0000038721-08-000052.txt : 20120808 0000038721-08-000052.hdr.sgml : 20120808 20081219153250 ACCESSION NUMBER: 0000038721-08-000052 CONFORMED SUBMISSION TYPE: N-14 PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 20081219 DATE AS OF CHANGE: 20090210 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANKLIN CUSTODIAN FUNDS CENTRAL INDEX KEY: 0000038721 IRS NUMBER: 132573775 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-14 SEC ACT: 1933 Act SEC FILE NUMBER: 333-156353 FILM NUMBER: 081260998 BUSINESS ADDRESS: STREET 1: ONE FRANKLIN PARKWAY CITY: SAN MATEO STATE: CA ZIP: 94403-1906 BUSINESS PHONE: 650-312-2000 MAIL ADDRESS: STREET 1: ONE FRANKLIN PARKWAY CITY: SAN MATEO STATE: CA ZIP: 94403-1906 FORMER COMPANY: FORMER CONFORMED NAME: FRANKLIN CUSTODIAN FUNDS INC DATE OF NAME CHANGE: 19920703 CENTRAL INDEX KEY: 0000038721 S000006755 FRANKLIN GROWTH FUND CENTRAL INDEX KEY: 0000083297 S000006742 FRANKLIN CAPITAL GROWTH FUND C000018305 CLASS A FKREX C000018306 CLASS B FKEQX C000018307 CLASS C FREQX C000018308 ADVISOR CLASS FEACX C000018309 CLASS R FKIRX N-14 1 fcfn14wrap1208.txt 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 ------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Charter) (650) 312-2000 ------------------------------------------------------------------------------- (Registrant's Area Code and Telephone Number) One Franklin Parkway, San Mateo, CA 94403-1906 ------------------------------------------------------------------------------- (Address of Principal Executive Offices: Number, Street, City, State, 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. ------------------------------------------------------------------- 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. ------------------------------------------------------------------- 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. ------------------------------------------------------------------- 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. ------------------------------------------------------------------- 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: --------------------------------------- GROWTH FUND TARGET FUND --------------------------------------- Class A 0.89% 0.94% --------------------------------------- Class B 1.64% 1.70% --------------------------------------- Class C 1.64% 1.70% --------------------------------------- Class R 1.14% 1.20% --------------------------------------- Advisor 0.64% 0.70% Class --------------------------------------- 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: ------------------------------------------------------------- AVERAGE ANNUAL TOTAL TARGET FUND GROWTH FUND RETURN ------------------------------------------------------------- 1 Year (36.33%) (34.98%) ------------------------------------------------------------- 5 Year (2.06%) (1.98%) ------------------------------------------------------------- 10 Year 1.08% 1.43% ------------------------------------------------------------- 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 EX-99.1 2 fcfex991c.txt CERTIFICATE OF AMENDMENT OF AGREEMENT AND DECLARATION OF TRUST OF FRANKLIN CUSTODIAN FUNDS The undersigned Trustees of Franklin Custodian Funds, a Delaware statutory trust (the "Trust"), constituting a majority of the Board of Trustees of the Trust (the "Trustees"), do hereby certify that pursuant to the authority granted to the Trustees in Article IX, Section 1 of the Agreement and Declaration of Trust of the Trust made as of October 18, 2006, as amended December 4, 2006, (the "Declaration of Trust"), the Declaration of Trust is hereby amended as follows: FIRST. ARTICLE IV, Section 3(a) of the Declaration of Trust is hereby amended by adding the following language at the end thereof: The Trustees shall be subject to the same fiduciary duties to which the directors of a Delaware corporation would be subject if the Trust were a Delaware corporation, the Shareholders were shareholders of such Delaware corporation and the Trustees were directors of such Delaware corporation, and such modified duties shall replace any fiduciary duties to which the Trustees would otherwise be subject. Without limiting the generality of the foregoing, all actions and omissions of the Trustees shall be evaluated under the doctrine commonly referred to as the "business judgment rule," as defined and developed under Delaware law, to the same extent that the same actions or omissions of directors of a Delaware corporation in an substantially similar circumstance would be evaluated under such doctrine. Notwithstanding the foregoing, the provisions of this Declaration of Trust and the By-Laws, to the extent that they restrict or eliminate the duties (including fiduciary duties) and liabilities relating thereto of a Trustee otherwise applicable under the foregoing standard or otherwise existing at law or in equity, are agreed by each Shareholder and the Trust to replace such other duties and liabilities of such Trustee. SECOND. ARTICLE VII, Section 4 of the Declaration of Trust is hereby amended by deleting such provision in its entirety and replacing it with the following: Section 4.DERIVATIVE ACTIONS. In addition to the requirements set forth in Section 3816 of the DSTA, a Shareholder or Shareholders may bring a derivative action on behalf of the Trust only if the following conditions are met: (a) The Shareholder or Shareholders must make a pre-suit demand upon the Board of Trustees to bring the subject action unless an effort to cause the Board of Trustees to bring such an action is not likely to succeed. For purposes of this Section 4, a demand on the Board of Trustees shall only be deemed not likely to succeed and therefore excused if a majority of the Board of Trustees, or a majority of any committee established to consider the merits of such action, is composed of Trustees who are not "independent trustees" (as such term is defined in the DSTA). (b) Unless a demand is not required under paragraph (a) of this Section 4, Shareholders eligible to bring such derivative action under the DSTA who hold at least 10% of the outstanding Shares of the Trust, or 10% of the outstanding Shares of the Series or Class to which such action relates, shall join in the request for the Board of Trustees to commence such action; and (c) Unless a demand is not required under paragraph (a) of this Section 4, the Board of Trustees must be afforded a reasonable amount of time to consider such Shareholder request and to investigate the basis of such claim. The Board of Trustees shall be entitled to retain counsel or other advisors in considering the merits of the request and shall require an undertaking by the Shareholders making such request to reimburse the Trust for the expense of any such advisors in the event that the Board of Trustees determine not to bring such action. For purposes of this Section 4, the Board of Trustees may designate a committee of one Trustee to consider a Shareholder demand if necessary to create a committee with a majority of Trustees who are "independent trustees" (as such term in defined in the DSTA). THIRD. ARTICLE X, Section 2 of the Declaration of Trust is hereby amended by deleting such provision in its entirety and replacing it with the following: Section 2.APPLICABLE LAW. This Declaration of Trust is created under and is to be governed by and construed and administered according to the laws of the State of Delaware and the applicable provisions of the 1940 Act and the Code; provided, that, all matters relating to or in connection with the conduct of Shareholders' and Trustees' meetings (excluding, however, the Shareholders' right to vote), including, without limitation, matters relating to or in connection with record dates, notices to Shareholders or Trustees, nominations and elections of Trustees, voting by, and the validity of, Shareholder proxies, quorum requirements, meeting adjournments, meeting postponements and inspectors, which are not specifically addressed in this Declaration of Trust, in the By-Laws or in the DSTA (other than DSTA Section 3809), or as to which an ambiguity exists, shall be governed by the Delaware General Corporation Law, and judicial interpretations thereunder, as if the Trust were a Delaware corporation, the Shareholders were shareholders of such Delaware corporation and the Trustees were directors of such Delaware corporation; provided, further, however, that there shall not be applicable to the Trust, the Trustees, the Shareholders or any other Person or to this Declaration of Trust or the By-Laws (a) the provisions of Sections 3533, 3540 and 3583(a) of Title 12 of the Delaware Code or (b) any provisions of the laws (statutory or common) of the State of Delaware (other than the DSTA) pertaining to trusts which relate to or regulate (i) the filing with any court or governmental body or agency of trustee accounts or schedules of trustee fees and charges, (ii) affirmative requirements to post bonds for trustees, officers, agents or employees of a trust, (iii) the necessity for obtaining court or other governmental approval concerning the acquisition, holding or disposition of real or personal property, (iv) fees or other sums payable to trustees, officers, agents or employees of a trust, (v) the allocation of receipts and expenditures to income or principal, (vi) restrictions or limitations on the permissible nature, amount or concentration of trust investments or requirements relating to the titling, storage or other manner of holding of trust assets, or (vii) the establishment of fiduciary or other standards or responsibilities or limitations on the indemnification, acts or powers of trustees or other Persons, which are inconsistent with the limitations of liabilities or authorities and powers of the Trustees or officers of the Trust set forth or referenced in this Declaration of Trust or the By-Laws. The Trust shall be a Delaware statutory trust pursuant to the DSTA, and without limiting the provisions hereof, the Trust may exercise all powers that are ordinarily exercised by such a statutory trust. FOURTH. This Certificate of Amendment may be signed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the undersigned Trustees have duly executed this Certificate of Amendment this 21st day of October, 2008. /s/ Harris J. Ashton /s/ Robert F. Carlson Harris J. Ashton, Trustee Robert F. Carlson, Trustee /s/ Sam Ginn /s/ Edith E. Holiday Sam Ginn, Trustee Edith E. Holiday, Trustee /s/ Charles B. Johnson /s/ Rupert H. Johnson, Jr. Charles B. Johnson, Trustee Rupert H. Johnson, Jr., Trustee /s/ Frank W. T. LaHaye /s/ Frank A. Olson Frank W. T. LaHaye, Trustee Frank A. Olson, Trustee /s/ Larry D. Thompson /s/ John B. Wilson Larry D. Thompson, Trustee John B. Wilson, Trustee EX-99.6 3 fcfex996b.txt FRANKLIN CUSTODIAN FUNDS on behalf of FRANKLIN GROWTH FUND INVESTMENT MANAGEMENT AGREEMENT THIS INVESTMENT MANAGEMENT AGREEMENT made between FRANKLIN CUSTODIAN FUNDS, a Delaware statutory trust (the "Trust"), on behalf of FRANKLIN GROWTH FUND (the "Fund"), a series of the Trust, and FRANKLIN ADVISERS, INC., a California corporation (the "Adviser"). WHEREAS, the Trust has been organized and intends to operate as an investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"), for the purpose of investing and reinvesting its assets in securities, as set forth in its Agreement and Declaration of Trust, its By-Laws and its Registration Statement under the 1940 Act and the Securities Act of 1933, as amended, all as heretofore and hereafter amended and supplemented; and the Trust desires to avail itself of the services, information, advice, assistance and facilities of an investment manager and to have an investment manager perform various management, statistical, research, investment advisory and other services for the Fund; and, WHEREAS, the Adviser is registered as an investment adviser under the Investment Advisers Act of 1940, as amended, is engaged in the business of rendering management, investment advisory, counseling and supervisory services to investment companies and other investment counseling clients, and desires to provide these services to the Fund. NOW THEREFORE, in consideration of the terms and conditions hereinafter set forth, it is mutually agreed as follows: 1. EMPLOYMENT OF THE ADVISER. The Trust hereby employs the Adviser to manage the investment and reinvestment of the Fund's assets and to administer its affairs, subject to the direction of the Board of Trustees and the officers of the Trust, for the period and on the terms hereinafter set forth. The Adviser hereby accepts such employment and agrees during such period to render the services and to assume the obligations herein set forth for the compensation herein provided. The Adviser shall for all purposes herein be deemed to be an independent contractor and shall, except as expressly provided or authorized (whether herein or otherwise), have no authority to act for or represent the Fund or the Trust in any way or otherwise be deemed an agent of the Fund or the Trust. 2. OBLIGATIONS OF AND SERVICES TO BE PROVIDED BY THE ADVISER. The Adviser undertakes to provide the services hereinafter set forth and to assume the following obligations: A. ADMINISTRATIVE SERVICES. The Adviser shall furnish to the Fund adequate (i) office space, which may be space within the offices of the Adviser or in such other place as may be agreed upon from time to time, (ii) office furnishings, facilities and equipment as may be reasonably required for managing the corporate affairs and conducting the business of the Fund, including complying with the corporate and securities reporting requirements of the United States and the various states in which the Fund does business, conducting correspondence and other communications with the shareholders of the Fund, maintaining all internal bookkeeping, accounting and auditing services and records in connection with the Fund's investment and business activities, and computing net asset value. The Adviser shall employ or provide and compensate the executive, secretarial and clerical personnel necessary to provide such services. The Adviser shall also compensate all officers and employees of the Trust who are officers or employees of the Adviser or its affiliates. B. INVESTMENT MANAGEMENT SERVICES. (a) The Adviser shall manage the Fund's assets subject to and in accordance with the investment objectives and policies of the Fund and any directions which the Trust's Board of Trustees may issue from time to time. In pursuance of the foregoing, the Adviser shall make all determinations with respect to the investment of the Fund's assets and the purchase and sale of its investment securities, and shall take such steps as may be necessary to implement the same. Such determinations and services shall include determining the manner in which any voting rights, rights to consent to corporate action and any other rights pertaining to the Fund's investment securities shall be exercised. The Adviser shall render or cause to be rendered regular reports to the Trust, at regular meetings of its Board of Trustees and at such other times as may be reasonably requested by the Trust's Board of Trustees, of (i) the decisions made with respect to the investment of the Fund's assets and the purchase and sale of its investment securities, (ii) the reasons for such decisions and (iii) the extent to which those decisions have been implemented. (b) The Adviser, subject to and in accordance with any directions which the Trust's Board of Trustees may issue from time to time, shall place, in the name of the Fund, orders for the execution of the Fund's securities transactions. When placing such orders, the Adviser shall seek to obtain the best net price and execution for the Fund, but this requirement shall not be deemed to obligate the Adviser to place any order solely on the basis of obtaining the lowest commission rate if the other standards set forth in this section have been satisfied. The parties recognize that there are likely to be many cases in which different brokers are equally able to provide such best price and execution and that, in selecting among such brokers with respect to particular trades, it is desirable to choose those brokers who furnish research, statistical, quotations and other information to the Fund and the Adviser in accordance with the standards set forth below. Moreover, to the extent that it continues to be lawful to do so and so long as the Board of Trustees determines that the Fund will benefit, directly or indirectly, by doing so, the Adviser may place orders with a broker who charges a commission for that transaction which is in excess of the amount of commission that another broker would have charged for effecting that transaction, provided that the excess commission is reasonable in relation to the value of "brokerage and research services" (as defined in Section 28(e)(3) of the Securities Exchange Act of 1934, as amended) provided by that broker. Accordingly, the Trust and the Adviser agree that the Adviser shall select brokers for the execution of the Fund's transactions from among: (i) Those brokers and dealers who provide quotations and other services to the Fund, specifically including the quotations necessary to determine the Fund's net assets, in such amount of total brokerage as may reasonably be required in light of such services; and (ii) Those brokers and dealers who supply research, statistical and other data to the Adviser or its affiliates which the Adviser or its affiliates may lawfully and appropriately use in their investment management capacities, which relate directly to securities, actual or potential, of the Fund, or which place the Adviser in a better position to make decisions in connection with the management of the Fund's assets and securities, whether or not such data may also be useful to the Adviser and its affiliates in managing other portfolios or advising other clients, in such amount of total brokerage as may reasonably be required. (c) When the Adviser has determined that the Fund should tender securities pursuant to a "tender offer solicitation," Franklin/Templeton Distributors, Inc. ("Distributors") shall be designated as the "tendering dealer" so long as it is legally permitted to act in such capacity under the federal securities laws and rules thereunder and the rules of any securities exchange or association of which Distributors may be a member. Neither the Adviser nor Distributors shall be obligated to make any additional commitments of capital, expense or personnel beyond that already committed (other than normal periodic fees or payments necessary to maintain its corporate existence and membership in the National Association of Securities Dealers, Inc.) as of the date of this Agreement. This Agreement shall not obligate the Adviser or Distributors (i) to act pursuant to the foregoing requirement under any circumstances in which they might reasonably believe that liability might be imposed upon them as a result of so acting, or (ii) to institute legal or other proceedings to collect fees which may be considered to be due from others to it as a result of such a tender, unless the Trust on behalf of the Fund shall enter into an agreement with the Adviser and/or Distributors to reimburse them for all such expenses connected with attempting to collect such fees, including legal fees and expenses and that portion of the compensation due to their employees which is attributable to the time involved in attempting to collect such fees. (d) The Adviser shall render regular reports to the Trust, not more frequently than quarterly, of how much total brokerage business has been placed by the Adviser, on behalf of the Fund, with brokers falling into each of the categories referred to above and the manner in which the allocation has been accomplished. (e) The Adviser agrees that no investment decision will be made or influenced by a desire to provide brokerage for allocation in accordance with the foregoing, and that the right to make such allocation of brokerage shall not interfere with the Adviser's paramount duty to obtain the best net price and execution for the Fund. (f) Decisions on proxy voting shall be made by the Adviser unless the Board of Trustees determines otherwise. Pursuant to its authority, the Adviser shall have the power to vote, either in person or by proxy, all securities in which the Fund may be invested from time to time, and shall not be required to seek or take instructions from the Fund with respect thereto. The Adviser shall not be expected or required to take any action other than the rendering of investment-related advice with respect to lawsuits involving securities presently or formerly held in the Fund, or the issuers thereof, including actions involving bankruptcy. Should the Adviser undertake litigation against an issuer on behalf of the Fund, the Fund agrees to pay its portion of any applicable legal fees associated with the action or to forfeit any claim to any assets the Adviser may recover and, in such case, agrees to hold the Adviser harmless for excluding the Fund from such action. In the case of class action suits involving issuers held in the Fund, the Adviser may include information about the Fund for purposes of participating in any settlements. C. PROVISION OF INFORMATION NECESSARY FOR PREPARATION OF SECURITIES REGISTRATION STATEMENTS, AMENDMENTS AND OTHER MATERIALS. The Adviser, its officers and employees will make available and provide accounting and statistical information required by the Fund in the preparation of registration statements, reports and other documents required by federal and state securities laws and with such information as the Fund may reasonably request for use in the preparation of such documents or of other materials necessary or helpful for the underwriting and distribution of the Fund's shares. D. OTHER OBLIGATIONS AND SERVICES. The Adviser shall make its officers and employees available to the Board of Trustees and officers of the Trust for consultation and discussions regarding the administration and management of the Fund and its investment activities. E. DELEGATION OF SERVICES. The Adviser may, at its expense, select and contract with one or more investment advisers registered under the Investment Advisers Act of 1940 ("Sub-Advisers") to perform some or all of the services for the Fund for which it is responsible under this Agreement. The Adviser will compensate any Sub-Adviser for its services to the Fund. The Adviser may terminate the services of any Sub-Adviser at any time in its sole discretion, and shall at such time assume the responsibilities of such Sub-Adviser unless and until a successor Sub-Adviser is selected and the requisite approval of the Fund's shareholders is obtained. The Adviser will continue to have responsibility for all advisory services furnished by any Sub-Adviser. 3. EXPENSES OF THE FUND. It is understood that the Fund will pay all of its own expenses other than those expressly assumed by the Adviser herein, which expenses payable by the Fund shall include: A. Fees and expenses paid to the Adviser as provided herein; B. Expenses of all audits by independent public accountants; C. Expenses of transfer agent, registrar, custodian, dividend disbursing agent and shareholder record-keeping services, including the expenses of issue, repurchase or redemption of its shares; D. Expenses of obtaining quotations for calculating the value of the Fund's net assets; E. Salaries and other compensations of executive officers of the Trust who are not officers, directors, stockholders or employees of the Adviser or its affiliates; F. Taxes levied against the Fund; G. Brokerage fees and commissions in connection with the purchase and sale of securities for the Fund; H. Costs, including the interest expense, of borrowing money; I. Costs incident to meetings of the Board of Trustees and shareholders of the Fund, reports to the Fund's shareholders, the filing of reports with regulatory bodies and the maintenance of the Fund's and the Trust's legal existence; J. Legal fees, including the legal fees related to the registration and continued qualification of the Fund's shares for sale; K. Trustees' fees and expenses to trustees who are not directors, officers, employees or stockholders of the Adviser or any of its affiliates; L. Costs and expense of registering and maintaining the registration of the Fund and its shares under federal and any applicable state laws; including the printing and mailing of prospectuses to its shareholders; M. Trade association dues; N. The Fund's pro rata portion of fidelity bond, errors and omissions, and trustees and officer liability insurance premiums; and O. The Fund's portion of the cost of any proxy voting service used on its behalf. 4. COMPENSATION OF THE ADVISER. The Fund shall pay a management fee in cash to the Adviser based upon a percentage of the value of the Fund's net assets, calculated as set forth below, as compensation for the services rendered and obligations assumed by the Adviser, during the preceding month, on the first business day of the month in each year. A. For purposes of calculating such fee, the value of the net assets of the Fund shall be determined in the same manner as that Fund uses to compute the value of its net assets in connection with the determination of the net asset value of its shares, all as set forth more fully in the Fund's current prospectus and statement of additional information. The management fee payable by the Fund shall be calculated daily at the following annual rates: 0.625% of the value of net assets up to and including $100 million; 0.500% of the value of net assets over $100 million and not over $250 million; 0.450% of the value of net assets over $250 million and not over $7.5 billion; 0.440% of the value of net assets over $7.5 billion and not over $10 billion; 0.430% of the value of net assets over $10 billion and not over $12.5 billion; 0.420% of the value of net assets over $12.5 billion and not over $15 billion; 0.400% of the value of net assets over $15 billion and not over $17.5 billion; 0.380% of the value of net assets over $17.5 billion and not over $20 billion; 0.360% of the value of net assets over $20 billion and not over $35 billion; 0.355% of the value of net assets over $35 billion and not over $50 billion; and 0.350% of the value of net assets over $50 billion. B. The management fee payable by the Fund shall be reduced or eliminated to the extent that Distributors has actually received cash payments of tender offer solicitation fees less certain costs and expenses incurred in connection therewith and to the extent necessary to comply with the limitations on expenses which may be borne by the Fund as set forth in the laws, regulations and administrative interpretations of those states in which the Fund's shares are registered. The Adviser may waive all or a portion of its fees provided for hereunder and such waiver shall be treated as a reduction in purchase price of its services. The Adviser shall be contractually bound hereunder by the terms of any publicly announced waiver of its fee, or any limitation of the Fund's expenses, as if such waiver or limitation were fully set forth herein. C. If this Agreement is terminated prior to the end of any month, the accrued management fee shall be paid to the date of termination. 5. ACTIVITIES OF THE ADVISER. The services of the Adviser to the Fund hereunder are not to be deemed exclusive, and the Adviser and any of its affiliates shall be free to render similar services to others. Subject to and in accordance with the Agreement and Declaration of Trust and By-Laws of the Trust and Section 10(a) of the 1940 Act, it is understood that trustees, officers, agents and shareholders of the Trust are or may be interested in the Adviser or its affiliates as directors, officers, agents or stockholders; that directors, officers, agents or stockholders of the Adviser or its affiliates are or may be interested in the Trust as trustees, officers, agents, shareholders or otherwise; that the Adviser or its affiliates may be interested in the Fund as shareholders or otherwise; and that the effect of any such interests shall be governed by said Agreement and Declaration of Trust, By-Laws and the 1940 Act. 6. LIABILITIES OF THE ADVISER. A. In the absence of willful misfeasance, bad faith, gross negligence, or reckless disregard of obligations or duties hereunder on the part of the Adviser, the Adviser shall not be subject to liability to the Trust or the Fund or to any shareholder of the Fund for any act or omission in the course of, or connected with, rendering services hereunder or for any losses that may be sustained in the purchase, holding or sale of any security by the Fund. B. Notwithstanding the foregoing, the Adviser agrees to reimburse the Trust for any and all costs, expenses, and counsel and trustees' fees reasonably incurred by the Trust in the preparation, printing and distribution of proxy statements, amendments to its Registration Statement, holdings of meetings of its shareholders or trustees, the conduct of factual investigations, any legal or administrative proceedings (including any applications for exemptions or determinations by the Securities and Exchange Commission) which the Trust incurs as the result of action or inaction of the Adviser or any of its affiliates or any of their officers, directors, employees or stockholders where the action or inaction necessitating such expenditures (i) is directly or indirectly related to any transactions or proposed transaction in the stock or control of the Adviser or its affiliates (or litigation related to any pending or proposed or future transaction in such shares or control) which shall have been undertaken without the prior, express approval of the Trust's Board of Trustees; or, (ii) is within the control of the Adviser or any of its affiliates or any of their officers, directors, employees or stockholders. The Adviser shall not be obligated pursuant to the provisions of this Subparagraph 6.B., to reimburse the Trust for any expenditures related to the institution of an administrative proceeding or civil litigation by the Trust or a shareholder seeking to recover all or a portion of the proceeds derived by any stockholder of the Adviser or any of its affiliates from the sale of his shares of the Adviser, or similar matters. So long as this Agreement is in effect, the Adviser shall pay to the Trust the amount due for expenses subject to this Subparagraph 6.B. within thirty (30) days after a bill or statement has been received by the Adviser therefore. This provision shall not be deemed to be a waiver of any claim the Trust may have or may assert against the Adviser or others for costs, expenses or damages heretofore incurred by the Trust or for costs, expenses or damages the Trust may hereafter incur which are not reimbursable to it hereunder. C. No provision of this Agreement shall be construed to protect any trustee or officer of the Trust, or director or officer of the Adviser, from liability in violation of Sections 17(h) and (i) of the 1940 Act. 7. RENEWAL AND TERMINATION. A. This Agreement shall become effective on the date written below and shall continue in effect for two (2) years thereafter, unless sooner terminated as hereinafter provided and shall continue in effect thereafter for periods not exceeding one (1) year so long as such continuation is approved at least annually (i) by a vote of a majority of the outstanding voting securities of the Fund or by a vote of the Board of Trustees of the Trust, and (ii) by a vote of a majority of the Trustees of the Trust who are not parties to the Agreement (other than as Trustees of the Trust) or "interested persons" of any such party, cast in person at a meeting called for the purpose of voting on the Agreement. B. This Agreement: (i) may at any time be terminated without the payment of any penalty either by vote of the Board of Trustees of the Trust or by vote of a majority of the outstanding voting securities of the Fund on sixty (60) days' written notice to the Adviser; (ii) shall immediately terminate with respect to the Fund in the event of its assignment; and (iii) may be terminated by the Adviser on sixty (60) days' written notice to the Fund. C. As used in this Paragraph the terms "assignment," "interested person" and "vote of a majority of the outstanding voting securities" shall have the meanings set forth for such terms in the 1940 Act. D. Any notice under this Agreement shall be given in writing addressed and delivered, or mailed post-paid, to the other party at any office of such party. 8. SEVERABILITY. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. 9. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and effective on the 1st day of November 2008. FRANKLIN CUSTODIAN FUNDS on behalf of FRANKLIN GROWTH FUND By: /s/ KAREN L. SKIDMORE Karen L. Skidmore Title: Vice President & Secretary FRANKLIN ADVISERS, INC. By: /s/ EDWARD B. JAMIESON Edward B. Jamieson Title: President & Chief Investment Officer EX-99.6 4 fcfex996c.txt SUBADVISORY AGREEMENT FRANKLIN CUSTODIAN FUNDS (on behalf of the FRANKLIN GROWTH FUND) THIS SUBADVISORY AGREEMENT made as of the November 1, 2008 by and between FRANKLIN ADVISERS, INC., a corporation organized and existing under the laws of the State of California (hereinafter called "FAV"), and FRANKLIN INVESTMENT ADVISORY SERVICES, LLC, a Delaware limited liability company (hereinafter called "FIAS, LLC"). W I T N E S S E T H WHEREAS, FAV and FIAS, LLC are each registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and engaged in the business of supplying investment advice, and investment management services, as an independent contractor; and WHEREAS, FAV has been retained to render investment advisory services to FRANKLIN GROWTH FUND (the "Fund"), a series of FRANKLIN CUSTODIAN FUNDS (the "Trust"), an investment management company registered with the U.S. Securities and Exchange Commission (the "SEC") pursuant to the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, FAV desires to retain FIAS, LLC to render investment advisory, research and related services to the Fund pursuant to the terms and provisions of this Agreement, and FIAS, LLC is interested in furnishing said services. NOW, THEREFORE, in consideration of the covenants and the mutual promises hereinafter set forth, the parties hereto, intending to be legally bound hereby, mutually agree as follows: 1. FAV hereby retains FIAS, LLC and FIAS, LLC hereby accepts such engagement, to furnish certain investment advisory services with respect to the assets of the Fund, as more fully set forth herein. (a) Subject to the overall policies, control, direction and review of the Trust's Board of Trustees (the "Board") and to the instructions and supervision of FAV, FIAS, LLC will provide a continuous investment program for the Fund, including allocation of the Fund's assets among the various securities markets of the world and, investment research and advice with respect to securities and investments and cash equivalents in the Fund. So long as the Board and FAV determine, on no less frequently than an annual basis, to grant the necessary delegated authority to FIAS, LLC, and subject to paragraph (b) below, FIAS, LLC will determine what securities and other investments will be purchased, retained or sold by the Fund, and will place all purchase and sale orders on behalf of the Fund except that orders regarding U.S. domiciled securities and money market instruments may also be placed on behalf of the Fund by FAV. (b) In performing these services, FIAS, LLC shall adhere to the Fund's investment objectives, policies and restrictions as contained in its Prospectus and Statement of Additional Information, and in the Trust's Declaration of Trust, and to the investment guidelines most recently established by FAV and shall comply with the provisions of the 1940 Act and the rules and regulations of the SEC thereunder in all material respects and with the provisions of the United States Internal Revenue Code of 1986, as amended, which are applicable to regulated investment companies. (c) Unless otherwise instructed by FAV or the Board, and subject to the provisions of this Agreement and to any guidelines or limitations specified from time to time by FAV or by the Board, FIAS, LLC shall report daily all transactions effected by FIAS, LLC on behalf of the Fund to FAV and to other entities as reasonably directed by FAV or the Board. (d) FIAS, LLC shall provide the Board at least quarterly, in advance of the regular meetings of the Board, a report of its activities hereunder on behalf of the Fund and its proposed strategy for the next quarter, all in such form and detail as requested by the Board. FIAS, LLC shall also make an investment officer available to attend such meetings of the Board as the Board may reasonably request. (e) In carrying out its duties hereunder, FIAS, LLC shall comply with all reasonable instructions of the Fund or FAV in connection therewith. Such instructions may be given by letter, telex, telefax or telephone confirmed by telex, by the Board or by any other person authorized by a resolution of the Board, provided a certified copy of such resolution has been supplied to FIAS, LLC. 2. In performing the services described above, FIAS, LLC shall use its best efforts to obtain for the Fund the most favorable price and execution available. Subject to prior authorization of appropriate policies and procedures by the Board, FIAS, LLC may, to the extent authorized by law and in accordance with the terms of the Fund's Prospectus and Statement of Additional Information, cause the Fund to pay a broker who provides brokerage and research services an amount of commission for effecting a portfolio investment transaction in excess of the amount of commission another broker would have charged for effecting that transaction, in recognition of the brokerage and research services provided by the broker. To the extent authorized by applicable law, FIAS, LLC shall not be deemed to have acted unlawfully or to have breached any duty created by this Agreement or otherwise solely by reason of such action. 3. (a) FIAS, LLC shall, unless otherwise expressly provided and authorized, have no authority to act for or represent FAV or the Fund in any way, or in any way be deemed an agent for FAV or the Fund. (b) It is understood that the services provided by FIAS, LLC are not to be deemed exclusive. FAV acknowledges that FIAS, LLC may have investment responsibilities, or render investment advice to, or perform other investment advisory services, for individuals or entities, including other investment companies registered pursuant to the 1940 Act, ("Clients") which may invest in the same type of securities as the Fund. FAV agrees that FIAS, LLC may give advice or exercise investment responsibility and take such other action with respect to such Clients which may differ from advice given or the timing or nature of action taken with respect to the Fund. 4. FIAS, LLC agrees to use its best efforts in performing the services to be provided by it pursuant to this Agreement. 5. FAV has furnished or will furnish to FIAS, LLC as soon as available copies properly certified or authenticated of each of the following documents: (a) the Trust's Declaration of Trust, as filed with the Secretary of State of the state of Delaware on October 18, 2006, and any other organizational documents and all amendments thereto or restatements thereof; (b) resolutions of the Trust's Board of Trustees authorizing the appointment of FIAS, LLC and approving this Agreement; (c) the Trust's original Notification of Registration on Form N-8A under the 1940 Act as filed with the SEC and all amendments thereto; (d) the Trust's current Registration Statement on Form N-1A under the Securities Act of 1933, as amended and under the 1940 Act as filed with the SEC, and all amendments thereto, as it relates to the Fund; (e) the Fund's most recent Prospectus and Statement of Additional Information; and (f) the Investment Management Agreement between the Fund and FAV. FAV will furnish FIAS, LLC with copies of all amendments of or supplements to the foregoing documents. 6. FIAS, LLC will treat confidentially and as proprietary information of the Fund all records and other information relative to the Fund and prior, present or potential shareholders, and will not use such records and information for any purpose other than performance of its responsibilities and duties hereunder, except after prior notification to and approval in writing by the Fund, which approval shall not be unreasonably withheld and may not be withheld where FIAS,LLC may be exposed to civil or criminal contempt proceedings for failure to comply when requested to divulge such information by duly constituted authorities, or when so requested by the Fund. 7. (a) FAV shall pay a monthly fee in cash to FIAS, LLC of 70% of the fees FAV receives for providing investment management services to the Fund, which fee shall be payable on the first business day of each month in each year as compensation for the services rendered and obligations assumed by FIAS, LLC during the preceding month. The advisory fee under this Agreement shall be payable on the first business day of the first month following the effective date of this Agreement, and shall be reduced by the amount of any advance payments made by FAV relating to the previous month. (b) FAV and FIAS, LLC shall share equally in any voluntary reduction or waiver by FAV of the management fee due FAV under the Investment Management Agreement between FAV and the Fund. (c) If this Agreement is terminated prior to the end of any month, the monthly fee shall be prorated for the portion of any month in which this Agreement is in effect which is not a complete month according to the proportion which the number of calendar days in the month during which the Agreement is in effect bears to the total number of calendar days in the month, and shall be payable within 10 days after the date of termination. 8. Nothing herein contained shall be deemed to relieve or deprive the Board of its responsibility for and control of the conduct of the affairs of the Fund. 9. (a) In the absence of willful misfeasance, bad faith, gross negligence, or reckless disregard of its obligations or duties hereunder on the part of FIAS, LLC, neither FIAS, LLC nor any of its directors, officers, employees or affiliates shall be subject to liability to FAV or the Fund or to any shareholder of the Fund for any error of judgment or mistake of law or any other act or omission in the course of, or connected with, rendering services hereunder or for any losses that may be sustained in the purchase, holding or sale of any security by the Fund. (b) Notwithstanding paragraph 9(a), to the extent that FAV is found by a court of competent jurisdiction, or the SEC or any other regulatory agency to be liable to the Fund or any shareholder (a "liability"), for any acts undertaken by FIAS, LLC pursuant to authority delegated as described in Paragraph 1(a), FIAS, LLC shall indemnify and save FAV and each of its affiliates, officers, directors and employees (each a "Franklin Indemnified Party") harmless from, against, for and in respect of all losses, damages, costs and expenses incurred by a Franklin Indemnified Party with respect to such liability, together with all legal and other expenses reasonably incurred by any such Franklin Indemnified Party, in connection with such liability. (c) No provision of this Agreement shall be construed to protect any director or officer of FAV or FIAS, LLC, from liability in violation of Sections 17(h) or (i), respectively, of the 1940 Act. 10. During the term of this Agreement, FIAS, LLC will pay all expenses incurred by it in connection with its activities under this Agreement other than the cost of securities (including brokerage commissions, if any) purchased for the Fund. The Fund and FAV will be responsible for all of their respective expenses and liabilities. 11. This Agreement shall be effective as of the date given above, and shall continue in effect for two years. It is renewable annually thereafter for successive periods not to exceed one year each (i) by a vote of the Board or by the vote of a majority of the outstanding voting securities of the Fund, and (ii) by the vote of a majority of the Trustees of the Trust who are not parties to this Agreement or interested persons thereof, cast in person at a meeting called for the purpose of voting on such approval. 12. This Agreement may be terminated at any time, without payment of any penalty, by the Board or by vote of a majority of the outstanding voting securities of the Fund, upon sixty (60) days' written notice to FAV and FIAS, LLC, and by FAV or FIAS, LLC upon sixty (60) days' written notice to the other party. 13. This Agreement shall terminate automatically in the event of any transfer or assignment thereof, as defined in the 1940 Act, and in the event of any act or event that terminates the Investment management Agreement between FAV and the Fund. 14. In compliance with the requirements of Rule 31a-3 under the 1940 Act, FIAS, LLC hereby agrees that all records which it maintains for the Fund are the property of the Fund and further agrees to surrender promptly to the Fund, or to any third party at the Fund's direction, any of such records upon the Fund's request. FIAS, LLC further agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records required to be maintained by Rule 31a-1 under the 1940 Act. 15. This Agreement may not be materially amended, transferred, assigned, sold or in any manner hypothecated or pledged without the affirmative vote or written consent of the holders of a majority of the outstanding voting securities of the Fund and may not be amended without the written consent of FAV and FIAS, LLC. 16. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule, or otherwise, the remainder of this Agreement shall not be affected thereby. 17. The terms "majority of the outstanding voting securities" of the Fund and "interested persons" shall have the meanings as set forth in the 1940 Act. 18. This Agreement shall be interpreted in accordance with and governed by the laws of the State of California of the United States of America. 19. FIAS, LLC acknowledges that it has received notice of and accepts the limitations of the Trust's liability as set forth in its Agreement and Declaration of Trust. FIAS, LLC agrees that the Trust's obligations hereunder shall be limited to the assets of the Fund, and that FIAS, LLC shall not seek satisfaction of any such obligation from any shareholders of the Fund nor from any trustee, officer, employee or agent of the Trust. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and attested by their duly authorized officers. FRANKLIN ADVISERS, INC. By: /s/ EDWARD B. JAMIESON Edward B. Jamieson Title: President & Chief Investment Officer FRANKLIN INVESTMENT ADVISORY SERVICES, LLC By: /s/ JOHN M. LUSK John M. Lusk Title: President FRANKLIN GROWTH FUND hereby acknowledges and agrees to the provisions of paragraphs 9(a) and 10 of this Agreement. FRANKLIN CUSTODIAN FUNDS on behalf of FRANKLIN GROWTH FUND By: /s/ KAREN L. SKIDMORE Karen L. Skidmore Title: Vice President & Secretary EX-99.10 5 fcfex9910j.txt CLASS R DISTRIBUTION PLAN I. Investment Company: FRANKLIN CUSTODIAN FUNDS II. Fund: FRANKLIN DYNATECH FUND - CLASS R III. Maximum Per Annum Rule 12b-1 Fees for Class R Shares (as a percentage of average daily net assets of the class): 0.50% PREAMBLE TO CLASS R DISTRIBUTION PLAN The following Distribution Plan (the "Plan") has been adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the "Act") by the Investment Company named above ("Investment Company") for the Class R shares (the "Class") of the Fund named above ("Fund"), which Plan shall take effect as of the date shares of the Class are first offered (the "Effective Date of the Plan"). The Plan has been approved by a majority of the Board of Trustees of the Investment Company (the "Board"), including a majority of the Board members who are not interested persons of the Investment Company and who have no direct, or indirect financial interest in the operation of the Plan (the "independent Board members"), cast in person at a meeting called for the purpose of voting on such Plan. In reviewing the Plan, the Board considered the schedule and nature of payments and terms of the Investment Management Agreement between the Investment Company and Franklin Advisers, Inc. ("Advisers") and the terms of the Distribution Agreement between the Investment Company and Franklin/Templeton Distributors, Inc. ("Distributors"). The Board concluded that the compensation of Advisers, under the Investment Management Agreement, and of Distributors, under the Distribution Agreement, was fair and not excessive. The approval of the Plan included a determination that in the exercise of their reasonable business judgment and in light of their fiduciary duties, there is a reasonable likelihood that the Plan will benefit the Fund and its shareholders. DISTRIBUTION PLAN 1. The Fund shall pay to Distributors as compensation for its services or for payment by Distributors to dealers or others, or the Fund shall pay directly to others, a quarterly fee not to exceed the above-stated maximum fee per annum of the Class' average daily net assets represented by shares of the Class, as may be determined by the Investment Company's Board from time to time, as distribution and/or service fees pursuant to distribution and servicing agreements which have been approved from time to time by the Board, including the independent Board members. 2. (a) The monies paid to Distributors pursuant to Paragraph 1 above may be treated as compensation for Distributors' distribution-related services including compensation for amounts advanced to securities dealers or their firms or others (including retirement plan recordkeepers) selling shares of the Class who have executed an agreement with the Investment Company, Distributors or its affiliates, which form of agreement has been approved from time to time by the Board, including the independent Board members, with respect to the sale of Class shares. In addition, Distributors may use such monies paid to it pursuant to Paragraph 1 above to assist in the distribution and promotion of shares of the Class. Such payments made to Distributors under the Plan may be used for, among other things, the printing of prospectuses and reports used for sales purposes, expenses of preparing and distributing sales literature and related expenses, advertisements, and other distribution-related expenses, including a pro-rated portion of Distributors' overhead expenses attributable to the distribution of Class shares, as well as for additional distribution fees paid to securities dealers or their firms or others (including retirement plan recordkeepers) who have executed agreements with the Investment Company, Distributors or its affiliates, or for certain promotional distribution charges paid to broker-dealer firms or others, or for participation in certain distribution channels. (b) The monies paid to Distributors or others pursuant to paragraph 1 above may also be used to pay Distributors, dealers or others (including retirement plan recordkeepers) for, among other things, furnishing personal services and maintaining shareholder or beneficial owner accounts, which services include, among other things, assisting in establishing and maintaining customer accounts and records; assisting with purchase and redemption requests; arranging for bank wires; monitoring dividend payments from the Fund on behalf of customers; forwarding certain shareholder communications from the Fund to customers; receiving and answering correspondence; and aiding in maintaining the investment of their respective customers in the Class. Any amounts paid under this paragraph 2(b) shall be paid pursuant to a servicing or other agreement, which form of agreement has been approved from time to time by the Board. 3. In addition to the payments which the Fund is authorized to make pursuant to paragraphs 1 and 2 hereof, to the extent that the Fund, Advisers, Distributors or other parties on behalf of the Fund, Advisers or Distributors make payments that are deemed to be payments by the Fund for the financing of any activity primarily intended to result in the sale of Class shares issued by the Fund within the context of Rule 12b-1 under the Act, then such payments shall be deemed to have been made pursuant to the Plan. In no event shall the aggregate payments specified in paragraphs 1 and 2, plus any other payments deemed to be made pursuant to the Plan under this paragraph, exceed the amount permitted to be paid pursuant to Rule 2830(d) of the Conduct Rules of the Financial Industry Regulatory Authority, Inc. ("FINRA") 4. Distributors shall furnish to the Board, for its review, on a quarterly basis, a written report of the monies paid to it and to others under the Plan, and shall furnish the Board with such other information as the Board may reasonably request in connection with the payments made under the Plan in order to enable the Board to make an informed determination of whether the Plan should be continued. 5. The Plan shall continue in effect for a period of more than one year only so long as such continuance is specifically approved at least annually by the Board, including the independent Board members, cast in person at a meeting called for the purpose of voting on the Plan. In determining whether there is a reasonable likelihood that the continuation of the Plan will benefit the Fund and its shareholders, the Board may, but is not obligated to, consider that Distributors has incurred substantial costs and has entered into an arrangement with a third party which third party has agreed to purchase from Distributors the entitlement of Distributors to receive the payments described in Paragraph 1(a) above, which purchase will generate the cash flow needed to pay for the distribution activities for the Class. 6. The Plan, and any agreements entered into pursuant to this Plan, may be terminated with respect to the shares of the Class at any time, without penalty, by vote of a majority of the outstanding voting securities of such Class or by vote of a majority of the independent Board members of the Investment Company, on not more than sixty (60) days' written notice, and shall terminate automatically in the event of any act that constitutes an assignment of the Investment Management Agreements between the Fund and the Advisers. Upon termination of this Plan with respect to the Class, the obligation of the Fund to make payments pursuant to this Plan with respect to such Class shall terminate, and the Fund shall not be required to make payments hereunder beyond such termination date with respect to expenses incurred in connection with Class shares sold prior to such termination date. 7. The Plan, and any agreements entered into pursuant to this Plan, may not be amended to increase materially the amount to be spent for distribution pursuant to Paragraph 1 hereof without approval by a majority of the outstanding voting securities of the Class of the Fund. 8. All material amendments to the Plan, or any agreements entered into pursuant to this Plan, shall be approved by the independent Board members cast in person at a meeting called for the purpose of voting on any such amendment. 9. So long as the Plan is in effect, the selection and nomination of the Fund's independent Board members shall be committed to the discretion of such independent Board members. This Plan and the terms and provisions thereof are hereby accepted and agreed to by the Investment Company and Distributors as evidenced by their execution hereof. Date: DECEMBER 1, 2008 FRANKLIN CUSTODIAN FUNDS By: /s/ KAREN L. SKIDMORE Karen L. Skidmore Title: Vice President & Secretary FRANKLIN/TEMPLETON DISTRIBUTORS, INC. By: /s/ PETER D. JONES Peter D. Jones Title: President EX-99.10 6 fcfex9910k.txt MULTIPLE CLASS PLAN ON BEHALF OF FRANKLIN DYNATECH FUND This Multiple Class Plan (the "Plan") has been adopted unanimously by the Board of members of FRANKLIN CUSTODIAN FUNDS (the "Investment Company") for its series, Franklin Dynatech Fund (the "Fund"). The Board has determined that the Plan, including the expense allocation methods among the classes, is in the best interests of each class of the Fund, the Fund and the Investment Company as a whole. The Plan sets forth the provisions relating to the establishment of multiple classes of shares of the Fund. 1. The Fund shall publicly offer four classes of shares, to be known as Class A Shares, Class C Shares, Class R Shares and Advisor Class Shares. The sale to new investors of a fifth class of shares, known as Class B Shares, has been discontinued. Class B Shares continue to be available only for reinvestment of dividends by existing Class B shareholders of the Fund, or in connection with an exchange into the Fund by existing Class B shareholders of other funds within Franklin Templeton Investments. 2. Class A Shares shall carry a front-end sales charge ranging from 0 % - 5.75 %, and Class B Shares, Class C Shares, Class R Shares and the Advisor Class Shares shall not be subject to any front-end sales charges. 3. Class A Shares shall not be subject to a contingent deferred sales charge ("CDSC"), except in the following limited circumstances. On investments of $1 million or more, a contingent deferred sales charge of 1.00% of the lesser of the then-current net asset value or the original net asset value at the time of purchase applies to redemptions of those investments within the contingency period of 18 months from the calendar month following their purchase. The CDSC is waived in certain circumstances, as described in the Fund's prospectus and statement of additional information ("SAI"). Class B Shares shall be subject to a CDSC with the following CDSC schedule: (a) Class B Shares redeemed within 2 years of their purchase shall be assessed a CDSC of 4% on the lesser of the then-current net asset value or the original net asset value at the time of purchase; (b) Class B Shares redeemed within the third and fourth years of their purchase shall be assessed a CDSC of 3% on the lesser of the then-current net asset value or the original net asset value at the time of purchase; (c) Class B Shares redeemed within 5 years of their purchase shall be assessed a CDSC of 2% on the lesser of the then-current net asset value or the original net asset value at the time of purchase; and (d) Class B Shares redeemed within 6 years of their purchase shall be assessed a CDSC of 1% on the lesser of the then-current net asset value or the original net asset value at the time of purchase. The CDSC is waived in certain circumstances described in the Fund's prospectus and SAI. Class C Shares redeemed within 12 months of their purchase shall be assessed a CDSC of 1.00% on the lesser of the then-current net asset value or the original net asset value at the time of purchase. The CDSC is waived in certain circumstances as described in the Fund's prospectus and SAI. Class R Shares redeemed within 18 months of their purchase shall be assessed a CDSC of 1.00% on the lesser of the then-current net asset value or the original net asset value at the time of purchase. The CDSC is waived in certain circumstances as described in the Fund's prospectus and SAI. Advisor Class Shares shall not be subject to any CDSC. 4. The distribution plan adopted by the Investment Company pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended, (the "Rule 12b-1 Plan") associated with the Class A Shares may be used to compensate Franklin/Templeton Distributors, Inc. (the "Distributor") or others for expenses incurred in the promotion and distribution of the Class A Shares. Such expenses include, but are not limited to, the printing of prospectuses and reports used for sales purposes, expenses of preparing and distributing sales literature and related expenses, advertisements, and other distribution-related expenses, any distribution or shareholder servicing fees paid to securities firms or others who provide personal assistance to shareholders in servicing their accounts and have executed a servicing agreement with the Investment Company for the Class A Shares, the Distributor or its affiliates. The Rule 12b-1 Plan associated with the Class B Shares has two components. The first component is an asset-based sales charge to be retained by the Distributor to compensate Distributor for amounts advanced to securities dealers or their firms or others with respect to the sale of Class B Shares. In addition, such payments may be retained by the Distributor to be used in the promotion and distribution of Class B Shares in a manner similar to that described above for Class A Shares. The second component is a shareholder servicing fee to be paid to securities firms or others who provide personal assistance to shareholders in servicing their accounts and have executed a servicing agreement with the Investment Company for the Class B Shares, the Distributor or its affiliates. The Rule 12b-1 Plan associated with the Class C has two components. The first component is a shareholder servicing fee, to be paid to securities firms or others who provide personal assistance to shareholders in servicing their accounts and have executed a servicing agreement with the Investment Company for the Class C, the Distributor or its affiliates. The second component is an asset-based sales charge to be retained by the Distributor during the first year after the sale of shares and, in subsequent years, to be paid to dealers or retained by the Distributor to be used in the promotion and distribution of Class C, in a manner similar to that described above for Class A Shares. The Rule 12b-1 Plan associated with the Class R Shares may be used to compensate the Distributor or others for distribution activities and/or for providing shareholder services. Distribution fees paid under the Rule 12b-1 Plan may be retained by the Distributor to compensate the Distributor for amounts advanced to securities dealers or their firms or others (including retirement plan recordkeepers) with respect to the sale of Class R Shares. In addition, such distribution fee payments may be retained by the Distributor to be used in the promotion and distribution of Class R Shares in a manner similar to that described above for Class A Shares, or may be paid out to dealers or others (including retirement plan recordkeepers) that perform similar distribution activities. Shareholder servicing fees may be paid to the Distributor or to securities firms or others (including retirement plan recordkeepers) who have executed a servicing agreement for Class R Shares with the Investment Company, the Distributor or its affiliates as compensation for providing personal assistance to shareholders or beneficial owners in servicing their accounts. No Rule 12b-1 Plan has been adopted on behalf of the Advisor Class Shares and, therefore, the Advisor Class Shares shall not be subject to deductions relating to Rule 12b-1 fees. The Rule 12b-1 Plans for the Class A, Class B, Class C and Class R Shares shall operate in accordance with Rule 2830(d) of the Conduct Rules of the Financial Industry Regulatory Authority, Inc. ("FINRA") 5. The only difference in expenses as between Class A, Class B, Class C, Class R and Advisor Class shall relate to differences in Rule 12b-1 plan expenses, as described in the applicable Rule 12b-1 Plans; however, to the extent that the Rule 12b-1 Plan expenses of one Class are the same as the Rule 12b-1 Plan expenses of another Class, such classes shall be subject to the same expenses. 6. There shall be no conversion features associated with the Class A, Class C, Class R and Advisor Class. Each Class B Share, however, shall be converted automatically, and without any action or choice on the part of the holder of the Class B Shares, into Class A Shares on the conversion date specified, and in accordance with the terms and conditions approved by the Franklin Custodian Fund's Board of Trustees and as described, in the Fund's prospectus relating to the Class B Shares, as such prospectus may be amended from time to time; provided, however, that the Class B Shares shall be converted automatically into Class A Shares to the extent and on the terms permitted by the Investment Company Act of 1940, as amended (the "Act"), and the rules and regulations adopted thereunder. 7. Shares of Class A, Class B, Class C, Class R and Advisor Class may be exchanged for shares of another investment company within the Franklin Templeton Group of Funds according to the terms and conditions stated in each fund's prospectus, as it may be amended from time to time, to the extent permitted by the Investment Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations adopted thereunder. 8. Each class will vote separately with respect to any Rule 12b-1 Plan related to, or which now or in the future may affect, that class. 9. On an ongoing basis, the Board members of the Fund, pursuant to their fiduciary responsibilities under the 1940 Act and otherwise, will monitor the Fund for the existence of any material conflicts between the interests of the various classes of shares. The Board members, including a majority of the Board members who are not "interested persons" (as defined in the 1940 Act) of the Fund, its investment manager or the Distributor and who have no direct, or indirect financial interest in the operation of the Rule 12b-1 Plan (the "independent Board members"), shall take such action as is reasonably necessary to eliminate any such conflict that may develop. Franklin Advisers, Inc. and Franklin/Templeton Distributors, Inc. shall be responsible for alerting the Board to any material conflicts that arise. 10. All material amendments to this Plan must be approved by a majority of the Board members, including a majority of the independent Board members. 11. I, Karen L. Skidmore, Vice President and Secretary of the Franklin Custodian Funds, do hereby certify that this Multiple Class Plan was adopted on behalf of the Franklin Dynatech Fund, by a majority of the Board members of the Fund, including a majority of the independent Board members, on July 10, 2008. /s/ KAREN L. SKIDMORE Karen L. Skidmore Vice President & Secretary EX-99.11 7 fcfex9911a.txt [GRAPHIC OMITTED][GRAPHIC OMITTED][GRAPHIC OMITTED] December 17, 2008 Board of Trustees Franklin Custodian Funds, on behalf of Franklin Growth Fund One Franklin Parkway San Mateo, California 94403-1906 Subject: REGISTRATION STATEMENT ON FORM N-14 Ladies and Gentlemen: We have acted as counsel to Franklin Custodian Funds, a Delaware statutory trust (the "Trust"), in connection with the preparation and filing with the U.S. Securities and Exchange Commission (the "Commission") of a Registration Statement on Form N-14 (the "Registration Statement") under the Securities Act of 1933, as amended. The purpose of the Registration Statement is to register shares to be issued by Franklin Growth Fund (the "Acquiring Fund"), a series of the Trust, in connection with the acquisition of substantially all of the assets of Franklin Capital Growth Fund, a Delaware statutory trust (the "Acquired Fund"), by and in exchange for Class A, Class B, Class C, Class R, and Advisor Class shares of beneficial interest, without par value (the "Shares"), of the Acquiring Fund (the "Transaction"). We have reviewed the Trust's Agreement and Declaration of Trust and By-laws, each as amended to date, resolutions adopted by the Trust's Board of Trustees in connection with the Transactions, the form of Agreement and Plan of Reorganization for the Transaction, which was approved by the Trust's Board of Trustees (the "Agreement"), and such other legal and factual matters as we have deemed appropriate. This opinion is based exclusively on the provisions of the Delaware Statutory Trust Act governing the issuance of the shares of the Trust, and does not extend to the securities or "blue sky" laws of the State of Delaware or other States. We have assumed the following for purposes of this opinion: 1. The Shares of the Acquiring Fund will be issued in accordance with the Trust's Agreement and Declaration of Trust and By-laws, , each as amended to date, the Agreement, and resolutions of the Trust's Board of Trustees relating to the creation, authorization and issuance of shares and the Transaction. 2. The Shares will be issued against payment therefor as described in the Prospectus/Proxy Statement, the Statement of Additional Information relating thereto included in the Registration Statement, and the Agreement, and that such payment will have been at least equal to the net asset value of such Shares. On the basis of the foregoing, it is our opinion that, when issued and paid for upon the terms provided in the Registration Statement and the Agreement, the Shares to be issued pursuant to the Registration Statement will be validly issued, fully paid and non-assessable. We hereby consent to the filing of this opinion with the Commission as an exhibit to the Registration Statement. Very truly yours, STRADLEY RONON STEVENS & YOUNG, LLP By: /s/ KRISTIN H. IVES Kristin H. Ives, a Partner EX-99.13 8 fcfex9913a.txt SUBCONTRACT FOR FUND ADMINISTRATIVE SERVICES This Subcontract for Fund Administrative Services ("Subcontract") is made as of March 1, 2008 between FRANKLIN ADVISERS, INC., a California corporation, hereinafter called the "Investment Manager," and FRANKLIN TEMPLETON SERVICES, LLC (the "Administrator"). In consideration of the mutual agreements herein made, the Administrator and the Investment Manager understand and agree as follows: I. Prime Contract. This Subcontract is made in order to assist the Investment Manager in fulfilling certain of the Investment Manager's obligations under each investment management and investment advisory agreement ("Agreement") between the Investment Manager and each Investment Company listed on Exhibit A, ("Investment Company") for itself or on behalf of each of its series listed on Exhibit A (each, a "Fund"). This Subcontract is subject to the terms of each Agreement, which is incorporated herein by reference. II. Subcontractual Provisions. (1) The Administrator agrees, during the life of this Agreement, to provide the following services to each Fund: (a) providing office space, telephone, office equipment and supplies for the Fund; (b) providing trading desk facilities for the Fund, unless these facilities are provided by the Fund's investment adviser; (c) authorizing expenditures and approving bills for payment on behalf of the Fund; (d) supervising preparation of periodic reports to shareholders, notices of dividends, capital gains distributions and tax credits; and attending to routine correspondence and other communications with individual shareholders when asked to do so by the Fund's shareholder servicing agent or other agents of the Fund; (e) coordinating the daily pricing of the Fund's investment portfolio, including collecting quotations from pricing services engaged by the Fund; providing fund accounting services, including preparing and supervising publication of daily net asset value quotations, periodic earnings reports and other financial data; and coordinating trade settlements; (f) monitoring relationships with organizations serving the Fund, including custodians, transfer agents, public accounting firms, law firms, printers and other third party service providers; (g) supervising compliance by the Fund with recordkeeping requirements under the federal securities laws, including the 1940 Act and the rules and regulations thereunder, and under other applicable state and federal laws; and maintaining books and records for the Fund (other than those maintained by the custodian and transfer agent); (h) preparing and filing of tax reports including the Fund's income tax returns, and monitoring the Fund's compliance with subchapter M of the Internal Revenue Code, as amended, and other applicable tax laws and regulations; (i) monitoring the Fund's compliance with: 1940 Act and other federal securities laws, and rules and regulations thereunder; state and foreign laws and regulations applicable to the operation of investment companies; the Fund's investment objectives, policies and restrictions; and the Code of Ethics and other policies adopted by the Investment Company's Board of Trustees or Directors ("Board") or by the Fund's investment adviser and applicable to the Fund; (j) providing executive, clerical and secretarial personnel needed to carry out the above responsibilities; (k) preparing and filing regulatory reports, including without limitation Forms N-1A and NSAR, proxy statements, information statements and U.S. and foreign ownership reports; and (l) providing support services incidental to carrying out these duties. Nothing in this Agreement shall obligate the Investment Company or any Fund to pay any compensation to the officers of the Investment Company. Nothing in this Agreement shall obligate the Administrator to pay for the services of third parties, including attorneys, auditors, printers, pricing services or others, engaged directly by the Fund to perform services on behalf of the Fund. (2) The Investment Manager agrees to pay to the Administrator as compensation for such services a monthly fee equal on an annual basis to 0.15% of the first $200 million of the average daily net assets of each Fund during the month preceding each payment, reduced as follows: on such net assets in excess of $200 million up to $700 million, a monthly fee equal on an annual basis to 0.135%; on such net assets in excess of $700 million up to $1.2 billion, a monthly fee equal on an annual basis to 0.1%; and on such net assets in excess of $1.2 billion, a monthly fee equal on an annual basis to 0.075%. From time to time, the Administrator may waive all or a portion of its fees provided for hereunder and such waiver shall be treated as a reduction in the purchase price of its services. The Administrator shall be contractually bound hereunder by the terms of any publicly announced waiver of its fee, or any limitation of each affected Fund's expenses, as if such waiver or limitation were fully set forth herein. (3) This Subcontract shall become effective on the date written above and shall continue in effect as to each Investment Company and each Fund so long as (1) the Agreement applicable to the Investment Company or Fund is in effect and (2) this Subcontract is not terminated. This Subcontract will terminate as to any Investment Company or Fund immediately upon the termination of the Agreement applicable to the Investment Company or Fund, and may in addition be terminated by either party at any time, without the payment of any penalty, on sixty (60) days' written notice to the other party. (4) In the absence of willful misfeasance, bad faith or gross negligence on the part of the Administrator, or of reckless disregard of its duties and obligations hereunder, the Administrator shall not be subject to liability for any act or omission in the course of, or connected with, rendering services hereunder. IN WITNESS WHEREOF, the parties hereto have caused this Subcontract to be executed by their duly authorized officers. FRANKLIN ADVISERS, INC. By: /s/ EDWARD B. JAMIESON Edward B. Jamieson President & Chief Investment Officer FRANKLIN TEMPLETON SERVICES, LLC By: /s/ JIMMY D. GAMBILL Jimmy D. Gambill President SUBCONTRACT FOR FUND ADMINISTRATIVE SERVICES BETWEEN FRANKLIN ADVISERS, INC. AND FRANKLIN TEMPLETON SERVICES, LLC EXHIBIT A ----------------------------------------------------------------------------- INVESTMENT COMPANY SERIES---(IF APPLICABLE) ----------------------------------------------------------------------------- Franklin California Tax-Free Income Fund Franklin California Tax-Free Trust Franklin California Insured Tax-Free Income Fund Franklin California Tax-Exempt Money Fund Franklin California Intermediate-Term Tax-Free Income Fund Franklin Capital Growth Fund Franklin Custodian Funds Franklin Dynatech Fund Franklin Growth Fund Franklin Income Fund Franklin Utilities Fund Franklin U.S. Government Securities Fund Franklin Federal Tax- Free Income Fund Franklin Gold and Precious Metals Fund Franklin High Income Trust Franklin High Income Fund Franklin Investors Securities Franklin Convertible Securities Fund Trust Franklin Equity Income Fund Franklin Limited Maturity U.S. Gov. Securities Fund ----------------------------------------------------------------------------- Franklin Municipal Securities Franklin California High Yield Municipal Trust Fund Franklin Tennessee Municipal Bond Fund Franklin New York Tax-Free Trust Franklin New York Tax-Exempt Money Fund Franklin New York Insured Tax-Free Income Fund Franklin New York Intermediate-Term Tax-Free Income Fund Franklin New York Tax-Free Income Fund ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- INVESTMENT COMPANY SERIES---(IF APPLICABLE) ----------------------------------------------------------------------------- Franklin Strategic Mortgage Portfolio Franklin Strategic Series Franklin Flex Cap Growth Fund Franklin Global Communications Fund Franklin Global Health Care Fund Franklin Natural Resources Fund Franklin Small-Mid Cap Growth Fund Franklin Strategic Income Fund Franklin Tax-Exempt Money Fund Franklin Tax-Free Trust Franklin Alabama Tax-Free Income Fund Franklin Arizona Tax-Free Income Fund Franklin Colorado Tax-Free Income Fund Franklin Connecticut Tax-Free Income Fund Franklin Double Tax-Free Income Fund Franklin Federal Intermediate-Term Tax-Free Income Fund Franklin Florida Tax-Free Income Fund Franklin Georgia Tax-Free Income Fund Franklin High Yield Tax-Free Income Fund Franklin Insured Tax-Free Income Fund Franklin Kentucky Tax-Free Income Fund Franklin Louisiana Tax-Free Income Fund Franklin Maryland Tax-Free Income Fund Franklin Massachusetts Insured Tax-Free Income Fund Franklin Michigan Insured Tax-Free Income Fund Franklin Minnesota Insured Tax-Free Income Fund Franklin Missouri Tax-Free Income Fund Franklin New Jersey Tax-Free Income Fund Franklin North Carolina Tax-Free Income Fund Franklin Ohio Insured Tax-Free Income Fund Franklin Oregon Tax-Free Income Fund Franklin Pennsylvania Tax-Free Income Fund Franklin Virginia Tax-Free Income Fund Franklin Templeton Global Trust Franklin Templeton Hard Currency Fund Franklin Templeton International Templeton Foreign Smaller Companies Fund Trust CLOSED END FUNDS: Franklin Universal Trust ----------------------------------------------------------------------------- Exhibit A revised 11-1-08 EX-99.14 9 fcfex9914a.txt CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in this Registration Statement on Form N-14 of Franklin Growth Fund (the "Registration Statement") of our report dated November 19, 2008, relating to the financial statements and financial highlights of Franklin Growth Fund which appear in the September 30, 2008 Annual Report to Shareholders of Franklin Custodian Funds, which is also incorporated by reference in such Registration Statement. We also consent to the references to us under item 4. "Representations and Warranties by Acquiring Trust on behalf of Acquiring Fund" and under item 5. "Representations and Warranties by Target Fund" in Exhibit A to the Registration Statement. We hereby consent to the incorporation by reference in this Registration Statement of our report dated August 19, 2008, relating to the financial statements and financial highlights of Franklin Capital Growth Fund which appears in the June 30, 2008 Annual Report to Shareholders of Franklin Capital Growth Fund, which is also incorporated by reference in such Registration Statement. /s/ PricewaterhouseCoopers LLP San Francisco, California December 15, 2008 EX-99.16 10 fcfex9916a.txt POWER OF ATTORNEY The undersigned officers and trustees of FRANKLIN CUSTODIAN FUNDS, a Delaware statutory trust (the "Registrant"), hereby appoint BRUCE G. LETO, KAREN L. SKIDMORE, CRAIG S. TYLE, DAVID P. GOSS and STEVEN J. GRAY (with full power to each of them to act alone) his/her attorney-in-fact and agent, in all capacities, to execute, deliver and file in the names of the undersigned, any and all instruments that said attorneys and agents may deem necessary or advisable to enable the Registrant to comply with or register any security issued by the Registrant under the Securities Act of 1933, as amended, and/or the Investment Company Act of 1940, as amended, and the rules, regulations and interpretations thereunder, with respect to the Registrant's Registration Statement on Form N-14 with respect to the proposed reorganization of Franklin Capital Growth Fund with and into Franklin Growth Fund, including any and all pre- and post-effective amendments thereto, any other document to be filed with the U.S. Securities and Exchange Commission and any and all documents required to be filed with respect thereto with any other regulatory authority. Each of the undersigned grants to each of said attorneys, full authority to do every act necessary to be done in order to effectuate the same as fully, to all intents and purposes, as he/she could do if personally present, thereby ratifying all that said attorneys-in-fact and agents may lawfully do or cause to be done by virtue hereof. This Power of Attorney may be executed in one or more counterparts, each of which shall be deemed to be an original and all of which shall be deemed to be a single document. The undersigned officers and trustees hereby execute this Power of Attorney as of the 1st day of December, 2008. /s/ CHARLES B. JOHNSON /s/ HARRIS J. ASHTON Charles B. Johnson., Harris J. Ashton, Trustee and Chief Executive Trustee Officer-Investment Management /s/ ROBERT F. CARLSON /s/ SAM GINN Robert F. Carlson, Sam Ginn, Trustee Trustee /s/ EDITH E. HOLIDAY /s/ RUPERT H. JOHNSON, JR. Edith E. Holiday, Rupert H. Johnson, Jr. Trustee Trustee /s/ FRANK W.T. LAHAYE /s/ FRANK A. OLSON Frank W.T. LaHaye, Frank A. Olson, Trustee rustee /s/ LARRY D. THOMPSON /s/ JOHN B. WILSON Larry D. Thompson, John B. Wilson, Trustee Trustee /s/ LAURA F. FERGERSON Laura F. Fergerson, Chief Financial Officer and Chief Accounting Officer EX-99.16 11 fcfex9916b.txt POWER OF ATTORNEY The undersigned officer of FRANKLIN CUSTODIAN FUNDS, a Delaware statutory trust (the "Registrant"), hereby appoint BRUCE G. LETO, KAREN L. SKIDMORE, CRAIG S. TYLE, DAVID P. GOSS and STEVEN J. GRAY (with full power to each of them to act alone) her attorney-in-fact and agent, in all capacities, to execute, deliver and file in the names of the undersigned, any and all instruments that said attorneys and agents may deem necessary or advisable to enable the Registrant to comply with or register any security issued by the Registrant under the Securities Act of 1933, as amended, and/or the Investment Company Act of 1940, as amended, and the rules, regulations and interpretations thereunder, with respect to the Registrant's Registration Statement on Form N-14 with respect to the proposed reorganization of Franklin Capital Growth Fund with and into Franklin Growth Fund, including any and all pre- and post-effective amendments thereto, any other document to be filed with the U.S. Securities and Exchange Commission and any and all documents required to be filed with respect thereto with any other regulatory authority. The undersigned grants to each of said attorneys, full authority to do every act necessary to be done in order to effectuate the same as fully, to all intents and purposes, as she could do if personally present, thereby ratifying all that said attorneys-in-fact and agents may lawfully do or cause to be done by virtue hereof. The undersigned officer hereby executes this Power of Attorney as of the 1st day of December, 2008. /s/ JENNIFER J. BOLT Jennifer J. Bolt, Chief Executive Officer - Finance and Administration COVER 12 filename12.txt FRANKLIN TEMPLETON INVESTMENTS ONE FRANKLIN PARKWAY SAN MATEO, CA 94403-1906 December 19, 2008 VIA EDGAR (CIK 0000038721) Filing Desk U.S. Securities and Exchange Commission 100 F Street NE Washington, DC 20549 Re: Franklin Custodian Funds File No.: 811-00537 Dear Sir or Madam: Enclosed for filing under section 6(a) of the Securities Act of 1933, as amended ("1933 Act"), is the registration statement on Form N-14 ("Registration Statement") of Franklin Custodian Funds ("Company"). This registration statement is being filed to register shares of the Franklin Growth Fund, a series of the Company, that will be issued to shareholders of Franklin Capital Growth Fund, in connection with a transfer of the assets of the Franklin Capital Growth Fund, pursuant to an Agreement and Plan of Reorganization to be voted on by shareholders of the Franklin Capital Growth Fund, at a special shareholders' meeting currently scheduled to be held on April 9, 2009. The following documents have been filed with the U.S. Securities and Exchange Commission via EDGAR, and are incorporated by reference into the Registration Statement: (1) Annual Report for Franklin Growth Fund for the fiscal year ended September 30, 2008; and (2) Annual Report for Franklin Capital Growth Fund for the fiscal year ended June 30, 2008. We undertake to incorporate by reference into a pre-effective amendment the February 1, 2008 prospectus and statement of additional information of Franklin Custodian Funds, when effective. The Company has agreed to delay the effective date of the Registration Statement until the Company shall file a further amendment which specifically states that the Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), shall determine. The Company has registered an indefinite number of shares pursuant to Rule 24f-2 under the Act. No filing fee is, therefore, due at this time. Questions related to this filing should be directed to Samuel Goldstein, Esquire at (215) 564-8128 or, in his absence, to Kristin Ives, Esquire at (215) 564-8037. Very truly yours, FRANKLIN CUSTODIAN FUNDS /s/ David P. Goss Vice President Enclosures