target Fund and Growth Fund, which are
estimated to be $143,144 and which would be allocated to
the share classes as follows: Class A: $89,690, Class B:
$5,676, Class C: $13,819, Class R: $2,678, and Advisor
Class: $31,281.
At the closing of the Transaction, shareholders of Target Fund
will receive Growth 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 goals 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 Growth Fund's investment policies and risks, you
should read the Growth Fund Prospectus, which accompanies this
Prospectus/Proxy Statement, and the Growth Fund SAI, which is
available upon request.
ARE THERE ANY SIGNIFICANT DIFFERENCES BETWEEN THE INVESTMENT
GOALS, STRATEGIES, POLICIES AND RISKS OF THE FUNDS?
The primary investment goal of the Funds is identical, but Target
Fund has a secondary investment goal that Growth Fund does not
share. Both Funds invest primarily in equity securities of
companies that the manager believes will grow, and each Fund's
manager uses a similar strategy to choose investments. Both
Funds have the same investment policies. Accordingly, although
the portfolio makeup of the Funds differs in some respects, the
Funds are subject to substantially similar risks.
INVESTMENT GOALS. The primary investment goal of both Target
Fund and Growth Fund is capital appreciation. Target Fund also
has, as a secondary goal, to provide current income return
through the receipt of dividends or interest from investments.
INVESTMENT STRATEGY. Both Funds invest primarily in equity
securities. For both Funds, FAI applies a "bottom-up,"
growth-oriented approach, focusing primarily on individual
securities and choosing companies that it believes are positioned
for growth in revenues, earnings or assets.
Each Fund's portfolio managers rely on a team of analysts to
provide in-depth industry expertise and use both qualitative and
quantitative analysis to evaluate companies for distinct and
sustainable competitive advantages that are likely to lead to
growth in earnings and/or share price. Advantages such as a
particular market niche, proven technology, sound financial
records, strong management, and industry leadership are factors
that FAI, as each Fund's manager, believes point to strong growth
potential.
FOREIGN EXPOSURE. Target Fund and Growth Fund are permitted to
invest in foreign securities. Target Fund has no specific limit
to such investments, and as of September 30, 2008, it had
invested 13.8% of its net assets in foreign securities. Growth
Fund may invest up to 40% of its nets assets in foreign
securities, and as of September 30, 2008, it had invested 5.1% of
its net assets in foreign securities. If the Transaction is
approved and completed, Target Fund shareholders will become
shareholders of a fund that has decreased exposure to foreign
securities and their related risks.
INDUSTRY CONCENTRATION. Target Fund has the same fundamental
investment restrictions on industry concentration as Growth
Fund. Neither Fund may, at the time an investment is made,
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).
Subject to that requirement, each Fund may invest in various
market sectors as consistent with its investment goal, and both
Funds invest to a similar extent in the Healthcare, Materials,
Consumer Discretionary, and Information Technology sectors.
Growth Fund has a relatively greater investment in Industrials,
while Target Fund has a relatively greater investment in Telecom
Services, Energy, Consumer Staples, Financials, and Utilities.
DIVERSIFICATION. Growth Fund and Target Fund are diversified
funds that have a limited ability to invest their assets in any
one issuer. Neither Fund may purchase the securities of any one
issuer (other than the U.S. government or any of its agencies or
instrumentalities or securities of other investment companies
that are either registered under the 1940 Act or excluded from
registration under Section 3(c) of the 1940 Act) if immediately
after such investment (i) more than 5% of the value of the Fund's
total assets would be invested in such issuer or (ii) more than
10% of the outstanding voting securities of such issuer would be
owned by the Fund, except that up to 25% of the value of each
Fund's total assets may be invested without regard to such 5% and
10% limitations.
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, industry concentration, issuer
diversification, and issuing senior securities are identical.
WHAT ARE THE PRINCIPAL RISK FACTORS ASSOCIATED WITH INVESTMENTS
IN THE FUNDS?
Like all investments, an investment in a Fund involves risk.
There is no assurance that any mutual 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 associated with
investments in the Funds, see each Fund's prospectus under the
heading "Main Risks" and the Growth Fund SAI and Target Fund SAI
under the heading "Goals, Strategies and Risks."
Both Funds invest primarily in equity securities of U.S.-based
large- and mid-capitalization companies, but may also invest a
portion of their assets in foreign securities and
small-capitalization companies or concentrate investments in a
particular sector. As a result, they are subject to similar
risks that are common to equity securities, as well as foreign
securities risk, sector risk, and the risks associated with
investments in smaller and midsize companies.
COMMON STOCKS. At least in the U.S., stocks historically have
outperformed other types of investments over the long term.
Individual stock prices, however, tend to fluctuate 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 may be considered more
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 in 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. Each Fund has historically had a similar breakdown in
industry sector concentration, although Growth Fund has
historically concentrated more on Industrials, while Target Fund
has historically had relatively larger investments in Consumer
Staples, Financials, Utilities, Telecom Services, and Energy.
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 Growth Fund intends to focus its investments
in rapidly developing industries, including technology and
telecommunications companies, it has historically had less
exposure to such companies than Target 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.
FINANCIAL SERVICES COMPANIES. To the extent that a Fund has
significant investments in financial services companies, general
market and economic conditions as well as other risks specific to
the financial services industry will impact the Fund's
investments and its performance. For example, increases in
interest rates can have a negative effect on the profitability of
financial services companies. Financial services companies are
subject to extensive government regulation, which tends to limit
not only the amount and types of loans and other financial
commitments a financial services company can make, but also the
interest rates and fees it can charge. These limitations can
have a significant impact on the profitability of a financial
services company.
GROWTH STYLE INVESTING. Target Fund and Growth Fund are 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.
PORTFOLIO TURNOVER. Target Fund's portfolio turnover rate has
generally been higher than that for Growth Fund. 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.
INFORMATION ABOUT GROWTH FUND
Information about Growth Fund is included in the Growth Fund
Prospectus, which is enclosed with and incorporated by reference
into (is considered a part of) this Prospectus/Proxy Statement.
Additional information about Growth Fund is included in the
Growth Fund SAI, which is incorporated into the Growth Fund
Prospectus and into the SAI dated February [1], 2009 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 Growth Fund SAI, Growth Fund's
Annual Report to Shareholders for the fiscal year ended September
30, 2008, the SAI relating to this Prospectus/Proxy Statement,
and other information by calling (800) DIAL-BEN or by writing to
Growth Fund at P.O. Box 997151, Sacramento, CA 95899-7151.
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 TARGET FUND
Information about Target Fund is included in its current
Prospectus, which is incorporated into this Prospectus/Proxy
Statement by reference, as well as the Target Fund SAI dated
November 1, 2008 and Target Fund's Annual Report to Shareholders
for the fiscal year ended June 30, 2008. These documents have
been filed with the SEC. You may request free copies of these
documents and other information relating to Target Fund by
calling (800) DIAL-BEN or by writing to Target Fund at P.O. Box
997151, Sacramento, CA 95899-7151. Reports and other
information filed by Target Fund 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 the organization of the Funds
and, where applicable, of Target Fund and Acquiring Trust. More
detailed information about each Fund's current corporate
structure is contained in each Fund's SAI.
COMPARISON OF CAPITAL STRUCTURE. Target Fund was organized as a
California corporation in 1984 and was reorganized on August 10,
2000 into a Delaware statutory trust (a form of entity formerly
known as a business trust) created pursuant to an Agreement and
Declaration of Trust dated March 21, 2000, as amended and
restated as of May 21, 2007. The authorized number of shares of
Target Fund is unlimited, each without par value, and Target Fund
may issue fractional shares.
Growth Fund is one series of 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 authorized number of Growth Fund Shares is unlimited,
each without par value, and Growth 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
Growth 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 Target Fund, Acquiring Trust, or any of Acquiring
Trust's series (including Growth Fund) is generally forty per cent
(40%) 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 management
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 ("Trust
Instruments"). The rights to vote on these matters are the same
for Target Fund and Acquiring Trust. For example, the Trust
Instruments and bylaws for both Target Fund and 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 Target Fund and 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 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 Target Fund and Acquiring Trust.
LEGAL STRUCTURES. Mutual funds formed under the Delaware
Statutory Trust Act, such as Target Fund and Acquiring Trust, are
granted a significant amount of operational flexibility with
respect to features, rights and obligations of the statutory
trust and its trustees and shareholders in their organizational
instruments. Mutual funds organized as Delaware statutory trusts
have benefited from this flexibility to streamline their
operations and minimize expenses. For example, mutual 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 the 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 the Delaware General
Corporation Law.
BOARDS OF TRUSTEES. Pursuant to the Delaware Statutory Trust Act
and Target Fund's and Acquiring Trust's Trust Instruments, the
responsibility for the management of each of Target Fund and
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 shareholders certain
inspection rights 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 Growth Fund Prospectus and in the "Management" section of the
prospectus of Target Fund.
VOTING INFORMATION
HOW MANY VOTES ARE NECESSARY TO APPROVE TARGET FUND'S PLAN?
An Affirmative Majority Vote, as defined herein, of the
outstanding voting securities of Target Fund is required to
approve the Plan. Each Target Fund shareholder will be entitled
to one vote for each full share, and a proportionate fractional
vote for each fractional share, of Target Fund held at the close
of business on January 9, 2009 (the "Record Date"). If
sufficient votes to approve the Plan are not received by the date
of the Meeting, the Meeting may be adjourned to permit further
solicitations of proxies.
Forty percent (40%) of Target Fund's outstanding shares entitled
to vote in person or by proxy as of the Record Date shall be a
quorum for the transaction of business at the Meeting. Under
relevant state law and Target Fund's Trust Instrument,
abstentions and broker non-votes (that is, proxies from brokers
or nominees indicating that such persons have not received
instructions from the beneficial owner or other persons entitled
to vote shares on a particular matter with respect to which the
brokers or nominees do not have discretionary power) will be
treated as votes present at the Meeting; abstentions and broker
non-votes, however, will not be treated as votes cast at such
Meeting. 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.
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
Target Fund. If you simply sign, date and return the proxy card
but give no voting instructions, your shares will be voted in
favor of the Plan and in accordance with the views of management
upon any unexpected matters that come before the Meeting or
adjournment of the Meeting. 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 Target Fund expressly revoking your
proxy, by signing and forwarding to Target Fund 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 Target Fund 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 Target Fund on the Record Date will be
entitled to vote at the Meeting. The following table shows the
number of shares of each class and the total number of
outstanding shares of each Class of Target Fund as of the Record
Date:
Class Shares
Outstanding
---------------------------------
Class A [____]
Class B [____]
Class C [____]
Class R [____]
Advisor Class [____]
Total [____]
HOW WILL PROXIES BE SOLICITED?
Computershare, a professional proxy solicitation firm (the
"Solicitor"), has been engaged to assist in the solicitation of
proxies, at an estimated cost of approximately $75,552 to
$93,835. Target Fund 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 Target Fund. Proxies that are obtained
telephonically will be recorded in accordance with the procedures
set forth below. The Target Fund 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 for confirmation that
the person is authorized to direct the voting of the shares. If
the information elicited 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 submit the proxy card originally sent with this
Prospectus/Proxy Statement or attend in person.
Target Fund will request broker-dealer firms, custodians,
nominees, and fiduciaries to forward proxy material to the
beneficial owners of the shares of record. Target Fund 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 Target Fund 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 Target Fund will not be entitled to any
"dissenters' rights" because the Transaction involves two open-end
investment companies registered under the 1940 Act (commonly
called mutual funds), and thus shareholders have the right to
redeem or exchange shares of Target Fund at NAV until the closing
date. After the closing date, shareholders may redeem Growth
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 Target Fund,
as a group, owned of record and beneficially less than 1% of the
outstanding voting shares of Target Fund.] As of the Record
Date, the officers and trustees of Acquiring Trust, as a group,
owned of record and beneficially less than 1% of the outstanding
voting shares of Growth Fund.
From time to time, the number of Fund shares held in "street
name" accounts of various securities dealers for the benefit of
their clients or in centralized securities depositories may
exceed 5% of the total shares outstanding. [To the knowledge of
the Funds, no other person owned (beneficially or of record) 5%
or more of the outstanding shares of any class of Target Fund or
of Growth Fund as of the Record Date, except as listed in Exhibit
C to this Prospectus/Proxy Statement. Upon completion of the
Transaction, it is not expected that those persons disclosed in
Exhibit C as owning 5% or more of Target Fund's outstanding Class
A, Class B, Class C, Class R, or Advisor Class shares will own in
excess of 5% of the then outstanding shares of such classes of
Growth Fund.]
SHAREHOLDER PROPOSALS
Neither Target Fund nor Acquiring Trust is required to hold, and
neither intends to hold, regular annual meetings of shareholders.
A shareholder who wishes to submit a proposal for consideration
for inclusion in Target Fund's proxy statement for the next
meeting of shareholders (if any) should send a written proposal
to Target Fund'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 Target Fund'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 Target Fund'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 Target Fund at the
Meeting, whether or not a quorum is present, or the chairperson
of the Target Fund Board, the president of Target Fund (in the
absence of the chairperson of the Board), or any vice president
or other authorized officer of Target Fund (in the absence of the
president) may adjourn the Meeting. Such authority to adjourn
the Meeting may be used for any reason whatsoever, including to
allow time for further solicitation of proxies. Any adjournment
will not delay or otherwise affect the effectiveness and validity
of any business transacted at the Meeting prior to adjournment.
The persons designated as proxies may use their discretionary
authority to vote as instructed by management of Target Fund on
questions of adjournment.
By Order of the Board of
Trustees,
Karen L. Skidmore
SECRETARY
February [1], 2009
GLOSSARY
USEFUL TERMS AND DEFINITIONS
1940 ACT--The Investment Company Act of 1940, as amended.
ACQUIRING TRUST -- Franklin Custodian Funds, a Delaware statutory
trust.
AFFIRMATIVE MAJORITY VOTE -- The affirmative vote of the lesser
of: (i) a majority of the outstanding shares of Target Fund, or
(ii) 67% or more of the outstanding shares of Target Fund present
at or represented by proxy at the Meeting if the holders of more
than 50% of the outstanding shares of 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.
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.
INVESTMENT ADVISORY--Franklin Investment Advisory Services, LLC,
One Franklin Parkway, San Mateo, CA 94403-1906, an affiliate of
FAI and the subadviser for Growth Fund.
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 Target Fund
concerning approval of the Plan.
NET ASSET VALUE (NAV )-- The net asset 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 Target Fund
and Franklin Custodian Funds on behalf of Franklin Growth 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 FUND -- Franklin Capital Growth Fund, a Delaware statutory
trust.
TRANSACTION -- The proposed transaction contemplated by the Plan.
U.S.-- The United States of America.
EXHIBITS TO PROSPECTUS/PROXY STATEMENT
EXHIBIT
A. Form of Agreement and Plan of Reorganization
B. Prospectus of Franklin Growth Fund - Class A, Class B,
Class C, Class R and Advisor Class shares, dated February
1, 2009 (enclosed)
C. Principal Holders of Securities
EXHIBIT A
FORM OF
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Plan"),
is made as of this __ day of _______, 2009, 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 its series, Franklin
Growth Fund ("Acquiring Fund"), and Franklin Capital Growth
Fund, a statutory trust created under the laws of the State
of Delaware with its principal place of business at One
Franklin Parkway, San Mateo, CA 94403-1906 ("Target Fund").
PLAN OF REORGANIZATION
The reorganization (hereinafter referred to as the
"Reorganization") will consist of (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, Class C, Class R, and Advisor Class shares of
beneficial interest, 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, Class C,
Class R, and Advisor Class shares of beneficial interest of
Target Fund (the "Target Fund Shares") 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 described 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 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 Fund agrees that, at the time of Closing,
it will convey, transfer and deliver to Acquiring Trust, for
the benefit of Acquiring Fund, all of Target Fund's then
existing assets, including any interest in pending or future
legal claims in connection with past or present portfolio
holdings, whether in the form of class action claims,
opt-out or other direct litigation claims, or regulator or
government-established investor recovery fund claims, and
any and all resulting recoveries, 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 Reorganization (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 such term is defined in
Section 3), 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, if any, as the Board
of Trustees of Target Fund shall reasonably deem to exist
against Target Fund at the Closing Date, for which
contingent and other appropriate liability reserves shall be
established on Target Fund's books (such assets hereinafter
"Net Assets"). Neither Acquiring Trust nor Acquiring Fund
shall assume any liability of Target Fund, 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
Fund herein contained, and in consideration of such sale,
conveyance, transfer, and delivery, Acquiring Trust agrees
to deliver to Target Fund at the Closing the number of
Acquiring Fund Shares, determined by dividing the net asset
value per share of Class A, Class B, Class C, Class R, and
Advisor Class shares of Target Fund by the net asset value
per share of Class A, Class B, Class C, Class R, and Advisor
Class shares, respectively, of Acquiring Fund, and
multiplying the result thereof by the number of outstanding
Class A, Class B, Class C, Class R, and Advisor Class shares
of Target Fund, all as of 1:00 p.m., Pacific Time, on the
Closing Date. Acquiring Fund Shares delivered to Target
Fund 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 Fund shall
be dissolved and shall distribute the Acquiring Fund Shares
received by Target Fund pursuant to this Section 1 pro rata
to Target Fund's shareholders of record as of the close of
business on the Closing Date. Such 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 in Target
Fund as of the close of business on the Closing Date.
Fractional Acquiring Fund Shares shall be carried to the
third decimal place. Certificates for Acquiring Fund Shares
shall not be issued, unless specifically requested by a
shareholder. After the distribution, Target Fund shall be
dissolved.
(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 is disrupted; or
(c) any other extraordinary financial event or market
condition occurs (each of the events described in (a),
(b) or (c), 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, as amended or supplemented.
(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 shall take place at the principal office of
Acquiring Trust at 2:00 p.m., Pacific Time, on May 6, 2009
or such later date as the parties may mutually agree (the
"Closing Date"). 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, The Bank of New York Mellon, Mutual Funds
Division, 100 Church Street, New York, NY 10286. Target
Fund shall deliver at the Closing a list of names and
addresses of the shareholders of record of Target Fund
Shares and the number of full and fractional shares of
beneficial interest owned by each such shareholder 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
Fund 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 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 Fund that:
(a) Acquiring Fund is a series of Acquiring Trust, a
statutory trust organized originally as a Delaware
corporation in 1947, reincorporated as a MD 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 or obtaining any required initial
shareholder approvals.
(b) Acquiring Trust is authorized to issue an unlimited
number of 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
classes of shares: Class A, Class B, Class C, Class R, and
Advisor Class. 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, 2008, audited by PricewaterhouseCoopers
LLP, a copy of which has been delivered to Target Fund, and
any interim unaudited financial statements, copies of which
may be furnished to Target Fund, fairly present the
financial position of Acquiring Fund as of their respective
dates and the results of Acquiring Fund's operations for the
periods 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, By-laws, 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. Consummation of the transactions
contemplated by the Plan will not cause Acquiring Fund 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
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, 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 Reorganization and did not enter into
such line of business as part of the Reorganization.
Acquiring Fund will actively continue Target Fund's business
in substantially the same manner that Target Fund conducted
that business immediately before the 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 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
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 FUND.
Target Fund represents and warrants to Acquiring Trust
that:
(a) Target Fund was originally organized as a
California corporation on August 30, 1984, and was
reorganized as a Delaware statutory trust effective March
21, 2000. Target Fund is duly registered under the 1940 Act
as an open-end, management investment company and all 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 purposes of raising the required initial capital or
obtaining any required initial shareholder approvals.
(b) Target Fund is authorized to issue an unlimited
number of shares of beneficial interest, without par value,
each outstanding share of which is fully paid,
non-assessable, and has full voting rights. Target Fund has
five classes of shares and an unlimited number of shares of
beneficial interest of Target Fund have been allocated and
designated to each such class. No shareholder of Target
Fund 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 June
30, 2008, audited by PricewaterhouseCoopers LLP, and
unaudited Semi-Annual Report to Shareholders for the period
ended December 31, 2008, 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 periods indicated in conformity with generally
accepted accounting principles applied on a consistent
basis.
(d) 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 Fund has elected to be treated 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. Consummation of the
transactions contemplated by the Plan will not cause Target
Fund 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 December 31, 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 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 will 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
Reorganization. Target Fund will not alter its investment
portfolio in connection with the Reorganization.
6. REPRESENTATIONS AND WARRANTIES BY TARGET FUND AND
ACQUIRING TRUST.
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 or Acquiring Fund, as
applicable, there is no material suit, judicial action, or
legal or administrative proceeding pending or threatened
against it. It is not 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 its
business or its 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 with respect to
Target Fund to the approval of Target Fund's shareholders,
constitutes a valid and binding obligation enforceable in
accordance with its terms, subject 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 Target Fund or Acquiring Fund, as applicable, to fail
to conform to the requirements of Subchapter M of the Code
for federal income taxation qualification as a RIC at the
end its fiscal year.
7. COVENANTS OF TARGET FUND AND ACQUIRING TRUST.
(a) 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 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 Fund undertakes that, if the Plan is
consummated, it will liquidate and dissolve.
(d) 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 either all federal and other taxes shown as due
on said returns shall have 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 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
holders 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) As of the Closing, the Board of Trustees of Target
Fund shall have called, and Target Fund shall have held, a
Special Meeting of Target Fund's shareholders to consider
and vote upon the Plan (the "Special Meeting") and Target
Fund shall have taken all other actions reasonably necessary
to obtain approval of the transactions contemplated herein.
Target Fund shall have mailed 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 (the
"Prospectus/Proxy Statement").
(g) Acquiring Trust has filed the Registration Statement
with the SEC and used its best efforts to provide that the
Registration Statement became effective as promptly as
practicable. At the time it became effective, the
Registration Statement: (i) complied in all material
respects with the applicable provisions of the 1933 Act and
the rules and regulations promulgated thereunder; and (ii)
did 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 became 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 did not and 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 Fund 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 Fund 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 FUND 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
such party.
(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 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 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 Fund, to the effect that, provided the
transaction contemplated hereby is carried out in accordance
with the Plan and the laws of the State of Delaware, and
based upon certificates of the officers of Target Fund 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
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 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 validly existing statutory trust
in good standing under the laws of the State of Delaware;
(2) Target Fund 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 statutory trust
action on the part of Target Fund; and
(4) The Plan is the legal, valid and binding
obligation of Target Fund and is enforceable against
Target Fund in accordance with its terms.
In giving the opinions set forth above, counsel may state
that it is relying on certificates of the officers of Target
Fund with regard to matters of fact, and certain
certifications and written statements of governmental
officials with respect to the good standing of Target Fund.
(i) That there shall be delivered to 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 statutory trust
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 February 1, 2009, 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, 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.
(j) That Acquiring Trust's prospectus contained in the
Registration Statement with respect to Acquiring Fund Shares
delivered to Target Fund's shareholders in accordance with
the Plan shall be 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 Fund and Acquiring Trust, on behalf of Acquiring
Fund, will pay 25% of the costs of the Reorganization, and
Franklin Advisers, Inc., the investment manager for both
Acquiring Fund and Target Fund, will pay 50% of the costs of
the Reorganization.
10. TERMINATION; POSTPONEMENT; WAIVER; ORDER.
(a) Anything contained in the Plan to the contrary
notwithstanding, the Plan may be terminated and the
Reorganization abandoned at any time prior (whether before
or after approval thereof by the shareholders of Target
Fund) to the Closing, or the Closing may be postponed, as
follows:
(1) by mutual consent 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 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.
(b) If the transactions contemplated by the Plan have not
been consummated by December 31, 2009, the Plan shall
automatically terminate on that date, unless a later date is
agreed to by both Acquiring Trust and Target Fund.
(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 Fund, Acquiring Trust, nor Acquiring Fund, nor their
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 Fund nor Acquiring Trust, nor any of their officers,
trustees, agents or shareholders shall have any liability
with respect to such representations or warranties after the
Closing Date.
(f) If any order of the SEC with respect to the Plan
shall be issued prior to the Closing that imposes any term
or condition that is determined by the Board of Trustees of
Target Fund or the Board of Trustees of Acquiring Trust, on
behalf of Acquiring Fund, to be acceptable, such term or
condition shall be binding as if it were a part of the Plan
without a vote or approval of the shareholders of Target
Fund; provided that, if such term or condition would result
in a change in the method of computing the number of
Acquiring Fund Shares to be issued to Target Fund, and such
term or condition had not been included in the
Prospectus/Proxy Statement or other proxy solicitation
material furnished to the shareholders of Target Fund prior
to the Special Meeting, the Plan shall not be consummated
and shall terminate unless Target Fund promptly calls a
special meeting of the shareholders of Target Fund at which
such condition shall be submitted for approval.
11. LIABILITY OF ACQUIRING TRUST AND TARGET FUND.
(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 Target Fund shall not seek satisfaction of
any such obligation or liability from the shareholders of
Acquiring Trust, the trustees, officers, or the employees or
agents of Acquiring Trust.
(b) Each party acknowledges and agrees that all
obligations of Target Fund under the Plan are binding only
with respect to Target Fund; that any liability of Target
Fund under the Plan in connection with the transactions
contemplated herein, shall be discharged only out of the
assets of Target Fund; and that neither Acquiring Trust nor
Acquiring Fund shall seek satisfaction of any such
obligation or liability from the shareholders of Target
Fund, or the trustees, officers, or the employees or agents
of Target Fund.
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 Growth Fund, at
Franklin Custodian Funds, One Franklin Parkway, San Mateo,
CA 94403-1906, Attention: Secretary, or Franklin Capital
Growth Fund, at 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 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 GROWTH FUND
By:
-------------------------------
(Name) (Title)
FRANKLIN CAPITAL GROWTH FUND
By:
-------------------------------
(Name) (Title)
EXHIBIT B - PROSPECTUS (enclosed)
EXHIBIT C - PRINCIPAL HOLDERS OF SECURITIES
NAME AND ADDRESS SHARE CLASS PERCENTAGE
(%)
-------------------------------------------------------
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR
PROXY TODAY
a. PROXY PROXY
SPECIAL MEETING OF SHAREHOLDERS
FRANKLIN CAPITAL GROWTH FUND
APRIL 9, 2009
The undersigned hereby revokes all previous proxies for his/her shares of
Franklin Capital Growth Fund ("Capital Growth Fund") and appoints Craig S.
Tyle, Steven J. Gray, 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 Capital Growth Fund that the undersigned is entitled to vote at Capital
Growth Fund's Special Meeting of Shareholders ("Meeting") to be held at One
Franklin Parkway, San Mateo, California 94403-1906 at 2:00 p.m., Pacific time
on April 9, 2009 including any postponements or adjournments thereof, upon
the matter set forth below and instructs them to vote upon any other matters
that may properly be acted upon at the Meeting.
This proxy is solicited on behalf of the Board of Trustees of Franklin
Capital Growth Fund (the "Trust") on behalf of Capital Growth Fund. It will
be voted as specified. If no specification is made, this proxy shall be voted
FOR the Proposal regarding the reorganization of Capital Growth Fund pursuant
to the Agreement and Plan of Reorganization with Franklin Custodian Funds, on
behalf of Franklin Growth 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 TELEPHONE: 1-800-[ ]
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, one or more
joint owners should sign personally.
-----------------------------------------
Signature
-----------------------------------------
Signature
-----------------------------------, 2009
Date
(Please see reverse side)
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR
PROXY TODAY
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF
PROPOSAL 1.
FOR AGAINST ABSTAIN
1. To approve an Agreement and Plan of [] [] []
Reorganization between the Trust, on
behalf of Capital Growth Fund, and
Franklin Capital Growth Fund, on behalf
of Franklin Growth Fund ("Growth Fund"),
that provides for (i) the acquisition of
substantially all of the assets of
Capital Growth Fund by Growth Fund in
exchange solely for Class A, B, C, R and
Advisor shares of Growth Fund and the
assumption of certain liabilities of
Capital Growth Fund be Growth Fund, (ii)
the distribution of such shares to the
shareholders of Capital Growth Fund, and
(iii) the complete liquidation and
dissolution of Capital Growth Fund.
Shareholders of Capital Growth Fund will
receive Class A, B, C, R and Advisor
shares of Growth Fund with an aggregate
net asset value equal to the aggregate
net asset value of the shareholders'
Class A, B, C, R and Advisor shares in
Capital Growth Fund.
IMPORTANT: PLEASE SIGN AND MAIL IN YOUR PROXY...TODAY
PLEASE SIGN AND PROMPTLY RETURN IN THE ACCOMPANYING ENVELOPE. NO POSTAGE IS
REQUIRED IF MAILED IN THE U.S.
STATEMENT OF ADDITIONAL INFORMATION
FOR
FRANKLIN GROWTH FUND,
a series of
FRANKLIN CUSTODIAN FUNDS
Dated February [1], 2009
Acquisition of Substantially All of the Assets of:
FRANKLIN CAPITAL GROWTH FUND
By and in exchange for shares of
FRANKLIN GROWTH 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 Capital
Growth Fund (the "Target Fund") by and in exchange for Class A, Class B, Class
C, Class R, and Advisor Class shares of beneficial interest of Franklin Growth
Fund ("Growth 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 Growth Fund dated February 1,
2009, [which will be incorporated herein by reference to Franklin
Custodian Funds' filing under Rule 485(b) to be filed via EDGAR on or
about January 25, 2009,] and will be mailed to any Shareholder who
requests this SAI.
2. Annual Report of Growth Fund for the fiscal year ended September 30,
2008, as previously filed via EDGAR, is incorporated herein by reference
to Franklin Custodian Funds' Form N-CSR [Accession No.
0000038721-08-000048] filed December 1, 2008, and will be mailed to any
Shareholder who requests this SAI.
3. Annual Report of the Target Fund for the fiscal year ended June 30, 2008,
as previously filed via EDGAR, is incorporated herein by reference to the
Target Fund's Form N-CSR [Accession No. 0000083297-08-000012] filed
August 29, 2008, and will be mailed to any Shareholder who requests this
SAI.
4. Pro Forma Financial Statements for the Reorganization of the Target Fund
into Growth Fund.
This SAI is not a prospectus; you should read this SAI in conjunction with the
Prospectus/Proxy Statement dated February [1], 2009, relating to the above-
referenced transactions. You can request a copy of the Prospectus/Proxy
Statement by calling (800) DIAL BEN(R)/(800) 342-5236) or by writing to Growth
Fund at P.O. Box 997151, Sacramento, CA 95899-7151.
FRANKLIN CAPITAL GROWTH FUND
FRANKLIN GROWTH FUND
PRO FORMA COMBINING STATEMENTS, SEPTEMBER 30, 2008
(UNAUDITED)
The following unaudited Pro Forma Combining Statements give effect to the
proposed reorganization, accounted as if the reorganization had occurred as of
October 1, 2007. 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 Capital
Growth Fund and the Franklin Growth Fund which are incorporated by reference in
this Statement of Additional Information. The reorganization will be accounted
for as a tax-free reorganization.
FRANKLIN GROWTH FUND
FRANKLIN CAPITAL GROWTH FUND
PRO FORMA COMBINING STATEMENTS OF INVESTMENTS, SEPTEMBER 30, 2008 (UNAUDITED)
FRANKLIN CAPITAL FRANKLIN GROWTH FUND
GROWTH FUND PRO FORMA COMBINED
FRANKLIN GROWTH FUND (UNAUDITED) (UNAUDITED)
------------------------- -------------------------- --------------------------
COMMON STOCKS 99.0% SHARES VALUE SHARES VALUE SHARES VALUE
---------------------------------------- --------- -------------- ---------- -------------- ---------- --------------
AUTOMOBILES & COMPONENTS 2.4%
(a) Ford Motor Co 1,100,000 $ 5,720,000 $ 1,100,000 $ 5,720,000
General Motors Corp 400,000 3,780,000 400,000 3,780,000
Harley-Davidson Inc. 500,000 18,650,000 555,200 20,708,960 1,055,200 39,358,960
Johnson Controls Inc. 1,200,000 36,396,000 1,200,000 36,396,000
-------------- -------------- --------------
64,546,000 20,708,960 85,254,960
-------------- -------------- --------------
BANKS 0.2%
(a) Tree. Com Inc. 10,003 48,214 10,003 48,214
Wells Fargo & Co. 225,000 8,444,250 225,000 8,444,250
-------------- -------------- --------------
48,214 8,444,250 8,492,464
-------------- -------------- --------------
CAPITAL GOODS 22.5%
3M Co 855,000 58,405,050 221,500 15,130,665 1,076,500 73,535,715
ABB Ltd., ADR (Switzerland) 689,600 13,378,240 689,600 13,378,240
The Boeing Co 1,045,000 59,930,750 198,200 11,366,770 1,243,200 71,297,520
Danaher Corp. 364,700 25,310,180 364,700 25,310,180
Emerson Electric Co 1,000,000 40,790,000 1,000,000 40,790,000
General Dynamics Corp 1,000,000 73,620,000 1,000,000 73,620,000
General Electric Co 70,000 1,785,000 70,000 1,785,000
Illinois Tool Works Inc 1,000,000 44,450,000 1,000,000 44,450,000
Ingersoll-Rand Co. Ltd., A 1,002,000 31,232,340 1,002,000 31,232,340
Lockheed Martin Corp 500,000 54,835,000 500,000 54,835,000
Northrop Grumman Corp 1,000,000 60,540,000 1,000,000 60,540,000
Pall Corp 500,000 17,195,000 500,000 17,195,000
Precision Castparts Corp. 257,300 20,270,094 257,300 20,270,094
Raytheon Co 600,000 32,106,000 600,000 32,106,000
Rockwell Collins Inc. 100,000 4,809,000 100,000 4,809,000
(a) SunPower Corp., A 2,000 141,860 37,300 2,645,689 39,300 2,787,549
Teleflex Inc. 500,000 31,745,000 500,000 31,745,000
Textron Inc. 1,050,000 30,744,000 1,050,000 30,744,000
(a) Thomas & Betts Corp. 500,000 19,535,000 500,000 19,535,000
Tyco International Ltd. 387,513 13,570,705 387,513 13,570,705
United Technologies Corp. 850,000 51,051,000 391,300 23,501,478 1,241,300 74,552,478
W.W. Grainger Inc. 550,000 47,833,500 550,000 47,833,500
-------------- -------------- --------------
674,319,205 111,603,116 785,922,321
-------------- -------------- --------------
COMMERCIAL & PROFESSIONAL
SERVICES 1.5%
Avery Dennison Corp. 462,000 20,549,760 462,000 20,549,760
Dun & Bradstreet Corp. 122,000 11,511,920 122,000 11,511,920
Equifax Inc. 400,000 13,780,000 400,000 13,780,000
Robert Half International Inc. 300,000 7,425,000 300,000 7,425,000
-------------- --------------
53,266,680 53,266,680
-------------- --------------
CONSUMER DURABLES & APPAREL 1.1%
VF Corp. 500,000 38,655,000 500,000 38,655,000
-------------- --------------
CONSUMER SERVICES 1.4%
Carnival Corp. 565,000 19,972,750 564,600 19,958,610 1,129,600 39,931,360
(a) Interval Leisure Group Inc. 60,020 624,208 60,020 624,208
International Game Technology 221,029 3,797,278 221,029 3,797,278
Starwood Hotels & Resorts Worldwide
Inc. 204,600 5,757,444 204,600 5,757,444
-------------- -------------- --------------
20,596,958 29,513,332 50,110,290
-------------- -------------- --------------
DIVERSIFIED FINANCIALS 1.3%
American Express Co. 242,300 8,584,689 242,300 8,584,689
BlackRock Inc. 92,500 17,991,250 92,500 17,991,250
Moody's Corp. 538,000 18,292,000 538,000 18,292,000
-------------- -------------- --------------
18,292,000 26,575,939 44,867,939
-------------- -------------- --------------
ENERGY 3.7%
BP PLC, ADR (United Kingdom) 350,200 17,569,534 350,200 17,569,534
ConocoPhillips 35,000 2,563,750 35,000 2,563,750
Devon Energy Corp. 50,000 4,560,000 150,000 13,680,000 200,000 18,240,000
Exxon Mobil Corp. 70,000 5,436,200 70,000 5,436,200
(a) FMC Technologies 121,000 5,632,550 121,000 5,632,550
Halliburton Co. 381,600 12,360,024 381,600 12,360,024
National Oilwell Varco Inc. 195,100 9,799,873 195,100 9,799,873
Occidental Petroleum Corp. 136,500 9,616,425 136,500 9,616,425
Peabody Energy Corp. 189,300 8,518,500 189,300 8,518,500
(b) Petroplus Holdings AG, 144A
(Switzerland) 188,400 7,087,620 188,400 7,087,620
Royal Dutch Shell PLC, A, ADR
(Netherlands) 280,000 16,522,800 280,000 16,522,800
Schlumberger Ltd. 40,000 3,123,600 153,000 11,947,770 193,000 15,071,370
(a) Transocean Inc. 15,222 1,671,985 15,222 1,671,985
-------------- -------------- --------------
51,447,869 78,642,762 130,090,631
-------------- -------------- --------------
FOOD, BEVERAGE & TOBACCO 1.5%
Bungel Ltd. 142,300 8,990,514 142,300 8,990,514
(a) Hansen Natural Corp. 641,400 19,402,350 641,400 19,402,350
PepsiCo Inc. 309,200 22,036,684 309,200 22,036,684
-------------- --------------
50,429,548 50,429,548
-------------- --------------
FOOD & STAPLES RETAILING 0.5%
CVS Caremark Corp. 514,700 17,324,802 514,700 17,324,802
-------------- --------------
HEALTH CARE EQUIPMENT & SERVICES
3.6%
(a) Advanced Medical Optics Inc. 88,888 1,580,429 88,888 1,580,429
Baxter International Inc. 400,000 26,252,000 400,000 26,252,000
Cardinal Health Inc. 300,000 14,784,000 300,000 14,784,000
Covidien Ldt. 345,900 18,595,584 345,900 18,595,584
(a) Edwards Lifesciences Corp. 50,000 2,888,000 50,000 2,888,000
(a) Hospira Inc. 40,000 1,528,000 40,000 1,528,000
IMS Health Inc. 500,000 9,455,000 500,000 9,455,000
(a) Intuitive Surgical Inc. 1,000 240,980 1,000 240,980
(a) Medco Health Solutions Inc. 96,480 4,341,600 96,480 4,341,600
Medtronic Inc. 60,000 3,006,000 60,000 3,006,000
Quest Diagnostics Inc. 500,000 25,835,000 500,000 25,835,000
(a) Varian Medical Systems Inc. 223,300 12,757,129 223,300 12,757,129
(a) Zimmer Holdings Inc. 64,000 4,131,840 64,000 4,131,840
-------------- -------------- --------------
94,042,849 31,352,713 125,395,562
-------------- -------------- --------------
HOUSEHOLD & PERSONAL PRODUCTS 0.8%
The Procter & Gamble Co. 35,000 2,439,150 353,200 24,614,508 388,200 27,053,658
-------------- -------------- --------------
INSURANCE 1.2%
AFLAC Inc. 305,700 17,959,875 305,700 17,959,875
(a) Berkshire Hathaway Inc., A 184 24,030,400 184 24,030,400
-------------- --------------
41,990,275 41,990,275
-------------- --------------
MATERIALS 2.3%
Air Products and Chemicals Inc. 500,000 34,245,000 500,000 34,245,000
Cemex SAB de CV, CPO, ADR (Mexico) 880,121 15,155,683 880,121 15,155,683
Goldcorp Inc. (Canada) 280,800 8,881,704 280,800 8,881,704
Sigma-Aldrich Corp. 400,000 20,968,000 400,000 20,968,000
-------------- -------------- --------------
55,213,000 24,037,387 79,250,387
-------------- -------------- --------------
MEDIA 2.0%
Time Warner Inc. 1,350,000 17,698,500 1,350,000 17,698,500
The Walt Disney Co. 1,130,000 34,679,700 557,290 17,103,230 1,687,290 51,782,930
-------------- -------------- --------------
52,378,200 17,103,230 69,481,430
-------------- -------------- --------------
PHARMACEUTICALS, BIOTECHNOLOGY &
LIFE SCIENCES 18.0%
Abbott Laboratories 400,000 23,032,000 400,000 23,032,000
Allergan Inc. 800,000 41,200,000 800,000 41,200,000
(a) Amgen Inc. 932,000 55,239,640 932,000 55,239,640
(a) Biogen Idec Inc. 400,000 20,116,000 400,000 20,116,000
(a) Celgene Corp. 25,000 1,582,000 294,100 18,610,648 319,100 20,192,648
(a) Dionex Corp. 250,000 15,887,500 250,000 15,887,500
Eli Lilly and Co. 400,000 17,612,000 400,000 17,612,000
(a) Genentech Inc. 1,000,000 88,680,000 205,600 18,232,608 1,205,600 106,912,608
(a) Gilead Sciences Inc. 342,700 15,620,266 342,700 15,620,266
Johnson & Johnson 1,081,000 74,891,680 442,010 30,622,453 1,523,010 105,514,133
Merck & Co. Inc. 500,000 15,780,000 500,000 15,780,000
(a) Millipore Corp. 400,000 27,520,000 400,000 27,520,000
Pfizer Inc. 2,170,000 40,014,800 2,170,000 40,014,800
Roche Holding AG, ADR (Switzerland) 40,000 3,102,000 342,300 26,545,365 382,300 29,647,365
Schering-Plough Corp. 500,000 9,235,000 1,021,600 18,868,952 1,521,600 28,103,952
Teva Pharmaceutical Industries Ltd.,
ADR (Israel) 332,500 15,225,175 332,500 15,225,175
(a) Waters Corp. 500,000 29,090,000 500,000 29,090,000
Wyeth 600,000 22,164,000 600,000 22,164,000
-------------- -------------- --------------
485,146,620 143,725,467 628,872,087
-------------- -------------- --------------
REAL ESTATE 0.1%
iStar Financial Inc. 763,600 1,985,360 763,600 1,985,360
-------------- --------------
RETAILING 1.6%
Best Buy Co. Inc. 220,900 8,283,750 220,900 8,283,750
(a) Expedia Inc. 300,100 4,534,511 300,100 4,534,511
Genuine Parts Co. 300,400 12,079,084 300,400 12,079,084
(a) HSN Inc. 60,020 660,820 60,020 660,820
Lowe's Cos. Inc. 577,900 13,690,451 577,900 13,690,451
Target Corp. 328,700 16,122,735 328,700 16,122,735
(a) Ticketmaster 60,020 644,015 60,020 644,015
-------------- -------------- --------------
17,918,430 38,096,936 56,015,366
-------------- -------------- --------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT 1.5%
Intel Corp. 900,000 16,857,000 848,800 15,898,024 1,748,800 32,755,024
KLA-Tencor Corp. 188,700 5,972,355 188,700 5,972,355
Texas Instruments Inc. 515,000 11,072,500 515,000 11,072,500
(a) Verigy Ltd. (Singapore) 48,974 797,297 48,974 797,297
-------------- -------------- --------------
28,726,797 21,870,379 50,597,176
-------------- -------------- --------------
SOFTWARE & SERVICES 8.1%
(a) Activision Blizzard Inc. 1,129,300 17,425,099 1,129,300 17,425,099
(a) Adobe Systems Inc. 491,700 19,407,399 491,700 19,407,399
(a) Autodesk Inc. 485,900 16,301,945 485,900 16,301,945
Automatic Data Processing Inc. 700,000 29,925,000 700,000 29,925,000
(a) Computer Sciences Corp. 1,000,000 40,190,000 1,000,000 40,190,000
(a) Google Inc., A 27,000 10,814,040 36,300 14,538,876 63,300 25,352,916
(a) IAC/InterActiveCorp . 150,050 2,595,865 150,050 2,595,865
MasterCard Inc., A 59,600 10,568,868 59,600 10,568,868
Microsoft Corp. 975,000 26,022,750 764,400 20,401,836 1,739,400 46,424,586
(a) Oracle Corp. 500,000 10,155,000 500,000 10,155,000
Paychex Inc. 539,900 17,832,897 539,900 17,832,897
Visa Inc., A 291,900 17,919,741 291,900 17,919,741
(a) Yahoo! Inc. 1,600,000 27,680,000 1,600,000 27,680,000
-------------- -------------- --------------
147,382,655 134,396,661 281,779,316
-------------- -------------- --------------
TECHNOLOGY HARDWARE & EQUIPMENT
13.0%
(a) Agilent Technologies Inc. 400,000 11,864,000 861,500 25,552,090 1,261,500 37,416,090
(a) Apple Inc. 700,000 79,562,000 79,400 9,024,604 779,400 88,586,604
(a) Cisco Systems Inc. 1,545,000 34,855,200 1,423,600 32,116,416 2,968,600 66,971,616
(a) Dell Inc. 500,000 8,240,000 820,200 13,516,896 1,320,200 21,756,896
(a) EMC Corp. 1,000,000 11,960,000 1,000,000 11,960,000
(a) FLIR Systems Inc. 327,800 12,594,076 327,800 12,594,076
Harris Corp. 287,400 13,277,880 287,400 13,277,880
Hewlett-Packard Co. 1,156,250 53,465,000 1,156,250 53,465,000
International Business Machines
Corp. 580,000 67,836,800 580,000 67,836,800
(a) Logitech International SA
(Switzerland) 150,000 3,498,000 150,000 3,498,000
(a) Mettler-Toledo International Inc. 50,000 4,900,000 50,000 4,900,000
Molex Inc. 146,483 3,288,543 146,483 3,288,543
Molex Inc., A 146,483 3,048,311 146,483 3,048,311
Nokia Corp., ADR (Finland) 521,900 9,733,435 521,900 9,733,435
QUALCOMM Inc. 110,000 4,726,700 647,500 27,823,075 757,500 32,549,775
(a) Research In Motion Ltd. (Canada) 127,400 8,701,420 127,400 8,701,420
(a) Sun Microsystems Inc. 400,000 3,040,000 400,000 3,040,000
Tyco Electronics Ltd. 387,513 10,718,610 387,513 10,718,610
-------------- -------------- --------------
301,003,164 152,339,892 453,343,056
-------------- -------------- --------------
TELECOMMUNICATIONS SERVICES 1.7%
America Movil SAB de CV, L, ADR
(Mexico) 259,300 12,021,148 259,300 12,021,148
(a) American Tower Corp., A 115,000 4,136,550 737,900 26,542,263 852,900 30,678,813
(a) MetroPCS Communications Inc. 331,400 4,636,286 331,400 4,636,286
Rogers Communications Inc., B
(Canada) 415,100 13,460,384 415,100 13,460,384
-------------- -------------- --------------
4,136,550 56,660,081 60,796,631
-------------- -------------- --------------
TRANSPORTATION 7.8%
Air France-KLM, ADR (France) 550,000 12,600,500 550,000 12,600,500
(a) Alaska Air Group Inc. 500,000 10,195,000 500,000 10,195,000
(a) AMR Corp. 2,000,000 19,640,000 2,000,000 19,640,000
Arkansas Best Corp. 500,000 16,845,000 500,000 16,845,000
British Airways PLC, ADR
(United Kingdom) 500,000 15,062,500 500,000 15,062,500
Canadian National Railway Co.
(Canada) 500,000 23,915,000 500,000 23,915,000
Canadian Pacific Railway Ltd.
(Canada) 500,000 26,930,000 500,000 26,930,000
C.H Robinson Worldwide Inc. 267,300 13,621,608 267,300 13,621,608
(a) Continental Airlines Inc., B 1,000,000 16,680,000 1,000,000 16,680,000
Expeditors International of
Washington Inc. 80,000 2,787,200 324,200 11,295,128 404,200 14,082,328
FedEx Corp. 168,000 13,278,720 168,000 13,278,720
Forward Air Corp. 500,000 13,615,000 500,000 13,615,000
Heartland Express Inc. 500,000 7,760,000 500,000 7,760,000
(a) Ryanair Holdings PLC, ADR (Ireland) 217,700 4,883,011 217,700 4,883,011
Southwest Airlines Co. 65,200 946,052 65,200 946,052
Union Pacific Corp. 600,000 42,696,000 600,000 42,696,000
Werner Enterprises Inc. 500,000 10,855,000 500,000 10,855,000
(a) YRC Worldwide Inc. 700,000 8,372,000 700,000 8,372,000
-------------- -------------- --------------
228,899,252 43,078,467 271,977,719
-------------- -------------- --------------
UTILITIES 1.2%
International Power PLC
(United Kingdom) 3,588,400 23,216,781 3,588,400 23,216,781
Public Service Enterprise Group Inc. 100,000 3,279,000 496,400 16,276,956 596,400 19,555,956
-------------- -------------- --------------
3,279,000 39,493,737 42,772,737
-------------- -------------- --------------
TOTAL COMMON STOCKS
(COST $2,135,566,328) 2,341,737,593 1,113,987,802 3,455,725,395
-------------- -------------- --------------
SHORT TERM INVESTMENTS
(COST $40,134,777) 1.1%
MONEY MARKET FUNDS 1.1%
(c) Franklin Institutional Fiduciary
Trust Money Market Portfolio,
1.98% 1,560,596 1,560,596 38,574,181 38,574,181 40,134,777 40,134,777
-------------- -------------- --------------
TOTAL INVESTMENTS
(COST $2,175,701,105) 100.1% 2,343,298,189 1,152,561,983 3,495,860,172
OTHER ASSETS, LESS LIABILITES (0.1)% (2,318,965) (2,137,566) (4,599,675)(d)
-------------- -------------- --------------
NET ASSETS 100% $2,340,979,224 $1,150,424,417 $3,491,260,497(d)
-------------- -------------- --------------
FOOTNOTE LEGEND
(a) Non-income producing for the twelve months ended September 30, 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.This security has been deemed liquid under
guidelines approved by the Fund's Board of Trustees. At September 30, 2008,
the value of this security was $7,087,620, representing 0.20% of net assets
(c) The Franklin Institutional Fiduciary Trust Money Market Portfolio is
managed by the Franklin Growth Fund's investment manager. The rate shown is
the annualized seven-day yield at period end.
(d) Includes the estimated expenses of the Transactions borne by the Franklin
Capital Growth Fund and the Franklin Growth Fund.
ABBREVIATION LEGEND
ADR - American Depository Receipt
CPO - Certificates of Ordinary Participation
See Notes to Pro Forma Combining Statements
FRANKLIN GROWTH FUND
FRANKLIN CAPITAL GROWTH FUND
FINANCIAL STATEMENTS
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2008
(UNAUDITED)
FRANKLIN GROWTH
FRANKLIN CAPITAL PRO FORMA FUND PRO FORMA
FRANKLIN GROWTH GROWTH FUND ADJUSTMENTS COMBINED
FUND (UNAUDITED) (UNAUDITED) (UNAUDITED)
--------------- ---------------- ------------ ---------------
Assets:
Investments in securities:
Cost - Unaffiliated issuers $1,077,802,405 $1,057,763,923 $ -- $2,135,566,328
Cost - Sweep Money Fund 1,560,596 38,574,181 -- 40,134,777
-------------- -------------- ------------ --------------
Total cost of investments 1,079,363,001 1,096,338,104 -- 2,175,701,105
============== ============== ============ ==============
Value - Unaffiliated issuers 2,341,737,593 1,113,987,802 -- 3,455,725,395
Value - Sweep Money Fund 1,560,596 38,574,181 -- 40,134,777
-------------- -------------- ------------ --------------
Total value of Investments 2,343,298,189 1,152,561,983 -- 3,495,860,172
Cash 92,078 -- 92,078
Receivables: -- --
Investment securities sold 1,358,440 1,905,841 -- 3,264,281
Capital shares sold 2,109,578 117,556 -- 2,227,134
Dividends 2,279,253 770,536 -- 3,049,789
Other Assets 7,305 -- -- 7,305
-------------- -------------- ------------ --------------
Total assets 2,349,144,843 1,155,355,916 -- 3,504,500,759
-------------- -------------- ------------ --------------
Liabilities:
Payables:
Investment securities purchased -- 3,008,367 -- 3,008,367
Capital shares redeemed 4,952,662 383,097 -- 5,335,759
Affiliates 2,547,815 1,167,766 -- 3,715,581
Unaffiliated transfer agent fees 432,365 200,086 -- 632,451
Funds advanced by custodian -- 117,162 117,162
Other liabilities 304,349 55,021 71,572(a) 430,942
-------------- -------------- ------------ --------------
Total liabilities 8,237,191 4,931,499 71,572 13,240,262
-------------- -------------- ------------ --------------
Net assets, at value $2,340,907,652 $1,150,424,417 $ (71,572) $3,491,260,497
============== ============== ============ ==============
Net assets consist of:
Undistributed net investment income $1,083,419,349 $ 5,852,163 $ (71,572) $1,089,199,940
Net unrealized appreciation (depreciation) 10,241,399 56,224,627 -- 66,466,026
Accumulated net realized gain (loss) 1,263,935,188 (14,269,628) -- 1,249,665,560
Capital shares (16,688,284) 1,102,617,255 -- 1,085,928,971
-------------- -------------- ------------ --------------
Net assets, at value $2,340,907,652 $1,150,424,417 $ (71,572) $3,491,260,497
============== ============== ============ ==============
CLASS A:
Net assets, at value $1,708,561,046 $ 614,326,241 $ (38,691) $2,322,848,596
============== ============== ============ ==============
Shares outstanding(b) 45,967,776 60,996,186 (44,469,752) 62,494,210
============== ============== ============ ==============
Net asset value per share(c) $ 37.17 $ 10.07 $ 37.17
============== ============== ==============
Maximum offering price per share
(net asset value / 94.25%) $ 39.44 $ 10.69 $ 39.44
============== ============== ==============
CLASS B:
Net assets, at value $ 89,775,767 $ 39,610,266 $ (2,676) $ 129,383,367
============== ============== ============ ==============
Shares outstanding(b) 2,532,916 4,175,045 (3,057,449) 3,650,512
============== ============== ============ ==============
Net asset value and maximum
offering price per share(c) $ 35.44 $ 9.49 $ 35.44
============== ============== ==============
CLASS C:
Net assets, at value $ 255,417,207 $ 93,127,209 $ ( 5,927) $ 348,538,489
============== ============== ============ ==============
Shares outstanding(b) 7,268,101 9,924,197 (7,274,189) 9,918,109
============== ============== ============ ==============
Net asset value and maximum
offering price per share(c) $ 35.14 $ 9.38 $ 35.14
============== ============== ==============
CLASS R:
Net assets, at value $ 30,173,937 $ 14,903,600 $ (1,160) $ 45,076,377
============== ============== ============ ==============
Shares outstanding(b) 818,448 1,496,989 (1,092,800) 1,222,637
============== ============== ============ ==============
Net asset value and maximum
offering price per share $ 36.87 $ 9.96 $ 36.87
============== ============== ==============
ADVISOR CLASS:
Net assets, at value $ 256,979,695 $ 388,457,101 $ (23,118) $ 645,413,678
============== ============== ============ ==============
Shares outstanding(b) 6,898,141 38,188,903 (27,761,145) 17,325,899
============== ============== ============ ==============
Net asset value and maximum
offering price per share $ 37.25 $ 10.17 $ 37.25
============== ============== ==============
(a) Estimated reorganization costs.
(b) See note 2 in the accompanying notes to Pro Forma Combining Statements.
(c) Redemption price is equal to the net asset value less contingent sales
charges, if applicable.
See notes to Pro Forma Combining Statements
FRANKLIN GROWTH FUND
FRANKLIN CAPITAL GROWTH FUND
FINANCIAL STATEMENTS
PRO FORMA COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2008 (UNAUDITED)
FRANKLIN FRANKLIN GROWTH
FRANKLIN CAPITAL PRO FORMA FUND PRO FORMA
GROWTH GROWTH FUND ADJUSTMENTS COMBINED
FUND (UNAUDITED) (UNAUDITED)* (UNAUDITED)
------------- ------------- ------------ ---------------
Investment Income:
Dividends:
Unaffiliated issuers $ 39,462,563 $ 19,807,444 $ -- $ 59,447,386
Sweep Money Fund 828,060 177,379 -- 828,060
------------- ------------- --------- ---------------
Total investment income 40,290,623 19,984,823 -- 60,275,446
------------- ------------- --------- ---------------
Expenses:
Management fees 12,544,223 6,384,810 (154,750) 18,774,283(a)
Distribution fees:
Class A 4,865,049 1,812,664 -- 6,677,713
Class B 1,160,677 523,657 -- 1,684,334
Class C 3,053,322 1,158,044 -- 4,211,366
Class R 294,059 113,888 -- 407,947
Transfer agent fees 4,528,767 2,866,701 (258,841) 7,136,627(b)
Custodian fees 53,202 35,292 -- 88,494
Reports to shareholders 396,386 145,397 (27,089) 514,694(c)
Registration and filing fees 161,600 116,654 (55,651) 222,603(d)
Professional fees 56,575 40,242 (4,841) 91,976(e)
Trustee's fees and expenses 16,704 95,808 (95,808) 16,704(f)
Other 41,683 31,161 (31,161) 41,683(g)
------------- ------------- --------- ---------------
Total expense 27,172,247 13,324,318 (628,141) 39,868,424
Expense reductions (195) (1,152) -- (1,347)
------------- ------------- --------- ---------------
Net expenses 27,172,052 13,323,166 (628,141) 39,867,077
------------- ------------- --------- ---------------
Net investment income 13,118,571 6,661,657 628,141 20,408,369
------------- ------------- --------- ---------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments 93,114,666 (726,203) -- 92,388,463
Foreign currency transactions 3,793 262,285 -- 266,078
------------- ------------- --------- ---------------
Net realized gain (loss) 93,118,459 (463,918) -- 92,654,541
------------- ------------- --------- ---------------
Net change in unrealized appreciation
(depreciation) from:
Investments (703,968,727) (322,746,316) -- (1,026,715,043)
Translation of assets and liabilities
denominated in foreign currencies -- (2,474) -- (2,474)
------------- ------------- --------- ---------------
Net change in unrealized
appreciation (depreciation) (703,968,727) (322,748,790) -- (1,026,717,517)
------------- ------------- --------- ---------------
Net realized and unrealized gain (loss) (610,850,268) (323,212,708) -- (934,062,976)
------------- ------------- --------- ---------------
Net increase (decrease) in net assets
resulting from operations $(597,731,697) $(316,551,051) $ 628,141 $ (913,654,607)
------------- ------------- --------- ---------------
* Projected Expenses are based on current and anticipated expenses and do not
include the estimated costs of the transaction of approximately $143,144 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 duplicative transfer agent 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
FRANKLIN CAPITAL GROWTH FUND
FRANKLIN GROWTH FUND
NOTES TO PRO FORMA COMBINING STATEMENTS (UNAUDITED)
1. BASIS OF COMBINATION
Subject to approval of the proposed Agreement and
Plan of Reorganization (the "Agreement and Plan") by
the shareholders of the Franklin Capital Growth Fund,
the Franklin Growth Fund will acquire substantially
all of the assets of the Franklin Capital Growth Fund
in exchange for the Class A, B, C, R and Advisor
Class shares of the Franklin Growth Fund. The
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 reorganization as if such
reorganization had occurred on October 1, 2007. The
Pro Forma Combining Statement of Assets and
Liabilities and The Pro Forma Combining Statement of
Investments for the Franklin Growth Fund and Franklin
Capital Growth Fund have been combined to reflect
balances as of September 30, 2008. The Pro Forma
Combining Statement of Operations for the Franklin
Growth Fund and the Franklin Capital Growth Fund has
been combined to reflect the twelve months ended
September 30, 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 Franklin
Growth Fund and the Franklin Capital Growth Fund.
2. SHARES OF BENEFICIAL INTEREST
The number of Class A shares issued was calculated by
dividing the Class A net assets of the Franklin
Capital Growth Fund at September 30, 2008 by the
Class A net asset value per share of the Franklin
Growth Fund at September 30, 2008.
The number of Class B shares issued was calculated by
dividing the Class B net assets of the Franklin
Capital Growth Fund at September 30, 2008 by the
Class B net asset value per share of the Franklin
Growth Fund at September 30, 2008.
The number of Class C shares issued was calculated by
dividing the Class C net assets of the Franklin
Capital Growth Fund at September 30, 2008 by the
Class C net asset value per share of the Franklin
Growth Fund at September 30, 2008.
The number of Class R shares issued was calculated by
dividing the Class R net assets of the Franklin
Capital Growth Fund at September 30, 2008 by the
Class R net asset value per share of the Franklin
Growth Fund at September 30, 2008.
The number of Advisor Class shares issued was
calculated by dividing the Advisor Class net assets
of the Franklin Capital Growth Fund at September 30,
2008 by the Advisor Class net asset value per share
of the Franklin Growth Fund at September 30, 2008.
3. INVESTMENT RESTRICTIONS
None of the securities held by the Franklin Capital
Growth Fund as of the closing date will violate the
investment restrictions of the Franklin Growth 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 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.
6. Reorganization Costs
The Franklin Growth Fund and the Franklin Capital Growth
Fund will each pay 25% of the expenses, including the costs
of proxy solicitation, resulting from their participation in
the reorganization. Franklin Advisers, Inc. will pay the
remaining 50% of such expenses for the reorganization. The
total amount of such expenses for the reorganization is
estimated to be $286,288.
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 Amendment dated October 21, 2008 of
Agreement and Declaration of Trust dated October 18, 2006
(d) 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
(e) 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 Growth Fund, and
Franklin Capital Growth 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) Article VII of the Agreement and Declaration of Trust as
amended by the Certificate of Amendment of Agreement and
Declaration of Trust dated October 21, 2008
(c) 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 Growth Fund and Franklin Advisers,
Inc. dated November 1, 2008
(c) Sub-Advisory Agreement between the Franklin Advisers,
Inc., on behalf of the Franklin Growth Fund, and Franklin
Investment Advisory Services, LLC dated November 1, 2008
(d) 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
(e) 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
(f) 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 The Bank
of New York Mellon 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 The Bank of New York Mellon
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 The Bank of New York
Mellon 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 The Bank of New
York Mellon 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 The Bank of New York Mellon
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 The Bank of New York Mellon
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 The Bank of New York Mellon
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 The Bank
of New York Mellon 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 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
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) Distribution Plan pursuant to Rule 12b-1 between the
Registrant, on behalf of Franklin DynaTech Fund - Class
R, and Franklin/Templeton Distributors, Inc. dated
December 1, 2008
(k) Multiple Class Plan on behalf of Franklin DynaTech Fund
dated July 10, 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 December 17, 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) Subcontract for Fund Administrative Services dated
March 1, 2008, as amended November 1, 2008 between
Franklin Advisers, Inc., on behalf of Franklin DynaTech
Fund, Franklin Growth Fund, Franklin Income Fund,
Franklin U.S. Government Securities Fund and
Franklin Utilities 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 December 1, 2008
(b) Power of Attorney dated December 1, 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 15TH day of
December, 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: December 15, 2008
JENNIFER J. BOLT* Chief Executive Officer-
Jennifer J. Bolt Finance and Administration
Dated: December 15, 2008
LAURA F. FERGERSON* Chief Financial Officer and
Laura F. Fergerson Chief Accounting Officer
Dated: December 15, 2008
HARRIS J. ASHTON* Trustee
Harris J. Ashton Dated: December 15, 2008
ROBERT F. CARLSON* Trustee
Robert F. Carlson Dated: December 15, 2008
SAM GINN* Trustee
Sam Ginn Dated: December 15, 2008
EDITH E. HOLIDAY* Trustee
Edith E. Holiday Dated: December 15, 2008
RUPERT H. JOHNSON, JR.* Trustee
Rupert H. Johnson, Jr. Dated: December 15, 2008
FRANK W.T. LAHAYE* Trustee
Frank W.T. LaHaye Dated: December 15, 2008
FRANK A. OLSON* Trustee
Frank A. Olson Dated: December 15, 2008
LARRY D. THOMPSON* Trustee
Larry D. Thompson Dated: December 15, 2008
JOHN B WILSON* Trustee
John B. Wilson Dated: December 15, 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 Amendment dated Attached
October 21, 2008 of Agreement
and Declaration of Trust dated
October 18, 2006
EX-99.(1)(d) Certificate of Trust of Franklin *
Custodian Funds dated October
18, 2006
EX-99.(1)(e) 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) Article VII of the Agreement and Attached
Declaration of Trust as amended as Exhibit
by the Certificate of Amendment EX-99.(1)(c)
of Agreement and Declaration of
Trust dated October 21, 2008
EX-99.(5)(c) 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 Attached
between the Registrant on behalf
of the Franklin Growth Fund and
Franklin Advisers, Inc. dated
November 1, 2008
EX-99.(6)(c) Sub-Advisory Agreement between Attached
the Franklin Advisers, Inc., on
behalf of the Franklin Growth
Fund, and Franklin Investment
Advisory Services, LLC dated
November 1, 2008
EX-99.(6)(d) Investment Management Agreement *
between the Registrant on behalf
of the Franklin Income Fund and
Franklin Advisers, Inc. dated
February 1, 2008
EX-99.(6)(e) 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)(f) 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 The Bank of New
York Mellon 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 The Bank of
New York Mellon
EX-99.(8)(c) Amendment dated February 27, *
1998 to the Master Custody
Agreement dated February 16,
1996 between the Registrant and
The Bank of New York Mellon
EX-99.(8)(d) Amendment dated June 3, 2008 to *
Exhibit A of the Master Custody
Agreement between Registrant and
The Bank of New York Mellon made
as of February 16, 1996
EX-99.(8)(e) Amended and Restated Foreign *
Custody Manager Agreement
between the Registrant and The
Bank of New York Mellon 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 The Bank of New York Mellon
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 The Bank of New York Mellon
as of May 16, 2001
EX-99.(8)(h) Terminal Link Agreement between *
Registrant and The Bank of New
York Mellon 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) Distribution Plan pursuant to Attached
Rule 12b-1 between the
Registrant, on behalf of
Franklin DynaTech Fund - Class
R, and Franklin/Templeton
Distributors, Inc. dated
December 1, 2008
EX-99.(10)(k) Multiple Class Plan on behalf of Attached
Franklin DynaTech Fund dated
July 10, 2008
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 December 17, 2008
EX-99.(13)(a) Subcontract for Fund Attached
Administrative Services dated
November 1, 2008 between Franklin
Advisers, Inc., on behalf of
Franklin DynaTech Fund, Franklin
Growth Fund, Franklin Income Fund,
Franklin U.S.Government Securities
Fund and Franklin Utilities
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
December 1, 2008
EX-99.(16)(b) Power of Attorney dated Attached
December 1, 2008
EX-99.(17)(a) Code of Ethics dated May, 2008 *
*Incorporated By Reference