Registration No. 33-37338
As filed with the Securities and Exchange Commission on December 31, 1996
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 8 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 10 X
(Check appropriate box or boxes)
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
(Exact Name of Registrant as Specified in Charter)
700 CENTRAL AVENUE, P.O. BOX 33030, ST. PETERSBURG, FLORIDA 33733-8030
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: (813) 823-8712
John K. Carter
700 Central Avenue
P.O. Box 33030
ST. PETERSBURG, FLORIDA 33733-8030
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
immediately upon filing pursuant to paragraph (b) of Rule 485
X on JANUARY 1, 1997 pursuant to paragraph (b) of Rule 485
60 days after filing pursuant to paragraph (a)(1) of Rule 485
on pursuant to paragraph (a)(1) of Rule 485
75 days after filing pursuant to paragraph (a)(2) of Rule 485
on pursuant to paragraph (a)(2) of Rule 485
this post-effective amendment designates a new effective
date for a previously filed post-effective amendment
- -----------------------------------------------------------------------------
The Registrant has registered an indefinite number of shares of beneficial
interest under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940, and filed its Rule 24f-2 Notice for the fiscal
year ended August 31, 1996 on October 30, 1996.
PAGE
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
CROSS-REFERENCE SHEET
FORM N-1A
PART A
<TABLE>
<CAPTION>
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
<S> <C> <C>
1 Cover page Cover Page
2 Synopsis Expense Summary
3 Condensed Financial "Financial Highlights";
Information "How Does the Fund
Measure Performance?"
4 General Description "How Is the Fund Organized?";
of Registrant "How Does the Fund Invest Its Assets?";
"What Are the Funds' Potential Risks?"
5 Management of the Fund "Who Manages the Fund?"
5A Management's Discussion Contained in Registrant's Annual
of Fund Performance Report to Shareholders
6 Capital Stock and Other "How is the Fund Organized?"; "Services
Securities to Help You Manage Your Account"; "What
Distributions Might I Received From the
Fund?"; "How Taxation Affects You and the
Fund?"
7 Purchase of Securities "How Do I Buy Shares?"; "May I Exchange
Being Offered Shares for Shares of Another Fund?";
"Transaction Procedures and Special
Requirements"; "Services to Help You Manage
Your Account"; "Who Manages the Fund?" "Useful
Terms and Definitions"
8 Redemption or Repurchase "May I Exchange Shares for Shares of Another
Fund?"; "How Do I Sell Shares?"; "Transaction
Procedures and Special Requirements"? "Services
to Help You Manage Your Account"
9 Pending Legal Procedures Not Applicable
</TABLE>
PAGE
TEMPLETON CAPTIAL ACCUMULATOR FUND, INC.
CROSS-REFERENCE SHEET
FORM N-1A
PART B
<TABLE>
<CAPTION>
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
<S> <C> <C>
10 Cover Page Cover Page
11 Table of Contents Table of Contents
12 General Information and Not Applicable
History
13 Investment Objectives and "How Does the Fund Invest Its Assets?";
Policies "Investment Restrictions"; "What Are the
Fund's Potential Risks?"
14 Management of the "Officers and Directors"; "Investment
Registrant Advisory and Other Services"
15 Control Persons and "Officers and Directors"; "Investment
Principal Holders of Advisory and Other Services"; "Miscellaneous
Securities Information?"
16 Investment Advisory and "Investment Advisory and Other Services";
Other Services "The Fund's Underwriter"
17 Brokerage Allocation and "How Does the Fund Buy Securities
Other Practices For Its Portfolio?"
18 Capital Stock and Other "Miscellaneous Information"; "See Prospectus
Securities "How Is The Fund Organized?"
19 Purchase, Redemption and "How Do I Buy, Sell and Exchange Shares?";
Pricing of Securities "How Are Fund Shares Valued?";
Being Offered "Financial Statements"
20 Tax Status "Additional Information on Distributions
and Taxes"
21 Underwriters "The Fund's Underwriter"
22 Calculation of Performance "How Does the Fund Measure Performance?"
Data
23 Financial Statements Financial Statements
</TABLE>
PAGE
PART A
PROSPECTUS
PAGE
PROSPECTUS & APPLICATION
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
JANUARY 1, 1997
This prospectus describes Templeton Capital Accumulator Fund, Inc. (the "Fund").
Shares of the Fund, which will be sold at Net Asset Value, may be initially
acquired by investors only by means of an investment in Templeton Capital
Accumulation Plans (the "Plans" or "Plan"). The charges for the first year of a
Plan can amount to 50% of the amounts paid during that year under the Plan.
Details of the Plans, including the creation and sales charges, may be found in
the attached prospectus for the Plans. Each prospectus contains information you
should know before investing in the Fund. Please keep them for future reference.
The Fund's SAI, dated January 1, 1997, as may be amended from time to time,
includes more information about the Fund's procedures and policies. It has been
filed with the SEC and is incorporated by reference into this prospectus. For a
free copy or a larger print version of this prospectus, call 1-800/DIAL BEN or
write the Fund at the address shown.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S.
GOVERNMENT. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SEC OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE IN WHICH THE OFFERING IS NOT AUTHORIZED. NO SALES REPRESENTATIVE, DEALER,
OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. FURTHER
INFORMATION MAY BE OBTAINED FROM DISTRIBUTORS.
PAGE
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
January 1, 1997
When reading this prospectus, you will see certain terms beginning with capital
letters. This means the term is explained in our glossary section.
TABLE OF CONTENTS
ABOUT THE FUND
Expense Summary..........................................
Financial Highlights.....................................
How does the Fund Invest its Assets?.....................
What are the Fund's Potential Risks?.....................
Who Manages the Fund?....................................
How does the Fund Measure Performance?...................
How is the Fund Organized?...............................
How Taxation Affects You and the Fund....................
ABOUT YOUR ACCOUNT
How Do I Buy Shares?.....................................
May I Exchange Shares for Shares of Another Fund?........
How Do I Sell Shares?....................................
What Distributions Might I Receive from the Fund?........
Transaction Procedures and Special Requirements..........
Services to Help You Manage Your Account.................
GLOSSARY
Useful Terms and Definitions.............................
700 Central Avenue
St. Petersburg
FL 33701
1-800/DIAL BEN
<PAGE>
ABOUT THE FUND
EXPENSE SUMMARY
This table is designed to help you understand the costs of investing in the
Fund. It is based on the Fund's historical expenses, after fee reductions and
expense limitations, for the fiscal year ended August 31, 1996.
Your actual expenses may vary.
A. SHAREHOLDER TRANSACTION EXPENSES*
Maximum Sales Charge Imposed on Purchases None
B. ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after fee reduction) 0.41%**
Other Expenses 0.59%
Total Fund Operating Expenses (after fee reduction) 1.00%**
C. EXAMPLE
Assume the Fund's annual return is 5% and its operating expenses are as
described above. For each $1,000 investment, you would pay the following
projected expenses if you sold your shares after the number of years
shown.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$10 $32 $55 $122
</TABLE>
THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
The Fund pays its operating expenses. The effects of these expenses are
reflected in the Net Asset Value or dividends and are not directly charged
to your account.
The expense summary reflects only the expenses of the Fund. A sales and creation
charge will be deducted from a Templeton Capital Accumulation Plan to compensate
the sponsor of the Plans for creating your Plan and for selling expenses and
commissions to Securities Dealers. This charge is deducted from each investment
and will vary according to the monthly investment payment units of each Plan.
For example, on a $100 a month Plan, $50 is deducted from each of the first 12
investment units made. After that, the charge drops to $6.07 on each subsequent
monthly unit. For further details concerning creation and sales charges that
will be deducted from a Plan, see the accompanying prospectus for Templeton
Capital Accumulation Plans.
*If your transaction is processed through your Securities Dealer you may be
charged a fee by your Securities Dealer for this service. **TICI and FT Services
have agreed in advance to reduce their respective fees in order to limit total
expenses to an annual rate of 1.00% of the Fund's average daily net assets
through December 31, 1997. If this fee reduction is insufficient to so limit the
Fund's expenses, FT Services has agreed to make certain payments to reduce Fund
expenses. Without these reductions, the Fund's "Management Fees" would be 0.75%,
and the "Total Fund Operating Expenses" would be 1.16%. After December 31, 1997,
this agreement may end at any time upon notice to the Board.
FINANCIAL HIGHLIGHTS
This table summarizes the Fund's financial history. The information has been
audited by McGladrey & Pullen, LLP, the Fund's independent auditors. Their audit
report covering each of the most recent five years appears in the Fund's Annual
Report to Shareholders for the fiscal year ended August 31, 1996. The Annual
Report to Shareholders also includes more information about the Fund's
performance. For a free copy, please call Fund Information.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31 1996 1995 1994 1993 1992 1991(1)
- --------------------------------------------- ------------ ------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE (2)
(For a share outstanding throughout the
year)
Net asset value, beginning of year $ 7.97 $ 8.10 $6.87 $ 5.48 $ 5.21 $ 5.00
---- ----- ---- ----- ---- ------
Income from investment operations:
Net investment income .19 .14 .09 .10 .08 .07
Net realized and unrealized gain 1.10 .12 1.30 1.44 .28 .14
---- --- ---- ---- --- ---
Total from investment operations 1.29 .26 1.39 1.54 .36 .21
---- --- ---- ---- --- ---
Distributions:
Dividends from net investment income (.15) (.10) (.07) (.10) (.09) --
Distributions from net realized gains (.03) (.29) (.09) (.05) -- --
----- ----- ----- ----- -- --
Total distributions (.18) (.39) (.16) (.15) (.09) --
----- ----- ----- ----- ----- --
Change in net asset value 1.11 (.13) 1.23 1.39 .27 .21
---- ----- ---- ---- --- ---
Net asset value, end of year $ 9.08 $ 7.97 $ 8.10 $ 6.87 $ 5.48 $ 5.21
=========== ======== ======== ======== ========== ===========
TOTAL RETURN* 16.50% 3.40% 20.64% 29.11% 7.01% 4.20%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000) $108,019 $65,538 $38,323 $18,365 $8,690 $3,635
Ratio of expenses to average net assets 1.16% 1.34% 1.58% 1.91% 1.84% 3.99%**
Ratio of expenses, net of reimbursement, to 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%**
average net assets
Ratio of net investment income to average 2.56% 2.37% 1.58% 1.99% 2.06% 3.80%**
net assets
Portfolio turnover rate 11.08% 12.91% 15.25% 14.97% 16.42% --
Average commission rate paid (per share) $ .0210
</TABLE>
(1) For the period from March 1, 1991(commencement of operations) to August 31,
1991.
(2) Per share amounts for all periods have been restated to reflect a 2-for-1
stock split effective March 27, 1996.
* Not annualized for periods of less than one year.
** Annualized.
HOW DOES THE FUND INVEST ITS ASSETS?
THE FUND'S INVESTMENT OBJECTIVE
The Fund's investment objective is long-term capital growth, which it seeks to
achieve through a flexible policy of investing in stocks and debt obligations of
companies and governments of any nation. Any income realized will be incidental.
The objective is a fundamental policy of the Fund and may not be changed without
shareholder approval. Of course, there is no assurance that the Fund's objective
will be achieved.
The Fund principally invests in common stocks, but may also invest in preferred
stock and debt obligations (defined as bonds (including convertible bonds and
bonds selling at a discount), notes, debentures, commercial paper, time deposits
and bankers' acceptances), which may be rated or unrated, and which may include
structured investments, as described in the SAI under "How Does the Fund Invest
its Assets? - Structured Investments." The Fund may invest in stocks and debt
obligations of companies and debt obligations of governments of any nation.
The Board has adopted an operating policy, which may be changed without
shareholder approval, that no more than 5% of the Fund's assets will be invested
in debt securities rated less than Baa by Moody's or BBB by S&P. Debt securities
which are rated Baa by Moody's are considered medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Such bonds lack
outstanding investment characteristics and have speculative characteristics as
well, according to Moody's. Debt securities rated BBB by S&P are regarded as
having adequate capacity to pay interest and repay principal. According to S&P,
while these debt securities normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal. The Fund will not
invest in debt securities rated less than Caa by Moody's or CCC by S&P.
Whenever, in the judgment of TICI, market or economic conditions warrant, the
Fund may, for temporary defensive purposes, invest without limit in money market
securities, denominated in U.S. dollars or in the currency of any foreign
country, issued by entities organized in the U.S. or any foreign country,
consisting of: short-term (less than 12 months to maturity) and medium-term (not
greater than five years to maturity) obligations issued or guaranteed by the
U.S. government or the government of a foreign country, their agencies or
instrumentalities; finance company and corporate commercial paper, and other
short-term corporate obligations, in each case rated Prime-1 by Moody's or A or
better by S&P or, if unrated, of comparable quality as determined by TICI; and
repurchase agreements with U.S. banks and broker-dealers with respect to
Canadian or U.S. government securities. In addition, for temporary defensive
purposes, the Fund may invest up to 25% of its total assets in obligations
(including certificates of deposit, time deposits and bankers' acceptances) of
U.S. and foreign banks; provided that the Fund will limit its investment in time
deposits for which there is a penalty for early withdrawal to 10% of its total
assets. In the event that the Fund adopts a temporary defensive position, the
investment practices described above may not be consistent with the Fund's
stated investment objective.
The Fund may invest no more than 5% of its total assets in securities issued by
any one company or government, exclusive of U.S. government securities. Although
the Fund may invest up to 25% of its assets in a single industry, it has no
present intention of doing so. In furtherance of its objective of capital
growth, the Fund may invest up to 5% of its assets in warrants (excluding
warrants acquired in units or attached to securities). The Fund may not invest
more than 15% of its total assets in securities of all types of foreign issuers
which are not listed on a recognized U.S. or foreign securities exchange, and
may not invest more than 10% of its total assets in securities which are
illiquid, including securities which are not publicly traded or which cannot be
readily resold because of legal or contractual restrictions, or which are not
otherwise readily marketable (including repurchase agreements having more than
seven days remaining to maturity), and over-the-counter options purchased by the
Fund. Assets used as cover for over-the-counter options written by the Fund will
be considered illiquid. The Fund's investment objective and the policies
described in this paragraph, as well as certain investment restrictions
described in the SAI, cannot be changed without shareholder approval. All other
investment policies may be modified by the Board.
The Fund may lend its portfolio securities, as well as enter into transactions
in options on securities indices and foreign currencies, forward foreign
currency exchange contracts, and futures contracts and related options. When
deemed appropriate by TICI, the Fund may invest cash balances in repurchase
agreements and other money market investments to maintain liquidity in an amount
to meet expenses or for day-to-day operating purposes. These investment
techniques are described below and under the heading "How Does the Fund Invest
its Assets?" in the SAI.
The Fund invests for long-term growth of capital and does not intend to
emphasize short-term trading profits. Accordingly, the Fund expects to have an
annual portfolio turnover rate not exceeding 50%.
TYPES OF SECURITIES IN WHICH THE FUND MAY INVEST
The Fund is authorized to use the various securities and investment techniques
described below. Although these strategies are regularly used by some investment
companies and other institutional investors in various markets, some of these
strategies cannot at the present time be used to a significant extent by the
Fund in some of the markets in which the Fund will invest and may not be
available for extensive use in the future.
LOANS OF PORTFOLIO SECURITIES. The Fund may lend to banks and broker-dealers
portfolio securities with an aggregate market value of up to one-third of its
total assets to generate income. Such loans must be secured by collateral
(consisting of any combination of cash, U.S. government securities or
irrevocable letters of credit) in an amount at least equal (on a daily
marked-to-market basis) to the current market value of the securities loaned.
The Fund may terminate the loans at any time and obtain the return of the
securities loaned within five business days. The Fund will continue to receive
any interest or dividends paid on the loaned securities and will continue to
retain any voting rights with respect to the securities.
DEBT SECURITIES. The Fund may invest in the debt securities of companies and
governments of any nation. Certain debt securities can provide the potential for
capital appreciation based on various factors such as changes in interest rates,
economic and market conditions, improvement in an issuer's ability to repay
principal and pay interest, and ratings upgrades. Additionally, convertible
bonds offer the potential for capital appreciation through the conversion
feature, which enables the holder of the bond to benefit from increases in the
market price of the securities into which they are convertible.
OPTIONS ON INDICES. The Fund may write (i.e., sell) covered put and call options
and purchase put and call options on securities indices that are traded on U.S.
and foreign exchanges or in the over-the-counter markets. An option on a
securities index permits the purchaser of the option, in return for the premium
paid, the right to receive from the seller cash equal to the difference between
the closing price of the index and the exercise price of the option. The Fund
may write a call or put option only if the option is "covered." This means that
so long as the Fund is obligated as the writer of an option, it will maintain
with its custodian cash or cash equivalents equal to the contract value (in the
case of call options) or exercise price (in the case of put options). The Fund
will not purchase put or call options if the aggregate premium paid for such
options would exceed 5% of its total assets at the time of purchase.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES.
The Fund may enter into forward foreign currency exchange contracts ("forward
contracts") to attempt to minimize the risk to the Fund from adverse changes in
the relationship between the U.S. dollar and foreign currencies. A forward
contract is an obligation to purchase or sell a specific currency for an agreed
price at a future date which is individually negotiated and privately traded by
currency traders and their customers. The Fund may enter into a forward
contract, for example, when it enters into a contract for the purchase or sale
of a security denominated in a foreign currency in order to "lock in" the U.S.
dollar price of the security. The Fund will not enter into forward contracts if,
as a result, the Fund will have more than 20% of its total assets committed to
the consummation of such contracts. The Fund may also purchase and write put and
call options on foreign currencies for the purpose of protecting against
declines in the dollar value of foreign portfolio securities and against
increases in the U.S. dollar cost of foreign securities to be acquired.
FUTURES CONTRACTS. For hedging purposes only, the Fund may purchase and sell
stock index futures contracts, foreign currency futures contracts and options on
any of the foregoing. An index futures contract is an agreement to take or make
delivery of an amount of cash based on the difference between the value of the
index at the beginning and at the end of the contract period. A futures contract
on a foreign currency is an agreement to buy or sell a specified amount of a
currency for a set price on a future date. When the Fund enters into a futures
contract, if must make an initial deposit, known as "initial margin," as a
partial guarantee of its performance under the contract. As the value of the
index or currency fluctuates, either party to the contract is required to make
additional margin payments, known as "variation margin," to cover any additional
obligation it may have under the contract. In addition, when the Fund enters
into a futures contract, it will segregate assets or "cover" its position in
accordance with the 1940 Act. See "How Does the Fund Invest its Assets? -
Futures Contracts" in the SAI. The Fund may not commit more than 5% of its total
assets to initial margin deposits on futures contracts and related options.
REPURCHASE AGREEMENTS. For temporary defensive purposes and for cash management
purposes, when the Fund acquires a security from a U.S. bank or a registered
broker-dealer, it may simultaneously enter into a repurchase agreement, wherein
the seller agrees to repurchase the security at a specified time and price. The
repurchase price is in excess of the purchase price by an amount which reflects
an agreed-upon rate of return, which is not tied to the coupon rate on the
underlying security. Under the 1940 Act, repurchase agreements are considered to
be loans collateralized by the underlying security and therefore will be fully
collateralized. However, if the seller should default on its obligation to
repurchase the underlying security, the Fund may experience delay or difficulty
in exercising its rights to realize upon the security and might incur a loss if
the value of the security declines, as well as disposition costs in liquidating
the security.
DEPOSITARY RECEIPTS. The Fund may purchase sponsored or unsponsored American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and Global
Depositary Receipts ("GDRs") (collectively, "depositary receipts"). ADRs are
depositary receipts typically issued by a U.S. bank or trust company which
evidence ownership of underlying securities issued by a foreign corporation.
EDRs and GDRs are typically issued by foreign banks or trust companies, although
they also may be issued by U.S. banks or trust companies, and evidence ownership
of underlying securities issued by either a foreign or a U.S. corporation.
Generally, depositary receipts in registered form are designed for use in the
U.S. securities market and depositary receipts in bearer form are designed for
use in securities markets outside the U.S. Depositary receipts may not
necessarily be denominated in the same currency as the underlying securities
into which they may be converted. Depositary receipts may be issued pursuant to
sponsored or unsponsored programs. In sponsored programs, an issuer has made
arrangements to have its securities traded in the form of depositary receipts.
In unsponsored programs, the issuer may not be directly involved in the creation
of the program. Although regulatory requirements with respect to sponsored and
unsponsored programs are generally similar, in some cases it may be easier to
obtain financial information from an issuer that has participated in the
creation of a sponsored program. Accordingly, there may be less information
available regarding issuers of securities underlying unsponsored programs and
there may not be a correlation between such information and the market value of
the depositary receipts. Depositary receipts also involve the risks of other
investments in foreign securities, as discussed below. For purposes of the
Fund's investment policies, the Fund's investments in depositary receipts will
be deemed to be investments in the underlying securities.
WHAT ARE THE FUND'S POTENTIAL RISKS?
You should understand that all investments involve risk and there can be no
guarantee against loss resulting from an investment in the Fund, nor can there
be any assurance that the Fund's investment objective will be attained. As with
any investment in securities, the value of, and income from, an investment in
the Fund can decrease as well as increase, depending on a variety of factors
which may affect the values and income generated by the Fund's portfolio
securities, including general economic conditions and market factors. In
addition to the factors which affect the value of individual securities, a
shareholder may anticipate that the value of the shares of the Fund will
fluctuate with movements in the broader equity and bond markets, as well. A
decline in the stock market of any country in which the Fund is invested may
also be reflected in declines in the price of shares of the Fund. Changes in
currency valuations will also affect the price of shares of the Fund. History
reflects both decreases and increases in stock markets and currency valuations,
and these may occur unpredictably in the future. The value of debt securities
held by the Fund generally will vary inversely with changes in prevailing
interest rates. Additionally, investment decisions made by TICI will not always
be profitable or prove to have been correct. The Fund is not intended as a
complete investment program.
The Fund has the unlimited right to purchase securities in any foreign country,
developed or underdeveloped. Investors should consider carefully the substantial
risks involved in investing in foreign securities, which are in addition to the
usual risks inherent in domestic investments. Such risks include the possibility
of expropriation, nationalization or confiscatory taxation, taxation of income
earned in foreign nations or other taxes imposed with respect to investments in
foreign nations, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), foreign investment controls
on daily stock market movements, default in foreign government securities,
political or social instability, or diplomatic developments which could affect
investment in securities of issuers in those nations. Some countries may
withhold portions of interest and dividends at the source. In addition, in many
countries there is less publicly available information about issuers than is
available in reports about companies in the U.S. Foreign companies are not
generally subject to uniform accounting or financial reporting standards, and
auditing practices and requirements may not be comparable to those applicable to
U.S. companies. Further, the Fund may encounter difficulties or be unable to
vote proxies, exercise shareholder rights, pursue legal remedies and obtain
judgments in foreign courts.
Brokerage commissions, custodial services and other costs relating to investment
in foreign countries are generally more expensive than in the U.S. Foreign
securities markets also have different clearance and settlement procedures, and
in certain markets there have been times when settlements have been unable to
keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems could
result either in losses to the Fund due to subsequent declines in value of the
portfolio security or, if the Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser.
In many foreign countries, there is less government supervision and regulation
of business and industry practices, stock exchanges, brokers and listed
companies than in the U.S. There is an increased risk, therefore, of uninsured
loss due to lost, stolen or counterfeit stock certificates. In addition, the
foreign securities markets of many of the countries in which the Fund may invest
may also be smaller, less liquid, and subject to greater price volatility than
those in the U.S. As an operating policy, the Fund may invest no more than 5% of
its assets in Eastern European countries, which involves special risks that are
described under "What Are the Fund's Potential Risks?" in the SAI.
Prior governmental approval of non-domestic investments may be required under
certain circumstances in some developing countries, and the extent of foreign
investment in domestic companies may be subject to limitation in other
developing countries. Foreign ownership limitations also may be imposed by the
charters of individual companies in developing countries to prevent, among other
concerns, violation of foreign investment limitations.
Repatriation of investment income, capital and proceeds of sales by foreign
investors may require governmental registration and/or approval in some
developing countries. The Fund could be adversely affected by delays in or a
refusal to grant any required governmental registration or approval for such
repatriation.
Further, the economies of developing countries generally are heavily dependent
upon international trade and, accordingly, have been and may continue to be
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures imposed or negotiated
by the countries with which they trade. These economies have also been and may
continue to be adversely affected by economic conditions in the countries with
which they trade.
As a non-fundamental policy, the Fund will limit its investments in Russian
securities to 5% of its total assets. Russian securities involve additional
significant risks, including political and social uncertainty (for example,
regional conflicts and risk of war), currency exchange rate volatility,
pervasiveness of corruption and crime in the Russian economic system, delays in
settling portfolio transactions and risk of loss arising out of Russia's system
of share registration and custody. For more information on these risks and other
risks associated with Russian securities, please see "What are the Fund's
Potential Risks?" in the SAI.
The Fund usually effects currency exchange transactions on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign exchange market. However, some
price spread on currency exchange (to cover service charges) will be incurred
when the Fund converts assets from one currency to another.
The Fund is authorized to invest in medium quality or high risk, lower quality
debt securities that are rated between BBB and CCC by S&P, and between Baa and
Caa by Moody's or, if unrated, are of equivalent investment quality as
determined by TICI. As an operating policy, which may be changed by the Board
without shareholder approval, the Fund will not invest more than 5% of its total
assets in debt securities rated BBB or lower by S&P or Baa or lower by Moody's.
The Board may consider a change in this operating policy if, in its judgment,
economic conditions change such that a higher level of investment in high risk,
lower quality debt securities would be consistent with the interests of the Fund
and its shareholders. High risk, lower quality debt securities, commonly known
as junk bonds, are regarded, on balance, as predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation and may be in default. Unrated debt
securities are not necessarily of lower quality than rated securities but they
may not be attractive to as many buyers. Regardless of rating levels, all debt
securities considered for purchase (whether rated or unrated) will be carefully
analyzed by TICI to insure, to the extent possible, that the planned investment
is sound. The Fund may, from time to time, purchase defaulted debt securities
if, in the opinion of TICI, the issuer may resume interest payments in the near
future. As a fundamental policy, the Fund will not invest more than 10% of its
total assets in defaulted debt securities, which may be illiquid.
Successful use of futures contracts and related options is subject to special
risk considerations. A liquid secondary market for any futures or options
contract may not be available when a futures or options position is sought to be
closed. In addition, there may be an imperfect correlation between movements in
the foreign currency on which the futures or options contract is based and
movements in the currency in the Fund's portfolio. Successful use of futures or
options contracts is further dependent on TICI's ability to correctly predict
movements in a stock index or foreign currency market and no assurance can be
given that its judgment will be correct.
The receipt by the Fund of new money solely through the medium of continuing
payments under systematic investment plans may tend to produce a more even rate
of influx than is the case of funds whose shares are sold directly. This may
furnish a base for a gradual and planned accumulation of positions in individual
portfolio securities when such a program is deemed to be appropriate.
There can be no assurance that the investment objective of the Fund will be
achieved. There are further risk considerations, including possible losses
through the holding of securities in domestic and foreign custodian banks and
depositories, described in the SAI.
WHO MANAGES THE FUND?
THE BOARD. The Board oversees the management of the Fund and elects its
officers. The officers are responsible for the Fund's day-to-day operations.
INVESTMENT MANAGER. TICI manages the Fund's assets and makes its investment
decisions. TICI also performs similar services for other funds. It is wholly
owned by Resources, a publicly owned company engaged in the financial services
industry through its subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr.
are the principal shareholders of Resources. Together, TICI and its affiliates
manage over $172 billion in assets. The Templeton organization has been
investing globally since 1940. TICI and its affiliates have offices in
Argentina, Australia, Bahamas, Canada, France, Germany, Hong Kong, India, Italy,
Luxembourg, Poland, Russia, Scotland, Singapore, South Africa, U.S., and
Vietnam. Please see "Investment Management and Other Services" and
"Miscellaneous Information" in the SAI for information on securities
transactions and a summary of the Fund's Code of Ethics.
PORTFOLIO MANAGEMENT. The lead portfolio manager for the Fund since 1993 is
Gary P. Motyl. Mr. Motyl is an executive vice president of TICI. He holds a BS
degree in finance from Lehigh University and an MBA degree in finance from Pace
University. He is a Chartered Financial Analyst. Prior to joining the Templeton
organization in 1981, Mr. Motyl worked from 1974 to 1979 as a securities
analyst with Standard & Poor's Corporation, and as a research analyst and
portfolio manager from 1979 to 1981 with Landmark First Mortgage Bank, where he
had responsibility for equity research and managed several pension and profit
sharing plans. His research responsibilities with Templeton include the global
automobile industry, U.S. utilities and country coverage of Germany.
Gary R. Clemons and Mark R. Beveridge exercise secondary portfolio management
responsibilities for the Fund. Mr. Clemons is a senior vice president of TICI.
He holds a BS in geology from the University of Nevada - Reno and an MBA with
emphases in finance and investment banking from the University of Wisconsin -
Madison. He joined TICI in 1993. Before joining TICI he was a research analyst
at Templeton Quantitative Advisors, Inc. in New York, where he was also
responsible for management of a small capitalization fund. Mr. Clemons' current
research responsibilities include the telecommunications industries and country
coverage of Columbia, Peru, Sweden and Norway. Mr. Beveridge is a senior vice
president of TICI. He holds a BBA in finance from the University of Miami. Mr.
Beveridge is a Chartered Financial Analyst, a Chartered Investment Counselor and
a member of the South Florida Society of Financial Analysts and the
International Society of Financial Analysts. Before joining the Templeton
organization in 1985 as a securities analyst, Mr. Beveridge was a principal with
a financial accounting software firm based in Miami, Florida. He is currently a
portfolio manager and analyst with research responsibilities for the country of
Argentina and the following industries: appliances, household durables, waste
management, industrial components and business and public services.
MANAGEMENT FEES. For the fiscal year ended August 31, 1996, the Fund paid
management fees totaling 0.59% of the Fund's average daily net assets. TICI
voluntarily agreed to reduce its fees in order to limit total expenses of the
Fund. Without this voluntary agreement, management fees would be 0.75% of the
Fund's average daily net assets. After December 31, 1997, this agreement may end
at any time upon notice to the Board.
PORTFOLIO TRANSACTIONS. TICI tries to obtain the best execution on all
transactions. If TICI believes more than one broker or dealer can provide the
best execution, consistent with internal policies it may consider research and
related services and the sale of Plans (and therefore, indirectly, the sale of
shares), as well as shares of other funds in the Franklin Templeton Group of
Funds, when selecting a broker or dealer. Please see "How Does the Fund Buy
Securities For its Portfolio?" in the SAI for more information.
ADMINISTRATIVE SERVICES. FT Services (and, prior to October 1, 1996, Templeton
Global Investors, Inc.) provides certain administrative services and facilities
for the Fund. During the fiscal year ended August 31, 1996, administration fees
totaling 0.15% of the average daily net assets of the Fund were paid to FT
Services. Please see "Investment Management and Other Services" in the SAI for
more information.
TOTAL EXPENSES. For the fiscal year ended August 31, 1996, the total Fund
operating expenses were 1.00% of the Fund's average daily net assets. Without
TICI's voluntary agreement to limit total expenses, total Fund operating
expenses would be 1.16%.
HOW DOES THE FUND MEASURE PERFORMANCE?
From time to time, the Fund advertises its performance. The most commonly used
measure of performance is total return. Performance figures may not include
sales and creation charges associated with the purchase of the Fund through the
Plans; of course, total return quotations would be lower if sales and creation
charges were taken into account.
Total return is the change in value of an investment over a given period. It
assumes any dividends and capital gains are reinvested.
The Fund's investment results will vary. Performance figures are always based on
past performance and do not guarantee future results. For a more detailed
description of how the Fund calculates its performance figures, please see "How
does the Fund Measure Performance?" in the SAI.
HOW IS THE FUND ORGANIZED?
The Fund is a diversified, open-end management investment company, commonly
called a mutual fund. It was organized as a Maryland corporation on October 26,
1990, and is registered with the SEC under the 1940 Act. The Fund sells its
shares only through Templeton Capital Accumulation Plans, a unit investment
trust. Each share of the Fund has one vote. All shares have equal voting,
participation and liquidation rights. Shares of the Fund are considered Class I
shares for redemption, exchange and other purposes. In the future, the Fund may
offer additional classes of shares.
The Fund has noncumulative voting rights. This gives holders of more than 50% of
the shares voting the ability to elect all of the members of the Board. If this
happens, holders of the remaining shares voting will not be able to elect anyone
to the Board.
The Fund does not intend to hold annual shareholder meetings. It may hold a
special meeting, however, for matters requiring shareholder approval under the
1940 Act. The Fund will call a special meeting of shareholders for the purpose
of considering the removal of a Board member if requested in writing to do so by
shareholders holding at least 10% of the outstanding shares. The 1940 Act
requires that we help you communicate with other shareholders in connection with
removing members of the Board.
HOW TAXATION AFFECTS YOU AND THE FUND
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. For more information on tax matters
relating to the Fund and its shareholders, see "Additional Information on
Distributions and Taxes" in the SAI.
The Fund intends to elect to be treated and to qualify each year as a regulated
investment company under Subchapter M of the Code. A regulated investment
company generally is not subject to federal income tax on income and gains
distributed in a timely manner to its shareholders. The Fund intends to
distribute to shareholders substantially all of its net investment income and
net realized capital gains, which generally will be taxable income or capital
gains in their hands. Distributions declared in October, November or December to
shareholders of record on a date in such month and paid during the following
January will be treated as having been received by shareholders on December 31
in the year such distributions were declared. The Fund will inform you each year
of the amount and nature of such income or gains. Sales or other dispositions of
Fund shares generally will give rise to taxable gain or loss. You should note
that planholders generally are considered to be the shareholders of the Fund for
federal tax purposes.
<PAGE>
ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
The Fund offers its shares through an investment in the Plans. Details of the
Plans, including the terms of the offering, may be found in the attached
prospectus for the Plans. Except in cases where planholders have received Fund
shares in connection with the liquidation of a Plan or partial withdrawal from a
Plan (into a non-contributory voluntary account), it is not generally
contemplated that any person, other than TFTC as custodian for the Plans, will
directly hold any shares of the Fund.
No Securities Dealer, salesman, or other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus and in the SAI, in connection with the offer contained in this
prospectus, and, if given or made, such other information or representations
must not be relied upon as having been authorized by the Fund, TICI, or
Distributors.
Except for the fact that the Fund's shares are available only through the Plans,
the Fund does not represent an investment concept which is new or different from
other investment companies for which TICI or its affiliates acts as an
investment manager. The Fund's investment objective of long-term capital growth
is similar to the objective of certain other Franklin Templeton Funds. The
methods employed by each of these other funds in attaining the objective vary
from each other and from the Fund. The investment results attained by these
other Franklin Templeton Funds have varied from each other in the past and are
likely to continue to vary from each other and from the Fund in the future. You
could, however, purchase shares of the other Franklin Templeton Funds, which, in
the early years of the Plan, would be at a lesser sales charge.
Investors wishing information on any of these funds may contact Shareholder
Services at 1-800/632-2301.
MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?
We offer a wide variety of funds. If you liquidate a Plan or exercise the
partial withdrawal privilege under a Plan, you may move your investment to an
existing or new account in another Franklin Templeton Fund (an "exchange").
Because it is technically a sale and a purchase of shares, an exchange is a
taxable transaction.
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund and its rules and
requirements for exchanges. For example, some Franklin Templeton Funds do not
accept exchanges and others may have different investment minimums. In general,
no sales charge applies, and in the case of an exchange into a Franklin
Templeton fund that offers two classes of shares, a shareholder would receive
Class I shares, which generally bear lower Rule 12b-1 distribution fees than
Class II shares of the same fund.
<PAGE>
- -
METHOD STEPS TO FOLLOW
BY MAIL 1. Send TFTC written instructions signed
by all account owners
2. Include any outstanding share
certificates for the shares you're
exchanging
BY PHONE Call Shareholder Services or TeleFACTS
If you do not want th ability to
exchange by phone to apply to your
account, please let us know.
THROUGH YOUR DEALER Call your investment representative
EXCHANGE RESTRICTIONS
Please be aware that the following restrictions apply to exchanges:
- You may only exchange shares within the SAME CLASS.
- The accounts must be identically registered. You may exchange shares from
a Fund account requiring two or more signatures into an identically
registered money fund account requiring only one signature for all
transactions. PLEASE NOTIFY US IN WRITING IF YOU DO NOT WANT THIS OPTION
TO BE AVAILABLE ON YOUR ACCOUNT(S). Additional procedures may apply.
Please see "Transaction Procedures and Special Requirements."
Trust Company IRA or 403(b) retirement plan accounts may exchange shares
as described above. Restrictions may apply to other types of retirement
plans. Please contact our Retirement Plans Department for information on
exchanges within these plans.
The fund you are exchanging into must be eligible for sale in your state.
We may modify or discontinue our exchange policy if we give you 60 days'
written notice.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
HOW DO I SELL SHARES?
If you liquidate your Plan or exercise the partial withdrawal privilege under a
Plan, you may sell (redeem) the shares received at any time.
METHOD STEPS TO FOLLOW
BY MAIL 1. Send TFTC written instructions signed
by all account owners
2. Include any outstanding share
certificates for the shares you are
selling
3. Provide a signature guarantee if
required
4. Corporate, partnership and trust
accounts may need to send additional
documents. Accounts under court
jurisdiction may have additional
requirements.
BY PHONE Call Shareholder Services
(Only available if you have Telephone requests will be accepted:
completed and sent to us the
telephone redemption agreement If the request is up to $50,000.
included with this prospectus) If there are no share certificates
issued for the
shares you want to sell or you have
already returned them to the Fund.
If you are selling shares in an
account that is not a Trust Company
retirement plan account.
If the redemption is to be sent to
the address of record.
THROUGH YOUR DEALER Call your investment representative
We will send your redemption check within seven days after we receive your
request in proper form. If you sell your shares by phone, the check may only be
made payable to all registered owners on the account and sent to the address of
record. We are not able to pay out cash in the form of currency.
If you sell shares you just purchased in the Plan with a check or draft, we may
delay sending you the proceeds for up to 15 days or more to allow the check or
draft to clear. A certified or cashier's check may clear in less time.
Under unusual circumstances, we may suspend redemptions or postpone payment for
more than seven days as permitted by federal securities law.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
TRUST COMPANY RETIREMENT PLAN ACCOUNTS
To comply with IRS regulations, you need to complete additional forms before
selling shares in a Trust Company retirement plan account. Tax penalties
generally apply to any distribution from these plans to a participant under age
59 1/2, unless the distribution meets an exception stated in the Code. To obtain
the necessary forms, please call our Retirement Plans Department.
WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?
Dividends and capital gain distributions (if any) are usually paid in October
and (if necessary) in December representing all or substantially all of the
Fund's net investment income and any net realized capital gains. Income
dividends and capital gain distributions paid by the Fund, pursuant to the terms
of the Plans, are automatically reinvested on the payment date in whole or
fractional shares of the Fund at net asset value as of the ex-dividend date. If
you elect, you may receive such distributions in cash so long as the account is
not a Trust Company Retirement Plan Account. The processing date for the
reinvestment of dividends may vary from time to time, and does not affect the
amount or value of the shares acquired.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
HOW AND WHEN SHARES ARE PRICED
The Fund is open for business each day the NYSE is open. We determine the Net
Asset Value per share as of the scheduled close of the NYSE, generally 4:00 p.m.
Eastern time. You can find the prior day's closing Net Asset Value and Offering
Price in many newspapers.
To calculate Net Asset Value per share of each class, the assets of each class
are valued and totaled, liabilities are subtracted, and the balance, called net
assets, is divided by the number of shares of the class outstanding. The Fund's
assets are valued as described under "How are Fund Shares Valued? " in the SAI.
THE PRICE WE USE WHEN YOU BUY OR SELL SHARES
You may obtain shares in the Fund only through purchasing shares in a Plan. The
Offering Price of the Plan shares is based on the Fund's Net Asset Value per
share, and includes the maximum sales charge. We calculate it to two decimal
places using standard rounding criteria. You sell shares at Net Asset Value.
We will use the Net Asset Value next calculated after we receive your
transaction request in proper form. If you buy or sell shares through your
Securities Dealer, however, we will use the Net Asset Value next calculated
after your Securities Dealer receives your request, which is promptly
transmitted to the Fund. Your redemption proceeds will not earn interest between
the time we receive the order from your dealer and the time we receive any
required documents.
PROPER FORM
An order to buy shares is in proper form when we receive your signed shareholder
application and check. Written requests to sell or exchange shares are in proper
form when we receive written instructions signed by all registered owners, with
a signature guarantee if necessary. We must also receive any outstanding share
certificates for those shares.
WRITTEN INSTRUCTIONS
Written instructions must be signed by all registered owners. To avoid any delay
in processing your transaction, they should include:
Your name,
The Fund's name,
Your account number,
A description of the request,
The dollar amount or number of shares,
For exchanges, the name of the fund you're exchanging into,
A telephone number where we may reach you during the day, or in the
evening if preferred, The address the check is to be sent to if different
from the address of record, and The name of the payee if different from
the registered owner(s).
SIGNATURE GUARANTEES
For our mutual protection, we require a signature guarantee in the following
situations:
1) You wish to sell over $50,000 worth of shares,
2) You want the proceeds to be paid to someone other than the registered owners,
3) You want the proceeds sent to an address other than the address of record, 4)
We believe a signature guarantee would protect us against potential claims based
on the instructions
received.
A signature guarantee verifies the authenticity of your signature and may be
obtained from certain banks, brokers or other eligible guarantors. YOU SHOULD
VERIFY THAT THE INSTITUTION IS AN ELIGIBLE GUARANTOR PRIOR TO SIGNING. A
CERTIFICATION BY A NOTARY REPUBLIC IS NOT SUFFICIENT.
SHARE CERTIFICATES
We will credit your shares to your Fund account. We do not issue share
certificates unless you specifically request them. This eliminates the costly
problem of replacing lost, stolen or destroyed certificates. If a certificate is
lost, stolen or destroyed, you may have to pay an insurance premium of up to 2%
of the value of the certificate to replace it.
Any outstanding share certificates must be returned to the Fund if you want to
sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do this
by completing a share assignment form, and you should return the
certificate and assignment form in separate envelopes.
TELEPHONE TRANSACTIONS
You may initiate many transactions by phone. Please refer to the sections of
this prospectus that discuss the transaction you would like to make. You may
also call Shareholder Services for instructions.
When you call, we will request personal or other identifying information to
confirm that your instructions are genuine. We will also record calls. We will
not be liable for following instructions communicated by telephone if we
reasonably believe they are genuine. For your protection, we may delay a
transaction or not implement one if we are not reasonably satisfied that the
instructions are genuine. If this occurs, we will not be liable for any loss.
If our lines are busy or you are otherwise unable to reach us by phone, you may
wish to ask your investment representative for assistance or send written
instructions to us, as described elsewhere in this prospectus. If you are unable
to execute a transaction by telephone, we will not be liable for any loss.
TRUST COMPANY RETIREMENT PLAN ACCOUNTS. You may not sell shares or change
distribution options on Trust Company retirement plans by phone. While you may
exchange shares of Trust Company IRA and 403(b) retirement accounts by phone,
certain restrictions may be imposed on other retirement plans.
To obtain any required forms or more information about distribution or transfer
procedures, please call our Retirement Plans Department.
ACCOUNT REGISTRATIONS AND REQUIRED DOCUMENTS
When you open an account, you need to tell us how you want your shares
registered. How you register your account will affect your ownership rights and
ability to make certain transactions. If you have questions about how to
register your account, you should consult your investment representative or
legal advisor. Please keep the following information in mind when registering
your account.
JOINT OWNERSHIP. If you open an account with two or more owners, we register the
account as "joint tenants with rights of survivorship" unless you tell us
otherwise. An account registered as "joint tenants with rights of survivorship"
is shown as "Jt Ten" on your account statement. For any account with two or more
owners, ALL owners must sign instructions to process transactions and changes to
the account. Even if the law in your state says otherwise, you will not be able
to change owners on the account unless all owners agree in writing. If you would
like another person or owner to sign for you, please send us a current power of
attorney.
GIFTS AND TRANSFERS TO MINORS. You may set up a custodial account for a minor
under your state's Uniform Gifts/Transfers to Minors Act. Other than this form
of registration, a minor may not be named as an account owner.
TRUSTS. If you register your account as a trust, you should have a valid written
trust document to avoid future disputes or possible court action over who owns
the account. The registration of your account should also include the name and
date of the trust.
REQUIRED DOCUMENTS. For corporate, partnership and trust accounts, please send
us the following documents when you open your account. This will help avoid
delays in processing your transactions while we verify who may sign on the
account. Since shares in the Fund can only be acquired by transferring shares
from a Plan, a transfer letter of instructions is required in addition to the
following documents:
TYPE OF ACCOUNT DOCUMENTS REQUIRED
CORPORATION Corporate Resolution
PARTNERSHIP 1. The pages from the partnership agreement that
identify the general partners, or
2. A certification for a partnership agreement
TRUST 1. The pages from the trust document that
identify the trustees, or
2. A certification for trust
STREET OR NOMINEE ACCOUNTS. If you have Fund shares held in a "street" or
"nominee" name account with your Securities Dealer, you may transfer the shares
to the street or nominee name account of another Securities Dealer. Both dealers
must have an agreement with Distributors or we will not process the transfer.
Contact your Securities Dealer to initiate the transfer. We will process the
transfer after we receive authorization in proper form from your delivering
Securities Dealer. Accounts may be transferred electronically through the NSCC.
For accounts registered in street or nominee name, we may take instructions
directly from the Securities Dealer or your nominee.
ELECTRONIC INSTRUCTIONS. If there is a Securities Dealer or other representative
of record on your account, we are authorized to use and execute electronic
instructions. We can accept electronic instructions directly from your dealer or
representative without further inquiry. Electronic instructions may be processed
through the services of the NSCC, which currently include the NSCC's
"Networking," "Fund/SERV," and "ACATS" systems, or through Franklin/Templeton's
PCTrades II(TM) System.
TAX IDENTIFICATION NUMBER
For tax reasons, we must have your correct Social Security or tax identification
number on a signed shareholder application or applicable tax form. Federal law
requires us to withhold 31% of your taxable distributions and sale proceeds if
(i) you have not furnished a certified correct taxpayer identification number,
(ii) you have not certified that withholding does not apply, (iii) the IRS or a
Securities Dealer notifies the Fund that the number you gave us is incorrect, or
(iv) you are subject to backup withholding.
We may refuse to open an account if you fail to provide the required tax
identification number and certifications. We may also close your account if the
IRS notifies us that your tax identification number is incorrect. If you
complete an "awaiting TIN" certification, we must receive a correct tax
identification number within 60 days of your initial purchase to keep your
account open.
KEEPING YOUR ACCOUNT OPEN
Due to the relatively high cost of maintaining a small account, we may close
your account if the value of your shares is less than $50.
SERVICES TO HELP YOU MANAGE YOUR ACCOUNT
SYSTEMATIC WITHDRAWAL PLAN
Our systematic withdrawal plan allows you to sell your shares and receive
regular payments from your account on a monthly, quarterly, semiannual or annual
basis. The value of your account must be at least $5,000 and the minimum payment
amount for each withdrawal must be at least $50. For retirement plans subject to
mandatory distribution requirements, the $50 minimum will not apply.
If you would like to establish a systematic withdrawal plan, please complete the
systematic withdrawal plan section of the shareholder Plan application included
with this prospectus. Be sure to indicate how you would like to receive your
payments. You may choose to direct your payments to buy the same class of shares
of another Franklin Templeton Fund or have the money sent directly to you, to
another person, or to a checking account. If you choose to have the money sent
to a checking account, another location, or an address other than the address of
record, a signature guarantee is required.
You will generally receive your payment by the end of the month in which a
payment is scheduled. When you sell your shares under a systematic withdrawal
plan, it is a taxable transaction.
You may discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment by notifying us in writing at
least seven business days before the end of the month preceding a scheduled
payment. Please see "How Do I Buy, Sell and Exchange Shares? - Systematic
Withdrawal Plan" in the SAI for more information.
TELEFACTS(R)
From a touch-tone phone, you may call our TeleFACTS system (day or night) at
1-800/247-1753 to:
obtain information about your account;
obtain price and performance information about any Franklin Templeton
Fund; and request duplicate statements and deposit slips for your account.
You will need the Fund's code number to use TeleFACTS. The Fund's code is 450.
STATEMENTS AND REPORTS TO SHAREHOLDERS
We will send you the following statements and reports on a regular basis:
Confirmation and account statements reflecting transactions in your
account, including transfers from your Plan account and dividend
reinvestments. PLEASE VERIFY THE ACCURACY OF YOUR STATEMENTS WHEN YOU
RECEIVE THEM.
Financial reports of the Fund will be sent every six months. To reduce
Fund expenses, we attempt to identify related shareholders within a
household and send only one copy of a report. Call Fund Information if you
would like an additional free copy of the Fund's financial reports or an
interim quarterly report.
AVAILABILITY OF THESE SERVICES
The services above are available to most shareholders. If, however, your shares
are held by a financial institution, in a street name account, or networked
through the NSCC, the Fund may not be able to offer these services directly to
you. Please contact your investment representative.
WHAT IF I HAVE QUESTIONS ABOUT MY ACCOUNT?
If you have any questions about your account, you may write to Investor
Services, P.O. Box 33030, St. Petersburg, FL 33733-8030. The Fund and
Distributors are also located at this address. You may also contact us by phone
at one of the numbers listed below.
<TABLE>
<CAPTION>
HOURS OF OPERATION
(EASTERN TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
<S> <C> <C>
Shareholder Services 1-800/632-2301 8:30 a.m. to 8:00 p.m.
Dealer Services 1-800/524-4040 8:30 a.m. to 8:00 p.m.
Fund Information 1-800/DIAL BEN 8:30 a.m. to 11:00 p.m.
(1-800/342-5236) 9:30 a.m. to 5:30 p.m.
(Saturday)
Retirement Plans 1-800/527-2020 8:30 a.m. to 8:00 p.m.
TDD (hearing impaired) 1-800/851-0637 8:30 a.m. to 8:00 p.m.
</TABLE>
Your phone call may be monitored or recorded to ensure we provide you with high
quality service. You will hear a regular beeping tone if your call is being
recorded.
<PAGE>
GLOSSARY
USEFUL TERMS AND DEFINITIONS
1940 ACT - Investment Company Act of 1940, as amended
BOARD - The Board of Directors of the Fund
CD - Certificate of deposit
CLASS I AND CLASS II - Certain funds in the Franklin Templeton Funds offer two
classes of shares, designated "Class I" and "Class II." The two classes have
proportionate interests in the same portfolio of investment securities. They
differ, however, primarily in their sales charge structures and Rule 12b-1
plans. The Fund's shares are considered Class I shares for redemption,
exchange and other purposes.
CODE - Internal Revenue Code of 1986, as amended
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Directors."
FRANKLIN FUNDS - The mutual funds in the Franklin Group of Funds(R) except
Franklin Valuemark Funds and the
Franklin Government Securities Trust
FRANKLIN TEMPLETON FUNDS - The Franklin Funds and the Templeton Funds
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies in
the Franklin Group of Funds(R) and the Templeton Group of Funds
FT SERVICES - Franklin Templeton Services, Inc., the Fund's administrator
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
MOODY'S - Moody's Investors Service, Inc.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the 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.
NSCC - National Securities Clearing Corporation
NYSE - New York Stock Exchange, Inc.
OFFERING PRICE - The public offering price is the Net Asset Value per share.
Shares of the Fund may be initially acquired through an investment in Templeton
Capital Accumulation Plans. The charges for the first year of a Plan can amount
to 50% of the amounts paid during that year under the Plan.
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
S&P - Standard & Poor's Corporation
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 Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
TELEFACTS(R) - Franklin Templeton's automated customer servicing system
TEMPLETON FUNDS - The U.S. registered mutual funds in the Templeton Group of
Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund
TFTC - Templeton Funds Trust Company, the custodian for the Plans as described
in the Plan prospectus
TICI - Templeton Investment Counsel, Inc., the Fund's investment manager, is
located at Broward Financial Centre, Fort Lauderdale, FL 33394-3091.
TRUST COMPANY - Franklin Templeton Trust Company. Trust Company is an affiliate
of Distributors and both are wholly owned subsidiaries of Resources.
U.S. - United States
WE/OUR/US - Unless the context indicates a different meaning, these terms refer
to the Fund and/or Investor Services, Distributors, or other wholly owned
subsidiaries of Resources.
PAGE
PART B
STATEMENT OF ADDITIONAL INFORMATION
PAGE
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 1, 1997
700 CENTRAL AVENUE
ST. PETERSBURG, FL 33701 1-800/DIAL BEN
TABLE OF CONTENTS
How does the Fund Invest its Assets?.........................
What are the Fund's Potential Risks?.........................
Investment Restrictions......................................
Officers and Directors.......................................
Investment Management and Other Services.....................
How Does the Fund Buy Securities for its Portfolio?..........
How Do I Buy, Sell and Exchange Shares?......................
How are Fund Shares Valued?..................................
Additional Information on Distributions and Taxes............
The Fund's Underwriter.......................................
How does the Fund Measure Performance?.......................
Miscellaneous Information....................................
Financial Statements.........................................
Useful Terms and Definitions.................................
When reading this SAI, you will see certain terms beginning with capital
letters. This means the term is explained under "Useful Terms and
Definitions."
The Templeton Capital Accumulator Fund, Inc. (the "Fund") is a an open-end
management investment company. The Fund's investment objective is long-term
capital growth. The Fund seeks to achieve its objective through a flexible
policy of investing in stocks and debt obligations of companies and governments
of any nation. Any income realized will be incidental.
The Prospectus, dated January 1, 1997, as may be amended from time to time,
contains the basic information you should know before investing in the Fund. For
a free copy, call 1-800/DIAL BEN or write the Fund at the address shown.
THIS SAI IS NOT A PROSPECTUS. IT CONTAINS INFORMATION IN ADDITION TO AND IN MORE
DETAIL THAN SET FORTH IN THE PROSPECTUS. THIS SAI IS INTENDED TO PROVIDE YOU
WITH ADDITIONAL INFORMATION REGARDING THE ACTIVITIES AND OPERATIONS OF THE FUND,
AND SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS.
<PAGE>
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;
ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY
BANK;
ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
HOW DOES THE FUND INVEST ITS ASSETS?
The following provides more detailed information about some of the securities
the Fund may buy and its investment policies. You should read it together with
the section in the Prospectus entitled "How does the Fund Invest its Assets?"
The Fund may invest for defensive purposes in commercial paper which, at the
date of investment, must be rated A-1 by S&P or Prime-1 by Moody's or, if not
rated, be issued by a company which, at the date of investment, has an
outstanding debt issue rated AAA or AA by S&P or Aaa or Aa by Moody's.
REPURCHASE AGREEMENTS. Repurchase agreements are contracts under which the
buyer of a security simultaneously commits to resell the security to the seller
at an agreed-upon price and date. Under a repurchase agreement, the seller is
required to maintain the value of the securities subject to the repurchase
agreement at not less than their repurchase price. TICI will monitor the value
of such securities daily to determine that the value equals or exceeds the
repurchase price. Repurchase agreements may involve risks in the event of
default or insolvency of the seller, including possible delays or restrictions
upon the Fund's ability to dispose of the underlying securities. The Fund will
enter into repurchase agreements only with parties who meet creditworthiness
standards approved by the Board, I.E., banks or broker-dealers which have been
determined by TICI to present no serious risk of becoming involved in bankruptcy
proceedings within the time frame contemplated by the repurchase transaction.
LOANS OF PORTFOLIO SECURITIES. The Fund may lend to banks and broker-dealers
portfolio securities with an aggregate market value of up to one-third of its
total assets. Such loans must be secured by collateral (consisting of any
combination of cash, U.S. government securities or irrevocable letters of
credit) in an amount at least equal (on a daily marked-to-market basis) to the
current market value of the securities loaned. The Fund retains all or a portion
of the interest received on investment of the cash collateral or receives a fee
from the borrower. The Fund may terminate the loans at any time and obtain the
return of the securities loaned within five business days. The Fund will
continue to receive any interest or dividends paid on the loaned securities and
will continue to have voting rights with respect to the securities. However, as
with other extensions of credit, there are risks of delay in recovery or even
loss of rights in collateral should the borrower fail.
DEBT SECURITIES. The Fund may invest in debt securities which are rated no
lower than Caa by Moody's or CCC by S&P or deemed to be of comparable quality by
TICI. As an operating policy, the Fund will not invest more than 5% of its
assets in debt securities rated lower than Baa by Moody's or BBB by S&P. The
market value of debt securities generally varies in response to changes in
interest rates and the financial condition of each issuer. During periods of
declining interest rates, the value of debt securities generally increases.
Conversely, during periods of rising interest rates, the value of such
securities generally declines. These changes in market value will be reflected
in the Fund's Net Asset Value.
Higher yielding corporate debt securities are ordinarily unrated or in the
lower rating categories of recognized rating agencies (that is, ratings of Baa
or lower by Moody's or BBB or lower by S&P) and are generally considered to be
predominantly speculative and, therefore, may involve greater volatility of
price and risk of loss of principal and income (including the possibility of
default or bankruptcy of issuers of such securities) than securities in the
higher rating categories. A debt security rated Caa by Moody's is of poor
standing. Such a security may be in default or there may be present elements of
danger with respect to principal and interest. A debt security rated CCC by S&P
is regarded, on balance, as speculative. Such a security will have some quality
and protective characteristics, but these are outweighed by large uncertainties
or major risk exposures to adverse conditions.
Although they may offer higher yields than do higher rated securities, low
rated and unrated debt securities generally involve greater volatility of price
and risk of principal and income, including the possibility of default by, or
bankruptcy of, the issuers of the securities. In addition, the markets in which
low rated and unrated debt securities are traded are more limited than those in
which higher rated securities are traded. The existence of limited markets for
particular securities may diminish the Fund's ability to sell the securities at
fair value either to meet redemption requests or to respond to a specific
economic event such as a deterioration in the creditworthiness of the issuer.
Reduced secondary market liquidity for certain low rated or unrated debt
securities may also make it more difficult for the Fund to obtain accurate
market quotations for the purposes of valuing the Fund's portfolio. Market
quotations are generally available on many low rated or unrated securities only
from a limited number of dealers and may not necessarily represent firm bids of
such dealers or prices for actual sales.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of low rated debt securities,
especially in a thinly traded market. Analysis of the creditworthiness of
issuers of low rated debt securities may be more complex than for issuers of
higher rated securities, and the ability of the Fund to achieve its investment
objective may, to the extent of investment in low rated debt securities, be more
dependent upon such creditworthiness analysis than would be the case if the Fund
were investing in higher rated securities.
Low rated debt securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than investment grade securities.
The prices of low rated debt securities have been found to be less sensitive to
interest rate changes than higher rated investments, but more sensitive to
adverse economic downturns or individual corporate developments. A projection of
an economic downturn or of a period of rising interest rates, for example, could
cause a decline in low rated debt securities prices because the advent of a
recession could lessen the ability of a highly leveraged company to make
principal and interest payments on its debt securities. If the issuer of low
rated debt securities defaults, the Fund may incur additional expenses to seek
recovery.
The Fund may accrue and report interest on high yield bonds structured as zero
coupon bonds or pay-in-kind securities as income even though it receives no cash
interest until the security's maturity or payment date. In order to qualify for
beneficial tax treatment, the Fund must distribute substantially all of its
income to shareholders (see "Additional Information on Distributions and
Taxes"). Thus, the Fund may have to dispose of its portfolio securities under
disadvantageous circumstances to generate cash, so that it may satisfy the
distribution requirement.
STRUCTURED INVESTMENTS. Included among the issuers of debt securities in which
the Fund may invest are entities organized and operated solely for the purpose
of restructuring the investment characteristics of various securities. These
entities are typically organized by investment banking firms which receive fees
in connection with establishing each entity and arranging for the placement of
its securities. This type of restructuring involves the deposit with or
purchases by an entity, such as a corporation or trust, of specified instruments
and the issuance by that entity of one or more classes of securities
("structured investments") backed by, or representing interests in, the
underlying instruments. The cash flow on the underlying instruments may be
apportioned among the newly issued structured investments to create securities
with different investment characteristics such as varying maturities, payment
priorities or interest rate provisions; the extent of the payments made with
respect to structured investments is dependent on the extent of the cash flow on
the underlying instruments. Because structured investments of the type in which
the Fund anticipates investing typically involve no credit enhancement, their
credit risk will generally be equivalent to that of the underlying instruments.
The Fund is permitted to invest in a class of structured investments that is
either subordinated or unsubordinated to the right of payment of another class.
Subordinated structured investments typically have higher yields and present
greater risks than unsubordinated structured investments. Although the Fund's
purchase of subordinated structured investments would have a similar economic
effect to that of borrowing against the underlying securities, the purchase will
not be deemed to be leverage for purposes of the limitations placed on the
extent of the Fund's assets that may be used for borrowing activities.
Certain issuers of structured investments may be deemed to be "investment
companies" as defined in the 1940 Act. As a result, the Fund's investment in
these structured investments may be limited by the restrictions contained in the
1940 Act. Structured investments are typically sold in private placement
transactions, and there currently is no active trading market for structured
investments. To the extent such investments are illiquid, they will be subject
to the Fund's restrictions on investments in illiquid securities.
FUTURES CONTRACTS. The Fund's investment policies also permit it to buy and
sell stock index futures contracts with respect to any stock index traded on a
recognized stock exchange or board of trade, to an aggregate amount not
exceeding 20% of the Fund's total assets at the time when such contracts are
entered into. Successful use of stock index futures is subject to TICI's ability
to predict correctly movements in the direction of the stock markets. No
assurance can be given that TICI's judgment in this respect will be correct.
A stock index futures contract is a contract to buy or sell units of a stock
index at a specified future date at a price agreed upon when the contract is
made. The value of a unit is the current value of the stock index. For example,
the Standard & Poor's 500 Stock Index (the "S&P 500 Index") is composed of 500
selected common stocks, most of which are listed on the NYSE. The S&P 500 Index
assigns relative weightings to the value of one share of each of these 500
common stocks included in the index, and the index fluctuates with changes in
the market values of the shares of those common stocks. In the case of the S&P
500 Index, contracts are to buy or sell 500 units. Thus, if the value of the S&P
500 Index were $150, one contract would be worth $75,000 (500 units x $150). The
stock index futures contract specifies that no delivery of the actual stocks
making up the index will take place. Instead, settlement in cash must occur upon
the termination of the contract, with the settlement being the difference
between the contract price and the actual level of the stock index at the
expiration of the contract. For example, if the Fund enters into a futures
contract to buy 500 units of the S&P 500 Index at a specified future date at a
contract price of $150 and the S&P 500 Index is at $154 on that future date, the
Fund will gain $2,000 (500 units x gain of $4). If the Fund enters into a
futures contract to sell 500 units of the S&P 500 Index at a specified future
date at a contract price of $150 and the S&P 500 Index is at $154 on that future
date, the Fund will lose $2,000 (500 units x loss of $4).
During or in anticipation of a period of market appreciation, the Fund may
enter into a "long hedge" of common stock which it proposes to add to its
portfolio by purchasing stock index futures for the purpose of reducing the
effective purchase price of such common stock. To the extent that the securities
which the Fund proposes to purchase change in value in correlation with the
stock index contracted for, the purchase of futures contracts on that index
would result in gains to the Fund which could be offset against rising prices of
such common stock.
During or in anticipation of a period of market decline, the Fund may "hedge"
common stock in its portfolio by selling stock index futures for the purpose of
limiting the exposure of its portfolio to such decline. To the extent that the
Fund's portfolio of securities changes in value in correlation with a given
stock index, the sale of futures contracts on that index could substantially
reduce the risk to the portfolio of a market decline and, by so doing, provide
an alternative to the liquidation of securities positions in the portfolio with
resultant transaction costs.
Parties to an index futures contract must make initial margin deposits to
secure performance of the contract, which currently range from 1/2% to 5% of the
contract amount. Initial margin requirements are determined by the respective
exchanges on which the futures contracts are traded. There also are requirements
to make variation margin deposits as the value of the futures contract
fluctuates.
At the time the Fund purchases a stock index futures contract, an amount of
cash, U.S. government securities, or other highly liquid debt securities equal
to the market value of the contract will be deposited in a segregated account
with the Fund's custodian. When selling a stock index futures contract, the Fund
will maintain with its custodian liquid assets that, when added to the amounts
deposited with a futures commission merchant or broker as margin, are equal to
the market value of the instruments underlying the contract. Alternatively, the
Fund may "cover" its position by owning a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based, or holding a call option permitting the Fund to purchase the same futures
contract at a price no higher than the price of the contract written by the Fund
(or at a higher price if the difference is maintained in liquid assets with the
Fund's custodian).
STOCK INDEX OPTIONS. The Fund may purchase and sell put and call options on
securities indices in standardized contracts traded on national securities
exchanges, boards of trade, or similar entities, or quoted on NASDAQ. An option
on a securities index is a contract that gives the purchaser of the option, in
return for the premium paid, the right to receive from the writer of the option,
cash equal to the difference between the closing price of the index and the
exercise price of the option, expressed in dollars, times a specified multiplier
for the index option. An index is designed to reflect specified facets of a
particular financial or securities market, a specific group of financial
instruments or securities, or certain indicators.
The Fund may write call options and put options only if they are "covered." A
call option on an index is covered if the Fund maintains with its custodian cash
or cash equivalents equal to the contract value. A call option is also covered
if the Fund holds a call on the same index as the call written where the
exercise price of the call held is (1) equal to or less than the exercise price
of the call written, or (2) greater than the exercise price of the call written,
provided the difference is maintained by the Fund in cash or cash equivalents in
a segregated account with its custodian. A put option on an index is covered if
the Fund maintains cash or cash equivalents equal to the exercise price in a
segregated account with its custodian. A put option is also covered if the Fund
holds a put on the same index as the put written where the exercise price of the
put held is (1) equal to or greater than the exercise price of the put written,
or (2) less than the exercise price of the put written, provided the difference
is maintained by the Fund in cash or cash equivalents in a segregated account
with its custodian.
If an option written by the Fund expires, the Fund will realize a capital gain
equal to the premium received at the time the option was written. If an option
purchased by the Fund expires unexercised, the Fund will realize a capital loss
equal to the premium paid.
Prior to the earlier of exercise or expiration, an option may be closed out by
an offsetting purchase or sale of an option of the same series (type, exchange,
index, exercise price, and expiration). There can be no assurance, however, that
a closing purchase or sale transaction can be effected when the Fund desires.
FOREIGN CURRENCY HEDGING TRANSACTIONS. In order to hedge against foreign
currency exchange rate risks, the Fund may enter into forward foreign currency
exchange contracts and foreign currency futures contracts, as well as purchase
put or call options on foreign currencies, as described below. The Fund may also
conduct its foreign currency exchange transactions on a spot (I.E., cash) basis
at the spot rate prevailing in the foreign currency exchange market.
The Fund may enter into forward foreign currency exchange contracts ("forward
contracts") to attempt to minimize the risk to the Fund from adverse changes in
the relationship between the U.S. dollar and foreign currencies. A forward
contract is an obligation to purchase or sell a specific currency for an agreed
price at a future date which is individually negotiated and privately traded by
currency traders and their customers. The Fund may enter into a forward
contract, for example, when it enters into a contract for the purchase or sale
of a security denominated in a foreign currency in order to "lock in" the U.S.
dollar price of the security. In addition, for example, when the Fund believes
that a foreign currency may suffer or enjoy a substantial movement against
another currency, it may enter into a forward contract to sell an amount of that
foreign currency approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency. This second investment practice
is generally referred to as "cross-hedging." Because in connection with the
Fund's forward contract transactions an amount of the Fund's assets equal to the
amount of the purchase will be held aside or segregated to be used to pay for
the commitment, the Fund will always have cash, cash equivalents or high quality
debt securities available sufficient to cover any commitments under these
contracts or to limit any potential risk. The segregated account will be
marked-to-market on a daily basis. While these contracts are not presently
regulated by the CFTC, the CFTC may in the future assert authority to regulate
forward contracts. In such event, the Fund's ability to utilize forward
contracts in the manner set forth above may be restricted. Forward contracts may
limit potential gain from a positive change in the relationship between the U.S.
dollar and foreign currencies. Unanticipated changes in currency prices may
result in poorer overall performance for the Fund than if it had not engaged in
such contracts.
The Fund may purchase and write put and call options on foreign currencies for
the purpose of protecting against declines in the dollar value of foreign
portfolio securities and against increases in the dollar cost of foreign
securities to be acquired. As is the case with other kinds of options, however,
the writing of an option on foreign currency will constitute only a partial
hedge, up to the amount of the premium received, and the Fund could be required
to purchase or sell foreign currencies at disadvantageous exchange rates,
thereby incurring losses. The purchase of an option on foreign currency may
constitute an effective hedge against fluctuation in exchange rates, although,
in the event of rate movements adverse to the Fund's position, the Fund may
forfeit the entire amount of the premium plus related transaction costs. Options
on foreign currencies to be written or purchased by the Fund will be traded on
U.S. and foreign exchanges or over-the-counter.
The Fund may enter into exchange-traded contracts for the purchase or sale for
future delivery of foreign currencies ("foreign currency futures"). This
investment technique will be used only to hedge against anticipated future
changes in exchange rates which otherwise might adversely affect the value of
the Fund's portfolio securities or adversely affect the prices of securities
that the Fund intends to purchase at a later date. The successful use of foreign
currency futures will usually depend on TICI's ability to forecast currency
exchange rate movements correctly. Should exchange rates move in an unexpected
manner, the Fund may not achieve the anticipated benefits of foreign currency
futures or may realize losses.
WHAT ARE THE FUND'S POTENTIAL RISKS?
The Fund has an unlimited right to purchase securities in any foreign country,
developed or developing, if they are listed on a stock exchange, as well as a
limited right to purchase such securities if they are unlisted. Investors should
consider carefully the substantial risks involved in securities of companies and
governments of foreign nations, which are in addition to the usual risks
inherent in domestic investments.
There may be less publicly available information about foreign companies
comparable to the reports and ratings published about companies in the U.S.
Foreign companies are not generally subject to uniform accounting or financial
reporting standards, and auditing practices and requirements may not be
comparable to those applicable to U.S. companies. The Fund, therefore, may
encounter difficulty in obtaining market quotations for purposes of valuing its
portfolio and calculating its Net Asset Value. Foreign markets have
substantially less volume than the NYSE and securities of some foreign companies
are less liquid and more volatile than securities of comparable U.S. companies.
Investments in unlisted foreign securities raise liquidity concerns, and the
Board of the Fund (or TICI under the supervision of the Board) will monitor, on
a continuing basis, the status of the Fund's positions (and any anticipated
positions) in these securities in light of the Fund's restriction against
investments in illiquid securities exceeding 10% of its total net assets.
Commission rates in foreign countries, which are generally fixed rather than
subject to negotiation as in the U.S., are likely to be higher. In many foreign
countries there is less government supervision and regulation of stock
exchanges, brokers, and listed companies than in the U.S.
Investments in companies domiciled in developing countries may be subject to
potentially higher risks than investments in developed countries. These risks
include (1) less social, political and economic stability; (2) the small current
size of the markets for such securities and the currently low or nonexistent
volume of trading, which result in a lack of liquidity and in greater price
volatility; (3) certain national policies which may restrict the Fund's
investment opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests; (4) the absence of developed
legal structures governing private or foreign investment or allowing for
judicial redress for injury to private property; (5) the absence, until recently
in certain Eastern European countries, of a capital market structure or
market-oriented economy; and (6) the possibility that recent favorable economic
developments in Eastern Europe may be slowed or reversed by unanticipated
political or social events in such countries.
In addition, many countries in which the Fund may invest have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some developing countries may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross domestic product, rate of inflation, currency depreciation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Investments in Eastern European countries may involve risks of nationalization,
expropriation and confiscatory taxation. The Communist governments of a number
of Eastern European countries expropriated large amounts of private property in
the past, in many cases without adequate compensation, and there can be no
assurance that such expropriation will not occur in the future. In the event of
such expropriation, the Fund could lose a substantial portion of any investments
it has made in the affected countries. Further, no accounting standards exist in
Eastern European countries. Finally, even though certain Eastern European
currencies may be convertible into U.S. dollars, the conversion rates may be
artificial to the actual market values and may be adverse to Fund shareholders.
Investing in Russian companies involves a high degree of risk and special
considerations not typically associated with investing in the U.S. securities
markets, and should be considered highly speculative. Such risks include: (1)
delays in settling portfolio transactions and risk of loss arising out of
Russia's system of share registration and custody; (2) the risk that it may be
impossible or more difficult than in other countries to obtain and/or enforce a
judgment; (3) pervasiveness of corruption and crime in the Russian economic
system; (4) currency exchange rate volatility and the lack of available currency
hedging instruments; (5) higher rates of inflation (including the risk of social
unrest associated with periods of hyper-inflation); (6) controls on foreign
investment and local practices disfavoring foreign investors and limitations on
repatriation of invested capital, profits and dividends, and on the Fund's
ability to exchange local currencies for U.S. dollars; (7) the risk that the
government of Russia or other executive or legislative bodies may decide not to
continue to support the economic reform programs implemented since the
dissolution of the Soviet Union and could follow radically different political
and/or economic policies to the detriment of investors, including
non-market-oriented policies such as the support of certain industries at the
expense of other sectors or investors, or a return to the centrally planned
economy that existed prior to the dissolution of the Soviet Union; (8) the
financial condition of Russian companies, including large amounts of
inter-company debt which may create a payments crisis on a national scale; (9)
dependency on exports and the corresponding importance of international trade;
(10) the risk that the Russian tax system will not be reformed to prevent
inconsistent, retroactive and/or exorbitant taxation; and (11) possible
difficulty in identifying a purchaser of securities held by the Fund due to the
underdeveloped nature of the securities markets.
There is little historical data on Russian securities markets because they are
relatively new and a substantial proportion of securities transactions in Russia
are privately negotiated outside of stock exchanges. Because of the recent
formation of the securities markets as well as the underdeveloped state of the
banking and telecommunications systems, settlement, clearing and registration of
securities transactions are subject to significant risks. Ownership of shares
(except where shares are held through depositories that meet the requirements of
the 1940 Act) is defined according to entries in the company's share register
and normally evidenced by extracts from the register or by formal share
certificates. However, there is no central registration system for shareholders
and these services are carried out by the companies themselves or by registrars
located throughout Russia. These registrars are not necessarily subject to
effective state supervision and it is possible for the Fund to lose its
registration through fraud, negligence or even mere oversight. While the Fund
will endeavor to ensure that its interest continues to be appropriately recorded
either itself or through a custodian or other agent inspecting the share
register and by obtaining extracts of share registers through regular
confirmations, these extracts have no legal enforceability and it is possible
that subsequent illegal amendment or other fraudulent act may deprive the Fund
of its ownership rights or improperly dilute its interests. In addition, while
applicable Russian regulations impose liability on registrars for losses
resulting from their errors, it may be difficult for the Fund to enforce any
rights it may have against the registrar or issuer of the securities in the
event of loss of share registration. Furthermore, although a Russian public
enterprise with more than 1,000 shareholders is required by law to contract out
the maintenance of its shareholder register to an independent entity that meets
certain criteria, in practice this regulation has not always been strictly
enforced. Because of this lack of independence, management of a company may be
able to exert considerable influence over who can purchase and sell the
company's shares by illegally instructing the registrar to refuse to record
transactions in the share register. This practice may prevent the Fund from
investing in the securities of certain Russian companies deemed suitable by
TICI. Further, this also could cause a delay in the sale of Russian company
securities by the Fund if a potential purchaser is deemed unsuitable, which may
expose the Fund to potential loss on the investment.
The Fund endeavors to buy and sell foreign currencies on as favorable a basis
as practicable. Some price spread in currency exchange (to cover service
charges) may be incurred, particularly when the Fund changes investments from
one country to another or when proceeds of the sale of shares in U.S. dollars
are used for the purchase of securities in foreign countries. Also, some
countries may adopt policies which would prevent the Fund from transferring cash
out of the country or withhold portions of interest and dividends at the source.
There is the possibility of cessation of trading on national exchanges,
expropriation, nationalization or confiscatory taxation, foreign exchange
controls (which may include suspension of the ability to transfer currency from
a given country), default in foreign government securities, political or social
instability, or diplomatic developments that could affect investments in
securities of issuers in those nations.
The Fund may be affected either unfavorably or favorably by fluctuations in the
relative rates of exchange between the currencies of different nations, by
exchange control regulations and by indigenous economic and political
developments. Some countries in which the Fund may invest may also have fixed or
managed currencies that are not free-floating against the U.S. dollar. Further,
certain currencies have experienced a steady devaluation relative to the U.S.
dollar. Any devaluations in the currencies in which the Fund's portfolio
securities are denominated may have a detrimental impact on the Fund. Through
the Fund's flexible policy, TICI endeavors to avoid unfavorable consequences and
to take advantage of favorable developments in particular nations where from
time to time it places the Fund's investments.
The exercise of this flexible policy may include decisions to purchase
securities with substantial risk characteristics and other decisions such as
changing the emphasis on investments from one nation to another and from one
type of security to another. Some of these decisions may later prove profitable
and others may not. No assurance can be given that profits, if any, will exceed
losses.
The directors consider at least annually the likelihood of the imposition by
any foreign government of exchange control restrictions which would affect the
liquidity of the Fund's assets maintained with custodians in foreign countries,
as well as the degree of risk from political acts of foreign governments to
which such assets may be exposed. The directors also consider the degree of risk
involved through the holding of portfolio securities in domestic and foreign
securities depositories (see "Investment Management and Other Services --
Custodian and Transfer Agent"). However, in the absence of willful misfeasance,
bad faith or gross negligence on the part of TICI, any losses resulting from the
holding of the Fund's portfolio securities in foreign countries and/or with
securities depositories will be at the risk of the shareholders. No assurance
can be given that the directors' appraisal of the risks will always be correct
or that such exchange control restrictions or political acts of foreign
governments might not occur.
There are additional risks involved in stock index futures transactions. These
risks relate to the Fund's ability to reduce or eliminate its futures positions,
which will depend upon the liquidity of the secondary markets for such futures.
The Fund intends to purchase or sell futures only on exchanges or boards of
trade where there appears to be an active secondary market, but there is no
assurance that a liquid secondary market will exist for any particular contract
or at any particular time. Use of stock index futures for hedging may involve
risks because of imperfect correlations between movements in the prices of the
stock index futures on the one hand and movements in the prices of the
securities being hedged or of the underlying stock index on the other.
Successful use of stock index futures by the Fund for hedging purposes also
depends upon TICI's ability to predict correctly movements in the direction of
the market, as to which no assurance can be given.
There are several risks associated with transactions in options on securities
indices. For example, there are significant differences between the securities
and options markets that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objectives. A decision
as to whether, when and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events. There can be no
assurance that a liquid market will exist when the Fund seeks to close out an
option position. If the Fund were unable to close out an option that it had
purchased on a securities index, it would have to exercise the option in order
to realize any profit or the option may expire worthless. If trading were
suspended in an option purchased by the Fund, it would not be able to close out
the option. If restrictions on exercise were imposed, the Fund might be unable
to exercise an option it has purchased. Except to the extent that a call option
on an index written by the Fund is covered by an option on the same index
purchased by the Fund, movements in the index may result in a loss to the Fund;
however, such losses may be mitigated by changes in the value of the Fund's
securities during the period the option was outstanding.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions as fundamental policies. These
restrictions may not be changed without the approval of a majority of the
outstanding voting securities of the Fund. Under the 1940 Act, this means the
approval of (i) more than 50% of the outstanding shares of the Fund or (ii) 67%
or more of the shares of the Fund present at a shareholder meeting if more than
50% of the outstanding shares of the Fund are represented at the meeting in
person or by proxy, whichever is less. The Fund MAY NOT:
1. Invest in real estate or mortgages on real estate (although
the Fund may invest in marketable securities secured by real
estate or interests therein or issued by companies or
investment trusts which invest in real estate or interests
therein); invest in interests (other than debentures or equity
stock interests) in oil, gas or other mineral exploration or
development programs; purchase or sell commodity contracts
(except forward contracts and futures contracts as described
in the Fund's Prospectus); or invest in other open-end
investment companies.
2. Purchase or retain securities of any company in which
directors or officers of the Fund or of TICI, individually
owning more than 1/2 of 1% of the securities of such company,
in the aggregate own more than 5% of the securities of such
company.
3. Invest more than 5% of its total assets in the securities of
any one issuer (exclusive of U.S. government securities).
4. Purchase more than 10% of any class of securities of any one
company, including more than 10% of its outstanding voting
securities, or invest in any company for the purpose of
exercising control or management.
5. Act as an underwriter; issue senior securities; purchase on
margin or sell short; write, buy or sell puts, calls,
straddles or spreads (but the Fund may make margin payments in
connection with futures contracts, forward contracts and
options on securities indices and foreign currencies).
6. Loan money, apart from the purchase of a portion of an issue
of publicly distributed bonds, debentures, notes and other
evidences of indebtedness, although the Fund may enter into
repurchase agreements and lend its portfolio securities.
7. Borrow money for any purpose other than redeeming its shares
or purchasing its shares for cancellation, and then only as a
temporary measure up to an amount not exceeding 5% of the
value of its total assets; or pledge, mortgage, or hypothecate
its assets for any purpose other than to secure such
borrowings, and then only up to such extent not exceeding 10%
of the value of its total assets as the Board may by
resolution approve.1 (For the purposes of this investment
restriction, collateral arrangements with respect to margin
for a futures contract or a forward contract are not deemed to
be a pledge of assets.)
8. Invest more than 5% of the value of the Fund's total assets in
securities of issuers which have been in continuous operation
less than three years.
9. Invest more than 5% of the Fund's total assets in warrants,
whether or not listed on the NYSE or AMEX, including no more
than 2% of its total assets which may be invested in warrants
that are not listed on those exchanges. Warrants acquired by
the Fund in units or attached to securities are not included
in this investment restriction. This investment restriction
does not apply to options on securities indices.
10. Invest more than 15% of the Fund's total assets in securities
of foreign issuers that are not listed on a recognized U.S. or
foreign securities exchange, including no more than 10% of its
total assets in restricted securities, securities that are not
readily marketable, repurchase agreements having more than
seven days to maturity, and over-the-counter options purchased
by the Fund. Assets used as cover for over-the-counter options
written by the Fund are considered not readily marketable.
11. Invest more than 25% of the Fund's total assets in a single
industry.
12. Invest in "letter stocks" or securities on which there are
any sales restrictions under a purchase agreement.
13. Participat on a joint or a joint and everal basis in any
trading account in securities. (See "How Does the Fund Buy
Securities for its Portfolio?" as to transactions in the same
securities for the Fund, other clients and/or other mutual
funds within the Franklin Templeton Group of Funds.)
The Fund may also be subject to investment limitations imposed by foreign
jurisdictions in which the Fund sells its shares. If a percentage restriction is
met at the time of investment, a later increase or decrease in the percentage
due to a change in the value of portfolio securities or the amount of assets
will not be considered a violation of any of the foregoing restrictions. Assets
are calculated as described in the Prospectus under the heading "How Do I Buy
Shares?" Nothing in the investment policies or investment restrictions (except
Investment Restrictions 10 and 11) shall be deemed to prohibit the Fund from
purchasing securities pursuant to subscription rights distributed to the Fund by
any issuer of securities held at the time in its portfolio (as long as such
purchase is not contrary to the Fund's status as a diversified investment
company under the 1940 Act).
OFFICERS AND DIRECTORS
The Board has the responsibility for the overall management of the Fund,
including general supervision and review of its investment activities. The
Board, in turn, elects the officers of the Fund who are responsible for
administering the Fund's day-to-day operations. The affiliations of the officers
and Board members and their principal occupations for the past five years are
shown below. Members of the Board who are considered "interested persons" of the
Fund under the 1940 Act are indicated by an asterisk (*).
<TABLE>
<CAPTION>
POSITIONS AND OFFICES WITH THE FUND PRINCIPAL OCCUPATION DURING THE PAST
NAME, ADDRESS AND AGE FIVE YEARS
<S> <C> <C>
HARRIS J. ASHTON Director Chairman of the board, president and
Metro Center chief executive officer of General
1 Station Place Host Corporation (nursery and craft
Stamford, Connecticut centers); director of RBC Holdings
Age 64 (U.S.A.) Inc. (a bank holding
company) and Bar-S Foods; and
director or trustee of 55 of the
investment companies in the
Franklin Templeton Group of Funds.
<PAGE>
NICHOLAS F. BRADY* Director Chairman of Templeton Emerging
The Bullitt House Markets Investment Trust PLC;
102 East Dover Street chairman of Templeton Latin America
Easton, Maryland Investment Trust PLC; chairman of
Age 66 Darby Overseas Investments, Ltd. (an
investment firm)(1994-present); chairman
and director of Templeton Central
and Eastern European Fund; director
of the Amerada Hess Corporation,
Christiana Companies, and the H.J.
Heinz Company; formerly, Secretary
of the United States Department of
the Treasury (1988-1993) and chairman
of the board of Dillon, Read & Co.
Inc. (investment banking) prior to
1988; and director or trustee of 23
of the investment companies in the
Franklin Templeton Group of Funds.
S. JOSEPH FORTUNATO Director Member of the law firm of Pitney,
200 Campus Drive Hardin, Kipp & Szuch; director of
Florham Park, New Jersey General Host Corporation (nursery
Age 64 and craft centers); and director or
trustee of 57 of the investment
companies in the Franklin Templeton
Group of Funds.
JOHN Wm. GALBRAITH Director President of Galbraith Properties,
360 Central Avenue Inc. (personal investment company);
Suite 1300 director of Gulf West Banks, Inc.
St. Petersburg, Florida (bank holding company)
Age 75 (1995-present); formerly, director
of Mercantile Bank (1991-1995), vice
chairman of Templeton, Galbraith &
Hansberger Ltd. (1986-1992), and
chairman of Templeton Funds
Management, Inc. (1974-1991); and
director or trustee of 22 of the
investment companies in the Franklin
Templeton Group of Funds.
ANDREW H. HINES, JR. Director Consultant for the Triangle
150 2nd Avenue N. Consulting Group; chairman and
St. Petersburg, Florida director of Precise Power
Age 73 Corporation; executive-in-residence
of Eckerd College (1991-present);
director of Checkers Drive-In
Restaurants, Inc.; formerly, chairman
of the board and chief executive
officer of Florida Progress Corporation
(1982-1990) and director of various
of its subsidiaries; and director or
trustee of 24 of the investment
companies in the Franklin Templeton
Group of Funds.
CHARLES B. JOHNSON* Chairman of the Board and Vice President, chief executive officer,
777 Mariners Island Blvd. President and director of Franklin Resources,
San Mateo, California Inc.; chairman of the board and
Age 63 director of Franklin Advisers, Inc.
and Franklin Templeton Distributors,
Inc.; director of General Host
Corporation (nursery and craft
centers) and Franklin Templeton
Investor Services, Inc.; and
officer and/or director, trustee
or managing general partner, as
the case may be, of most other
subsidiaries of Franklin Resources,
Inc. and 56 of the investment
companies in the Franklin Templeton
Group of Funds.
<PAGE>
CHARLES E. JOHNSON Director and Vice President Senior vice president and director
500 East Broward Blvd. of Franklin Resources, Inc.; senior
Fort Lauderdale, Florida vice president of Franklin Templeton
Age 40 Distributors, Inc.; president and
chief executive officer of Templeton
Worldwide, Inc.; president and
director of Franklin Institutional
Services Corporation; chairman of
the board of Templeton Investment
Counsel, Inc.; officer and/or
director, as the case may be, of
other subsidiaries of Franklin
Resources, Inc.; and officer
and/or director or trustee of
39 of the investment companies
in the Franklin Templeton Group
of Funds.
<PAGE>
BETTY P. KRAHMER Director Director or trustee of various civic
2201 Kentmere Parkway associations; formerly, economic
Wilmington, Delaware analyst, U.S. government; and
Age 67 director or trustee of 23 of the
investment companies in the Franklin
Templeton Group of Funds.
GORDON S. MACKLIN Director Chairman of White River Corporation
8212 Burning Tree Road (information services); director of
Bethesda, Maryland Fund America Enterprises Holdings,
Age 68 Inc., MCI Communications Corporation,
Fusion Systems Corporation, Infovest
Corporation, MedImmune, Inc., Source
One Mortgage Services Corporation,
and Shoppers Express, Inc. (on-line
shopping service); formerly, chairman
of Hambrecht and Quist Group, director
of H&Q Healthcare Investors and
Lockheed Martin Corporation, and
president of the National Association
of Securities Dealers, Inc.; and
director or trustee of 52 of the
investment companies in the Franklin
Templeton Group of Funds.
FRED R. MILLSAPS Director Manager of personal investments
2665 N.E. 37th Drive (1978-present); director of various
Fort Lauderdale, Florida business and nonprofit
Age 67 organizations; formerly, chairman
and chief executive officer of
Landmark Banking Corporation (1969-1978),
financial vice president of Florida
Power and Light (1965-1969), and
vice president of The Federal Reserve
Bank of Atlanta (1958-1965); and
director or trustee of 24 of the
investment companies in the Franklin
Templeton Group of Funds.
GARY P. MOTYL President Security analyst and portfolio
500 East Broward Blvd. manager with Templeton Investment
Fort Lauderdale, Florida Counsel, Inc. since 1981; executive
Age 44 vice president and director of
Templeton Investment Counsel, Inc.;
director of Templeton Global Investors,
Inc.; formerly research analyst and
portfolio manager with Landmark First
National Bank(1979-1981) and security
analyst with Standard & Poor's
Corporation (1974-1979); and officer
of 2 of the investment companies in
the Franklin Templeton Group of
Funds.
RUPERT H. JOHNSON, JR. Vice President Executive vice president and
777 Mariners Island Blvd. director of Franklin Resources, Inc.
San Mateo, California and Franklin Templeton Distributors,
Age 56 Inc.; president and director of
Franklin Advisers, Inc.; director
of Franklin Templeton Investor
Services, Inc.; and officer and/or
director, trustee or managing
general partner, as the case may
be, of most other subsidiaries
of Franklin Resources, Inc. and
60 of the investment companies
in the Franklin Templeton Group
of Funds.
HARMON E. BURNS Vice President Executive vice president, secretary
777 Mariners Island Blvd. and director of Franklin Resources,
San Mateo, California Inc.; executive vice president and
Age 51 director of Franklin Templeton
Distributors, Inc.; executive vice
president of Franklin Advisers, Inc.;
officer and/or director, as the case
may be, of other subsidiaries of
Franklin Resources, Inc.; and officer
and/or director or trustee of 60 of
the investment companies in the
Franklin Templeton Group of Funds.
MARK G. HOLOWESKO Vice PresVicetPresident President and director of Templeton
Lyford Cay Global Advisors Limited; chief
Nassau, Bahamas investment officer of global equity
Age 36 research for Templeton Worldwide,
Inc.; president or vice president
of the Templeton Funds; formerly,
investment administrator with Roy
West Trust Corporation (Bahamas)
Limited (1984-1985); and officer
of 23 of the investment companies
in the Franklin Templeton Group
of Funds.
DEBORAH R. GATZEK Vice President Senior vice president and general
777 Mariners Island Blvd. counsel of Franklin Resources, Inc.;
San Mateo, California senior vice president of Franklin
Age 47 Templeton Distributors, Inc.; vice
president of Franklin Advisers, Inc.;
and officer of 60 of the investment
companies in the Franklin Templeton
Group of Funds.
MARTIN L. FLANAGAN Vice President Senior vice president, treasurer and
777 Mariners Island Blvd. chief financial officer of Franklin
San Mateo, California Resources, Inc.; director and
Age 36 executive vice president of
Templeton Investment Counsel, Inc.;
a member of the International Society
of Financial Analysts and the American
Institute of Certified Public Accountants;
formerly, with Arthur Andersen &
Company (1982-1983); officer and/or
director, as the case may be, of other
subsidiaries of Franklin Resources, Inc.;
and officer and/or director or trustee
of 60 of the investment companies in
the Franklin Templeton Group of Funds.
<PAGE>
JOHN R. KAY Vice President Vice president and treasurer of
500 East Broward Blvd. Templeton Worldwide, Inc.; assistant
Fort Lauderdale, Florida vice president of Franklin Templeton
Age 56 Distributors, Inc.; formerly, vice
president and controller of the
Keystone Group, Inc.; and officer of
27 of the investment companies in
the Franklin Templeton Group of
Funds.
ELIZABETH M. KNOBLOCK Vice President - Compliance General counsel, secretary and a
500 East Broward Blvd. senior vice president of Templeton
Fort Lauderdale, Florida Investment Counsel, Inc.; formerly,
Age 41 vice president and associate general
counsel of Kidder Peabody & Co. Inc.
(1989-1990), assistant general
counsel of Gruntal & Co., Inc.
(1988), vice president and associate
general counsel of Shearson Lehman
Hutton Inc. (1988), vice president
and assistant general counsel of
E.F. Hutton & Co. Inc. (1986-1988),
and special counsel of the division
of investment management of the
Securities and Exchange Commission
(1984-1986); and officer of 23 of
the investment companies in the
Franklin Templeton Group of Funds.
<PAGE>
JAMES R. BAIO Treasurer Certified public accountant; senior
500 East Broward Blvd. vice president of Templeton
Fort Lauderdale, Florida Worldwide, Inc. and Templeton Funds
Age 42 Trust Company; formerly, senior tax
manager with Ernst & Young (certified
public accountants)(1977-1989); and
treasurer of 23 of the investment
companies in the Franklin Templeton
Group of Funds.
BARBARA J. GREEN Secretary Senior vice president of Templeton
500 East Broward Blvd. Worldwide, Inc. and an officer of
Fort Lauderdale, Florida other subsidiaries of Templeton
Age 49 Worldwide, Inc.; formerly, deputy
director of the Division of
Investment Management, executive
assistant and senior advisor to
the chairman, counsellor to the
chairman, special counsel and
attorney fellow, U.S. Securities
and Exchange Commission (1986-1995),
attorney, Rogers & Wells, and
judicial clerk, U.S. District Court
(District of Massachusetts); and
secretary of 23 of the investment
companies in the Franklin Templeton
Group of Funds.
</TABLE>
The table above shows the officers and Board members who are affiliated with
Distributors and TICI. Nonaffiliated members of the Board and Mr. Brady are
currently paid an annual retainer and/or fees for attendance at Board and
committee meetings. Currently, the Fund pays the nonaffiliated Board members and
Mr. Brady an annual retainer of $1,000, a fee of $100 per Board meeting, and its
portion of a flat fee of $2,000 for each audit committee meeting and/or
nominating and compensation committee meeting attended. As shown above, some of
the nonaffiliated Board members also serve as directors, trustees or managing
general partners of other investment companies in the Franklin Templeton Group
of Funds. They may receive fees from these funds for their services. The
following table provides the total fees paid to nonaffiliated Board members and
Mr. Brady by the Fund and by other funds in the Franklin Templeton Group of
Funds.
<TABLE>
<CAPTION>
TOTAL FEES RECEIVED FROM THE NUMBER OF BOARDS IN THE
FRANKLIN TEMPLETON GROUP OF FRANKLIN TEMPLETON GROUP OF
TOTAL FEES RECEIVED FROM FUNDS(B) FUNDS ON WHICH EACH SERVES(C)
NAME THE FUND(A)
<S> <C> <C> <C>
Harris J. Ashton $15,700 $339,592 55
Nicholas F. Brady 15,700 119,275 23
F. Bruce Clarke(D) 15,843 69,500 0
Hasso-G von Diergardt-Naglo(E) 15,700 66,375 0
S. Joseph Fortunato 15,700 356,412 57
John Wm. Galbraith 13,943 102,475 22
Andrew H. Hines, Jr. 15,910 130,525 24
Betty P. Krahmer 15,700 119,275 23
Gordon S. Macklin 15,767 331,542 52
Fred R. Millsaps 15,843 130,525 24
</TABLE>
A For the fiscal year ended August 31, 1996.
B For the calendar year ended December 31, 1996.
C We base the number of boards on the number of registered investment companies
in the Franklin Templeton Group of Funds. This number does not include the total
number of series or funds within each investment company for which the Board
members are responsible. The Franklin Templeton Group of Funds urrently
includes 61 registered investment companies, with approximately 171 U.S. based
funds or series.
D Mr. Clarke resigned as a director on October 20, 1996.
E Mr. Von Diergardt resigned as a director on December 31, 1996.
Nonaffiliated members of the Board and Mr. Brady are reimbursed for expenses
incurred in connection with attending board meetings, paid pro rata by each fund
in the Franklin Templeton Group of Funds for which they serve as director,
trustee or managing general partner. No officer or Board member received any
other compensation, including pension or retirement benefits, directly or
indirectly from the Fund or other funds in the Franklin Templeton Group of
Funds. Certain officers or Board members who are shareholders of Resources may
be deemed to receive indirect remuneration by virtue of their participation, if
any, in the fees paid to its subsidiaries.
As of December 1, 1996, the officers and Board members did not own of record or
beneficially any shares of the Fund. Many of the Board members own shares in
other funds in the Franklin Templeton Group of Funds. Charles B. Johnson and
Rupert H. Johnson, Jr. are brothers and the father and uncle, respectively, of
Charles E. Johnson.
INVESTMENT MANAGEMENT AND OTHER SERVICES
INVESTMENT MANAGER AND SERVICES PROVIDED. The Fund's investment manager is TICI.
TICI provides investment research and portfolio management services, including
the selection of securities for the Fund to buy, hold or sell and the selection
of brokers through whom the Fund's portfolio transactions are executed. TICI's
activities are subject to the review and supervision of the Board to whom TICI
renders periodic reports of the Fund's investment activities. TICI is covered by
fidelity insurance on its officers, directors and employees for the protection
of the Fund.
TICI and its affiliates act as investment manager to numerous other investment
companies and accounts. TICI may give advice and take action with respect to any
of the other funds it manages, or for its own account, that may differ from
action taken by TICI on behalf of the Fund. Similarly, with respect to the Fund,
TICI is not obligated to recommend, buy or sell, or to refrain from
recommending, buying or selling any security that TICI and access persons, as
defined by the 1940 Act, may buy or sell for its or their own account or for the
accounts of any other fund. TICI is not obligated to refrain from investing in
securities held by the Fund or other funds that it manages. Of course, any
transactions for the accounts of TICI and other access persons will be made in
compliance with the Fund's Code of Ethics. Please see "Miscellaneous Information
- - Summary of Code of Ethics."
MANAGEMENT FEES. Under its management agreement, the Fund pays TICI a manage-
ment fee equal to a annual rate of 0.75%. The fee is computed at the close of
business on the last business day of each month.
For the fiscal years ended August 31, 1996, 1995 and 1994, management fees,
before any advance waiver, totaled $656,146, $378,859, and $208,441,
respectively Under an agreement by TICI to limit its fees, the Fund paid
management fees totaling $512,356, $208,331 and $46,951, respectively.
MANAGEMENT AGREEMENT. The management agreement is in effect until December 31,
1997. It may continue in effect for successive annual periods if its continuance
is specifically approved at least annually by a vote of the Board or by a vote
of the holders of a majority of the Fund's outstanding voting securities, and in
either event by a majority vote of the Board members who are not parties to the
management agreement or interested persons of any such party (other than as
members of the Board), cast in person at a meeting called for that purpose. The
management agreement may be terminated without penalty at any time by the Board
or by a vote of the holders of a majority of the Fund's outstanding voting
securities, or by TICI on 60 days' written notice, and will automatically
terminate in the event of its assignment, as defined in the 1940 Act.
ADMINISTRATIVE SERVICES. FT Services (and, prior to October 1, 1996, Templeton
Global Investors, Inc.) provides certain administrative services and facilities
for the Fund. These include preparing and maintaining books, records, and tax
and financial reports, and monitoring compliance with regulatory requirements.
FT Services is a wholly owned subsidiary of Resources.
Under its administration agreement, the Fund pays FT Services a monthly
administration fee equal to an annual rate of 0.15% of the Fund's average daily
net assets up to $200 million, 0.135% of average daily net assets over $200
million up to $700 million, 0.10% of average daily net assets over $700 million
up to $1.2 billion, and 0.075% of average daily net assets over $1.2 billion.
During the fiscal years ended August 31, 1996, 1995, and 1994, administration
fees totaling $131,231, $75,773 and $41,690, respectively, were paid to
Templeton Global Investors, Inc.
SHAREHOLDER SERVICING AGENT. Investor Services, a wholly owned subsidiary of
Resources, is the Fund's shareholder servicing agent and acts as the Fund's
transfer agent and dividend-paying agent. Investor Services is compensated on
the basis of a fixed fee per account.
CUSTODIAN. The Chase Manhattan Bank, at its principal office at MetroTech
Center, Brooklyn, New York, 11245, and at the offices of its branches and
agencies throughout the world, acts as custodian of the Fund's assets. The
custodian does not participate in decisions relating to the purchase and sale of
portfolio securities.
AUDITORS. McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York, 10017,
are the Fund's independent auditors. During the fiscal year ended August 31,
1996, their auditing services consisted of rendering an opinion on the financial
statements of the Fund included in the Fund's Annual Report to Shareholders for
the fiscal year ended August 31, 1996, and review of the Fund's filings with the
SEC and the IRS.
HOW DOES THE FUND BUY SECURITIES FOR ITS PORTFOLIO?
The selection of brokers and dealers to execute transactions in the Fund's
portfolio is made by TICI in accordance with criteria set forth in the
management agreement and any directions that the Board may give.
When placing a portfolio transaction, TICI seeks to obtain prompt execution of
orders at the most favorable net price. When portfolio transactions are done on
a securities exchange, the amount of commission paid by the Fund is negotiated
between TICI and the broker executing the transaction. The determination and
evaluation of the reasonableness of the brokerage commissions paid in connection
with portfolio transactions are based to a large degree on the professional
opinions of the persons responsible for the placement and review of the
transactions. These opinions are based on the experience of these individuals in
the securities industry and information available to them about the level of
commissions being paid by other institutional investors of comparable size. TICI
will ordinarily place orders to buy and sell over-the-counter securities on a
principal rather than agency basis with a principal market maker unless, in the
opinion of TICI, a better price and execution can otherwise be obtained.
Purchases of portfolio securities from underwriters will include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
will include a spread between the bid and ask price.
The amount of commission is not the only factor TICI considers in the selection
of a broker to execute a trade. If TICI believes it is in the Fund's best
interest, it may place portfolio transactions with brokers who provide the types
of services described below, even if it means the Fund will pay a higher
commission than if no weight were given to the broker's furnishing of these
services. This will be done only if, in the opinion of TICI, the amount of any
additional commission is reasonable in relation to the value of the services.
Higher commissions will be paid only when the brokerage and research services
received are bona fide and produce a direct benefit to the Fund or assist TICI
in carrying out its responsibilities to the Fund, or when it is otherwise in the
best interest of the Fund to do so, whether or not such services may also be
useful to TICI in advising other clients.
When TICI believes several brokers are equally able to provide the best net
price and execution, it may decide to execute transactions through brokers who
provide quotations and other services to the Fund, in an amount of total
brokerage as may reasonably be required in light of these services.
Specifically, these services may include providing the quotations necessary to
determine the Fund's Net Asset Value, as well as research, statistical and other
data.
It is not possible to place a dollar value on the special executions or on the
research services received by TICI from dealers effecting transactions in
portfolio securities. The allocation of transactions in order to obtain
additional research services permits TICI to supplement its own research and
analysis activities and to receive the views and information of individuals and
research staff of other securities firms. As long as it is lawful and
appropriate to do so, TICI and its affiliates may use this research and data in
their investment advisory capacities with other clients. If the Fund's officers
are satisfied that the best execution is obtained, consistent with internal
policies the sale of Fund shares, as well as shares of other funds in the
Franklin Templeton Group of Funds, may also be considered a factor in the
selection of broker-dealers to execute the Fund's portfolio transactions.
Because Distributors is a member of the NASD, it may sometimes receive certain
fees when the Fund tenders portfolio securities pursuant to a tender-offer
solicitation. As a means of recapturing brokerage for the benefit of the Fund,
any portfolio securities tendered by the Fund will be tendered through
Distributors if it is legally permissible to do so. In turn, the next management
fee payable to TICI will be reduced by the amount of any fees received by
Distributors in cash, less any costs and expenses incurred in connection with
the tender.
If purchases or sales of securities of the Fund and one or more other
investment companies or clients supervised by TICI are considered at or about
the same time, transactions in these securities will be allocated among the
several investment companies and clients in a manner deemed equitable to all by
TICI, taking into account the respective sizes of the funds and the amount of
securities to be purchased or sold. In some cases this procedure could have a
detrimental effect on the price or volume of the security so far as the Fund is
concerned. In other cases it is possible that the ability to participate in
volume transactions and to negotiate lower brokerage commissions will be
beneficial to the Fund.
Sale or purchase of securities, without payment of brokerage commissions, fees
(except customary transfer fees) or other remuneration in connection therewith,
may be effected between any of these funds, or between funds and private
clients, under procedures adopted pursuant to Rule 17a-7 under the 1940 Act.
During the fiscal years ended August 31, 1996, 1995 and 1994, the Fund paid
brokerage commissions totaling $102,000, $124,082 and $62,000, respectively
As of August 31, 1996, the Fund did not own securities of its regular
broker-dealers.
HOW DO I BUY, SELL AND EXCHANGE SHARES?
ADDITIONAL INFORMATION ON BUYING SHARES
The Fund has entered into an agreement with Distributors, under which the Fund
will issue shares at Net Asset Value to TFTC as custodian for the unit
investment trust entitled Templeton Capital Accumulation Plans. (the "Plan" or
"Plans"). The Fund will not offer its shares publicly except through the Plans.
Except in cases where planholders have liquidated their Plans and received Fund
shares in distribution as a result of the liquidation privilege under a Plan, it
is not generally contemplated that any person, other than TFTC, as custodian,
will directly hold any shares of the Fund. The terms of the offering of the
Plans are contained in the prospectus for the Plans.
Other funds advised by TICI, including those having capital growth as an
objective, are currently being offered with a sales charge that, when compared
to the early years of a Plan, would be less than the sales and creation charges
for the Plans. Investors wishing information on any of these funds may contact
Distributors at the address shown on the cover.
Reinvestment Date. Shares acquired through the reinvestment of dividends will be
purchased at the Net Asset Value determined on the business day following the
dividend record date (sometimes known as the "ex-dividend date"). The processing
date for the reinvestment of dividends may vary and does not affect the amount
or value of the shares acquired.
ADDITIONAL INFORMATION ON EXCHANGING SHARES
The Prospectus describes the manner in which the Fund's shares may be exchanged
by investors who hold shares directly. See "MAY I EXCHANGE SHARES FOR SHARES OF
ANOTHER FUND?" Backup withholding and information reporting may apply.
Information regarding the possible tax consequences of an exchange is included
in the tax section in this SAI and in the Prospectus.
The proceeds from the sale of shares of an investment company are generally not
available until the fifth business day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange until
that fifth business day. The sale of Fund shares to complete an exchange will be
effected at Net Asset Value at the close of business on the day the request for
exchange is received in proper form. Please see "May I Exchange Shares for
Shares of Another Fund?" in the Prospectus.
ADDITIONAL INFORMATION ON SELLING SHARES
The Prospectus describes the manner win which the Fund's shares may be redeemed
by investors who hold shares directly. See "HOW DO I SELL SHARES?"
SYSTEMATIC WITHDRAWAL PLAN. There are no service charges for establishing or
maintaining a systematic withdrawal plan. Once your plan is established, any
distributions paid by the Fund will be automatically reinvested in your account.
Payments under the plan will be made from the redemption of an equivalent amount
of shares in your account, generally on the 25th day of the month in which a
payment is scheduled. If the 25th falls on a weekend or holiday, we will process
the redemption on the prior business day.
Redeeming shares through a systematic withdrawal plan may reduce or exhaust the
shares in your account if payments exceed distributions received from the Fund.
This is especially likely to occur if there is a market decline. If a withdrawal
amount exceeds the value of your account, your account will be closed and the
remaining balance in your account will be sent to you. Because the amount
withdrawn under the plan may be more than your actual yield or income, part of
the payment may be a return of your investment.
The Fund may discontinue a systematic withdrawal plan by notifying you in
writing and will automatically discontinue a systematic withdrawal plan if all
shares in your account are withdrawn or if the Fund receives notification of the
shareholder's death or incapacity.
THROUGH YOUR SECURITIES DEALER. If you sell shares through your Securities
Dealer, it is your dealer's responsibility to transmit the order to the Fund in
a timely fashion. Any loss to you resulting from your dealer's failure to do so
must be settled between you and your Securities Dealer.
REDEMPTIONS IN KIND. The Fund has committed itself to pay in cash (by check) all
requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the value
of the Fund's net assets at the beginning of the 90-day period. This commitment
is irrevocable without the prior approval of the SEC. In the case of redemption
requests in excess of these amounts, the Board reserves the right to make
payments in whole or in part in securities or other assets of the Fund, in case
of an emergency, or if the payment of such a redemption in cash would be
detrimental to the existing shareholders of the Fund. In these circumstances,
the securities distributed would be valued at the price used to compute the
Fund's net assets and you may incur brokerage fees in converting the securities
to cash. The Fund does not intend to redeem illiquid securities in kind. If this
happens, however, you may not be able to recover your investment in a timely
manner.
GENERAL INFORMATION
If dividend checks are returned to the Fund marked "unable to forward" by the
postal service, we will consider this a request by you to change your dividend
option to reinvest all distributions. The proceeds will be reinvested in
additional shares at Net Asset Value until we receive new instructions.
If mail is returned as undeliverable or we are unable to locate you or verify
your current mailing address, we may deduct the costs of our efforts to find you
from your account. These costs may include a percentage of the account when a
search company charges a percentage fee in exchange for its location services.
All checks, drafts, wires and other payment mediums used to buy or sell shares
of the Fund must be denominated in U.S. dollars. We may, in our sole discretion,
either (a) reject any order to buy or sell shares denominated in any other
currency or (b) honor the transaction or make adjustments to your account for
the transaction as of a date and with a foreign currency exchange factor
determined by the drawee bank.
Certain shareholder servicing agents may be authorized to accept your
transaction request.
HOW ARE FUND SHARES VALUED?
We calculate the Net Asset Value per share as of the scheduled close of the
NYSE, generally 4:00 p.m. Eastern time, each day that the NYSE is open for
trading. As of the date of this SAI, the Fund is informed that the NYSE observes
the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
For the purpose of determining the aggregate net assets of the Fund, cash and
receivables are valued at their realizable amounts. Interest is recorded as
accrued and dividends are recorded on the ex-dividend date. Portfolio securities
listed on a securities exchange or on the NASDAQ National Market System for
which market quotations are readily available are valued at the last quoted sale
price of the day or, if there is no such reported sale, within the range of the
most recent quoted bid and ask prices. Over-the-counter portfolio securities are
valued within the range of the most recent quoted bid and ask prices. Portfolio
securities that are traded both in the over-the-counter market and on a stock
exchange are valued according to the broadest and most representative market as
determined by TICI.
Portfolio securities underlying actively traded call options are valued at their
market price as determined above. The current market value of any option held by
the Fund is its last sale price on the relevant exchange before the time when
assets are valued. Lacking any sales that day or if the last sale price is
outside the bid and ask prices, options are valued within the range of the
current closing bid and ask prices if the valuation is believed to fairly
reflect the contract's market value.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
of the NYSE on each day that the NYSE is open. Trading in European or Far
Eastern securities generally, or in a particular country or countries, may not
take place on every NYSE business day. Furthermore, trading takes place in
various foreign markets on days that are not business days for the NYSE and on
which the Fund's Net Asset Value is not calculated. Thus, the calculation of the
Fund's Net Asset Value does not take place contemporaneously with the
determination of the prices of many of the portfolio securities used in the
calculation and, if events materially affecting the values of these foreign
securities occur, the securities will be valued at fair value as determined by
management and approved in good faith by the Board.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times before
the scheduled close of the NYSE. The value of these securities used in computing
the Net Asset Value of the Fund's shares is determined as of such times.
Occasionally, events affecting the values of these securities may occur between
the times at which they are determined and the scheduled close of the NYSE that
will not be reflected in the computation of the Fund's Net Asset Value. If
events materially affecting the values of these securities occur during this
period, the securities will be valued at their fair value as determined in good
faith by the Board.
Other securities for which market quotations are readily available are valued at
the current market price, which may be obtained from a pricing service, based on
a variety of factors including recent trades, institutional size trading in
similar types of securities (considering yield, risk and maturity) and/or
developments related to specific issues. Securities and other assets for which
market prices are not readily available are valued at fair value as determined
following procedures approved by the Board. With the approval of the Board, the
Fund may utilize a pricing service, bank or Securities Dealer to perform any of
the above described functions.
ADDITIONAL INFORMATION ON DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
You may receive two types of distributions from the Fund:
1. INCOME DIVIDENDS. The Fund receives income generally in the form of
dividends, interest and other income derived from its investments. This income,
less the expenses incurred in the Fund's operations, is its net investment
income from which income dividends may be distributed. Thus, the amount of
dividends paid per share may vary with each distribution.
2. CAPITAL GAIN DISTRIBUTIONS. The Fund may derive capital gains or losses in
connection with sales or other dispositions of its portfolio securities.
Distributions by the Fund derived from net short-term and net long-term capital
gains (after taking into account any capital loss carryforward or post October
loss deferral) may generally be made once a year in December to reflect any net
short-term and net long-term capital gains realized by the Fund as of October 31
of the current fiscal year and any undistributed capital gains from the prior
fiscal year. The Fund may make more than one distribution derived from net
short-term and net long-term capital gains in any year or adjust the timing of
these distributions for operational or other reasons.
TAXES
As stated in the Prospectus, the Fund has elected and qualified to be treated as
a regulated investment company under Subchapter M of the Code. The status of the
Fund as a regulated investment company does not involve government supervision
of management or of its investment practices or policies. As a regulated
investment company, the Fund generally will be relieved of liability for U.S.
federal income tax on that portion of its net investment income and net realized
capital gains which it distributes to its shareholders. Amounts not distributed
on a timely basis in accordance with a calendar year distribution requirement
are subject to a nondeductible 4% excise tax. To prevent application of the
excise tax, the Fund intends to make distributions in accordance with the
calendar year distribution requirement.
The Board reserves the right not to maintain the qualification of the Fund as a
regulated investment company if it determines this course of action to be
beneficial to shareholders. In that case, the Fund will be subject to federal
and possibly state corporate taxes on its taxable income and gains, and
distributions to shareholders will be taxable to the extent of the Fund's
available earnings and profits.
For federal tax purposes, planholders will be regarded as shareholders of the
Fund. Frequently, state and local taxes follow federal tax laws; accordingly,
planholders in such states and localities will likewise be taxable under state
and local tax laws as if they were shareholders of the Fund. However, since
state and local tax laws may vary, planholders should consult their tax advisers
about questions relating to their tax treatment as participants in the Plans.
Dividends representing net investment income and net short-term capital gains
(the excess of net short-term capital gains over net long-term capital losses)
are taxable to shareholders as ordinary income. Distributions of net investment
income may be eligible for the corporate dividends-received deduction to the
extent attributable to the Fund's qualifying dividend income. However, the
alternative minimum tax applicable to corporations may reduce the benefit of the
dividends-received deduction. Distributions from net capital gains (the excess
of net long-term capital gains over net short-term capital losses) designated by
the Fund as capital gain dividends are taxable to shareholders as long-term
capital gains, regardless of the length of time the Fund's shares have been held
by a shareholder, and are not eligible for the dividends-received deduction.
Generally, dividends and distributions are taxable to shareholders, whether
received in cash or reinvested in shares of the Fund. Any distributions that are
not from the Fund's investment company taxable income or net capital gain may be
characterized as a return of capital to shareholders or, in some cases, as
capital gain. Shareholders will be notified annually as to the federal tax
status of dividends and distributions they receive and any tax withheld thereon.
Income received by the Fund from sources within foreign countries may be subject
to withholding and other income or similar taxes imposed by such countries. If,
at the close of any fiscal year, more than 50% of the value of the Fund's total
assets are invested in securities of foreign corporations (as to which no
assurance can be given), the Fund may elect pursuant to section 853 of the Code
to pass through to its shareholders the foreign income and similar taxes paid by
the Fund in order to enable the shareholders to take a credit (or deduction) for
foreign income taxes paid by the Fund. In that case, a shareholder must include
in his gross income on his federal income tax return both dividends received by
him from the Fund and also the amount which the Fund advises him is his pro rata
portion of foreign income taxes paid with respect to, or withheld from,
dividends on other income of the Fund from its foreign investments. The
shareholder may then subtract from his federal income tax the amount of such
taxes withheld, or else treat such foreign taxes as a deduction from his gross
income; however, as in the case of investors receiving income directly from
foreign sources, the above-described tax credit or tax deduction is subject to
certain limitations.
Certain options, futures, and forward contracts in which the Fund may invest are
"section 1256 contracts." Gains or losses on section 1256 contracts generally
are considered 60% long-term and 40% short-term capital gains or losses
("60/40"); however, foreign currency gains or losses (as discussed below)
arising from certain section 1256 contracts may be treated as ordinary income or
loss. Also, section 1256 contracts held by the Fund at the end of each taxable
year (and on certain other dates as prescribed under the Code) are
"marked-to-market" with the result that unrealized gains or losses are treated
as though they were realized.
Generally, the hedging transactions undertaken by the Fund may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by the Fund. In addition, losses
realized by a Fund on positions that are part of the straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to the Fund of hedging transactions are not
entirely clear. The hedging transactions may increase the amount of short-term
capital gain realized by a Fund which is taxed as ordinary income when
distributed to shareholders.
The Fund may make one or more of the elections available under the Code which
are applicable to straddles. If the Fund makes any of the elections, the amount,
character, and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of gains or
losses, defer losses and/or accelerate the recognition of gains or losses from
the affected straddle positions, the amount which must be distributed to
shareholders and which will be taxed to shareholders as ordinary income or
long-term capital gain may be increased or decreased as compared to a fund that
did not engage in such hedging transactions.
Requirements relating to the Fund's tax status as a regulated investment company
may limit the extent to which the Fund will be able to engage in transactions in
options, forward contracts and futures contracts.
Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time the Fund accrues income or other receivables or
accrues expenses or other liabilities denominated in a foreign currency and the
time the Fund actually collects such receivables or pays such liabilities
generally are treated as ordinary income or ordinary loss. Similarly, on
disposition of debt securities denominated in a foreign currency and on
disposition of certain futures, forward contracts and options, gains or losses
attributable to fluctuations in the value of foreign currency between the date
of acquisition of the security or contract and the date of disposition also are
treated as ordinary gain or loss. These gains and losses, referred to under the
Code as "section 988" gains and losses, may increase or decrease the amount of
the Fund's net investment income to be distributed to its shareholders as
ordinary income. For example, fluctuations in exchange rates may increase the
amount of income that a Fund must distribute in order to qualify for treatment
as a regulated investment company and to prevent application of an excise tax on
undistributed income. Alternatively, fluctuations in exchange rates may decrease
or eliminate income available for distribution. If foreign exchange losses
exceed other net investment income during a taxable year, the Fund would not be
able to make ordinary dividend distributions, or distributions made before the
losses were realized would be recharacterized as a return of capital to
shareholders for federal income tax purposes, rather than as an ordinary
dividend, reducing each shareholder's basis in his Fund shares.
The Fund may invest in stocks of foreign companies that are classified under the
Code as passive foreign investment companies ("PFICs"). In general, a foreign
company is classified as a PFIC if at least one-half of its assets constitute
investment-type assets or 75% or more of its gross income is investment-type
income. Under the PFIC rules, an "excess distribution" received with respect to
PFIC stock is treated as having been realized ratably over the period during
which the Fund held the PFIC stock. A Fund itself will be subject to tax on the
portion, if any, of the excess distribution that is allocated to the Fund's
holding period in prior taxable years (and an interest factor will be added to
the tax, as if the tax had actually been payable in such prior taxable years)
even though the Fund distributes the corresponding income to shareholders.
Excess distributions include any gain from the sale of PFIC stock as well as
certain distributions from a PFIC. All excess distributions are taxable as
ordinary income. The Fund may be able to elect alternative tax treatment with
respect to PFIC shares. Under an election that currently may be available, the
Fund generally would be required to include in its gross income its share of the
earnings of a PFIC on a current basis, regardless of whether any distributions
are received from the PFIC. If this election is made, the special rules,
discussed above, relating to the taxation of excess distributions, would not
apply. In addition, another election may be available that would involve marking
to market the Fund's PFIC shares at the end of each taxable year (and on certain
other dates prescribed in the Code), with the result that unrealized gains are
treated as though they were realized. If this election were made, tax at the
fund level under the PFIC rules would generally be eliminated, but the Fund
could, in limited circumstances, incur nondeductible interest charges. The
Fund's intention to qualify annually as a regulated investment company may limit
its elections with respect to PFIC shares.
Because the application of the PFIC rules may affect, among other things, the
character of gains, the amount of gain or loss and the timing of the recognition
of income with respect to PFIC shares, as well as subject the Fund itself to tax
on certain income from PFIC shares, the amount that must be distributed to
shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased substantially as compared
to a fund that did not invest in PFIC shares.
Certain of the debt securities acquired by the Fund may be treated as debt
securities that were originally issued at a discount. Original issue discount
can generally be defined as the difference between the price at which a security
was issued and its stated redemption price at maturity. Although no cash income
is actually received by the Fund, original issue discount on a taxable debt
security earned in a given year generally is treated for federal income tax
purposes as interest and, therefore, such income would be subject to the
distribution requirements of the Code.
Some of the debt securities may be purchased by the Fund at a discount which
exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for federal income tax purposes.
The gain realized on the disposition of any taxable debt security having market
discount will be treated as ordinary income to the extent it does not exceed the
accrued market discount on such debt security. Generally, market discount
accrues on a daily basis for each day the debt security is held by the Fund at a
constant rate over the time remaining to the debt security's maturity or, at the
election of the Fund, at a constant yield to maturity which takes into account
the semiannual compounding of interest.
Upon the sale or exchange of his shares, a shareholder generally will realize a
taxable gain or loss depending upon the basis in the shares. Such gain or loss
will be treated as capital gain or loss if the shares are capital assets in the
shareholder's hands, and will be long-term if the shareholder's holding period
for the shares is more than one year and generally otherwise will be short-term.
Any loss realized on a sale or exchange will be disallowed to the extent that
the shares disposed of are replaced (including replacement through the
reinvesting of dividends and capital gain distributions in the Fund) within a
period of 61 days beginning 30 days before and ending 30 days after the
disposition of the shares. In such a case, the basis of the shares acquired will
be adjusted to reflect the disallowed loss. Any loss realized by a shareholder
on the sale of Fund shares held by the shareholder for six months or less will
be treated for federal income tax purposes as a long-term capital loss to the
extent of any distributions of long-term capital gains designated by the Fund as
capital gain dividends received by the shareholder with respect to such shares.
In some cases, shareholders will not be permitted to take sales charges into
account for purposes of determining the amount of gain or loss realized on the
disposition of their shares. This prohibition generally applies where (1) the
shareholder incurs a sales charge in acquiring the stock of a regulated
investment company, (2) the stock is disposed of before the 91st day after the
date on which it was acquired, and (3) the shareholder subsequently acquires
shares of the same or another regulated investment company and the otherwise
applicable sales charge is reduced under a "reinvestment right" received upon
the initial purchase of shares of stock. Sales charges affected by this rule are
treated as if they were incurred with respect to the stock acquired under the
reinvestment right. This provision may be applied to successive acquisitions of
shares of stock.
The Fund generally will be required to withhold federal income tax at a rate of
31% ("backup withholding") from dividends paid, capital gain distributions, and
redemption proceeds to shareholders if (1) the shareholder fails to furnish the
Fund with the shareholder's correct taxpayer identification number or social
security number and to make such certification as the Fund may require, (2) the
IRS notifies the shareholders, the custodian, or the Fund that the shareholder
has failed to report properly certain interest and dividend income to the IRS
and to respond to notices to that effect, or (3) when required to do so, the
shareholder fails to certify that he is not subject to backup withholding. Any
amounts withheld may be credited against the shareholder's federal income tax
liability.
Ordinary dividends and capital gain distributions declared in October, November
or December with a record date in such month and paid during the following
January will be treated as having been paid by the Fund and received by
shareholders on December 31 of the calendar year in which declared, rather than
the calendar year in which the dividends are actually received.
As indicated, distributions also may be subject to state, local, and other
taxes. U.S. tax rules applicable to foreign investors may differ significantly
from those outlined above. Shareholders are advised to consult their tax
advisers for details with respect to the particular tax consequences to them of
an investment in the Fund.
THE FUND'S UNDERWRITER
Pursuant to an underwriting agreement, Distributors acts as principal
underwriter for shares of the Fund. The underwriting agreement will continue in
effect for successive annual periods if its continuance is specifically approved
at least annually by a vote of the Board or by a vote of the holders of a
majority of the Fund's outstanding voting securities, and in either event by a
majority vote of the Board members who are not parties to the underwriting
agreement or interested persons of any such party (other than as members of the
Board), cast in person at a meeting called for that purpose. The underwriting
agreement terminates automatically in the event of its assignment and may be
terminated by either party on 90 days' written notice.
Distributors pays the expenses of the distribution of Fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. The Fund pays the expenses of preparing and
printing amendments to its registration statements and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.
In connection with the offering of the Fund's shares, aggregate underwriting
commissions for the fiscal years ended August 31, 1996, 1995 and 1994, were
$5,361,206, $6,055,050 and $3,540,303, respectively. After allowances to
dealers, Distributors retained $610,774, $575,554 and $336,780 in net
underwriting discounts, commissions and compensation received in connection with
redemptions or repurchases of shares, for the respective years. Except as noted,
Distributors received no other compensation from the Fund for acting as
underwriter.
HOW DOES THE FUND MEASURE PERFORMANCE?
Performance quotations are subject to SEC rules. These rules require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the Fund be accompanied by
certain standardized performance information computed as required by the SEC.
Average annual total return quotations used by the Fund are based on the
standardized methods of computing performance mandated by the SEC. An
explanation of these and other methods used by the Fund to compute or express
performance follows. Regardless of the method used, past performance does not
guarantee future results, and is an indication of the return to shareholders
only for the limited historical period used.
TOTAL RETURN
AVERAGE ANNUAL TOTAL RETURN. Average annual total return is determined by
finding the average annual rates of return over one-, five- and ten-year
periods, or fractional portion thereof, that would equate an initial
hypothetical $1,000 investment to its ending redeemable value. The Fund's
average annual total return does not include the effect of paying the sales and
creation charges associated with the purchase of shares of the Fund through the
Plans; of course, average annual total return would be lower if the sales and
creation charges were taken into account. In addition, the calculation assumes
that income dividends and capital gain distributions are reinvested at Net Asset
Value. The quotation assumes the account was completely redeemed at the end of
each one-, five- and ten-year period and the deduction of all applicable charges
and fees.
The Fund's average annual total return for the one- and five-year periods ended
August 31, 1996, was 16.50% and 14.92%, and for the period March 1, 1991
(commencement of operations) to August 31, 1996, was 14.24%.
These figures were calculated according to the SEC formula:
P(1+T)n = ERV
where:
P =a hypothetical initial payment of $1,000
T =average annual total return
n =number of years
ERV =ending redeemable value of a hypothetical $1,000
payment made at the beginning of the one-, five- or
ten-year periods at the end of the one-, five- or ten-
year periods (or fractional portion thereof)
CUMULATIVE TOTAL RETURN. Like average annual total return, cumulative total
return does not include the effect of paying the sales and creation charges
associated with the purchase of shares of the Fund through the Plans; of course,
cumulative total return would be lower if the sales and creation charges were
taken into account. In addition, the calculation assumes that income dividends
and capital gain distributions are reinvested at Net Asset Value. Cumulative
total return, however, will be based on the Fund's actual return for a specified
period rather than on its average return over one-, five- and ten-year periods,
or fractional portion thereof. The Fund's cumulative total return for the one-
and five-year periods ended August 31, 1996, was 16.50% and 100.48%, and for the
period March 1, 1991 (commencement of operations) to August 31, 1996, was
108.07%.
VOLATILITY
Occasionally statistics may be used to show the Fund's volatility or risk.
Measures of volatility or risk are generally used to compare the Fund's Net
Asset Value or performance to a market index. One measure of volatility is beta.
Beta is the volatility of a fund relative to the total market, as represented by
an index considered representative of the types of securities in which the fund
invests. A beta of more than 1.00 indicates volatility greater than the market
and a beta of less than 1.00 indicates volatility less than the market. Another
measure of volatility or risk is standard deviation. Standard deviation is used
to measure variability of Net Asset Value or total return around an average over
a specified period of time. The idea is that greater volatility means greater
risk undertaken in achieving performance.
OTHER PERFORMANCE QUOTATIONS
The Fund may also quote the performance of shares without a sales charge. Sales
literature and advertising may quote a current distribution rate, yield,
cumulative total return, average annual total return and other measures of
performance as described elsewhere in this SAI with the substitution of Net
Asset Value for the public Offering Price.
Sales literature referring to the use of the Fund as a potential investment for
Individual Retirement Accounts (IRAs), Business Retirement Plans, and other
tax-advantaged retirement plans may quote a total return based upon compounding
of dividends on which it is presumed no federal income tax applies.
The Fund may include in its advertising or sales material information relating
to investment objectives and performance results of funds belonging to the
Franklin Templeton Group of Funds. Resources is the parent company of the
advisors and underwriter of both the Franklin Group of Funds and Templeton Group
of Funds.
COMPARISONS
To help you better evaluate how an investment in the Fund may satisfy your
investment objective, advertisements and other materials about the Fund may
discuss certain measures of Fund performance as reported by various financial
publications. Materials may also compare performance (as calculated above) to
performance as reported by other investments, indices, and averages. These
comparisons may include, but are not limited to, the following examples:
(i) unmanaged indices so that you may compare the Fund's results with those of a
group of unmanaged securities widely regarded by investors as representative of
the securities market in general; (ii) other groups of mutual funds tracked by
Lipper Analytical Services, Inc., a widely used independent research firm that
ranks mutual funds by overall performance, investment objectives and assets, or
tracked by other services, companies, publications, or persons who rank mutual
funds on overall performance or other criteria; and (iii) the Consumer Price
Index (measure for inflation) to assess the real rate of return from an
investment in the Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs and expenses.
From time to time, the Fund and TICI may also refer to the following
information:
a) TICI's and its affiliates' market share of international equities
managed in mutual funds prepared or published by Strategic Insight or
a similar statistical organization.
b) The performance of U.S. equity and debt markets relative to foreign
markets prepared or published by Morgan Stanley Capital International
or a similar financial organization.
c) The capitalization of U.S. and foreign stock markets as prepared or
published by the International Finance Corporation, Morgan Stanley
Capital International or a similar financial organization.
d) The geographic and industry distribution of the Fund's portfolio and
the Fund's top ten holdings.
e) The gross national product and populations, including age
characteristics, literacy rates, foreign investment improvements due to
a liberalization of securities laws and a reduction of foreign exchange
controls, and improving communication technology, of various countries
as published by various statistical organizations.
f) To assist investors in understanding the different returns and risk
characteristics of various investments, the Fund may show historical
returns of various investments and published indices (E.G., Ibbotson
Associates, Inc. Charts and Morgan Stanley EAFE - Index).
g) The major industries located in various jurisdictions as published by
the Morgan Stanley Index.
h) Rankings by DALBAR Surveys, Inc. with respect to mutual fund
shareholder services.
i) Allegorical stories illustrating the importance of persistent
long-term investing.
j) The Fund's portfolio turnover rate and its ranking relative to
industry standards as published by Lipper Analytical Services, Inc. or
Morningstar, Inc.
k) A description of the Templeton organization's investment management
philosophy and approach, including its worldwide search for undervalued
or "bargain" securities and its diversification by industry, nation and
type of stocks or other securities.
l) The number of shareholders in the Fund or the aggregate number of
shareholders of the open-end investment companies in the Franklin
Templeton Group of Funds or the dollar amount of fund and private
account assets under management.
m) Comparison of the characteristics of various emerging markets,
including population, financial and economic conditions.
n) Quotations from the Templeton organization's founder, Sir John
Templeton,* advocating the virtues of diversification and long-term
investing, including the following:
(infinity) "Never follow the crowd. Superior performance is
possible only if you invest differently from the
crowd."
(infinity) "Diversify by company, by industry and by country."
(infinity) "Always maintain a long-term perspective."
(infinity) "Invest for maximum total real return."
(infinity) "Invest - don't trade or speculate."
(infinity) "Remain flexible and open-minded about types of
investment."
(infinity) "Buy low."
(infinity) "When buying stocks, search for bargains among
quality stocks."
(infinity) "Buy value, not market trends or the economic
outlook."
(infinity) "Diversify. In stocks and bonds, as in much else,
there is safety in numbers."
(infinity) "Do your homework or hire wise experts to help you."
(infinity) "Aggressively monitor your investments."
(infinity) "Don't panic."
(infinity) "Learn from your mistakes."
(infinity) "Outperforming the market is a difficult task."
(infinity) "An investor who has all the answers doesn't even
understand all the questions."
(infinity) "There's no free lunch."
(infinity) "And now the last principle: Do not be fearful or
negative too often."
From time to time, advertisements or information for the Fund may include a
discussion of certain attributes or benefits to be derived from an investment in
the Fund. The advertisements or information may include symbols, headlines, or
other material that highlights or summarizes the information discussed in more
detail in the communication.
Advertisements or information may also compare the Fund's performance to the
return on CDs or other investments. You should be aware, however, that an
investment in the Fund involves the risk of fluctuation of principal value, a
risk generally not present in an investment in a CD issued by a bank. For
example, as the general level of interest rates rise, the value of the Fund's
fixed-income investments, if any, as well as the value of its shares that are
based upon the value of such portfolio investments, can be expected to decrease.
Conversely, when interest rates decrease, the value of the Fund's shares can be
expected to increase. CDs are frequently insured by an agency of the U.S.
government. An investment in the Fund is not insured by any federal, state or
private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the Fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not be
identical to the formula used by the Fund to calculate its figures. In addition,
there can be no assurance that the Fund will continue its performance as
compared to these other averages.
MISCELLANEOUS INFORMATION
The Fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and
other long-term goals. The Franklin College Costs Planner may help you in
determining how much money must be invested on a monthly basis in order to have
a projected amount available in the future to fund a child's college education.
(Projected college cost estimates are based upon current costs published by the
College Board.) The Franklin Retirement Planning Guide leads you through the
steps to start a retirement savings program. Of course, an investment in the
Fund cannot guarantee that these goals will be met.
The Fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin, one of the
oldest mutual fund organizations, has managed mutual funds for over 48 years and
now services more than 2.5 million shareholder accounts. In 1992, Franklin, a
leader in managing fixed-income mutual funds and an innovator in creating
domestic equity funds, joined forces with Templeton Worldwide, Inc., a pioneer
in international investing. Together, the Franklin Templeton Group has over $152
billion in assets under management for more than 4.2 million U.S. based mutual
fund shareholder and other accounts. The Franklin Templeton Group of Funds
offers 121 U.S. based open-end investment companies to the public. The Fund may
identify itself by its NASDAQ symbol or CUSIP number.
The Dalbar Surveys, Inc. broker-dealer survey has ranked Franklin number one in
service quality for five of the past eight years.
From time to time, the number of Fund shares held in the "street name" accounts
of various Securities Dealers for the benefit of their clients or in centralized
securities depositories may exceed 5% of the total shares outstanding. To the
best knowledge of the Fund, no other person holds beneficially or of record more
than 5% of the Fund's outstanding shares.
In the event of disputes involving multiple claims of ownership or authority to
control your account, the Fund has the right (but has no obligation) to: (a)
freeze the account and require the written agreement of all persons deemed by
the Fund to have a potential property interest in the account, before executing
instructions regarding the account; (b) interplead disputed funds or accounts
with a court of competent jurisdiction; or (c) surrender ownership of all or a
portion of the account to the IRS in response to a Notice of Levy.
SUMMARY OF CODE OF ETHICS. Employees of Resources or its subsidiaries who are
access persons under the 1940 Act are permitted to engage in personal securities
transactions subject to the following general restrictions and procedures: (i)
the trade must receive advance clearance from a compliance officer and must be
completed within 24 hours after clearance; (ii) copies of all brokerage
confirmations must be sent to a compliance officer and, within 10 days after the
end of each calendar quarter, a report of all securities transactions must be
provided to the compliance officer; and (iii) access persons involved in
preparing and making investment decisions must, in addition to (i) and (ii)
above, file annual reports of their securities holdings each January and inform
the compliance officer (or other designated personnel) if they own a security
that is being considered for a fund or other client transaction or if they are
recommending a security in which they have an ownership interest for purchase or
sale by a fund or other client.
FINANCIAL STATEMENTS
The audited financial statements contained in the Annual Report to Shareholders
of the Fund, for the fiscal year ended August 31, 1996, including the auditors'
report, are incorporated herein by reference.
USEFUL TERMS AND DEFINITIONS
1940 ACT - Investment Company Act of 1940, as amended
BOARD - The Board of Directors of the Fund
CD - Certificate of deposit
CFTC - Commodity Futures Trading Commission
CLASS I AND CLASS II - Certain funds in the Franklin Templeton Funds offer two
classes of shares, designated "Class I" and "Class II." The two classes have
proportionate interests in the same portfolio of investment securities. They
differ, however, primarily in their sales charge structures and Rule 12b-1
plans. Shares of the Fund are considered Class I shares for redemption, exchange
and other purposes.
CODE - Internal Revenue Code of 1986, as amended
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter
FRANKLIN FUNDS - The mutual funds in the Franklin Group of FundsAE except
Franklin Valuemark Funds and the
Franklin Government Securities Trust
FRANKLIN TEMPLETON FUNDS - The Franklin Funds and the Templeton Funds
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies in
the Franklin Group of FundsAE and the Templeton Group of Funds
FT SERVICES - Franklin Templeton Services, Inc., the Fund's administrator
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
MOODY'S - Moody's Investors Service, Inc.
NASD - National Association of Securities Dealers, Inc.
NET ASSET VALUE (NAV) - The value of a mutual fund i determined by deducting
the 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.
NYSE - New York Stock Exchange
OFFERING PRICE - The public offering price is the Net Asset Value per share.
Shares of the Fund may be initially acquired through an investment in Templeton
Capital Accumulation Plans. The charges for the first year of a Plan can amount
to 50% of the amounts paid during that year under the Plan.
PROSPECTUS - The prospectus for the Fund dated January 1, 1997, as may be
amended from time to time
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
S&P - Standard & Poor's Corporation
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution which, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
TEMPLETON FUNDS - The U.S. registered mutual funds in the Templeton Group of
Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund
TFTC - Templeton Funds Trust Company, the custodian for the Plans as described
in the Plan prospectus
TICI - Templeton Investment Counsel, Inc., the Fund's investmen manager, is
located at Broward Financial Centre, Fort Lauderdale, FL 33394-3091.
U.S. - United States
WE/OUR/US - Unless a different meaning is indicated by the context, these terms
refer to the Fund and/or Investor Services, Distributors, or other wholly owned
subsidiaries of Resources.
TLCAP STMT 01/97
- --------
1. As an operating policy approved by the Board, the Fund will not pledge,
mortgage or hypothecate its assets to the extent that at any time the
percentage of pledged assets plus the sales commission will exceed 10%
of the Offering Price of the shares of the Fund.
* Sir John Templeton sold the Templeton organization to Resources in
October, 1992 and resigned from the Board on April 16, 1995. He is no
longer involved with the investment management process.
PAGE
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS:
Incorporated by reference from the 1996 Annual
Reports:
Independent Auditors' Report
Investment Portfolios as of August 31, 1996
Statements of Assets and Liabilities as of
August 31, 1996
Statements of Operations for the year ended
August 31, 1996
Statements of Changes in Net Assets for the years
ended August 31, 1996 and 1995
Notes to Financial Statements
(B) EXHIBITS
(1) Articles of Incorporation*
(2) By-laws (as amended and restated October 19, 1996)
(3) Not Applicable
(4) Specimen of certificate of Common Stock **
(5) Form of Investment Management Agreement*
(6) Distribution Agreement*
(7) Not Applicable
(8) Custody Agreement*
(9) (A) Fund Administration Agreement
(B) Form of Transfer Agent Agreement*
(10) Opinion and consent of counsel (filed with Rule
24f-2 Notice)
(11) Consent of Independent Public Accountants
(12) Not Applicable
(13) Initial capital agreement **
(14) Not Applicable
(15) Not Applicable
(16) Schedule showing computation of performance
quotations provided in response to Item 22*
(17) Assistant Secretary's Certificate pursuant to Rule
483(b)*
(27) Financial Data Schedule
* Previously filed with Post-Effective Amendment No. 7 on December 29, 1995.
** Previously filed with Pre-Effective Amendment No. 2 on February 28, 1991.
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 26. NUMBER OF RECORD HOLDERS
Shares of common stock, par value $0.01 per Share: 22,841
record holders as of November 30, 1996
ITEM 27. INDEMNIFICATION
Article 5.2 of the Registrant's By-Laws, filed as Exhibit 2,
the Investment Management Agreement filed as Exhibit 5 and the
Distribution Agreement filed as Exhibit 6 which was previously filed
with Post-Effective Amendment No. 7 on December 29, 1995.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and
controlling persons of the Registrant by the Registrant pursuant to the
By-Laws or otherwise, the Registrant is aware that in the opinion of
the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Act and, therefore, is unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid
by directors, officers or controlling persons of the Registrant in
connection with the successful defense of any act, suit or proceeding)
is asserted by such directors, officers or controlling person in
connection with the shares being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issues.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The business and other connections of Registrant's investment
manager, Templeton Investment Counsel, Inc., are described in Parts A
and B.
For information relating to the investment manager's officers
and directors, reference is made to Form ADV filed under the Investment
Advisers Act of 1940 by Templeton Investment Counsel, Inc.
ITEM 29. PRINCIPAL UNDERWRITERS
(a)Franklin Templeton Distributors, Inc. also acts as
principal underwriter of shares of:
Franklin Templeton Japan Fund
Templeton American Trust, Inc.
Templeton Developing Markets Trust
Templeton Funds, Inc.
Templeton Global Investment Trust
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund, Inc.
Templeton Global Real Estate Fund
Templeton Growth Fund, Inc.
Templeton Income Trust
Templeton Institutional Funds, Inc.
Templeton Variable Products Series Fund
Franklin Asset Allocation Fund
Franklin California Tax Free Income Fund, Inc.
Franklin California Tax Free Trust
Franklin Custodian Funds, Inc.
Franklin Equity Fund
Franklin Federal Money Fund
Franklin Federal Tax-Free Income Fund
Franklin Gold Fund
Franklin High Income Trust
Franklin Investors Securities Trust
Franklin Managed Trust
Franklin Money Fund
Franklin Municipal Securities Trust
Franklin New York Tax-Free Income Fund
Franklin New York Tax-Free Trust
Franklin Premier Return Fund
Franklin Real Estate Securities Fund
Franklin Strategic Mortgage Portfolio
Franklin Strategic Series
Franklin Tax-Advantaged High Yield Securities Fund
Franklin Tax-Advantaged International Bond Fund
Franklin Tax-Advantaged U.S. Government Securities
Fund
Franklin Tax Exempt Money Fund
Franklin Tax-Free Trust
Franklin Templeton International Trust
Franklin Templeton Money Fund
Franklin Templeton Global Trust
Franklin Value Investors Trust
Institutional Fiduciary Trust
(b) The directors and officers of FTD are identified below.
Except as otherwise indicated, the address of each director
and officer is 777 Mariners Island Blvd., San Mateo, CA 94404:
<TABLE>
<CAPTION>
POSITIONS AND OFFICES WITH POSITIONS AND OFFICES WITH REGISTRANT
NAME UNDERWRITER
<S> <C> <C>
Charles B. Johnson Chairman of the Board and Director Chairman, Vice President and Director
Gregory E. Johnson President None
Rupert H. Johnson, Jr. Executive Vice President and Director Vice President
Harmon E. Burns Executive Vice President and Director Vice President
Edward V. McVey Senior Vice President None
Kenneth V. Domingues Senior Vice President None
William J. Lippman Senior Vice President None
Richard C. Stoker Senior Vice President None
Charles E. Johnson Senior Vice President Vice President
500 East Broward Blvd.
Ft. Lauderdale, FL 33394
Deborah R. Gatzek Senior Vice President and Asst. Vice President
Secretary
Daniel T. O'Lear Senior Vice President None
Peter Jones Senior Vice President None
700 Central Avenue
St. Petersburg, FL 33701
James K. Blinn Vice President None
Richard O. Conboy Vice President None
James A. Escobedo Vice President None
Loretta Fry Vice President None
Bert W. Feuss Vice President None
Robert N. Geppner Asst. Vice President None
Mike Hackett Vice President None
Philip J. Kearns Vice President None
Ken Leder Vice President None
Jack Lemein Vice President None
John R. McGee Vice President None
Harry G. Mumford Vice President None
Vivian J. Palmieri Vice President None
Alison Hawksley Vice President None
Sarah Stypa Vice President None
Francie Arnone Vice President None
John R. Kay Asst. Vice President Vice President
500 East Broward Blvd.
Ft. Lauderdale, FL 33394
Andrea Dover Asst. Vice President None
Laura Komar Asst. Vice President None
Virginia Marans Asst. Vice President None
Bernadette Marino Howard Asst. Vice President None
Susan Thompson Asst. Vice President None
Kenneth A. Lewis Treasurer None
Karen DeBellis Asst. Treasurer Asst. Treasurer
700 Central Avenue
St. Petersburg, FL 33701
Kent P. Strazza Vice President None
Leslie M. Kratter Secretary None
Philip A. Scatena Asst. Treasurer None
</TABLE>
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Originals of all accounts, books and other documents required
to be maintained by Registrant pursuant to Section 31 (a) of the
Investment Company Act of 1940 and rules promulgated thereunder are
maintained at the offices of Franklin Templeton Services, Inc., 500
East Broward Blvd., Fort Lauderdale, Florida 33394.
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS
(a) Not Applicable.
(b) Not Applicable.
(c) Registrant undertakes to furnish to each person
to whom a Prospectus is provided a copy of such Fund's latest
Annual Report, upon request and without charge.
(d) Registrant undertakes to call a meeting of the
shareholders, if requested to do so by the holders of at least
10% of the Registrant's outstanding shares, for the purpose of
voting upon the quetion of removal of a director or directors,
and will assist communications among shareholders as set forth
within Section 16(c) of the 1940 Act.
PAGE
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies that it meets all
the requirements for effectiveness of the Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment
to its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of St. Petersburg, Florida on this 31th
day of December, 1996.
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
(Registrant)
By:
Gary P. Motyl*
President
*By:/s/JOHN K. CARTER
John K. Carter
attorney-in-fact**
Pursuant to the requirements of the Securities Act of 1933,
this Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
- -------------------------
Gary P. Motyl* President (Chief Executive Officer) December 31, 1996
- -------------------------
Betty P. Krahmer* Director December 31, 1996
- -------------------------
Fred R. Millsaps* Director December 31, 1996
- -------------------------
John Wm. Galbraith* Director December 31, 1996
- -------------------------
Charles E. Johnson* Director December 31, 1996
- -------------------------
Harris J. Ashton* Director December 31, 1996
- -------------------------
S. Joseph Fortunato* Director December 31, 1996
- -------------------------
Andrew H. Hines, Jr.* Director December 31, 1996
- -------------------------
Gordon S. Macklin* Director December 31, 1996
- -------------------------
Nicholas F. Brady* Director December 31, 1996
- -------------------------
James R. Baio* Treasurer (Chief Financial and December 31, 1996
Accounting Officer)
</TABLE>
*By:/s/JOHN K. CARTER
John K. Carter
attorney-in-fact**
- -------------------
** Powers of Attorney are contained in Post-Effective Amendment No. 3 to
this Registration Statement filed on October 31, 1992, Post-Effective
Amendment No. 4 to this Registration Statement filed on November 2, 1993,
Post-Effective Amendment No. 5 to this Registration Statement filed on
December 23, 1993, and filed herewith.
PAGE
POWER OF ATTORNEY
The undersigned officers and Directors of TEMPLETON CAPITAL
ACCUMULATOR FUND, INC. (the "Registrant") hereby appoint Allan S. Mostoff,
Jeffrey L. Steele, William J. Kotapish, Deborah R. Gatzek, Barbara J. Green,
Larry L. Greene, and John K. Carter (with full power to each of them to act
alone) his attorney-in-fact and agent, in all capacities, to execute, and to
file any of the documents referre to below relating to Post-Effective
Amendments to the Registrant's registration statement on Form N-1A under the
Investment Company Act of 1940, as amended, and under the Securities Act of 1933
covering the sale of shares by the Registrant under prospectuses becoming
effective after this date, including any amendment or amendments increasing or
decreasing the amount of securities for which registration is being sought, with
all exhibits and any and all documents required to be filed with respect thereto
with any 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 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 officers and Directors hereby execute this
Power of Attorney as of this 12th day of December, 1996.
<TABLE>
<CAPTION>
<S> <C>
/s/HARRIS J. ASHTON /s/CHARLES B. JOHNSON
Harris J. Ashton, Director Charles E. Johnson, Director
/s/NICHOLAS F. BRADY /s/BETTY P. KRAHMER
Nicholas F. Brady, Director Betty P. Krahmer, Director
/s/S. JOSEPH FORTUNATO /s/GORDON S.MACKLIN
S. Joseph Fortunato, Director Gordon S. Macklin, Director
/s/JOHN WM. GALBRATIH /s/FRED R.MILLSAPS
John Wm. Galbraith, Director Fred R. Millsaps, Director
/s/ANDREW H. HINES, JR. /s/HASSO-G VON DIERGARDT-NAGLO
Andrew H. Hines, Jr., Director Hasso-G Von Diergardt-Naglo, Director
/s/CHARLES B. JOHNSON /s/GARY P. MOTYL
Charles B. Johnson, Director Gary P. Motyl, President
/s/JAMES R. BAIO
James R. Baio, Treasurer
</TABLE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS FILED WITH
POST-EFFECTIVE AMENDMENT NO. 8 TO
REGISTRATION STATEMENT ON
FORM N-1A
TEMPLETON CAPITAL ACCUMULATOR FUNDS, INC.
PAGE
EXHIBIT LIST
EXHIBIT NUMBER NAME OF EXHIBIT
( 2) By-Laws
( 9)(A) Fund Administration Agreement
(11) Consent of Independent Public Accountants
(27) Financial Data Schedules
PAGE
BY-LAWS
-of-
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
(As amended and restated October 19, 1996)
ARTICLE I
NAME OF COMPANY, LOCATION OF OFFICES AND SEAL.
Section 1. Name. The name of the Company is Templeton
Capital Accumulator Fund, Inc.
Section 2. Principal Offices. The principal office of the
Company in the State of Maryland shall be located in Baltimore, Maryland. The
Company may, in addition, establish and maintain such other offices and
places of business within or outside the State of Maryland as the Board of
Directors may from time to time determine.
Section 3. Seal. The corporate seal of the Company shall be
circular in form and shall bear the name of the Company, the year of its
incorporation and the words "Corporate Seal, Maryland." The form of the seal
shall be subject to alteration by the Board of Directors and the seal may be
used by causing it or a facsimile to be impressed or affixed or printed or
otherwise reproduced. Any officer or Director of the Company shall have
authority to affix the corporate seal of the Corporation to any document
requiring the same.
ARTICLE II
STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the Stockholders
shall be held at such place within the United States, whether within or outside
the State of Maryland as the Board of Directors shall determine, which shall be
stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
Section 2. Annual Meetings. The Company shall not be required
to hold an annual meeting of Stockholders in any year in which the election of
Directors is not required to be acted upon under the Investment Company Act of
1940. Otherwise, annual meetings of Stockholders for the election of Directors
and the transaction of such other business as may properly come before the
meeting shall be held at such time and place within the United States as the
Board of Directors shall select.
Section 3. Special Meetings. Special meetings of the
Stockholders for any purpose or purposes, unless otherwise prescribed by statute
or by the Articles of Incorporation, may be called by resolution of the Board of
Directors or by the President, and shall be called by the President or Secretary
at the request in writing of a majority of the Board of Directors or at the
request in writing by Stockholders owning 10% in amount of the entire capital
stock of the Company issued and outstanding at the time of the call, provided
that (1) such request shall state the purpose of such meeting and the matters
proposed to be acted on, and (2) the Stockholders requesting such meeting shall
have paid to the Company the reasonably estimated cost of preparing and mailing
the notice thereof, which the Secretary shall determine and specify to such
Stockholders. No special meeting shall be called upon the request of
Stockholders to consider any matter which is substantially the same as a matter
voted upon at any special meeting of the Stockholders held during the preceding
12 months, unless requested by the holders of a majority of all shares entitled
to be voted at such meeting.
Section 4. Notice. Written notice of every meeting of
Stockholders, stating the purpose or purposes for which the meeting is called,
the time when and the place where it is to be held, shall be served, either
personally or by mail, not less than ten nor more than ninety days before the
meeting, upon each Stockholder as of the record date fixed for the meeting and
who is entitled to vote at such meeting. If mailed (1) such notice shall be
directed to a Stockholder at his address as it shall appear on the books of the
Company (unless he shall have filed with the Transfer Agent of the Company a
written request that notices intended for him be mailed to some other address,
in which case it shall be mailed to the address designated in such request) and
(2) such notice shall be deemed to have been given as of the date when it is
deposited in the United States mail with first class postage thereon prepaid.
Irregularities in the notice or in the giving thereof, as well as the accidental
omission to give notice of any meeting to, or the non-receipt of any such notice
by, any of the Stockholders shall not invalidate any action otherwise properly
taken by or at any such meeting. Notice of any Stockholders' meeting need not be
given to any Stockholder who shall sign a written waiver of such notice either
before or after the time of such meeting, which waiver shall be filed with the
records of such meeting, or to any Stockholder who is present at such meeting in
person or by proxy.
Section 5. Quorum, Adjournment of Meetings. The presence at
any Stockholders' meeting, in person or by proxy, of Stockholders entitled to
cast a majority of the votes entitled to be cast shall be necessary and
sufficient to constitute a quorum for the transaction of business. The holders
of a majority of shares entitled to vote at the meeting and present in person or
by proxy, whether or not sufficient to constitute a quorum, or, any officer
present entitled to preside or act as Secretary of such meeting may adjourn the
meeting without determining the date of the new meeting or from time to time
without further notice to a date not more than 120 days after the original
record date. Any business that might have been transacted at the meeting
originally called may be transacted at such adjourned meeting at which a quorum
is present.
Section 6. Vote of the Meeting. When a quorum is present or
represented at any meeting, a majority of the votes cast shall decide any
question brought before such meeting, unless the question is one upon which by
express provisions of applicable statutes, of the Articles of Incorporation, or
of these By-Laws, a different vote is required, in which case such express
provisions shall govern and control the decision of such question.
Section 7. Voting Rights of Stockholders. Each Stockholder of
record having the right to vote shall be entitled at every meeting of the
Stockholders of the Company to one vote for each share of stock having voting
power standing in the name of such Stockholder on the books of the Company on
the record date fixed in accordance with Section 5 of Article VII of these
By-Laws, with pro-rata voting rights for any fractional shares, and such votes
may be cast either in person or by written proxy.
Section 8. Proxies. Every proxy must be executed in writing by
the Stockholder or by his duly authorized attorney-in-fact. No proxy shall be
valid after the expiration of eleven months from the date of its execution
unless it shall have specified therein its duration. Every proxy shall be
revocable at the pleasure of the person executing it or of his personal
representatives or assigns. Proxies shall be delivered prior to the meeting to
the Secretary of the Company or to the person acting as Secretary of the meeting
before being voted. A proxy with respect to stock held in the name of two or
more persons shall be valid if executed by one of them unless at or prior to
exercise of such proxy the Company receives a specific written notice to the
contrary from any one of them. A proxy purporting to be executed by or on behalf
of a Stockholder shall be deemed valid unless challenged at or prior to its
exercise.
Section 9. Stock Ledger and List of Stockholders. It shall be
the duty of the Secretary or Assistant Secretary of the Company to cause an
original or duplicate stock ledger to be maintained at the office of the
Company's transfer agent.
Section 10. Action without Meeting. Any action to be taken by
Stockholders may be taken without a meeting if (1) all Stockholders entitled to
vote on the matter consent to the action in writing, (2) all Stockholders
entitled to notice of the meeting but not entitled to vote at it sign a written
waiver of any right to dissent and (3) said consents and waivers are filed with
the records of the meetings of Stockholders.
Such consent shall be treated for all purposes as a vote of the meeting.
ARTICLE III
DIRECTORS
Section 1. Board of 3 to 15 Directors. The Board of Directors
shall consist of not less than three (3) nor more than fifteen (15) Directors,
all of whom shall be of full age and at least 40% of whom shall be persons who
are not interested persons of the Company as defined in the Investment Company
Act of 1940, provided that prior to the issuance of stock by the Company, the
Board of Directors may consist of less than three (3) Directors, subject to the
provisions of Maryland law. Directors shall be elected at the annual meeting of
the Stockholders, if held, and each Director shall be elected to serve for one
year and until his successor shall be elected and shall qualify or until his
earlier death, resignation or removal. Directors need not be Stockholders. The
Directors shall have power from time to time, and at any time when the
Stockholders as such are not assembled in a meeting, regular or special, to
increase or decrease their own number. If the number of Directors be increased,
the additional Directors may be elected by a majority of the Directors in office
at the time of the increase. The additional Directors shall thereafter be
elected or reelected by the Stockholders at their next annual meeting or at an
earlier special meeting called for that purpose.
The number of Directors may also be increased or decreased by
vote of the Stockholders at any regular or special meeting called for that
purpose. A Director may be removed with or without cause, by a majority vote of
the shares then entitled to vote in an election of Directors. A meeting for the
purpose of considering the removal of a person serving as Director shall be
called by the Directors if requested in writing to do so by holders of not less
than 10% of the outstanding shares of the Company. If the Stockholders vote an
increase in the Board they shall by plurality vote elect Directors to the newly
created places as well as fill any then existing vacancies on the Board.
The Board of Directors may elect, but shall not be required to
elect, a Chairman of the Board who must be Director.
Section 2. Vacancies. If the office of any Director or
Directors becomes vacant for any reason (other than an increase in the number of
places on the Board as provided in Section 1 of Article III), the Directors in
office, although less than a quorum, shall continue to act and may, by a
majority vote, choose a successor or successors, who shall hold office until the
next meeting of Stockholders, subject to compliance with applicable provisions
of the 1940 Act. Any vacancy may be filled by the Stockholders at any meeting
thereof.
Section 3. Majority to be Elected by Stockholders. If at any
time, less than a majority of the Directors in office shall consist of Directors
elected by Stockholder, a meeting of the Stockholders shall be called within 60
days for the purpose of electing Directors to fill any vacancies in the Board of
Directors (unless the Securities and Exchange Commission or any court of
competent jurisdiction shall by order extend such period).
Section 4. Removal. At any meeting of Stockholders duly called
and at which a quorum is present, the Stockholders may, by the affirmative vote
of the holders of a majority of the votes entitled to be cast thereon, remove
any Director or Directors from office, with or without cause, and may elect a
successor or successors to fill any resulting vacancies for the unexpired terms
of the removed Directors.
Section 5. Powers of the Board. The business of this Company
shall be managed under the direction of its Board of Directors, which may
exercise or give authority to exercise all powers of the Company and do all such
lawful acts and things as are not by statute, by the Articles of Incorporation
or by these By-Laws required to be exercised or done by the Stockholders.
Section 6. Place of Meetings. The Directors may hold their
meetings at the principal office of the Company or at such other places, either
within or without the State of Maryland, as they may from time to time
determine.
Section 7. Regular Meetings. Regular meetings of the Board
may be held at such date and time as shall from time to time be determined by
resolution of the Board.
Section 8. Special Meetings. Special meetings of the Board may
be called by order of the President on one day's notice given to each Director
either in person or by mail, telephone, telegram, telefax, telex, cable or
wireless to each Director at his residence or regular place of business. Special
meetings will be called by the President or Secretary in a like manner on the
written request of a majority of the Directors.
Section 9. Waiver of Notice. No notice of any meting of the
Board of Directors or a committee of the Board need be given to any Director who
is present at the meeting or who waives notice of such meeting in writing (which
waiver shall be filed with the records of such meeting), either before or after
the time of the meeting.
Section 10. Quorum of One-Third. At all meetings of the Board
the presence of one-third of the entire number of Directors then in office (but
not less than two Directors) shall be necessary to constitute a quorum and
sufficient for the transaction of business, and any act of a majority present at
a meeting at which there is a quorum shall be the act of the Board of Directors,
except as may be otherwise specifically provided by statute, by the Articles of
Incorporation or by these By-Laws. If a quorum shall not be present at any
meeting of Directors, the Directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
Section 11. Informal Action by Directors and Committees. Any
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may, except as otherwise required by
statute, be taken without a meeting if a written consent to such action is
signed by all members of the Board, or of such committee, as the case may be and
filed with the minutes of the proceedings of the Board or committee. Subject to
the Investment Company Act of 1940, members of the Board of Directors or a
committee thereof may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time.
Section 12. Executive Committee. There may be an Executive
Committee of two or more Directors appointed by the Board who may meet at stated
times or on notice to all by any of their own number. The Executive Committee
shall consult with and advise the Officers of the Company in the management of
its business and exercise such powers of the Board of Directors as may be
lawfully delegated by the Board of the Directors. Vacancies shall be filled by
the Board of Directors at any regular or special meeting. The Executive
Committee shall keep regular minutes of its proceedings and report the same to
the Board when required.
Section 13. Other Committees. The Board of Directors, by the
affirmative vote of a majority of the entire Board, may appoint other committees
which shall in each case consist of such number of members (not less than two)
and shall have and may exercise, to the extent permitted by law, such powers as
the Board may determine in the resolution appointing them. A majority of all
members of any such committee may determine its action, and fix the time and
place of its meetings, unless the Board of Directors shall otherwise provide.
The Board of Directors shall have power at any time to change the members and,
to the extent permitted by law, the powers of any such committee, to fill
vacancies, and to discharge any such committee.
Section 14. Advisory Board. There may be an Advisory Board of
any number of individuals appointed by the Board of Directors who may meet at
stated times or on notice to all by any of their own number or by the President.
The Advisory Board shall be composed of Stockholders or representatives of
Stockholders. The Advisory Board will have no power to require the Company to
take any specific action. Its purpose shall be solely to consider matters of
general policy and to represent the Stockholders in all matters except those
involving the purchase or sale of specific securities. A majority of the
Advisory Board, if appointed, must consist of Stockholders who are not otherwise
affiliated or interested persons of the Company or of any affiliate of the
Company as those terms are defined in the Investment Company Act of 1940.
Section 15. Compensation of Directors. The Board may, by
resolution, determine what compensation and reimbursement of expenses of
attendance at meetings, if any, shall be paid to Directors in connection with
their service on the Board. Nothing herein contained shall be construed to
preclude any Director from serving the Company in any other capacity or from
receiving compensation therefor.
ARTICLE IV
OFFICERS
Section 1. Officers. The Officers of the Company shall be
fixed by the Board of Directors and shall include a President, a Vice-President,
a Secretary and a Treasurer. Any two of the aforesaid offices, except those of
President and Vice President, may be held by the same person.
Section 2. Appointment of Officers. The Directors, at their
first meeting after each annual meeting of Stockholders, shall appoint a
President and the other Officers who need not be members of the Board.
Section 3. Additional Officers. The Board, at any regular or
special meeting, may appoint such other Officers and agents as it shall deem
necessary who shall exercise such powers and perform such duties as shall be
determined from time to time by the Board.
Section 4. Salaries of Officers. The salaries of all
Officers of the Company shall be fixed by the Board of Directors.
Section 5. Term, Removal, Vacancies. The Officers of the
Company shall hold office for one year and until their successors are chosen and
qualify in their stead. Any Officer elected or appointed by the Board of
Directors may be removed at any time by the affirmative vote of a majority of
the Directors. If the office of any Officer becomes vacant for any reason, the
vacancy shall be filled by the Board of Directors.
Section 6. President. The President shall be the chief
executive officer of the Company; he shall, subject to the supervision of the
Board of Directors, have general responsibility for the management of the
business of the Company and shall see that all orders and resolutions of the
Board are carried into effect.
Section 7. Vice-President. The Vice-President (senior in
service), at the request or in the absence or disability of the President shall
perform the duties and exercise the powers of the President and shall perform
such other duties as the Board of Directors shall prescribe.
Section 8. Treasurer. The Treasurer shall have the custody of
the corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Company and shall deposit
all moneys and other valuable effects in the name and to the credit of the
Company in such depositories as may be designated by the Board of Directors. He
shall disburse the funds of the Company as may be ordered by the Board, taking
proper vouchers for such disbursements, and shall render to the President and
Directors at the regular meetings of the Board, or whenever they may require it,
an account of all his transactions as Treasurer and of the financial condition
of the Company.
Any Assistant Treasurer may perform such duties of the
Treasurer as the Treasurer of the Board of Directors may assign, and, in the
absence of the Treasurer, he may perform all the duties of the Treasurer.
Section 9. Secretary. The Secretary shall attend meetings of
the Board and meetings of the Stockholders and record all votes and the minutes
of all proceedings in books to be kept for that purpose. He shall give or cause
to be given notice of all meetings of Stockholders and special meetings of the
Board of Directors and shall perform such other duties as may be prescribed by
the Board of Directors. He shall keep in safe custody the seal of the Company
and affix it to any instrument when authorized by the Board of Directors.
Any Assistant Secretary may perform such duties of the
Secretary as the Secretary or the Board of Directors may assign, and, in the
absence of the Secretary, may perform all the duties of the Secretary.
Section 10. Subordinate Officers. The Board of Directors from
time to time may appoint such other officers or agents as it may deem advisable,
each of whom shall have such title, hold office for such period, have such
authority and perform such duties as the Board of Directors may determine. The
Board of Directors from time to time may delegate to one or more officers or
agents the power to appoint any such subordinate officers or agents and to
prescribe their respective rights, terms of office, authorities and duties.
Section 11. Surety Bonds. The Board of Directors may require
any officer or agent of the Company to execute a bond (including, without
limitation, any bond required by the Investment Company Act of 1940, as amended,
and the rules and regulations of the Securities and Exchange Commission) to the
Company in such sum and with such surety or sureties as the Board of Directors
may determine, conditioned upon the faithful performance of his duties to the
Company, including responsibility for negligence and for the accounting of any
of the Company's property, funds or securities that may come into his hands.
ARTICLE V
INDEMNIFICATION
Section 1. Indemnification of Directors and Officers. The
Company shall indemnify its Directors to the fullest extent that indemnification
of directors is permitted by the Maryland General Corporation Law. The Company
shall indemnify its Officers to the same extent as its Directors and to such
further extent as is consistent with law. The Company shall indemnify its
Directors and Officers who while serving as Directors or Officers also serve at
the request of the Company as a director, officer, partner, trustee, employee,
agent or fiduciary of another corporation, partnership, joint venture, trust,
other enterprise or employee benefit plan to the fullest extent consistent with
law. The indemnification and other rights provided by this Article shall
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of the heirs, executors and administrators of such a
person. This Article shall not protect any such person against any liability to
the Company or any Stockholder thereof to which such person would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office
("disabling conduct").
Section 2. Advances. Any current or former director or officer
of the Company seeking indemnification within the scope of this Article shall be
entitled to advances from the Company for payment of the reasonable expenses
incurred by him in connection with the matter as to which he is seeking
indemnification in the manner and to the fullest extent permissible under the
Maryland General Corporation Law. The person seeking indemnification shall
provide to the Company a written affirmation of his good faith belief that the
standard of conduct necessary for indemnification by the Company has been met
and a written undertaking to repay any such advance if it should ultimately be
determined that the standard of conduct has not been met. The provisions of this
Section are subject to compliance with applicable provisions of the 1940 Act.
Section 3. Procedure. Subject to Section 2 of this Article V,
at the request of any person claiming indemnification under this Article, the
Board of Directors shall determine, or cause to be determined, in a manner
consistent with the Maryland General Corporation Law, whether the standards
required by this Article have been met. Indemnification shall be made only
following: (a) a final decision on the merits by a court or other body before
whom the proceeding was brought that the person to be indemnified was not liable
by reason of disabling conduct or (b) in the absence of such a decision, a
reasonable determination, based upon a review of the facts, that the person to
be indemnified was not liable by reason of disabling conduct by (i) the vote of
a majority of a quorum of disinterested non-party Directors or (ii) an
independent legal counsel in a written opinion.
Section 4. Indemnification of Employees and Agents. Employees
and agents who are not Officers or Directors of the Company may be indemnified,
and reasonable expenses may be advanced to such employees or agents, as may be
provided by action of the Board of Directors or by contract, subject to any
limitations imposed by the Investment Company Act of 1940.
Section 5. Other Rights. The Board of Directors may make
further provision consistent with law for indemnification and advance of
expenses to Directors, Officers, employees and agents by resolution, agreement
or otherwise. The indemnification provided by this Article shall not be deemed
exclusive of any other right, with respect to indemnification or otherwise, to
which those seeking indemnification may be entitled under any insurance or other
agreement or resolution of Stockholders or disinterested Directors or otherwise.
The rights provided to any person by this Article shall be enforceable against
the Company by such person who shall be presumed to have relied upon it in
serving or continuing to serve as a director, officer, employee, or agent as
provided above.
Section 6. Amendments. References in this Article are to the
Maryland General Corporation Law and to the Investment Company Act of 1940 as
from time to time amended. No amendment of these By-laws shall effect any right
of any person under this Article based on any event, omission or proceeding
prior to the amendment.
Section 7. Insurance. The Company may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the Company or who, while a director, officer, employee, or agent of
the Company, is or was serving at the request of the Company as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, other enterprise, or employee
benefit plan against any liability asserted against and incurred by such person
in any such capacity or arising out of such person's position; provided, that no
insurance may be purchased which would indemnify any Director or Officer of the
Company against any liability to the Company or to its security holders to which
he would otherwise be subject by reason of disabling conduct (as defined in
Section 1 of this Article V).
ARTICLE VI
GENERAL PROVISIONS
Section 1. Waiver of Notice. Whenever by statute, the
provisions of the Articles of Incorporation or these ByLaws, the Stockholders or
the Board of Directors are authorized to take any action at any meeting after
notice, such notice may be waived, in writing, before or after the holding of
the meeting, by the person or persons entitled to such notice, or, in the case
of a Stockholder, by his attorney thereunto authorized.
Section 2. Checks. All checks or demands for money and notes
of the Company shall be signed by such Officer or Officers or such other person
or persons as the Board of Directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the Company shall
be determined by resolution of the Board of Directors.
Section 4. Accountant. The Company shall employ an independent
public accountant or a firm of independent public accountants as its Accountant
to examine the accounts of the Company and to sign and certify financial
statements filed by the Company. The employment of the Accountant shall be
conditioned upon the right of the Company to terminate the employment forthwith
without any penalty by vote of a majority of the outstanding voting securities
at any Stockholders' meeting called for that purpose.
ARTICLE VII
CAPITAL STOCK
Section 1. Certificate of Stock. The interest of each
Stockholder of the Company may be evidenced by certificates for shares of stock
in such form as the Board of Directors may from time to time prescribe. The
certificates shall be numbered and entered in the books of the Company as they
are issued. They shall exhibit the holder's name and the number of shares and no
certificate shall be valid unless it has been signed by the President or a
Vice-President and the Treasurer or an Assistant Treasurer or the Secretary or
an Assistant Secretary and bears the corporate seal. Such seal may be a
facsimile, engraved or printed. Where any such certificate is signed by a
Transfer Agent or by a Registrar, the signatures of any such Officer may be
facsimile, engraved or printed. In case any of the Officers of the Company whose
manual or facsimile signature appears on any stock certificate delivered to a
Transfer Agent of the Company shall cease to be such Officer prior to the
issuance of such certificate, the Transfer Agent may nevertheless countersign
and deliver such certificate as though the person signing the same or whose
facsimile signature appears thereon had not ceased to be such Officer, unless
written instructions of the Company to the contrary are delivered to the
Transfer Agent.
Section 2. Lost, Stolen or Destroyed Certificates. The Board
of Directors, or the President together with the Treasurer or Secretary, may
direct a new certificate to be issued in place of any certificate theretofore
issued by the Company, alleged to have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming the certificate of
stock to be lost, stolen or destroyed, or by his legal representative. When
authorizing such issue of a new certificate, the Board of Directors, or the
President and Treasurer or Secretary, may, in its or their discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate, or his legal representative, to advertise the
same in such manner as it or they shall require and/or give the Company a bond
in such sum and with such surety or sureties as it or they may direct as
indemnity against any claim that may be made against the Company with respect to
the certificate alleged to have been lost, stolen or destroyed or such newly
issued certificate.
Section 3. Transfer of Stock. Shares of the Company shall be
transferable on the books of the Company by the holder thereof in person or by
his duly authorized attorney or legal representative upon surrender and
cancellation of a certificate or certificates for the same number of shares of
the same class, duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, with such proof of the authenticity of the
signature as the Company or its agents may reasonably require. The Board of
Directors may, from time to time, adopt rules and regulations with reference to
the method of transfer of the shares of stock of the Company.
Section 4. Registered Holder. The Company shall be entitled to
treat the holder of record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person
whether or not it shall have express or other notice thereof, except as
expressly provided by statute.
Section 5. Record Date. The Board of Directors may fix a time
not less than 10 nor more than 90 days prior to the date of any meeting of
Stockholders or prior to the last day on which the consent or dissent of
Stockholders may be effectively expressed for any purpose without a meeting, as
the time as of which Stockholders entitled to notice of and to vote at such a
meeting or whose consent or dissent is required or may be expressed for any
purpose, as the case may be, shall be determined; and all persons who were
holders of record of voting stock at such time and no other shall be entitled to
notice of and to vote at such meeting or to express their consent or dissent, as
the case may be. If no record date has been fixed, the record date for the
determination of Stockholders entitled to notice of or to vote at a meeting of
Stockholders shall be the later of the close of business on the day on which
notice of the meeting is mailed or the thirtieth day before the meeting, or, if
notice is waived by all Stockholders, at the close of business on the tenth day
next preceding the day on which the meeting is held. The Board of Directors may
also fix a time not exceeding 90 days preceding the date fixed for the payment
of any dividend or the making of any distribution, or for the delivery of
evidences of rights, or evidences of interests arising out of any change,
conversion or exchange of capital stock, as a record time for the determination
of the Stockholder entitled to receive any such dividend, distribution, rights
or interests.
Section 6. Stock Ledgers. The stock ledgers of the Company,
containing the names and addresses of the Stockholders and the number of shares
held by them respectively, shall be kept at the principal offices of the Company
or at the offices of the transfer agent of the Company or at such other location
as may be authorized by the Board of Directors from time to time.
Section 7. Transfer Agents and Registrars. The Board of
Directors may from time to time appoint or remove transfer agents and/or
registrars of transfers (if any) of shares of stock of the Company, and it may
appoint the same person as both transfer agent and registrar. Upon any such
appointment being made, all certificates representing shares of capital stock
thereafter issued shall be countersigned by one of such transfer agents or by
one of such registrars of transfers (if any) or by both and shall not be valid
unless so countersigned. If the same person shall be both transfer agent and
registrar, only one countersignature by such person shall be required.
Section 8. Dividends. Dividends upon the capital stock of the
Company, subject to any provisions of the Articles of Incorporation relating
thereto, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law.
Section 9. Reserve Before Dividends. Before payment of any
dividend, there may be set aside out of the net profits of the Company available
for dividends such sum or sums as the Directors from time to time in their
absolute discretion think proper as a reserve fund to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Company, or for such other purpose as the Directors shall think conducive to the
interests of the Company, and the Directors may modify or abolish any such
reserve in the manner in which it was created.
Section 10. No Pre-emptive Rights. Shares of stock shall not
possess pre-emptive rights to purchase additional shares of stock when offered.
Section 11. Fractional Shares. Fractional shares entitle the
holder to the same voting and other rights and privileges as whole shares on a
pro-rata basis.
ARTICLE VIII
AMENDMENTS
Section 1. By Stockholders. By-Laws may be adopted, amended or
repealed, by vote of the holders of a majority of the Company's stock, as
defined by the Investment Company Act of 1940, at any annual or special meeting
of the Stockholders at which a quorum is present or represented, provided notice
of the proposed amendment shall have been contained in the notice of the
meeting.
Section 2. By Directors. The Directors may adopt, amend or
repeal any By-Law (which is not inconsistent with any By-Law adopted, amended or
repealed by the Company's Stockholders in accordance with Section 1 of this
Article VIII) by majority vote of all of the Directors in office at any regular
meeting, or at any special meeting, in accordance with the requirements of
applicable law.
ARTICLE IX
CUSTODY OF SECURITIES
Section 1. Employment of a Custodian. The Company shall place
and at all times maintain in the custody of a Custodian (including any
sub-custodian for the Custodian, which may be a foreign bank which meets
applicable requirements of law) all funds, securities and similar investments
owned by the Company. The Custodian (and any sub-custodian) shall be a bank
having not less than $2,000,000 aggregate capital, surplus and undivided profits
or such other financial institution as shall be permitted by rule or order of
the United States Securities and Exchange Commission. The Custodian shall be
appointed from time to time by the Directors, who shall fix its remuneration.
Section 2. Action Upon Termination of Custodian Agreement.
Upon termination of a Custodian Agreement or inability of the Custodian to
continue to serve, the Directors shall promptly appoint a successor custodian,
but in the event that no successor custodian can be found who has the required
qualifications and is willing to serve, the Directors shall call as promptly as
possible a special meeting of the Shareholders to determine whether the Company
shall function without a custodian or shall be liquidated. If so directed by
vote of the holders of a majority of the outstanding voting securities, the
Custodian shall deliver and pay over all funds, securities and similar
investments held by it as specified in such vote.
Section 3. Provisions of Custodian Agreement. The following
provisions shall apply to the employment of a Custodian and to any contract
entered into with the Custodian so employed:
The Directors shall cause to be delivered to the Custodian all
securities owned by the Company or to which it may become
entitled, and shall order the same to be delivered by the
Custodian only in completion of a sale, exchange, transfer,
pledge, loan of portfolio securities to another person, or
other disposition thereof, all as the Directors may generally
or from time to time require or approve or to a successor
Custodian; and the Directors shall cause all funds owned by
the Company or to which it may become entitled to be paid to
the Custodian, and shall order the same disbursed only for
investment against delivery of the securities acquired, or the
return of cash held as collateral for loans of portfolio
securities, or in payment of expenses, including management
compensation, and liabilities of the Company, including
distributions to shareholders, or to a successor Custodian. In
connection with the Company's purchase or sale of futures
contracts, the Custodian shall transmit, prior to receipt on
behalf of the Company of any securities or other property,
funds from the Company's custodian account in order to furnish
to and maintain funds with brokers as margin to guarantee the
performance of the Company's futures obligations in accordance
with the applicable requirements of commodities exchanges and
brokers.
ARTICLE X
MISCELLANEOUS
Section 1. Miscellaneous.
(a) Except as hereinafter provided, no Officer or Director of
the Company and no partner, officer, director or shareholder of the Investment
Adviser of the Company or of the Distributor of the Company, and no Investment
Adviser or Distributor of the Company, shall take long or short positions in the
securities issued by the Company.
(1) The foregoing provisions shall not prevent
the Distributor from purchasing Shares from the Company if such purchases are
limited (except for reasonable allowances for clerical errors, delays and
errors of transmission and cancellation of orders) to purchases for the
purpose of filling orders for such Shares received by the Distributor, and
provided that orders to purchase from the Company are entered with the Company
or the Custodian promptly upon receipt by the Distributor of purchase orders
for such Shares, unless the Distributor is otherwise instructed by its customer.
(2) The foregoing provision shall not prevent
the Distributor from purchasing Shares of the Company as agent for the account
of the Company.
(3) The foregoing provision shall not prevent
the purchase from the Company or from the Distributor of Shares issued by
the Company, by any officer, or Director of the Company or by any partner,
officer, director or shareholder of the Investment Adviser of the Company or
of the Distributor of the Company at the price available to the public
generally at the moment of such purchase, or as described in the then
currently effective Prospectus of the Company.
(4) The foregoing shall not prevent the
Distributor, or any affiliate thereof, of the Company from purchasing Shares
prior to the effectiveness of the first registration statement relating to
the Shares under the Securities Act of 1933.
(b) The Company shall not lend assets of the Company to any
officer or Director of the Company, or to any partner, officer, director or
shareholder of, or person financially interested in, the Investment Adviser of
the Company, or the Distributor of the Company, or to the Investment Adviser of
the Company or to the Distributor of the Company.
(c) The Company shall not impose any restrictions upon the
transfer of the Shares of the Company except as provided in the Articles of
Incorporation, but this requirement shall not prevent the charging of customary
transfer agent fees.
(d) The Company shall not permit any officer or Director of
the Company, or any partner, officer or director of the Investment Adviser or
Distributor of the Company, to deal for or on behalf of the Company with himself
as principal or agent, or with any partnership, association or corporation in
which he has a financial interest; provided that the foregoing provisions shall
not prevent (a) Officers and Directors of the Company or partners, officers or
directors of the Investment Adviser or Distributor of the Company from buying,
holding or selling Shares in the Company, or from being partners, officers or
directors or otherwise financially interested in the Investment Adviser or
Distributor of the Company; (b) purchases or sales of securities or other
property by the Company from or to an affiliated person or to the Investment
Adviser or Distributor of the Company if such transaction is exempt from the
applicable provisions of the 1940 Act; (c) purchases of investments for the
portfolio of the Company or sales of investments owned by the Company through a
security dealer who is, or one or more of whose partners, shareholders, officers
or directors is, an Officer or Director of the Company, or a partner, officer or
director of the Investment Adviser or Distributor of the Company, if such
transactions are handled in the capacity of broker only and commissions charged
do not exceed customary brokerage charges for such services; (d) employment of
legal counsel, registrar, Transfer Agent, dividend disbursing agent or Custodian
who is, or has a partner, shareholder, officer, or director who is, an officer
or Director of the Company, or a partner, officer or director of the Investment
Adviser or Distributor of the Company, if only customary fees are charged for
services to the Company; (e) sharing statistical research, legal and management
expenses and office hire and expenses with any other investment company in which
an officer or Director of the Company, or a partner, officer or director of the
Investment Adviser or Distributor of the Company, is an officer or director or
otherwise financially interested.
FUND ADMINISTRATION AGREEMENT BETWEEN
TEMPLETON CAPTIAL ACCUMULATOR FUND, INC.
AND
FRANKLIN TEMPLETON SERVICES, INC.
AGREEMENT dated as of October 1, 1996, between Templeton
Capital Accumulator Fund, Inc. (the "Investment Company"), an investment company
registered under the Investment Company Act of 1940 ("1940 Act"), and Franklin
Templeton Services, Inc. ("FTS" or "Administrator").
In consideration of the mutual promises herein made, the
parties hereby agree as follows:
(1) The Administrator agrees, during the life of this Agreement,
to provide the following services to the 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 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 N-SAR, 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 to pay any
compensation to the officers of the Investment Company. Nothing in this
Agreement shall obligate FTS 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 Company agrees, during the life of this Agreement,
to pay to FTS as compensation for the foregoing 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 0.10%; 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, FTS 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. FTS 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 Agreement shall remain in full force and effect through for
one year after its execution and thereafter from year to year to the extent
continuance is approved annually by the Board of the Investment Company.
(4) This Agreement may be terminated by the Investment Company at any
time on sixty (60) days' written notice without payment of penalty, provided
that such termination by the Investment Company shall be directed or approved by
the vote of a majority of the Board of the Investment Company in office at the
time or by the vote of a majority of the outstanding voting securities of the
Investment Company (as defined by the 1940 Act); and shall automatically and
immediately terminate in the event of its assignment (as defined by the 1940
Act).
(5) In the absence of willful misfeasance, bad faith or gross
negligence on the part of FTS, or of reckless disregard of its duties and
obligations hereunder, FTS 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
Agreement to be duly executed by their duly authorized officers.
FRANKLIN TEMPLETON SERVICES, INC.
By:/s/MARTIN L. FLANAGAN
Martin L. Flanagan
President
TEMPLETON CAPTIAL ACCUMULATOR FUND, INC.
By:/s/JOHN K. KAY
John R. Kay
Vice President
McGLADREY & PULLEN, LLP
Certified Public Accountants and Consultants
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use of our report dated September 27,
1996 on the financial statements of Templeton Capital Accumulator
Fund, Inc., referred to therein, which appears in the 1996
Annual Report to Shareholders, and which is incorporated herein by
reference, in Post-Effective Amendment No. 8 to the Registration
Statement on Form N-1A, File No. 33-37338, as filed with the
Securities and Exchange Commission.
We also consent to the reference to our firm in the Prospectus
under the caption "Financial Highlights" and in the Statement of
Additional Information under the caption "Auditors."
/s/MCGLADREY & PULLEN, LLP
McGladrey & Pullen, LLP
New York, New York
December 17, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
TEMPLETON CAPITAL ACCUMULATOR FUND, INC. AUGUST 31, 1996 ANNUAL REPORT
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000869313
<NAME> CAPITAL ACCUMULATOR FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 93599291
<INVESTMENTS-AT-VALUE> 110075117
<RECEIVABLES> 271297
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 135
<TOTAL-ASSETS> 110346549
<PAYABLE-FOR-SECURITIES> 2200383
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 127602
<TOTAL-LIABILITIES> 2327985
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 87938653
<SHARES-COMMON-STOCK> 11899024
<SHARES-COMMON-PRIOR> 4111171
<ACCUMULATED-NII-CURRENT> 1917679
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1686406
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16475826
<NET-ASSETS> 108018564
<DIVIDEND-INCOME> 2500965
<INTEREST-INCOME> 612776
<OTHER-INCOME> 0
<EXPENSES-NET> 872973
<NET-INVESTMENT-INCOME> 2240768
<REALIZED-GAINS-CURRENT> 1998603
<APPREC-INCREASE-CURRENT> 8686029
<NET-CHANGE-FROM-OPS> 12925400
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1315933)
<DISTRIBUTIONS-OF-GAINS> (285372)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2871022
<NUMBER-OF-SHARES-REDEEMED> (393813)
<SHARES-REINVESTED> 5310644
<NET-CHANGE-IN-ASSETS> 42480938
<ACCUMULATED-NII-PRIOR> 1017645
<ACCUMULATED-GAINS-PRIOR> (51626)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 656146
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1016763
<AVERAGE-NET-ASSETS> 87499590
<PER-SHARE-NAV-BEGIN> 7.97
<PER-SHARE-NII> .19
<PER-SHARE-GAIN-APPREC> 1.10
<PER-SHARE-DIVIDEND> (.15)
<PER-SHARE-DISTRIBUTIONS> (.03)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.08
<EXPENSE-RATIO> 1.00<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>The expense ratio for The Templeton Capital Accumulator
Fund for August 31, 1996 without reimbursement was 1.10%.
</FN>
</TABLE>
