Annual
Report
AUGUST 31, 1998
TEMPLETON CAPITAL
ACCUMULATOR FUND, INC.
[Photo]
[Franklin Templeton Logo]
PAGE
[Franklin Templeton 50 Year Logo]
Thank you for investing with Franklin Templeton. We encourage our investors to
maintain a long-term perspective and remember that all securities markets move
both up and down, as do mutual fund share prices. We appreciate your past
support and look forward to serving your investment needs in the years ahead.
In 1992, Sir John Templeton retired after a 50-year career of helping investors
manage their money. Currently he devotes all of his time and efforts to the John
Templeton Foundation. A major portion of his assets remain invested in the
Templeton funds which are managed by many of the investment professionals he
selected and trained.
[PHOTO]
GARY P. MOTYL
Portfolio Manager
Templeton Capital Accumulator Fund, Inc.
PAGE
CONTENTS
Shareholder Letter 1
Performance Summary 6
Financial Highlights &
Statement of Investments 10
Financial Statements 17
Notes to Financial
Statements 20
Independent Auditor's Report 23
Tax Designation 24
[PYRAMID GRAPHIC]
SHAREHOLDER LETTER
Your Fund's Objective: Templeton Capital Accumulator Fund seeks long-term
capital growth, which it seeks to achieve by investing in common stocks and debt
obligations of companies and governments of any nation.
Dear Shareholder:
This annual report for Templeton Capital Accumulator Fund covers the fiscal year
ended August 31, 1998. The investment climate over the twelve months under
review was influenced considerably by the continued deterioration of economic
conditions in Asia. Except for a brief period early in 1998 when some Asian
markets temporarily advanced 50%-60% in U.S. dollar terms, investors evacuated
Asian and other emerging equity markets. The resulting flow of money into the
U.S. and Europe helped lift these developed markets to historically high
valuations. The world's most expensive stocks appeared to benefit most from this
trend while cheaper markets languished. For example, the average price for the
top 20% most expensive stocks in the Morgan Stanley Capital International(R)
(MSCI) All Country World Free (ACWF) Index rose approximately 20% in
You will find a complete listing of the Fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 11 of
this report.
PAGE
GEOGRAPHIC DISTRIBUTION
Based on Total Net Assets
8/31/98
[Pie Graphic]
Europe 45.1%
United States 14.2%
Asia 8.4%
Latin America 8.3%
Australia & New Zealand 5.6%
Canada 1.5%
Short Term Investments &
Other Net Assets 16.9%
the first half of 1998, while the cheapest 20% of stocks in the Index averaged
just about a 5% gain.(1) Only in Japan and Latin America did the least expensive
stocks generally outperform, but in these regions the overall level of
performance was still well-behind the pace set in Europe and North America.
Investors seemed willing to pay high prices for the relative "safety" of
European shares rather than exposing themselves to the risks brought about by
owning "cheap" shares in seemingly imploding Asian markets in particular and
emerging markets in general. By maintaining relatively low weightings in Asian
markets, the Fund was impacted more indirectly than directly by the Asian market
downturn that continued during early 1998. Our Latin American holdings were
negatively impacted by investor concerns surrounding emerging market investments
in general, and our European holdings tended to be among the less expensive
stocks that underperformed the overall market.
Because we diversified our portfolio away from the expensive European and U.S.
markets, which represented approximately 85% of the MSCI World Index and 82% of
the MSCI-ACWF Index, the Fund underperformed these indices. Within this
environment, Templeton Capital Accumulator Fund produced a -7.87% one-year
cumulative total return, as shown in the Performance Summary on page 6. The
unmanaged MSCI World Index reported a 4.13% total return and the MSCI-ACWF Index
reported a 0.59% total return for the same period.(2)
1. Stock rankings measured by 1997 year-end price/earnings ratios, which
averaged 57 for the 20% most expensive stocks and 8 for the cheapest 20% of the
stocks. Performance is measured in U.S. dollars and includes reinvested
dividends. An index is an unmanaged group of securities that is used to measure
market performance. One cannot invest directly in an index.
2. Market return is measured in U.S. dollars and includes reinvested dividends.
An index is an unmanaged group of securities used to measure market performance.
One cannot invest directly in an index. The MSCI-ACWF Index includes
approximately 2,500 companies representing the stock markets of 48 countries,
including the U.S., Germany, Mexico, Indonesia, Thailand, and Japan. The MSCI
World Index includes approximately 1,500 companies representing the stock
markets of 23 countries, including the U.S., Canada, the United Kingdom, and
Japan.
2
PAGE
Attempting to take advantage of extreme stock price volatility, we made several
changes to the portfolio during the reporting period. On the sell side, we
realized significant gains when we closed our positions in Barclays Plc., the
large United Kingdom banking group, and Aegon NV, a leading Dutch insurance
company. Like financial stocks in the U.S., European financial stocks generally
performed very well during the reporting period, and both stocks attained our
price targets. We also closed our position in Telefonica de Espana, the Spanish
telecommunications company, after a strong increase in its stock price.
On the buy side, we initiated a position in Imperial Chemical Industries Plc., a
large British chemical manufacturer which we believe has a solid long-term
earnings outlook despite recent stock price declines. We also added a Latin
American company to the portfolio: Centrais Eletricas Brasileiras SA
(Eletrobras), a major Brazilian electric company, and added to our existing
position in Compania de Telecomunicaciones de Chile SA, Chile's leading
telecommunications company. We believed that the turmoil in emerging markets had
reduced the stock prices of both companies enough to make them good values. We
also added shares to our position in Volvo, AB, B, a Swedish transportation
equipment company, and Fisher & Paykel Ltd., a New Zealand appliance and health
care products manufacturer.
Our Latin American holdings, at the end of the reporting period, represented
8.3% of total net assets. Although the Asian turmoil has affected Latin America,
the decline in share prices there appears to be excessive. Many of these
companies have little if any debt and in
TOP 10 INDUSTRIES
REPRESENTED IN THE FUND*
8/31/98
<TABLE>
<CAPTION>
% OF TOTAL
INDUSTRY NET ASSETS
<S> <C>
Telecommunications 12.3%
Banking 10.4%
Utilities Electrical & Gas 6.1%
Electrical & Electronics 4.5%
Forest Products & Paper 4.1%
Chemicals 3.9%
Merchandising 3.7%
Automobiles 3.6%
Financial Services 3.3%
Transportation 3.2%
</TABLE>
*Does not include investments in fixed-income securities, and short-term
investments and other net assets.
3
PAGE
TOP 10 HOLDINGS
8/31/98
<TABLE>
<CAPTION>
COMPANY, % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
<S> <C>
Nokia AB, A
Telecommunications, Finland 2.2%
British Energy Ltd.
Utilities Electrical & Gas,
United Kingdom 1.6%
Foreningssparbanken AB, A
Banking, Sweden 1.6%
Merita Ltd., A
Banking, Finland 1.6%
Telecomunicacoes Brasileiras
SA (Telebras), ADR, pfd
Telecommunications, Brazil 1.6%
Axa-UAP
Financial Services, France 1.3%
Volvo AB, B
Automobiles, Sweden 1.3%
Philips Electronics NV
Electrical & Electronics,
Netherlands 1.3%
Skandia Foersaekrings AB
Insurance, Sweden 1.3%
Compania de Telecomunica-
ciones de Chile SA, ADR
Telecommunications, Chile 1.3%
</TABLE>
many cases, the debt that is on the balance sheet is not dollar-denominated.
Moreover, capital in Latin America has generally been invested at a careful
pace, and not, we believe, largely in marginal ventures as occurred in Asia.
Economic reforms and privatization are also well under way in the region, and
banking systems generally appear to be soundly capitalized. With valuations on
trailing 12-month earnings in Brazil at less than one-third the level in
Germany, it does not appear to be difficult to identify bargains. Even if Brazil
devalued its currency, we believe it is unlikely many companies would need to
issue new shares to rescue their balance sheets. Indeed, many companies might
benefit from an improved export potential.
Looking forward, we believe it is not likely that the world's most expensive
stocks will continue to outperform over the long term. A time will eventually
come when the point of maximum pessimism has been reached; then many investors
in the world's expensive, developed markets are likely to return to the less
expensive markets of Latin America and Asia. Although it is always difficult to
pinpoint exactly when this time will arrive, we do not expect it to be too hard
to determine when we are approaching it. The Templeton investment process is
designed to highlight the value in individual stocks that often occurs when
other investors are suffering from undue levels of pessimism, and we look
forward to a bright future with confidence.
Of course, investing in foreign securities involves special risks, such as
adverse economic, social and political developments in the countries where the
Fund invests, as well as market and currency volatility. Emerging markets
involve heightened risks related to the
4
PAGE
same factors, in addition to those associated with their relatively small size
and lesser liquidity. Investing in any emerging market means accepting a certain
amount of volatility and, in some cases, severe market corrections. While
short-term volatility can be disconcerting, declines of as much as 40% to 50%
are not unusual in emerging markets. In fact, the Hong Kong equity market
increased 785% in the last 15 years, but suffered six declines of more than 20%
during that time.(3)
Please remember that this discussion reflects our views, opinions and portfolio
holdings as of August 31, 1998, the end of the reporting period. However, market
and economic conditions are changing constantly, which can be expected to affect
our strategies and the Fund's portfolio composition. Although historical
performance is no guarantee of future results, these insights may help you
better understand our investment and management philosophy. The special risks
associated with these types of investments, as well as other considerations, are
discussed in the Fund's prospectus.
We thank you for your participation in Templeton Capital Accumulator Fund and
welcome your comments and suggestions.
Sincerely,
/s/GARY P. MOTYL
Gary P. Motyl, CFA
President
Templeton Capital Accumulator Fund, Inc.
5
3. Source: Bloomberg. Based on quarterly percentage price change over 15 years
ended June 30, 1998. Market returns are measured in Hong Kong dollars.
PAGE
PERFORMANCE SUMMARY
Templeton Capital Accumulator Fund produced a -7.87% cumulative total return
for the one-year period ended August 31, 1998. Cumulative total return measures
the change in value of an investment, assuming reinvestment of all
distributions, and does not include sales and creation charges. While we expect
market volatility in the short term, we have always maintained a long-term
perspective when managing the Fund, and we encourage shareholders to view their
investments in a similar manner. As you can see from the table on page 9, the
Fund delivered a cumulative total return of 139.72% since inception on March 1,
1991.
The Fund's share price, as measured by net asset value, decreased $1.28, from
$10.97 on August 31, 1997, to $9.69 on August 31, 1998. During the reporting
period, shareholders received per-share distributions of 18.5 cents ($0.185) in
dividend income, 2.5 cents ($0.0250) in short-term capital gains, and 25.5 cents
($0.2550) in long-term capital gains. Distributions will vary depending on
income earned by the Fund and any profits realized from the sale of securities
in the portfolio, as well as the level of the Fund's operating expenses.
Past performance is not predictive of future results.
6
PAGE
The graph on page 8 compares the performance of Templeton Capital Accumulator
Fund, the Morgan Stanley Capital International(R) (MSCI) World Index, and the
Morgan Stanley Capital International(R) (MSCI) All Country World Free Index
since the Fund's inception on March 1, 1991. The MSCI World Index includes
approximately 1,500 companies representing the stock markets of 23 countries,
including the U.S., Canada, the United Kingdom, and Japan. The MSCI All Country
World Free Index represents the stock markets of 48 developed and emerging
countries, including the U.S., Germany, Mexico, Indonesia, Thailand, and Japan.
The graph also compares the Fund's performance with the Consumer Price Index
(CPI), a commonly used measure of inflation.
Given the Fund's holdings, management has added the MSCI All Country World Free
Index this year because we believe the composition of this index also provides
for a relevant comparison to the Fund's current and past portfolio. The Fund
invests a portion of its assets in emerging market countries, which are not
included in the MSCI World Index, and in this regard, the MSCI All Country World
Free Index also provides a suitable comparison. The MSCI World Index may be
excluded from next year's annual report.
Please remember, the Fund's performance differs from that of an index because an
index is not managed according to any investment strategy, includes no sales and
creation charges, or management or operating expenses, and does not contain cash
(the Fund generally carries a certain percentage of cash at any given time). Of
course, one cannot invest directly in an index nor is an index representative of
the Fund's portfolio.
Past performance is not predictive of future results.
7
PAGE
TOTAL RETURN INDEX COMPARISON
$10,000 Investment (3/1/91 - 8/31/98)
[LINE CHART}
This line graph compares the performance of Templeton Capital Accumulator Fund
to that of the Morgan Stanley Capital International World Index and Morgan
Stanley Capital International All Country World Free Index, as well as to the
Consumer Price Index, based on a $10,000 investment from 3/1/91 to 8/31/98.
<TABLE>
<CAPTION>
Templeton MSCI MSCI AC
Capital World World Free
Accumulator Index Index CPI
Fund*
<S> <C> <C> <C> <C>
3/1/91 $10,000 $10,000 $10,000 $10,000
3/31/1991 $9,960 $9,707 $9,730 $10,013
Apr-91 $10,050 $9,784 $9,812 $10,028
May-91 $10,249 $10,008 $10,046 $10,057
Jun-91 $9,841 $9,391 $9,434 $10,088
Jul-91 $10,299 $9,837 $9,883 $10,102
Aug-91 $10,378 $9,807 $9,863 $10,132
Sep-91 $10,408 $10,066 $10,115 $10,177
Oct-91 $10,441 $10,231 $10,291 $10,191
Nov-91 $10,219 $9,787 $9,848 $10,221
Dec-91 $10,700 $10,501 $10,579 $10,229
Jan-92 $10,944 $10,308 $10,421 $10,243
Feb-92 $11,096 $10,132 $10,264 $10,281
Mar-92 $11,005 $9,657 $9,807 $10,332
Apr-92 $11,238 $9,793 $9,938 $10,347
May-92 $11,613 $10,184 $10,319 $10,362
Jun-92 $11,349 $9,844 $9,951 $10,399
Jul-92 $11,268 $9,872 $9,983 $10,422
Aug-92 $11,106 $10,114 $10,207 $10,451
Sep-92 $11,076 $10,022 $10,120 $10,480
Oct-92 $10,945 $9,753 $9,872 $10,517
Nov-92 $11,079 $9,930 $10,037 $10,532
Dec-92 $11,411 $10,012 $10,132 $10,525
Jan-93 $11,557 $10,047 $10,167 $10,577
Feb-93 $11,953 $10,286 $10,406 $10,614
Mar-93 $12,474 $10,885 $11,004 $10,652
Apr-93 $12,776 $11,391 $11,504 $10,681
May-93 $13,234 $11,656 $11,775 $10,696
Jun-93 $13,151 $11,560 $11,698 $10,711
Jul-93 $13,380 $11,800 $11,941 $10,710
Aug-93 $14,339 $12,343 $12,507 $10,740
Sep-93 $14,318 $12,117 $12,297 $10,762
Oct-93 $15,027 $12,452 $12,661 $10,807
Nov-93 $14,635 $11,750 $12,003 $10,815
Dec-93 $15,921 $12,327 $12,652 $10,814
Jan-94 $17,093 $13,143 $13,492 $10,844
Feb-94 $16,752 $12,974 $13,297 $10,882
Mar-94 $16,006 $12,417 $12,699 $10,919
Apr-94 $16,198 $12,803 $13,044 $10,934
May-94 $16,389 $12,838 $13,121 $10,940
Jun-94 $15,889 $12,805 $13,058 $10,978
Jul-94 $16,603 $13,051 $13,347 $11,007
Aug-94 $17,274 $13,446 $13,822 $11,052
Sep-94 $16,944 $13,095 $13,497 $11,081
Oct-94 $17,158 $13,470 $13,843 $11,089
Nov-94 $16,540 $12,888 $13,242 $11,104
Dec-94 $16,348 $13,015 $13,288 $11,104
Jan-95 $16,045 $12,823 $13,018 $11,148
Feb-95 $16,393 $13,012 $13,157 $11,192
Mar-95 $16,639 $13,642 $13,760 $11,229
Apr-95 $17,076 $14,119 $14,260 $11,266
May-95 $17,603 $14,243 $14,418 $11,289
Jun-95 $17,749 $14,241 $14,421 $11,311
Jul-95 $18,320 $14,957 $15,118 $11,311
Aug-95 $17,861 $14,626 $14,787 $11,341
Sep-95 $18,275 $15,055 $15,194 $11,363
Oct-95 $17,837 $14,821 $14,940 $11,400
Nov-95 $18,212 $15,338 $15,410 $11,392
Dec-95 $18,768 $15,790 $15,874 $11,384
Jan-96 $19,169 $16,078 $16,227 $11,451
Feb-96 $19,455 $16,179 $16,295 $11,488
Mar-96 $19,753 $16,451 $16,546 $11,548
Apr-96 $20,624 $16,841 $16,950 $11,592
May-96 $20,876 $16,858 $16,967 $11,614
Jun-96 $20,899 $16,947 $17,060 $11,622
Jul-96 $20,166 $16,351 $16,423 $11,644
Aug-96 $20,807 $16,542 $16,626 $11,666
Sep-96 $21,105 $17,193 $17,240 $11,703
Oct-96 $21,410 $17,316 $17,308 $11,740
Nov-96 $22,522 $18,289 $18,234 $11,762
Dec-96 $23,080 $18,000 $17,970 $11,762
Jan-97 $23,530 $18,219 $18,271 $11,799
Feb-97 $23,673 $18,432 $18,520 $11,835
Mar-97 $23,744 $18,071 $18,150 $11,864
Apr-97 $23,744 $18,665 $18,733 $11,878
May-97 $25,001 $19,820 $19,850 $11,871
Jun-97 $26,235 $20,811 $20,866 $11,886
Jul-97 $27,373 $21,773 $21,810 $11,900
Aug-97 $26,021 $20,320 $20,280 $11,922
Sep-97 $27,942 $21,427 $21,361 $11,952
Oct-97 $25,868 $20,303 $20,089 $11,982
Nov-97 $25,624 $20,665 $20,396 $11,975
Dec-97 $25,655 $20,920 $20,664 $11,961
Jan-98 $25,853 $21,507 $21,119 $11,982
Feb-98 $27,733 $22,965 $22,564 $12,006
Mar-98 $29,291 $23,938 $23,527 $12,030
Apr-98 $29,564 $24,175 $23,747 $12,052
May-98 $29,069 $23,876 $23,297 $12,073
Jun-98 $28,599 $24,446 $23,716 $12,088
Jul-98 $28,648 $24,410 $23,724 $12,102
Aug-98 $23,972 $21,159 $20,400 $12,117
</TABLE>
*Performance figures represent the change in value of an investment over the
period shown, assuming reinvestment of distributions at net asset value, and do
not include the effect of paying sales and creation charges applicable to
purchases of Fund shares through Templeton Capital Accumulation Plans, which may
vary as discussed in the Plans' prospectus. For the first year of a Plan, these
charges can amount to 50% of the total amount paid during the year. Total
returns would have been lower if these charges had been applied. Please refer to
the Templeton Capital Accumulation Plans' prospectus for information regarding
applicable charges.
Past expense waivers by the Fund's manager increased the Fund's total returns.
Without these waivers, the Fund's total returns would have been lower.
**Source: Morgan Stanley Capital International. Index is unmanaged and includes
reinvested dividends. One cannot invest directly in an index.
***Source: Bureau of Labor Statistics (8/31/98).
Past performance is not predictive of future results.
8
PAGE
TEMPLETON CAPITAL ACCUMULATOR
Periods ended 8/31/98
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 3-YEAR 5-YEAR (3/1/91)
<S> <C> <C> <C> <C>
Cumulative Total Return(1) -7.87% 34.22% 67.44% 139.72%
Average Annual Total Return(2) -7.87% 10.31% 10.83% 12.35%
Value of $10,000 Investment(3) $ 9,213 $ 13,422 $ 16,744 $ 23,972
</TABLE>
<TABLE>
<CAPTION>
8/31/94 8/31/95 8/31/96 8/31/97 8/31/98
<S> <C> <C> <C> <C> <C>
One-Year Total Return(4) 20.64% 3.40% 16.50% 25.06% -7.87%
</TABLE>
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include any sales and creation charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated.
4. One-year total return represents the change in value of an investment over
the periods ended on the dates indicated.
All calculations assume reinvestment of distributions at net asset value.
Calculations do not include the effect of paying sales and creation charges
applicable to purchases of Fund shares through Templeton Capital Accumulation
Plans, which may vary as discussed in the Plans' prospectus. For the first year
of a Plan, these charges can amount to 50% of the total amount paid during the
year. Total returns would have been lower if these charges had been applied.
Please refer to the Templeton Capital Accumulation Plans' prospectus for
information regarding applicable charges. Past expense waivers by the Fund's
manager increased the Fund's total returns. Without these waivers, the Fund's
total returns would have been lower.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, currency volatility, and the economic,
social and political climates of countries where the Fund invests. Emerging
markets involve heightened risks related to the same factors, in addition to
those associated with their relatively small size and lesser liquidity. You may
have a gain or loss when you sell your shares.
Past performance is not predictive of future results.
9
PAGE
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
------------------------------------------------------
1998 1997 1996 1995 1994
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE+
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $10.97 $9.08 $7.97 $8.10 $6.87
------------------------------------------------------
Income from investment operations:
Net investment income...................................... .18 .18 .19 .14 .09
Net realized and unrealized gains (losses)................. (1.00) 2.03 1.10 .12 1.30
------------------------------------------------------
Total from investment operations............................ (.82) 2.21 1.29 .26 1.39
------------------------------------------------------
Less distributions from:
Net investment income...................................... (.18) (.18) (.15) (.10) (.07)
Net realized gains......................................... (.28) (.14) (.03) (.29) (.09)
------------------------------------------------------
Total distributions......................................... (.46) (.32) (.18) (.39) (.16)
------------------------------------------------------
Net asset value, end of year................................ $9.69 $10.97 $9.08 $7.97 $8.10
------------------------------------------------------
------------------------------------------------------
Total Return................................................ (7.87)% 25.06% 16.50% 3.40% 20.64%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $191,913 $172,683 $108,019 $65,538 $38,323
Ratios to average net assets:
Expenses................................................... 1.00% 1.00% 1.00% 1.00% 1.00%
Expenses, excluding waiver and payments by affiliate....... 1.09% 1.13% 1.16% 1.34% 1.58%
Net investment income...................................... 1.77% 2.00% 2.56% 2.37% 1.58%
Portfolio turnover rate..................................... 11.92% 7.43% 11.08% 12.91% 15.25%
</TABLE>
+Per share amounts for all periods prior to August 31, 1996 have been restated
to reflect a 2-for-1 stock split effective March 27, 1996.
See Notes to Financial Statements.
10
PAGE
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 1998
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
--------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 78.6%
APPLIANCES & HOUSEHOLD DURABLES 1.9%
Electrolux AB, B............................................ Sweden 111,250 $ 1,774,322
Fisher & Paykel Ltd. ....................................... New Zealand 339,200 857,436
Sony Corp. ................................................. Japan 14,600 1,066,124
------------
3,697,882
------------
AUTOMOBILES 3.6%
*Circuit City Stores Inc., Carmax Group..................... United States 92,000 523,250
Fiat SpA.................................................... Italy 437,500 1,356,291
Ford Motor Co. ............................................. United States 24,000 1,056,000
General Motors Corp. ....................................... United States 25,000 1,443,750
Volvo AB, B................................................. Sweden 90,000 2,481,362
------------
6,860,653
------------
BANKING 9.6%
ABN Amro Holding NV......................................... Netherlands 60,000 1,356,750
Australia & New Zealand Banking Group Ltd. ................. Australia 200,000 1,010,821
Banco Bradesco SA, ADR...................................... Brazil 225,000 1,261,789
Bankinter SA................................................ Spain 45,000 1,442,260
Banque Nationale de Paris BNP............................... France 28,000 1,913,570
BPI Socieda de Gestora de Participacoes Socias SA........... Portugal 25,171 815,622
Development Bank of Singapore Ltd., fgn. ................... Singapore 145,000 502,111
Fokus Bank AS............................................... Norway 150,000 992,867
Foreningssparbanken AB, A................................... Sweden 136,800 3,095,137
HSBC Holdings Plc. ......................................... Hong Kong 65,200 1,384,065
*Korea Long Term Credit Bank................................ South Korea 477,302 678,578
Merita Ltd., A.............................................. Finland 600,000 3,018,587
Nationsbank Corp. .......................................... United States 11,600 661,200
*Philippine National Bank................................... Philippines 132,383 77,072
PT Bank Bali, fgn. ......................................... Indonesia 651,700 30,963
PT Bank Pan Indonesia TBK................................... Indonesia 420,300 8,558
*Thai Farmers Bank Public Co. Ltd., fgn. ................... Thailand 600,000 257,757
------------
18,507,707
------------
BROADCASTING & PUBLISHING .2%
News Corp. Ltd. ............................................ Australia 70,000 428,214
------------
BUILDING MATERIALS & COMPONENTS 1.6%
Pioneer International Ltd. ................................. Australia 675,815 1,237,551
*Siam City Cement Public Co. Ltd., fgn. .................... Thailand 153,802 198,217
Svedala Industri, A ........................................ Sweden 100,000 1,570,169
------------
3,005,937
------------
BUSINESS & PUBLIC SERVICES 1.5%
Esselte AB, B............................................... Sweden 40,000 712,140
Lex Service Plc. ........................................... United Kingdom 165,000 1,170,105
*Waste Management Inc. ..................................... United States 20,300 895,738
------------
2,777,983
------------
</TABLE>
11
PAGE
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 1998 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
--------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
CHEMICALS 3.9%
Akzo Nobel NV............................................... Netherlands 30,000 $ 1,231,627
Great Lakes Chemical Corp. ................................. United States 22,000 860,750
Imperial Chemical Industries Plc. .......................... United Kingdom 107,000 1,177,163
*Methanex Corp. ............................................ Canada 114,000 666,880
Rhone-Poulenc SA, A......................................... France 46,000 2,323,350
Solvay SA................................................... Belgium 20,000 1,264,709
------------
7,524,479
------------
DATA PROCESSING & REPRODUCTION .6%
*3Com Corp. ................................................ United States 48,500 1,148,844
------------
ELECTRICAL & ELECTRONICS 4.5%
ABB AG, br. ................................................ Switzerland 652 759,607
Alcatel Alsthom Cie Generale D'Electricite SA............... France 6,661 1,133,835
GP Batteries International Ltd. ............................ Singapore 56,000 61,171
General Electric Co. Plc. .................................. United Kingdom 240,000 1,573,369
Hitachi Ltd. ............................................... Japan 165,000 826,227
Matsushita Electric Industrial Co. Ltd. .................... Japan 99,000 1,423,401
Motorola Inc. .............................................. United States 10,000 430,625
Philips Electronics NV...................................... Netherlands 37,940 2,474,617
------------
8,682,852
------------
ELECTRONIC COMPONENTS & INSTRUMENTS .6%
Intel Corp. ................................................ United States 16,000 1,139,000
------------
ENERGY EQUIPMENT & SERVICES .2%
*Transcanada Pipelines Ltd. ................................ Canada 29,276 398,669
------------
ENERGY SOURCES 2.8%
Norsk Hydro AS.............................................. Norway 20,000 721,033
Saga Petroleum AS, B........................................ Norway 49,070 479,316
Societe Elf Aquitaine SA.................................... France 20,000 2,043,993
Total SA, B................................................. France 13,000 1,304,399
YPF Sociedad Anonima, ADR................................... Argentina 37,500 829,688
------------
5,378,429
------------
FINANCIAL SERVICES 3.3%
Axa-UAP..................................................... France 21,257 2,553,717
Industrial Credit & Inv. Corp. of India (ICICI)............. India 506,098 827,825
Industrial Credit & Inv. Corp. of India (ICICI), GDR,
144A...................................................... India 101,100 909,900
ING Groep NV................................................ Netherlands 32,500 1,914,022
*ING Groep NV, trading coupon............................... Netherlands 32,500 21,231
------------
6,226,695
------------
</TABLE>
12
PAGE
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 1998 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
--------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
FOOD & HOUSEHOLD PRODUCTS .6%
Archer-Daniels Midland Co. ................................. United States 52,500 $ 787,500
IBP Inc. ................................................... United States 23,000 380,938
------------
1,168,438
------------
FOREST PRODUCTS & PAPER 4.1%
*Asia Pulp & Paper Co. Ltd., ADR............................ Indonesia 45,000 233,438
Boise Cascade Corp. ........................................ United States 14,000 342,125
Enso OY, R.................................................. Finland 140,400 1,185,097
Fletcher Challenge Ltd. Forestry Division................... New Zealand 1,770,000 640,430
Georgia Pacific Corp. ...................................... United States 16,000 686,000
Georgia Pacific Timber Group................................ United States 16,000 322,000
International Paper Co. .................................... United States 26,000 962,000
Mayr-Melnhof Karton AG...................................... Austria 11,000 561,134
Mo Och Domsjoe AB, B........................................ Sweden 34,000 668,373
Portucel Industrial Empresa Product Celulose, ADR, 144A..... Portugal 49,100 320,755
*PT Inti Indorayon Utama.................................... Indonesia 450,000 20,362
*Shorewood Packaging Corp. ................................. United States 41,250 536,250
Stora Kopparbergs Bergslags AB, B........................... Sweden 90,000 1,090,464
Unipapel SA................................................. Spain 12,000 336,527
------------
7,904,955
------------
HEALTH & PERSONAL CARE 3.2%
Astra AB, B................................................. Sweden 53,333 863,794
Medeva Plc. ................................................ United Kingdom 480,000 847,971
Novartis AG................................................. Switzerland 453 704,416
Nycomed Amersham Plc. ...................................... United Kingdom 234,215 1,490,090
*Windmere-Durable Holdings Inc. ............................ United States 90,000 2,137,500
------------
6,043,771
------------
INDUSTRIAL COMPONENTS 2.1%
BTR Plc. ................................................... United Kingdom 377,813 828,772
Exide Corp. ................................................ United States 40,500 402,469
Flowserve Corp. ............................................ United States 39,020 731,625
Goodyear Tire & Rubber Co. ................................. United States 23,000 1,127,000
Granges AB.................................................. Sweden 11,125 149,923
SKF AB, B................................................... Sweden 55,000 843,193
------------
4,082,982
------------
INSURANCE 2.9%
American International Group Inc. .......................... United States 23,063 1,783,020
Skandia Foersaekrings AB.................................... Sweden 175,000 2,455,708
Swiss Reinsurance Company Zurich............................ Switzerland 605 1,339,006
------------
5,577,734
------------
MACHINERY & ENGINEERING 1.7%
New Holland NV.............................................. Netherlands 62,800 694,725
SIG Swiss Industrial Company Holdings Ltd., registered...... Switzerland 2,000 1,382,839
</TABLE>
13
PAGE
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 1998 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
--------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
MACHINERY & ENGINEERING (CONT.)
Tata Engineering & Locomotive Co Telco, GDR, 144A........... India 210,000 $ 567,000
VA Technologie AG........................................... Austria 6,000 585,069
------------
3,229,633
------------
MERCHANDISING 3.7%
Arcadia Group Plc. ......................................... United Kingdom 46,875 248,429
Dayton-Hudson Corp. ........................................ United States 60,000 2,160,000
Debenhams Plc. ............................................. United Kingdom 93,750 506,277
*K Mart Corp. .............................................. United States 60,000 765,000
Safeway Plc. ............................................... United Kingdom 300,000 1,564,829
Storehouse Plc. ............................................ United Kingdom 525,000 1,907,684
------------
7,152,219
------------
METALS & MINING 1.5%
Industrias Penoles SA....................................... Mexico 165,000 395,556
Pechiney SA, A.............................................. France 34,000 1,101,692
RGC Ltd. ................................................... Australia 302,775 373,381
WMC Ltd. ................................................... Australia 400,000 981,980
------------
2,852,609
------------
MISC MATERIALS & COMMODITIES .7%
Golden Hope Plantations Bhd. ............................... Malaysia 748,000 428,935
Unitor ASA.................................................. Norway 70,000 836,707
------------
1,265,642
------------
MULTI-INDUSTRY 2.4%
Alfa SA de CV, A............................................ Mexico 280,500 633,056
Brierley Investments Ltd. .................................. New Zealand 1,200,000 410,399
Cheung Kong Holdings Ltd. .................................. Hong Kong 240,000 929,128
Foster Wheeler Corp. ....................................... United States 55,000 677,188
Hicom Holdings Bhd. ........................................ Malaysia 814,300 118,684
Hutchison Whampoa Ltd. ..................................... Hong Kong 201,500 873,690
Jardine Matheson Holdings Ltd. ............................. Hong Kong 62,336 110,958
*Metro Pacific Corp. MDI.................................... Philippines 10,112,000 150,064
Saha Union Public Co. Ltd., fgn. ........................... Thailand 800,000 219,570
Swire Pacific Ltd., A....................................... Hong Kong 170,000 490,309
Swire Pacific Ltd., B....................................... Hong Kong 100,000 44,843
------------
4,657,889
------------
REAL ESTATE 1.1%
*Catellus Development Corp. ................................ United States 50,000 628,125
Equity Office Properties Trust.............................. United States 33,751 765,726
Inversiones y Representacion SA............................. Argentina 290,000 696,139
*PT Jaya Properties......................................... Indonesia 250,000 4,525
------------
2,094,515
------------
</TABLE>
14
PAGE
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 1998 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
--------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
TELECOMMUNICATIONS 10.7%
Asia Satellite Telecommunications Hldgs. Ltd. .............. Hong Kong 215,000 $ 226,120
British Telecommunications Plc. ............................ United Kingdom 174,000 2,349,855
Compania de Telecomunicaciones de Chile SA, ADR............. Chile 157,325 2,409,039
*Digital Telecommunications Philippines Inc. ............... Philippines 3,218,000 46,286
*Jasmine International Public Co. Ltd., fgn. ............... Thailand 400,000 81,146
Nokia AB, A................................................. Finland 59,000 4,177,575
Northern Telecom, Ltd. ..................................... Canada 35,400 1,703,066
Philippine Long Distance Telephone Co. ..................... Philippines 30,000 496,575
PT Indosat TBK, ADR......................................... Indonesia 9,600 57,600
Rostelecom, ADR............................................. Russia 56,000 203,000
Telecom Argentina Stet-France SA, ADR....................... Argentina 49,200 1,100,850
Telecom Italia SpA.......................................... Italy 297,100 2,293,305
Telefonica de Argentina SA, B, ADR.......................... Argentina 43,600 975,550
Telefonica SA............................................... Spain 51,500 1,925,684
Telefonos de Mexico SA (Telmex), L, ADR..................... Mexico 37,500 1,338,281
*Videsh Sanchar Nigam Ltd. ................................. India 2,500 48,271
Videsh Sanchar Nigam Ltd., GDR, 144A........................ India 114,000 1,111,500
------------
20,543,703
------------
TEXTILES & APPAREL 1.4%
Dawson International Plc. .................................. United Kingdom 265,000 75,437
Kellwood Co. ............................................... United States 30,500 813,969
*PT Indorama Synthetics..................................... Indonesia 793,440 100,526
Shaw Industries Inc. ....................................... United States 108,000 1,633,500
------------
2,623,432
------------
TRANSPORTATION 2.1%
Cathay Pacific Airways Ltd. ................................ Hong Kong 150,000 109,366
Guangshen Railway Co. Ltd., ADR............................. China 74,000 309,875
Kvaerner ASA, A............................................. Norway 24,000 493,542
Mayne Nickless Ltd., A...................................... Australia 445,000 2,313,249
Qantas Airways Ltd., ADR, 144A.............................. Australia 65,000 885,950
------------
4,111,982
------------
UTILITIES ELECTRICAL & GAS 6.1%
British Energy Ltd. ........................................ United Kingdom 325,000 3,110,191
Centrais Eletricas Brasileiras SA (Electrobras)............. Brazil 27,500,000 392,557
Centrais Eletricas Brasileiras SA (Electrobras), ADR........ Brazil 83,000 592,404
*Centrais Geradoras Do Sul Do Brasil SA (Gerasul)........... Brazil 27,500,000 27,806
*Centrais Geradoras Do Sul Do Brasil SA (Gerasul), ADR...... Brazil 5,500 27,806
Endesa SA, br. ............................................. Spain 49,200 934,624
Evn Energie-Versorgung Niederoesterreich AG................. Austria 4,800 659,532
Gener SA, ADR............................................... Chile 21,100 278,256
Guangdong Electric Power Development Co Ltd., B............. China 1,365,000 382,239
Iberdrola SA................................................ Spain 135,000 1,987,614
Korea Electric Power Corp. ................................. South Korea 45,470 585,841
*Nova Corporation........................................... Canada 5,855 68,314
</TABLE>
15
PAGE
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 1998 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
--------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
UTILITIES ELECTRICAL & GAS (CONT.)
Public Service Co. of New Mexico............................ United States 70,000 $ 1,400,000
VEBA AG..................................................... Germany 26,000 1,339,439
------------
11,786,623
------------
TOTAL COMMON STOCKS (COST $140,273,124)..................... 150,873,471
------------
PREFERRED STOCKS 4.5%
Banco Itau SA, pfd. ........................................ Brazil 3,400,000 1,444,473
Cia Vale do Rio Doce, ADR, pfd. ............................ Brazil 46,000 609,737
Concessioni e Costruzioni Autostrade SpA, B, pfd. .......... Italy 490,000 1,969,728
News Corp. Ltd., pfd. ...................................... Australia 312,000 1,701,503
+Telecomunicacoes Brasileiras SA (Telebras), ADR, pfd. ..... Brazil 42,427 2,999,059
------------
TOTAL PREFERRED STOCKS (COST $9,129,824).................... 8,724,500
------------
<CAPTION>
PRINCIPAL
AMOUNT**
--------
<S> <C> <C> <C>
SHORT TERM INVESTMENT (COST $32,532,595) 17.0%
U.S. Treasury Bills, 4.87% to 5.035%, with maturities to
1/21/99................................................... United States $32,783,000 32,548,484
------------
TOTAL INVESTMENTS (COST $181,935,543) 100.1%................ 192,146,455
OTHER ASSETS, LESS LIABILITIES (.1%)........................ (233,383)
------------
TOTAL NET ASSETS 100.0%..................................... $191,913,072
------------
------------
</TABLE>
*Non-income producing.
**Securities traded in U.S. dollars.
+Includes securities of twelve new holding companies deemed received in
conjunction with the "split-up" of Telecomunicacoes Brasileiras SA (Telebras).
See Notes to Financial Statements.
16
PAGE
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1998
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $181,935,543).... $192,146,455
Cash....................................................... 8,956
Receivables:
Investment securities sold................................ 42,997
Capital shares sold....................................... 58,409
Dividends................................................. 456,639
------------
Total assets.......................................... 192,713,456
------------
Liabilities:
Payables:
Investment securities purchased........................... 582,894
Capital shares redeemed................................... 50,337
To affiliates............................................. 70,621
Accrued liabilities........................................ 96,532
------------
Total liabilities..................................... 800,384
------------
Net assets, at value........................................ $191,913,072
------------
------------
Net assets consist of:
Undistributed net investment income........................ $ 3,064,216
Net unrealized appreciation................................ 10,210,912
Accumulated net realized gain.............................. 7,325,003
Capital shares............................................. 171,312,941
------------
Net assets, at value........................................ $191,913,072
------------
------------
Net asset value and maximum offering price per share
($191,913,072 / 19,814,350 shares outstanding)............ $9.69
------------
------------
</TABLE>
See Notes to Financial Statements.
17
PAGE
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1998
<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $494,757)
Dividends.................................................. $4,096,363
Interest................................................... 1,538,597
----------
Total investment income............................... $ 5,634,960
------------
Expenses:
Management fees (Note 3)................................... 1,530,273
Administrative fees (Note 3)............................... 305,449
Custodian fees............................................. 49,210
Reports to shareholders.................................... 254,000
Registration and filing fees............................... 27,500
Professional fees.......................................... 34,748
Directors' fees and expenses............................... 21,800
Other...................................................... 3,028
----------
Total expenses........................................ 2,226,008
Expenses waived/paid by affiliate (Note 3)............ (195,361)
------------
Net expenses...................................... 2,030,647
------------
Net investment income........................... 3,604,313
------------
Realized and unrealized gains (losses):
Net realized gain from:
Investments............................................... 9,813,342
Foreign currency transactions............................. 3,493
----------
Net realized gain..................................... 9,816,835
Net unrealized depreciation on investments............ (31,942,765)
------------
Net realized and unrealized loss............................ (22,125,930)
------------
Net decrease in net assets resulting from operations........ $(18,521,617)
------------
------------
</TABLE>
See Notes to Financial Statements.
18
PAGE
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 3,604,313 $ 2,859,233
Net realized gain from investments and foreign currency
transactions............................................. 9,816,835 2,277,880
Net unrealized appreciation (depreciation) on
investments.............................................. (31,942,765) 25,677,851
-------------------------------
Net increase (decrease) in net assets resulting from
operations............................................ (18,521,617) 30,814,964
Distributions to shareholders from:
Net investment income..................................... (3,044,916) (2,272,093)
Net realized gains........................................ (4,707,546) (1,748,572)
Capital share transactions (Note 2)........................ 45,503,858 37,870,430
-------------------------------
Net increase in net assets.............................. 19,229,779 64,664,729
Net assets:
Beginning of year.......................................... 172,683,293 108,018,564
-------------------------------
-------------------------------
End of year................................................ $191,913,072 $172,683,293
-------------------------------
-------------------------------
Undistributed net investment income included in net assets:
End of year................................................ $ 3,064,216 $ 2,504,819
-------------------------------
-------------------------------
</TABLE>
See Notes to Financial Statements.
19
PAGE
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton Capital Accumulator Fund, Inc. (the Fund) is registered under the
Investment Company Act of 1940 as a diversified, open-end investment company.
Shares of the Fund are offered to the general public only through Templeton
Capital Accumulation Plans. The Fund seeks long term capital growth through a
flexible policy of investing in stocks and debt obligations of companies and
governments of any nation. The following summarizes the Fund's significant
accounting policies.
a. SECURITIES VALUATION:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Directors.
b. FOREIGN CURRENCY TRANSLATION:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date. When
the Fund purchases or sells foreign securities it will customarily enter into a
foreign exchange contract to minimize foreign exchange risk from the trade date
to the settlement date of such transactions.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign currency denominated assets and liabilities other than investments in
securities held at the end of the reporting period.
c. INCOME TAXES:
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute all of its taxable income.
20
PAGE
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Certain income from foreign securities is recorded as soon as information is
available to the Fund. Interest income and estimated expenses are accrued daily.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date.
e. ACCOUNTING ESTIMATES:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
2. CAPITAL STOCK
At August 31, 1998, there were 100 million shares of capital stock authorized
($0.01 par value). Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
------------------------------------------------------------
1998 1997
------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold................................................ 4,444,049 $ 50,031,188 4,160,931 $41,490,628
Shares issued on reinvestment of distributions............. 709,140 7,740,903 438,969 4,009,606
Shares redeemed............................................ (1,086,763) (12,268,233) (751,000) (7,629,804)
------------------------------------------------------------
Net increase............................................... 4,066,426 $ 45,503,858 3,848,900 $37,870,430
------------------------------------------------------------
------------------------------------------------------------
</TABLE>
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Fund are also officers or directors of Templeton
Investment Counsel, Inc. (TICI) and Franklin Templeton Services, Inc. (FT
Services), the Fund's investment manager and administrative manager,
respectively.
21
PAGE
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
The Fund pays an investment management fee to TICI of 0.75% per year of the
average daily net assets of the Fund. The Fund pays an administrative fee to FT
Services based on the Fund's average daily net assets as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- -----------------------------------------------------------------
<S> <C>
0.15% First $200 million
0.135% Over $200 million, up to and including $700 million
0.10% Over $700 million, up to and including $1.2 billion
0.075% Over $1.2 billion
</TABLE>
TICI and FT Services agreed in advance to waive management fees and assume
payment of other expenses that exceed a total of 1% of the Fund's average daily
net assets, as reported in the Statement of Operations.
Legal fees of $12,356 were paid to a law firm in which a partner is an officer
of the Fund.
4. INCOME TAXES
The cost of securities for federal income tax purposes is the same as that shown
in the Statement of Investments. At August 31, 1998, the net unrealized
appreciation based on the cost of investments for income tax purposes was as
follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $ 43,854,456
Unrealized depreciation..................................... (33,643,544)
------------
Net unrealized appreciation................................. $ 10,210,912
------------
------------
</TABLE>
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended August 31, 1998 aggregated $53,010,793 and $20,444,690, respectively.
22
PAGE
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
Independent Auditor's Report
THE BOARD OF DIRECTORS AND SHAREHOLDERS
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Templeton Capital Accumulator Fund, Inc. as of
August 31, 1998, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for the periods indicated in the
accompanying financial statements. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1998, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Templeton Capital Accumulator Fund, Inc. as of August 31, 1998, the results of
its operations, the changes in its net assets and the financial highlights for
the periods indicated, in conformity with generally accepted accounting
principles.
[McGladrey & Pullen, LLP]
New York, New York
September 29, 1998
23
PAGE
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
Tax Designation
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby
designates the following amounts as capital gain dividends for the fiscal year
ended August 31, 1998:
<TABLE>
<S> <C>
28% Rate Gain............................................... $ 196,809
20% Rate Gain............................................... 8,564,085
----------
Total....................................................... $8,760,894
==========
</TABLE>
Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby designates
12.01% of the ordinary income dividends as income qualifying for the dividends
received deduction for the fiscal year ended August 31, 1998.
24
PAGE
LITERATURE REQUEST
For a free brochure and prospectus, which contain more complete information,
including charges and expenses, call Franklin Templeton Fund Information at
1-800/DIAL BEN(R) (1-800/342-5236). Please read the prospectus carefully before
investing or sending money. To ensure the highest quality of service, telephone
calls to or from our service departments may be monitored, recorded and
accessed. These calls can be determined by the presence of a regular beeping
tone.
FRANKLIN TEMPLETON GROUP
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Opportunities Trust
Templeton Global Real Estate Fund
Templeton Global
Smaller Companies Fund
Templeton Greater European Fund
Templeton Growth Fund
Templeton Latin America Fund
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Templeton World Fund
GLOBAL GROWTH AND INCOME
Franklin Global Utilities Fund
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Templeton Global Bond Fund
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GLOBAL INCOME
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Income Fund
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Securities Fund
GROWTH
Franklin Biotechnology
Discovery Fund
Franklin Blue Chip Fund
Franklin California Growth Fund
Franklin DynaTech Fund
Franklin Equity Fund
Franklin Gold Fund
Franklin Growth Fund
Franklin MidCap Growth Fund
Franklin Small Cap
Growth Fund
GROWTH AND INCOME
Franklin Asset Allocation Fund
Franklin Balance Sheet
Investment Fund*
Franklin Convertible
Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Franklin MicroCap Value Fund*
Franklin Natural Resources Fund
Franklin Real Estate
Securities Fund
Franklin Rising Dividends Fund
Franklin Strategic Income Fund
Franklin Utilities Fund
Franklin Value Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual Qualified Fund
Mutual Shares Fund
FUND ALLOCATOR SERIES
Franklin Templeton Conservative
Target Fund
Franklin Templeton Moderate
Target Fund
Franklin Templeton Growth
Target Fund
INCOME
Franklin Adjustable Rate
Securities Fund
Franklin Adjustable U.S.
Government Securities Fund
Franklin's AGE High Income Fund
Franklin Bond Fund
Franklin Floating Rate Trust
Franklin Investment Grade
Income Fund
Franklin Short-Intermediate
U.S. Government Securities Fund
Franklin U.S. Government
Securities Fund
Franklin Money Fund
Franklin Federal Money Fund
FRANKLIN FUNDS SEEKING
TAX-FREE INCOME
Federal Intermediate-Term
Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund
Puerto Rico Tax-Free
Income Fund
Tax-Exempt Money Fund
FRANKLIN STATE-SPECIFIC
FUNDS SEEKING
TAX-FREE INCOME
Alabama
Arizona**
Arkansas***
California**
Colorado
Connecticut
Florida**
Georgia
Hawaii***
Indiana
Kentucky
Louisiana
Maryland
Massachusetts+
Michigan**
Minnesota+
Missouri
New Jersey
New York**
North Carolina
Ohio+
Oregon
Pennsylvania
Tennessee***
Texas
Virginia
Washington***
VARIABLE ANNUITIES++
Franklin Valuemark(R)
Franklin Templeton
Valuemark Income Plus
(an immediate annuity)
*These funds are now closed to new accounts, with the exception of retirement
plan accounts.
**Two or more fund options available: long-term portfolio, intermediate-term
portfolio, a portfolio of insured municipal securities, and/or a high yield
portfolio (CA) and a money market portfolio (CA and NY).
***The fund may invest up to 100% of its assets in bonds that pay interest
subject to the federal alternative minimum tax.
+Portfolio of insured municipal securities.
++Franklin Valuemark and Franklin Templeton Valuemark Income Plus are issued by
Allianz Life Insurance Company of North America or by its wholly owned
subsidiary, Preferred Life Insurance Company of New York, and distributed by
NALAC Financial Plans, LLC. The Franklin Valuemark Funds are managed by Franklin
Advisers, Inc. and its Templeton and Franklin affiliates. 09/98
PAGE
PRINCIPAL UNDERWRITER
Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd.
San Mateo, California 94404-1585
1-800/DIAL BEN(R)
www.franklin-templeton.com
SHAREHOLDER SERVICES
1-800/632-2301
FUND INFORMATION
1-800/342-5236
This report must be preceded or accompanied by the prospectus of Templeton
Capital Accumulator Fund, Inc. which contains more complete information
including risk factors, charges and expenses. Like any investment in securities,
the value of the Fund's portfolio will be subject to the risk of loss from
market, currency, economic, political and other factors, as well as investment
decisions by the Investment Manager which will not always be profitable or wise.
The Fund and its investors are not protected from such losses by the Investment
Manager. Therefore, investors who cannot accept this risk should not invest in
shares of the Fund.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
determined by the presence of a regular beeping tone.
[RECYCLE LOGO] Printed on recycled paper
TLCAP A98 10/98
