Registration No. 33-37338 and 811-6198
As filed with the Securities and Exchange Commission on October 29, 1999
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. 12 [X]
------
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 11 [X]
-----
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
500 E BROWARD BOULEVARD, FORT LAUDERDALE, FLORIDA 33394
--------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(954) 527-7500
---------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Deborah R. Gatzek, 777 Mariners Island Blvd., San Mateo, CA 94404
------------------------------------------------------------------
(Name and Address of Agent for Service of Process)
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on (DATE) pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[X] on JANUARY 1, 2000 pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for
a previously filed post-effective amendment
PART A
Prospectus
Templeton Capital Accumulator Fund, Inc.
INVESTMENT STRATEGY Growth
JANUARY 1, 2000
[Insert Franklin Templeton Ben Head]
You may not purchase fund shares directly. You may acquire fund shares only by
investing in Templeton Capital Accumulation Plans (the Plans or Plan). Depending
upon your monthly investment amount, the sales charges on the first 12
investments made in the first year of a Plan can be 50% of the total amount you
invest during that year. The Plans are not suitable for short-term investment.
Details of the Plans, including all charges, are in the attached prospectus for
the Plans. Please read the Plan prospectus before investing and keep it for
future reference.
The SEC has not approved or disapproved these securities or passed upon the
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
CONTENTS
THE FUND
[Begin callout]
INFORMATION ABOUT THE FUND YOU SHOULD KNOW BEFORE INVESTING
[End callout]
[insert page #] Goal and Strategies
[insert page #] Main Risks
[insert page #] Performance
[insert page #] Fees and Expenses
[insert page #] Management
[insert page #] Distributions and Taxes
[insert page #] Financial Highlights
YOUR ACCOUNT
[Begin callout]
INFORMATION ABOUT SALES CHARGES, ACCOUNT TRANSACTIONS AND SERVICES
[End callout]
[insert page #] Sales Charges
[insert page #] Buying Shares
[insert page #] Investor Services
[insert page #] Selling Shares
[insert page #] Account Policies
[insert page #] Questions
FOR MORE INFORMATION
[Begin callout]
WHERE TO LEARN MORE ABOUT THE FUND
[End callout]
Back Cover
THE FUND
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
GOAL The fund's investment goal is long-term capital growth.
PRINCIPAL INVESTMENTS The fund normally invests in equity securities and debt
obligations of companies and governments of any nation.
Equity securities generally entitle the holder to participate in a company's
general operating results. Equity securities include common stock, preferred
stock, convertible securities, warrants or rights. The fund's primary
investments are in common stock. In selecting equity securities, the manager
does a company-by-company analysis, rather than focusing on a specific industry
or economic sector. The manager concentrates primarily on the market price of a
company's securities relative to its view regarding the company's long-term
earnings potential. A company's historical value measures, including
price/earnings ratios, profit margins and liquidation value, also will be
considered.
Debt securities represent an obligation of the issuer to repay a loan of money
to it, and generally provides for the payment of interest. These include bonds,
notes and debentures, commercial paper, time deposits, bankers' acceptances, and
structured investments. The fund may buy both rated and unrated debt securities.
The fund may invest in American, European and Global Depositary Receipts.
Depositary receipts are certificates typically issued by a bank or trust company
that give their holders the right to receive securities issued by a foreign or
domestic corporation.
TEMPORARY INVESTMENTS The manager may take a temporary defensive position when
it believes the securities trading markets or the economies of countries where
the fund invests are experiencing excessive volatility or a prolonged general
decline, or other adverse conditions exist. Under these circumstances, the fund
may be unable to pursue its investment goal because it may not invest or may
invest substantially less in equity securities and debt obligations of companies
and governments of any nations.
[Insert graphic of chart with line going up and down] MAIN RISKS
[Begin callout]
Because the securities the fund holds fluctuate in price, the value of your
investment in the fund will go up and down. This means you could lose money over
short or even extended periods.
[End callout]
STOCKS While stocks historically have outperformed other asset classes over the
long term, they tend to go up and down more dramatically over the short term.
These price movements may result from factors affecting individual companies,
industries or the securities market as a whole.
FOREIGN SECURITIES Securities of companies and governments located outside the
U.S. may involve risks that can increase the potential for losses in the fund.
Investments in depositary receipts also involve some or all of the following
risks.
COUNTRY. General securities market movements in any country where the fund has
investments are likely to affect the value of the securities the fund owns that
trade in that country. These movements will affect the fund's share price and
fund performance.
The political, economic and social structures of some countries the fund invests
in may be less stable and more volatile than those in the U.S. The risks of
investing in these countries include the possibility of the imposition of
exchange controls, currency devaluations, foreign ownership limitations,
expropriation, restrictions on removal of currency and other assets,
nationalization of assets, punitive taxes and certain custody and settlement
risks.
The fund's investments in developing or emerging markets are subject to all of
the risks of foreign investing generally, and have additional heightened risks
due to a lack of established legal, political, business and social frameworks to
support securities markets. Foreign securities markets, including emerging
markets, may have substantially lower trading volumes than U.S. markets,
resulting in less liquidity and more volatility than in the U.S. While
short-term volatility in these markets can be disconcerting, declines of more
than 50% are not unusual.
COMPANY. Foreign companies are not subject to the same disclosure, accounting,
auditing and financial reporting standards and practices as U.S. companies and
their securities may not be as liquid as securities of similar U.S. companies.
Foreign stock exchanges, trading systems, brokers and companies generally have
less government supervision and regulation than in the U.S. The fund may have
greater difficulty voting proxies, exercising shareholder rights, pursuing legal
remedies and obtaining judgments with respect to foreign investments in foreign
courts than with respect to U.S. companies in U.S. courts. Foreign markets and
their participants generally have less government supervision and regulation
than in the U.S.
CURRENCY To the extent the fund's investments are denominated in foreign
currencies, changes in foreign currency exchange rates will affect the value of
what the fund owns and the fund's share price. Generally, when the U.S. dollar
rises in value against a foreign currency, an investment in that country loses
value because that currency is worth fewer U.S. dollars. Devaluation of a
currency by a country's government or banking authority also will have a
significant impact of the value of any securities denominated in that currency.
Currency markets generally are not as regulated as securities markets.
EURO. On January 1, 1999, the European Monetary Union (EMU) introduced a new
single currency, the euro, which will replace the national currency for
participating member countries.
Because this change to a single currency is new and untested, it is not possible
to predict the impact of the euro on the business or financial condition of
European issuers which the fund may hold in its portfolio, and their impact on
fund performance. To the extent the fund holds non-U.S. dollar (euro or other)
denominated securities, it will still be exposed to currency risk due to
fluctuations in those currencies versus the U.S. dollar.
INCOME Since the fund can only distribute what it earns, the fund's
distributions to shareholders may decline when interest rates fall.
CREDIT There is the possibility that an issuer will be unable to make interest
payments and repay principal. Changes in an issuer's financial strength or in a
security's credit rating may affect a security's value and, thus, impact fund
performance.
INTEREST RATE When interest rates rise, debt security prices fall. The opposite
is also true: debt security prices rise when interest rates fall. In general,
securities with longer maturities are more sensitive to these price changes.
MARKET A security's value may be reduced by market activity or the results of
supply and demand. This is a basic risk associated with all securities. When
there are more sellers than buyers, prices tend to fall. Likewise, when there
are more buyers than sellers, prices tend to rise.
YEAR 2000 When evaluating current and potential portfolio positions, Year 2000
is one of the factors the manager considers.
The manager will rely upon public filings and other statements made by companies
about their Year 2000 readiness. Companies in countries outside the U.S.,
particularly in emerging markets, may be more susceptible to Year 2000 risks and
may not be required to make the same level of disclosure about Year 2000
readiness as is required in the U.S. The manager, of course, cannot audit each
company and its major suppliers to verify their Year 2000 readiness.
If a company in which the fund is invested is adversely affected by Year 2000
problems, it is likely that the price of its securities also will be adversely
affected. A decrease in the value of one or more of the fund's portfolio
holdings will have a similar impact on the fund's performance. Please see page
[#] for more information.
More detailed information about the fund, its policies (including temporary
investments), and risks and bond ratings can be found in the fund's Statement of
Additional Information (SAI).
[Begin callout]
Mutual fund shares 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. Mutual fund shares involve investment risks, including the possible
loss of principal.
[End callout]
[Insert graphic of a bull and a bear] PERFORMANCE
This bar chart and table show the volatility of the fund's returns, which is one
indicator of the risks of investing in the fund. The bar chart shows changes in
the fund's returns from year to year over the past 8 calendar years. The table
shows how the fund's average annual total returns compare to those of a
broad-based securities market index. Of course, past performance cannot predict
or guarantee future results.
ANNUAL TOTAL RETURNS/1/
[Insert bar graph]
[]% []% []% []% []% []% []% []% []% []%
89 90 91 92 93 94 95 96 97 98
YEAR
[Begin callout]
BEST QUARTER:
Q[] '[] []%
WORST QUARTER:
Q[] '[] []%
[End callout]
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 199[]
SINCE
INCEPTION
1 YEAR 5 YEARS (3/1/91)
- --------------------------------------- ------------- ----------- ------------
Templeton Capital Accumulator Fund/2/ []% []% []%
[] Index/3/ []% []% []%
1. Figures do not reflect sales charges. If they did, returns would be lower.
[As of September 30, 1999, the fund's year-to-date return was []%.]
2. Figures reflect sales charges. All fund performance assumes reinvestment of
dividends and capital gains.
3. [Source: Standard & Poor's(R) Micropal.] The [] Index []. One cannot invest
directly in an index, nor is an index representative of the fund's portfolio.
[Insert graphic of percentage sign] FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- -------------------------------------------------------------- -------------
Maximum sales charge (load) as a percentage of offering price None
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
- ------------------------ ------------
Management fees %
Other expenses %
------------
Total annual fund operating expenses %
============
EXAMPLE
This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds. It assumes:
o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year;
o The fund's operating expenses remain the same; and
o You sell your shares at the end of the periods shown.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------- ---------------- --------------- --------------- ----------------
$[] $[] $[] $[]
The expense summary shows only the expenses of the fund. THE PLANS CHARGE YOU A
SEPARATE SALES CHARGE TO COMPENSATE DISTRIBUTORS FOR CREATING THE PLANS AND TO
PAY SELLING EXPENSES AND COMMISSIONS TO SECURITIES DEALERS. We deduct this
charge from each monthly investment that you make. The charge will vary
according to the size of your monthly investment. For example, on a $100 per
month Plan, $50 is deducted from each of the first 12 monthly investments. After
that, the charge drops to $6.07 on each subsequent monthly investment. For
details concerning sales charges, see the accompanying prospectus for the Plans.
[Insert graphic of briefcase] MANAGEMENT
Templeton Investment Counsel, Inc. (Investment Counsel), is the fund's
investment manager. Together, Investment Counsel and its affiliates manage over
$222 billion in assets.
The fund's lead portfolio manager is:
GARY P. MOTYL CFA, DIRECTOR AND Executive Vice President of Investment Counsel
Mr. Motyl has been a manager of the fund since 1993. He joined the Franklin
Templeton Group in 1981.
The following individuals have secondary portfolio management responsibilities:
MARK R. BEVERIDGE CFA, Senior Vice President of Investment Counsel
Mr. Beveridge has been a manager of the fund since 19[]. He joined the Franklin
Templeton Group in 1985.
GUANG YANG CFA, VICE PRESIDENT OF INVESTMENT COUNSEL
Mr. Yang has been a manager of the fund since 19[]. He joined the Franklin
Templeton Group in 1995.
The fund pays Investment Counsel a fee for managing the fund's assets and making
its investment decisions. For the fiscal year ended August 31, 1999, the fund
paid []% of its average daily net assets to the manager.
YEAR 2000 PROBLEM The fund's business operations depend on a worldwide network
of computer systems that contain date fields, including securities trading
systems, securities transfer agent operations and stock market links. Many of
the systems currently use a two digit date field to represent the date, and
unless these systems are changed or modified, they may not be able to
distinguish the Year 1900 from the Year 2000 (commonly referred to as the Year
2000 problem). In addition, the fact that the Year 2000 is a leap year may
create difficulties for some systems.
When the Year 2000 arrives, the fund's operations could be adversely affected if
the computer systems used by the manager, its service providers and other third
parties it does business with are not Year 2000 ready. For example, the fund's
portfolio and operational areas could be impacted, including securities trade
processing, interest and dividend payments, securities pricing, shareholder
account services, reporting, custody functions and others. The fund could
experience difficulties in effecting transactions if any of its foreign
subcustodians, foreign broker-dealers or foreign markets are not ready for Year
2000.
The fund's manager and its affiliated service providers are making a concerted
effort to take steps they believe are reasonably designed to address their Year
2000 problems. Of course, the fund's ability to reduce the effects of the Year
2000 problem is also very much dependent upon the efforts of third parties over
which the fund and its manager may have no control.
[Insert graphic of dollar
signs and stacks of coins] DISTRIBUTIONS AND TAXES
INCOME AND CAPITAL GAINS DISTRIBUTIONS The fund intends to pay a dividend at
least annually representing substantially all of its net investment income and
any net realized capital gains. The amount of this distribution will vary and
there is no guarantee the fund will pay dividends.
To receive a distribution, you must be a shareholder on the record date. The
record date for the fund's distributions will vary. Please keep in mind that if
you invest in the fund shortly before the record date of a distribution, any
distribution will lower the value of the fund's shares by the amount of the
distribution and you will receive some of your investment back in the form of a
taxable distribution. If you would like information on upcoming record dates for
the fund's distributions, please call 1-800/DIAL BEN(R). TAX CONSIDERATIONS In
general, fund distributions are taxable to you as either ordinary income or
capital gains. This is true whether you reinvest your distributions in
additional fund shares or receive them in cash. Any capital gains the fund
distributes are taxable to you as long-term capital gains no matter how long you
have owned your shares.
[Begin callout]
BACKUP WITHHOLDING
By law, the fund must withhold 31% of your taxable distributions and proceeds if
you do not provide your correct social security or taxpayer identification
number, or if the IRS instructs the fund to do so.
[End callout]
Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.
When you sell your shares of the fund, you may have a capital gain or loss. For
tax purposes, an exchange of your fund shares for shares of a different Franklin
Templeton Fund is the same as a sale. The individual tax rate on any gain from
the sale or exchange of your shares depends on your marginal tax rate and on how
long you have held your shares.
Fund distributions and gains from the sale or exchange of your shares generally
will be subject to state and local income tax. Any foreign taxes the fund pays
on its investments may be passed through to you as a foreign tax credit.
Non-U.S. investors may be subject to U.S. withholding and estate tax. You should
consult your tax advisor about the federal, state, local or foreign tax
consequences of your investment in the fund.
[Insert graphic of a dollar bill] FINANCIAL HIGHLIGHTS
This table presents the fund's financial performance for the past five years.
This information has been audited by PricewaterhouseCoopers LLP.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
- ---------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- --------------------------------------- ------------- ------------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA ($)
Net asset value,
beginning of year
------------- ------------- ------------- ------------- ---------
Net investment income [(loss)]
Net realized and unrealized
gains [(losses)]
------------- ------------- ------------- ------------- ---------
Total from investment operations
------------- ------------- ------------- ------------- ---------
[Dividends][Distributions]
from net investment income
In excess of net investment
income
Distributions from net
realized gains
------------- ------------- ------------- ------------- ---------
Total distributions
------------- ------------- ------------- ------------- ---------
Net asset value, end of year
------------- ------------- ------------- ------------- ---------
Total return (%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
($ x 1,000)
Ratios to average net assets: (%)
Expenses
[Expenses excluding waiver and payments
by affiliate]
Net investment income
Portfolio turnover rate (%)
</TABLE>
YOUR ACCOUNT
[Insert graphic of a paper with lines
and someone writing] BUYING SHARES
You may purchase shares of the fund only by investing in the Plans. Details of
the Plans, including the terms of the offering, are in the attached Plan
prospectus. Except where Planholders have received fund shares in a Plan
liquidation or partial withdrawal from a Plan we do not expect that any person,
other than the Plan custodian, will directly hold any fund shares.
No securities dealer, salesman, or other person is 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, Investment
Counsel, or Franklin Templeton Distributors, Inc.
Except for the fact that the fund's shares are available only through the Plans,
the fund does not represent an investment concept that is new or different from
other investment companies for which Investment Counsel or its affiliates acts
as an investment manager. The fund's investment goal of long-term capital growth
is similar to the goal of certain other Franklin Templeton Funds.
[Begin callout]
The FRANKLIN TEMPLETON FUNDS include all of the Franklin Templeton U.S.
registered mutual funds, except Franklin Templeton Variable Insurance Products
Trust, Templeton Capital Accumulator Fund, Inc., and Templeton Variable Products
Series Fund.
[End callout]
[Insert graphic of person with a headset] INVESTOR SERVICES
AUTOMATIC INVESTMENT PLAN This service offers a convenient way for you to invest
in the Plan by automatically transferring money from your checking or savings
account each month to buy Plan shares.
DISTRIBUTION OPTIONS Distributions you receive from the fund are automatically
reinvested in your account. You can also have your distributions deposited in a
bank account, or mailed by check. Deposits to a bank account may be made by
electronic funds transfer.
[Begin callout]
For Franklin Templeton Trust Company retirement plans, special forms may be
needed to receive distributions in cash. Please call 1-800/527-2020 for
information.
[End callout]
TELEFACTS(R) Our TeleFACTS system offers around-the-clock access to information
about your account or any Franklin Templeton Fund. This service is available
from touch-tone phones at 1-800/247-1753. For a free TeleFACTS brochure, call
1-800/DIAL BEN.
TELEPHONE PRIVILEGES You may initiate many transactions and changes to your
account by phone. Please refer to the sections of this prospectus that discuss
the transaction you would like to make or call Shareholder Services.
When you call, we will request personal or other identifying information to
confirm that your instructions are genuine. We may also record calls. 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 us written
instructions, as described elsewhere in this prospectus.
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. We also will not be liable for any loss if we
follow instructions by phone that we reasonably believe are genuine or if you
are unable to execute a transaction by phone.
EXCHANGE PRIVILEGE If you liquidate a Plan or withdraw Plan shares, you can move
your investment to an existing Franklin Templeton Fund, generally without paying
any additional sales charges. In the case of an exchange into a Franklin
Templeton Fund that offers multiclasses of shares, you would receive Class A
shares, which generally have lower Rule 12b-1 distribution fees than Class B and
Class C shares of the same fund.
NO EXCHANGES INTO THE FUND FROM OTHER FRANKLIN TEMPLETON FUNDS WILL BE ACCEPTED.
[Begin callout]
An EXCHANGE is really two transactions: a sale of one fund and the purchase of
another. In general, the same policies that apply to purchases and sales apply
to exchanges, including minimum investment amounts. Exchanges also have the same
tax consequences as ordinary sales and purchases.
[End callout]
Generally exchanges may only be made between identically registered accounts,
unless you send written instructions with a signature guarantee.
Frequent exchanges can interfere with fund management or operations and drive up
costs for all shareholders. To protect the fund, there are limits on the number
and amount of exchanges you may make if we believe (i) the fund would be harmed
or unable to invest effectively, or (ii) the fund receives or anticipates
simultaneous orders that may significantly affect the fund.
SYSTEMATIC WITHDRAWAL PLAN This plan allows you to automatically sell your
shares and receive regular payments from your account. Certain terms and
minimums apply.
[Insert graphic of a certificate] SELLING SHARES
If you liquidate your Plan or withdraw Plan shares, you may sell the fund shares
that you receive at any time.
SELLING SHARES IN WRITING Generally, requests to sell $100,000 or less can be
made over the phone or with a simple letter. Sometimes, however, to protect you
and the fund we will need written instructions signed by all registered owners,
with a signature guarantee for each owner, if:
[Begin callout]
A SIGNATURE GUARANTEE helps protect your account against fraud. You can obtain a
signature guarantee at most banks and securities dealers.
A notary public CANNOT provide a signature guarantee.
[End callout]
o you are selling more than $100,000 worth of shares
o you want your proceeds paid to someone who is not a registered owner
o you want to send your proceeds somewhere other than the address of
record, or preauthorized bank or brokerage firm account
We also may require a signature guarantee on instructions we receive from an
agent, not the registered owners, or when we believe it would protect the fund
against potential claims based on the instructions received.
REDEMPTION PROCEEDS Your redemption check will be sent within seven days after
we receive your request in proper form. We are not able to receive or pay out
cash in the form of currency. Redemption proceeds may be delayed if we have not
yet received your signed account application.
RETIREMENT PLANS You may need to complete additional forms to sell shares in a
Franklin Templeton Trust Company retirement plan. For participants under age
59 1/2, tax penalties may apply. Call Retirement Plan Services at 1-800/527-2020
for details.
<TABLE>
<CAPTION>
SELLING SHARES
- ------------------------------------- -----------------------------------------
TO SELL SOME OR ALL OF YOUR SHARES
- ------------------------------------- -----------------------------------------
<S> <C>
[Insert graphic of hands shaking]
THROUGH YOUR INVESTMENT Contact your investment representative
REPRESENTATIVE
- ------------------------------------- -----------------------------------------
[Insert graphic of envelope] Send written instructions to Templeton
Funds Trust Company (TFTC). Corporate,
BY MAIL partnership or trust accounts may need to
send additional documents.
Specify the fund, the account number and
the dollar value or number of shares you
wish to sell. Be sure to include all
necessary signatures and any additional
documents, as well as signature guarantees
if required.
A check will be mailed to the name(s) and
address on the account, or otherwise
according to your written instructions.
- ------------------------------------- -----------------------------------------
[Insert graphic of phone] As long as your transaction is for at
least 90% of your Plan account value and
$100,000 or less and you have not changed
your address by phone within the last 15
BY PHONE days, you can sell your shares by phone.
1-800/632-2301 A check will be mailed to the name(s) and
address on the account. Written
instructions, with a signature guarantee,
are required to send the check to another
address or to make it payable to another
person.
- ------------------------------------- -----------------------------------------
[Insert graphic of three lightning You can call or write to have redemption
bolts] proceeds sent to a bank account. See the
policies above for selling shares by mail
or phone.
Before requesting to have redemption
proceeds sent to a bank account, please
make sure we have your bank account
information on file. If we do not have
BY ELECTRONIC FUNDS TRANSFER (ACH) this information, you will need to send
written instructions with your bank's
name and address, a voided check or
savings account deposit slips, and a
signature guarantee if the ownership of
the bank and fund accounts is different.
If we receive your request in proper form
by 1:00 p.m. pacific time, proceeds sent
by ACH generally will be available within
two to three business days.
- ------------------------------------- -----------------------------------------
[Insert graphic of two arrows Obtain a current prospectus for the fund
pointing in opposite directions] you are considering.
Call Shareholder Services at the number
below or our automated TeleFACTS system,
BY EXCHANGE or send signed written instructions.
See the policies above for selling shares
by mail or phone.
TeleFACTS(R) 1-800/247-1753
(around-the-clock access)
- ------------------------------------- -----------------------------------------
</TABLE>
TEMPLETON FUNDS TRUST COMPANY 500 EAST BROWARD BLVD.,
FORT LAUDERDALE, FL 33394-3091
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)
[Insert graphic of paper and pen] ACCOUNT POLICIES
CALCULATING SHARE PRICE The fund calculates the net asset value per share (NAV)
each business day at the close of trading on the New York Stock Exchange
(normally 1:00 p.m. pacific time). The fund's NAV is calculated by dividing its
net assets by the number of its shares outstanding.
[Begin callout]
You may buy fund shares only by buying shares in a Plan.
[End callout]
The fund's assets are generally valued at their market value. If market prices
are unavailable, or if an event occurs after the close of the trading market
that materially affects the values, assets may be valued at their fair value. If
the fund holds securities listed primarily on a foreign exchange that trades on
days when the fund is not open for business, the value of your shares may change
on days that you cannot buy or sell shares.
Requests to buy and sell shares are processed at the NAV next calculated after
we receive your request in proper form.
ACCOUNTS WITH LOW BALANCES If the value of your account falls below $250 ($50
for employee and UGMA/UTMA accounts) because you sell some of your shares, we
may mail you a notice asking you to bring the account back up to $1,000 or its
applicable minimum investment amount. If you choose not to do so within 30 days,
we may close your account and mail the proceeds to the address of record.
STATEMENTS AND REPORTS You will receive statements that show your account
transactions. You also will receive the fund's financial reports every six
months. To reduce fund expenses, we try to identify related shareholders in a
household and send only one copy of the financial reports. If you need
additional copies, please call 1-800/DIAL BEN.
If there is a dealer or other investment representative of record on your
account, he or she also will receive statements and other information about your
account directly from the fund.
STREET OR NOMINEE ACCOUNTS You may transfer your shares from the street or
nominee name account of one dealer to another, as long as both dealers have an
agreement with Franklin Templeton Distributors, Inc. We will process the
transfer after we receive authorization in proper form from your delivering
securities dealer.
JOINT ACCOUNTS Unless you specify a different registration, accounts with two or
more owners are registered as "joint tenants with rights of survivorship" (shown
as "Jt Ten" on your account statement). To make any ownership changes to a joint
account, all owners must agree in writing, regardless of the law in your state.
ADDITIONAL POLICIES Please note that the fund maintains additional policies and
reserves certain rights, including:
o The fund may modify or discontinue the exchange privilege on 60 days'
notice.
o In unusual circumstances, we may temporarily suspend redemptions, or
postpone the payment of proceeds, as allowed by federal securities laws.
o For redemptions over a certain amount, the fund reserves the right to make
payments in securities or other assets of the fund, in the case of an
emergency or if the payment by check, wire or electronic funds transfer
would be harmful to existing shareholders.
o To permit investors to obtain the current price, dealers are responsible
for transmitting all orders to the fund promptly.
[Insert graphic of question mark]QUESTIONS
If you have any questions about your account, you can write to us at P.O. Box
33030, St. Petersburg, FL 33733-8030. You can also call us at one of the
following numbers. For your protection and to help ensure we provide you with
quality service, all calls may be monitored or recorded.
HOURS (PACIFIC TIME,
DEPARTMENT NAME TELEPHONE NUMBER MONDAY THROUGH FRIDAY)
- ------------------------------ ------------------- ---------------------------
TCAP Dedicated Service Group 1-888/881-TCAP 6:00 a.m. to 5:00 p.m.
FOR MORE INFORMATION
You can learn more about the Plan and fund in the following documents:
ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS
Includes a discussion of recent market conditions and fund strategies, financial
statements, detailed performance information, portfolio holdings, and the
auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more information about the Plan and fund, their investments and
policies. It is incorporated by reference (is legally a part of this
prospectus).
For a free copy of the current annual/semiannual report or the SAI, please
contact your investment representative or call us at the number below.
FRANKLIN(R)TEMPLETON(R)
1-800/DIAL BEN(R) (1-800/342-5236)
TDD (Hearing Impaired) 1-800/851-0637
www.franklintempleton.com
You can also obtain information about the Plan and fund by visiting the SEC's
Public Reference Room in Washington, D.C. (phone 1-800/SEC-0330) or by sending
your request and a duplicating fee to the SEC's Public Reference Section,
Washington, D.C. 20549-6009. You can also visit the SEC's Internet site at
http://www.sec.gov.
Investment Company Act file #811-6198 TLCAP P 01/00
PART B
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 1, 2000
P.O. BOX 33030
ST. PETERSBURG, FL 33733-8030 1-800/DIAL BEN(R)
This Statement of Additional Information (SAI) is not a prospectus. It contains
information in addition to the information in the fund's prospectus. The fund's
prospectus, dated January 1, 2000, which we may amend from time to time,
contains the basic information you should know before investing in the fund. You
should read this SAI together with the fund's prospectus.
The audited financial statements and auditor's report in the fund's Annual
Report to Shareholders, for the fiscal year ended August 31, 1999, are
incorporated by reference (are legally a part of this SAI).
For a free copy of the current prospectus or annual report, contact your
investment representative or call 1-800/DIAL BEN (1-800/342-5236).
CONTENTS
Goal and Strategies
Risks
Officers and Directors
Management and Other Services
Portfolio Transactions
Distributions and Taxes
Organization, Voting Rights and Principal Holders
Buying and Selling Shares
Pricing Shares
The Underwriter
Performance
Miscellaneous Information
Description of Ratings
- -------------------------------------------------------------------------------
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
o ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;
o ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK;
o ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
- -------------------------------------------------------------------------------
GOAL AND STRATEGIES
- -------------------------------------------------------------------------------
The fund's investment goal is long-term capital appreciation. This goal is
fundamental, which means it may not be changed without shareholder approval. The
fund tries to achieve its goal by investing primarily in the equity and debt
securities of companies and governments of any nation.
GENERAL The fund may invest up to 100% of its total assets in any foreign
country, developed or developing or emerging markets, including up to 5% of its
total assets in Russian securities. The fund may invest up to 15% of its total
assets in foreign securities that are not listed on a recognized U.S. or foreign
securities exchange. The fund may invest no more than 5% of its total assets in
securities of any one company or government. The fund may invest an unlimited
amount in 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. The
fund may invest up to 5% of its assets in warrants (excluding warrants acquired
in units or attached securities).
EQUITY SECURITIES The purchaser of an equity security typically receives an
ownership interest in the company as well as certain voting rights. The owner of
an equity security may participate in a company's success through the receipt of
dividends which are distributions of earnings by the company to its owners.
Equity security owners may also participate in a company's success or lack of
success through increases or decreases in the value of the company's shares as
traded in the public trading market for such shares. Equity securities generally
take the form of common stock or preferred stock. Preferred stockholders
typically receive greater dividends but may receive less appreciation than
common stockholders and may have greater voting rights as well. Equity
securities may also include convertible securities, warrants or rights.
Convertible securities typically are debt securities or preferred stocks which
are convertible into common stock after certain time periods or under certain
circumstances. Warrants or rights give the holder the right to purchase a common
stock at a given time for a specified price.
DEPOSITARY RECEIPTS Depositary receipts are certificates that give their holders
the right to receive securities (a) of a foreign issuer deposited in a U.S. bank
or trust company (American Depositary Receipts, ADRs); or (b) of a foreign or
U.S. issuer deposited in a foreign bank or trust company (Global Depositary
Receipts, GDRs or European Depositary Receipts, EDRs).
DEBT SECURITIES A debt security typically has a fixed payment schedule which
obligates the issuer to pay interest to the lender and to return the lender's
money over a certain time period. A company typically meets its payment
obligations associated with its outstanding debt securities before it declares
and pays any dividend to holders of its equity securities. Bonds, notes,
debentures and commercial paper differ in the length of the issuer's payment
schedule, with bonds carrying the longest repayment schedule and commercial
paper the shortest.
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 per share. 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, lower
rated and unrated debt securities generally involve greater volatility of price
and risk to principal and income, including the possibility of default by, or
bankruptcy of, the issuers of the securities. In addition, the markets in which
lower 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 its 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 values 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
goal may, to the extent of the 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 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.
LOANS OF PORTFOLIO SECURITIES To generate additional income, the fund may lend
certain of its portfolio securities to qualified banks and broker-dealers. These
loans may not exceed 33 1/3% of the value of the fund's total assets, measured
at the time of the most recent loan. For each loan, the borrower must maintain
with the fund's custodian collateral (consisting of any combination of cash,
securities issued by the U.S. government and its agencies and instrumentalities,
or irrevocable letters of credit) with a value at least equal to 102% of the
current market value of the loaned securities in the U.S. and 105% of the
current market value of loaned securities issued outside the U.S. 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 also continues to
receive any distributions paid on the loaned securities. The fund may terminate
a loan at any time and obtain the return of the securities loaned within the
normal settlement period for the security involved.
Where voting rights with respect to the loaned securities pass with the lending
of the securities, the manager intends to call the loaned securities to vote
proxies, or to use other practicable and legally enforceable means to obtain
voting rights, when the manager has knowledge that, in its opinion, a material
event affecting the loaned securities will occur or the manager otherwise
believes it necessary to vote. As with other extensions of credit, there are
risks of delay in recovery or even loss of rights in collateral in the event of
default or insolvency of the borrower. The fund will loan its securities only to
parties who meet creditworthiness standards approved by the fund's board of
directors, i.e., banks or broker-dealers that the manager has determined present
no serious risk of becoming involved in bankruptcy proceedings within the time
frame contemplated by the loan.
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 purchase
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 flows 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 flows
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 leveraged 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 Investment Company Act of 1940 (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.
REPURCHASE AGREEMENTS The fund generally will have a portion of its assets in
cash or cash equivalents for a variety of reasons, including waiting for a
special investment opportunity or taking a defensive position. To earn income on
this portion of its assets, the fund may enter into repurchase agreements. Under
a repurchase agreement, the fund agrees to buy securities guaranteed as to
payment of principal and interest by the U.S. government or its agencies from a
qualified bank or broker-dealer and then to sell the securities back to the bank
or broker-dealer after a short period of time (generally, less than seven days)
at a higher price. The bank or broker-dealer must transfer to the fund's
custodian securities with an initial market value of at least 102% of the dollar
amount invested by the fund in each repurchase agreement. The manager 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 bank or broker-dealer, including possible delays or restrictions upon the
fund's ability to sell the underlying securities. The fund will enter into
repurchase agreements only with parties who meet certain creditworthiness
standards, i.e., banks or broker-dealers that the manager has determined present
no serious risk of becoming involved in bankruptcy proceedings within the time
frame contemplated by the repurchase transaction.
BORROWING The fund may borrow up to one-third of the value of its total assets
from banks to increase its holdings of portfolio securities. Under the 1940 Act,
the fund is required to maintain continuous asset coverage of 300% with respect
to such borrowings and to sell (within three days) sufficient portfolio holdings
to restore such coverage if it should decline to less than 300% due to market
fluctuations or otherwise, even if such liquidations of the fund's holdings may
be disadvantageous from an investment standpoint. Leveraging by means of
borrowing may exaggerate the effect of any increase or decrease in the value of
portfolio securities on the fund's net asset value, and money borrowed will be
subject to interest and other costs (which may include commitment fees and/or
the cost of maintaining minimum average balances), which may or may not exceed
the income or gains received from the securities purchased with borrowed funds.
FUTURES CONTRACTS Although the fund has the authority to buy and sell financial
futures contracts, it presently has no intention of entering into such
transactions. Although some financial futures contracts call for making or
taking delivery of the underlying securities, in most cases these obligations
are closed out before the settlement date. The closing of a contractual
obligation is accomplished by purchasing or selling an identical offsetting
futures contract. Other financial futures contracts by their terms call for cash
settlements.
The fund also may buy and sell index futures contracts with respect to any stock
index traded on a recognized stock exchange or board of trade. An index futures
contract is a contract to buy or sell units of an index at a specified future
date at a price agreed upon when the contract is made. 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.
The fund may not commit more than 5% of its total assets to initial margin
deposits on futures contracts and related options. In addition, the value of the
securities on which the futures contracts are based will not exceed 25% of the
fund's total assets.
At the time the fund purchases a futures contract, an amount of cash, U.S.
government securities, or other highly liquid debt securities equal to the
market value of the futures contract will be deposited in a segregated account
with the fund's custodian. When writing a 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 the instruments underlying the contract
(or, in the case of an index futures contract, 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).
OPTIONS ON SECURITIES OR INDICES Although the fund has the authority to write
covered call and put options and purchase call and put options on securities or
stock indices that are traded on U.S. and foreign exchanges and in the
over-the-counter markets, it presently has no intention of entering into such
transactions. An option on a security is a contract that gives the purchaser of
the option, in return for the premium paid, the right to buy a specified
security (in the case of a call option) or to sell a specified security (in the
case of a put option) from or to the writer of the option at a designated price
during the term of the option. An option on a securities index gives 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 will limit the sale of
options on its securities to 15% or less of its total assets. The fund may only
buy options if the total premiums it paid for such options is 5% or less of its
total assets.
The fund may write a call or put option to generate income only if the option is
"covered." A call option on a security written by the fund is "covered" if the
fund owns the underlying security covered by the call or has an absolute and
immediate right to acquire that security without additional cash consideration
(or for additional cash consideration held in a segregated account by its
custodian) upon conversion or exchange of other securities held in its
portfolio. A call option on a security is also "covered" if the fund holds a
call on the same security and in the same principal amount as the call written
where the exercise price of the call held (1) is equal to or less than the
exercise price of the call written or (2) is greater than the exercise price of
the call written if the difference is maintained by the fund in cash or high
grade U.S. government securities in a segregated account with its custodian. A
put option on a security written by the fund is "covered" if the fund maintains
cash or fixed income securities with a value equal to the exercise price in a
segregated account with its custodian, or else holds a put on the same security
and in the same principal amount as the put written where the exercise price of
the put held is equal to or greater than the exercise price of the put written.
The fund will cover call options on stock indices that it writes by owning
securities whose price changes, in the opinion of the manager, are expected to
be similar to those of the index, or in such other manner as may be in
accordance with the rules of the exchange on which the option is traded and
applicable laws and regulations. Nevertheless, where the fund covers a call
option on a stock index through ownership of securities, such securities may not
match the composition of the index. In that event, the fund will not be fully
covered and could be subject to risk of loss in the event of adverse changes in
the value of the index. The fund will cover put options on stock indices that it
writes by segregating assets equal to the option's exercise price, or in such
other manner as may be in accordance with the rules of the exchange on which the
option is traded and applicable laws and regulations.
The fund will receive a premium from writing a put or call option, which
increases the fund's gross income in the event the option expires unexercised or
is closed out at a profit. If the value of a security or an index on which the
fund has written a call option falls or remains the same, the fund will realize
a profit in the form of the premium received (less transaction costs) that could
offset all or a portion of any decline in the value of the portfolio securities
being hedged. If the value of the underlying security or index rises, however,
the fund will realize a loss in its call option position, which will reduce the
benefit of any unrealized appreciation in the fund's investments. By writing a
put option, the fund assumes the risk of a decline in the underlying security or
index. To the extent that the price changes of the portfolio securities being
hedged correlate with changes in the value of the underlying security or index,
writing covered put options on indices or securities will increase the fund's
losses in the event of a market decline, although such losses will be offset in
part by the premium received for writing the option.
The fund may also purchase put options to hedge its investments against a
decline in value. By purchasing a put option, the fund will seek to offset a
decline in the value of the portfolio securities being hedged through
appreciation of the put option. If the value of the fund's investments does not
decline as anticipated, or if the value of the option does not increase, the
fund's loss will be limited to the premium paid for the option plus related
transaction costs. The success of this strategy will depend, in part, on the
correlation between the changes in value of the underlying security or index and
the changes in value of the fund's security holdings being hedged.
The fund may purchase call options on individual securities to hedge against an
increase in the price of securities that the fund anticipates purchasing in the
future. Similarly, the fund may purchase call options on a securities index to
attempt to reduce the risk of missing a broad market advance, or an advance in
an industry or market segment, at a time when the fund holds uninvested cash or
short-term debt securities awaiting investment. When purchasing call options,
the fund will bear the risk of losing all or a portion of the premium paid if
the value of the underlying security or index does not rise.
There can be no assurance that a liquid market will exist when the fund seeks to
close out an option position. Trading could be interrupted, for example, because
of supply and demand imbalances arising from a lack of either buyers or sellers,
or the options exchange could suspend trading after the price has risen or
fallen more than the maximum specified by the exchange. Although the fund may be
able to offset to some extent any adverse effects of being unable to liquidate
an option position, the fund may experience losses in some cases as a result of
such inability.
FOREIGN CURRENCY EXCHANGE CONTRACTS 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 not commit more than 20% of its total assets to these contracts.
The fund may enter into forward foreign currency exchange contracts (forward
contracts) to attempt to reduce 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 its 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 its 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 in
an amount 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 Commodity
Futures Trading Commission, it 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 its 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 the ability of the manager 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.
SHORT TERM TRADING AND PORTFOLIO TURNOVER The fund invests for long-term growth
of capital and does not intend to emphasize short-term trading profits. It is
anticipated, therefore, that the fund's annual portfolio turnover rate generally
will be below 50%; although this rate may be higher or lower, in relation to
market conditions. A portfolio turnover rate of less than 50% means that in a
one-year period, less than one-half of the fund's portfolio has changed.
ILLIQUID INVESTMENT The fund will not invest more than 10% of its net assets in
illiquid securities. Illiquid securities generally are securities that cannot be
sold within seven days in the normal course of business at approximately the
amount at which the fund has valued them.
INVESTMENT RESTRICTIONS The fund has adopted the following restrictions as
fundamental policies. This means they may only be changed if the change is
approved by (i) more than 50% of the fund's outstanding shares or (ii) 67% or
more of the fund's shares present at a shareholder meeting if more than 50% of
the fund's outstanding shares 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 the manager, 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 New York Stock Exchange (NYSE) or the American Stock
Exchange, 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. there are any sales restrictions
under a purchase agreement.
13. Participate on a joint or a joint and several basis in any trading account
in securities. (See Portfolio Transactions as to transactions in the same
securities for the fund, other clients and/or other mutual funds within the
Franklin Templeton Group of Funds.)
14. Invest more than 10% of its total assets in defaulted debt securities,
some of which may be illiquid.
The fund presently has the following additional restrictions, which are not
fundamental and may be changed without shareholder approval. The fund may not
invest more than 5% of its total assets in debt securities rated lower than BBB
by S&P or Baa by Moody's.
If a bankruptcy or other extraordinary event occurs concerning a particular
security the fund owns, the fund may receive stock, real estate, or other
investments that the fund would not, or could not, buy. If this happens, the
fund intends to sell such investments as soon as practicable while maximizing
the return to shareholders.
Generally, the policies and restrictions discussed in this SAI and in the
prospectus apply when the fund makes an investment. In most cases, the fund is
not required to sell a security because circumstances change and the security no
longer meets one or more of the fund's policies or restrictions. If a percentage
restriction or limitation is met at the time of investment, a later increase or
decrease in the percentage due to a change in the value or liquidity of
portfolio securities will not be considered a violation of the restriction or
limitation.
RISKS
- -------------------------------------------------------------------------------
FOREIGN SECURITIES 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 per share. 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 directors of the fund (or the manager 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 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.
EMERGING MARKETS Investments in companies domiciled in developing countries may
be subject to potentially higher risks than investments in developed countries.
These risks include (i) less social, political and economic stability; (ii) 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; (iii) certain national policies which may restrict the
fund's investment opportunities, including restrictions on investment in issuers
or industries deemed sensitive to national interests; (iv) foreign taxation; (v)
the absence of developed legal structures governing private or foreign
investment or allowing for judicial redress for injury to private property; (vi)
the absence, until recently in many developing countries, of a capital market
structure or market-oriented economy; and (vii) the possibility that recent
favorable economic developments in some developing countries 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 economics 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 developing countries may involve risks of nationalization,
expropriation and confiscatory taxation. For example, 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 expropriation, the fund could lose a substantial portion of any
investments it has made in the affected countries. Further, no accounting
standards exist in certain developing countries. Finally, even though the
currencies of some developing countries, such as certain Eastern European
countries, may be convertible into U.S. dollars, the conversion rates may be
artificial to the actual market values and may be adverse to the fund's
shareholders.
Certain Eastern European countries, which do not have market economies, are
characterized by an absence of developed legal structures governing private and
foreign investments and private property. Certain countries require governmental
approval prior to investments by foreign persons, or limit the amount of
investment by foreign persons in a particular company, or limit the investment
of foreign persons to only a specific class of securities of a company that may
have less advantageous terms than securities of the company available for
purchase by nationals. Although in most Eastern European countries the local
currencies have been allowed to fluctuate according to their market value,
various foreign exchange restrictions remain in effect, limiting the ability of
foreign investors to repatriate their profits. Further, accounting standards
which exist in Eastern European countries may differ from U.S. standards.
Governments in certain Eastern European countries may require that a
governmental or quasi-governmental authority act as custodian of the fund's
assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the 1940 Act
to act as foreign custodians of the fund's cash and securities, the fund's
investment in such countries may be limited or may be required to be effected
through intermediaries. The risk of loss through governmental confiscation may
be increased in such countries.
RUSSIAN SECURITIES 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, together with Russia's continuing political and economic instability
and the slow-paced development of its market economy, the following: (a) delays
in settling portfolio transactions and risk of loss arising out of Russia's
system of share registration and custody; (b) the risk that it may be impossible
or more difficult than in other countries to obtain and/or enforce a judgment;
(c) pervasiveness of corruption, insider trading, and crime in the Russian
economic system; (d) currency exchange rate volatility and the lack of available
currency hedging instruments; (e) higher rates of inflation (including the risk
of social unrest associated with periods of hyper-inflation); (f) 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; (g) 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, a return to the centrally planned economy
that existed prior to the dissolution of the Soviet Union, or the
nationalization of privatized enterprises; (h) the risks of investing in
securities with substantially less liquidity and in issuers having significantly
smaller market capitalizations, when compared to securities and issuers in more
developed markets; (i) the difficulties associated in obtaining accurate market
valuations of many Russian securities, based partly on the limited amount of
publicly available information; (j) the financial condition of Russian
companies, including large amounts of inter-company debt which may create a
payments crisis on a national scale; (k) dependency on exports and the
corresponding importance of international trade; (l) the risk that the Russian
tax system will not be reformed to prevent inconsistent, retroactive and/or
exorbitant taxation or, in the alternative, the risk that a reformed tax system
may result in the inconsistent and unpredictable enforcement of the new tax
laws; (m) possible difficulty in identifying a purchaser of securities held by
the fund due to the underdeveloped nature of the securities markets; (n) the
possibility that pending legislation could restrict the levels of foreign
investment in certain industries, thereby limiting the number of investment
opportunities in Russia; (o) the risk that pending legislation would confer to
Russian courts the exclusive jurisdiction to resolve disputes between foreign
investors and the Russian government, instead of bringing such disputes before
an internationally-accepted third-country arbitrator; and (p) the difficulty in
obtaining information about the financial condition of Russian issuers, in light
of the different disclosure and accounting standards applicable to Russian
companies.
There is little long-term 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 nor are they licensed with any
governmental entity 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 interests continue 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
500 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. In addition, so-called "financial-industrial groups" have emerged in
recent years that seek to deter outside investors from interfering in the
management of companies they control. These practices may prevent the fund from
investing in the securities of certain Russian companies deemed suitable by the
manager. 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.
CURRENCY The fund's manager endeavors to buy and sell foreign currencies on as
favorable a basis as practicable. Some price spread in currency exchange (to
cover service charges) will 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,
withholding and other foreign taxes on income or other amounts, foreign exchange
controls (which may include suspension of the ability to transfer currency from
a given country), default in foreign government securities, political, economic
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 may not be internationally traded. Certain of these
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 flexible
policy of the fund, the manager 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 buy 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.
EURO RISK On January 1, 1999, the European Monetary Union (EMU) introduced a new
single currency, the euro, which will replace the national currency for
participating member countries. The transition and the elimination of currency
risk among EMU countries may change the economic environment and behavior of
investors, particularly in European markets. While the implementation of the
euro could have a negative effect on the fund, the fund's manager and its
affiliated services providers are taking steps they believe are reasonably
designed to address the euro issue.
STOCK INDEX FUTURES 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 the manager's ability to predict correctly movements
in the direction of the market, as to which no assurance can be given.
OPTIONS ON SECURITIES INDICES 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.
OFFICERS AND DIRECTORS
- -------------------------------------------------------------------------------
The fund has a board of directors. The board is responsible for the overall
management of the fund, including general supervision and review of the fund's
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 name, age and address of the officers and board members, as well as their
affiliations, positions held with the fund, and principal occupations during the
past five years are shown below.
Harris J. Ashton (67)
191 Clapboard Ridge Road, Greenwich, CT 06830
DIRECTOR
Director, RBC Holdings, Inc. (bank holding company) and Bar-S Foods (meat
packing company); director or trustee, as the case may be, of 47 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers) (until 1998).
*Nicholas F. Brady (69)
16 North Washington Street, Easton, MD 21601
DIRECTOR
Chairman, Templeton Emerging Markets Investment Trust PLC, Templeton Latin
America Investment Trust PLC, Darby Overseas Investments, Ltd. and Darby
Emerging Markets Investments LDC (investment firms) (1994-present); Director,
Templeton Global Strategy Funds, Amerada Hess Corporation (exploration and
refining of natural gas), Christiana Companies, Inc. (operating and investment
companies), and H.J. Heinz Company (processed foods and allied products);
director or trustee, as the case may be, of 19 of the investment companies in
the Franklin Templeton Group of Funds; and FORMERLY, Secretary of the United
States Department of the Treasury (1988-1993) and Chairman of the Board, Dillon,
Read & Co., Inc. (investment banking) (until 1988).
S. Joseph Fortunato (67)
Park Avenue at Morris County, P.O. Box 1945
Morristown, NJ 07962-1945
DIRECTOR
Member of the law firm of Pitney, Hardin, Kipp & Szuch; and director or trustee,
as the case may be, of 49 of the investment companies in the Franklin Templeton
Group of Funds.
John Wm. Galbraith (78)
360 Central Avenue, Suite 1300, St. Petersburg, FL 33701
DIRECTOR
President, Galbraith Properties, Inc. (personal investment company); Director
Emeritus, Gulf West Banks, Inc. (bank holding company) (1995-present); director
or trustee, as the case may be, of 18 of the investment companies in the
Franklin Templeton Group of Funds; and FORMERLY, Director, Mercantile Bank
(1991-1995), Vice Chairman, Templeton, Galbraith & Hansberger Ltd. (1986-1992),
and Chairman, Templeton Funds Management, Inc. (1974-1991).
Andrew H. Hines, Jr. (76)
One Progress Plaza, Suite 290, St. Petersburg, FL 33701
DIRECTOR
Consultant,Triangle Consulting Group; Executive-in-Residence, Eckerd College
(1991-present); director or trustee, as the case may be, of 20 of the investment
companies in the Franklin Templeton Group of Funds; and FORMERLY, Chairman and
Director, Precise Power Corporation (1990-1997), Director, Checkers Drive-In
Restaurant, Inc. (1994-1997), and Chairman of the Board and Chief Executive
Officer, Florida Progress Corporation (holding company in the energy area)
(1982-1990) and director of various of its subsidiaries.
*Charles B. Johnson (66)
777 Mariners Island Blvd., San Mateo, CA 94404
Chairman of the Board and Vice President
President, Chief Executive Officer and Director, Franklin Resources, Inc.;
Chairman of the Board and Director, Franklin Advisers, Inc., Franklin Investment
Advisory Services, Inc. and Franklin Templeton Distributors, Inc.; Director,
Franklin/Templeton Investor Services, Inc. and Franklin Templeton Services,
Inc.; officer and/or director or trustee, as the case may be, of most of the
other subsidiaries of Franklin Resources, Inc. and of 48 of the investment
companies in the Franklin Templeton Group of Funds.
*Charles E. Johnson (43)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
VICE PRESIDENT AND DIRECTOR
Senior Vice President and Director, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; President and Director,
Templeton Worldwide, Inc.; Chairman and Director, Templeton Investment Counsel,
Inc.; Vice President, Franklin Advisers, Inc.; officer and/or director of some
of the other subsidiaries of Franklin Resources, Inc.; and officer and/or
director or trustee, as the case may be, of 32 of the investment companies in
the Franklin Templeton Group of Funds.
Betty P. Krahmer (70)
2201 Kentmere Parkway, Wilmington, DE 19806
DIRECTOR
Director or trustee of various civic associations; director or trustee, as the
case may be, of 19 of the investment companies in the Franklin Templeton Group
of Funds; and FORMERLY, Economic Analyst, U.S. government.
Gordon S. Macklin (71)
8212 Burning Tree Road, Bethesda, MD 20817
DIRECTOR
Director, Fund American Enterprises Holdings, Inc. (holding company), Martek
Biosciences Corporation, MCI WorldCom (information services), MedImmune, Inc.
(biotechnology), Spacehab, Inc. (aerospace services) and Real 3D (software);
director or trustee, as the case may be, of 47 of the investment companies in
the Franklin Templeton Group of Funds; and FORMERLY, Chairman, White River
Corporation (financial services) and Hambrecht and Quist Group (investment
banking), and President, National Association of Securities Dealers, Inc.
Fred R. Millsaps (70)
2665 NE 37th Drive, Fort Lauderdale, FL 33308
DIRECTOR
Manager of personal investments (1978-present); director of various business and
nonprofit organizations; director or trustee, as the case may be, of 20 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
Chairman and Chief Executive Officer, Landmark Banking Corporation (1969-1978),
Financial Vice President, Florida Power and Light (1965-1969), and Vice
President, Federal Reserve Bank of Atlanta (1958-1965).
Gary P. Motyl (47)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
PRESIDENT
Executive Vice President, Templeton Investment Counsel, Inc.; Security Analyst
and Portfolio Manager, Templeton Investment Counsel, Inc. (since 1981); and
FORMERLY, Research Analyst and Portfolio Manager, Landmark First National Bank
(1979-1981) and Security Analyst, Standard & Poor's Corporation (1974-1979).
Mark G. Holowesko (39)
Lyford Cay, Nassau, Bahamas
VICE PRESIDENT
President, Templeton Global Advisors Limited; Chief Investment Officer, Global
Equity Group; Executive Vice President and Director, Templeton Worldwide, Inc.;
officer of 19 of the investment companies in the Franklin Templeton Group of
Funds; and FORMERLY, Investment Administrator, RoyWest Trust Corporation
(Bahamas) Limited (1984-1985).
*Harmon E. Burns (54)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Executive Vice President and Director, Franklin Resources, Inc., Franklin
Templeton Distributors, Inc. and Franklin Templeton Services, Inc.; Executive
Vice President, Franklin Advisers, Inc.; Director, Franklin Investment Advisory
Services, Inc. and Franklin/Templeton Investor Services, Inc.; and officer
and/or director or trustee, as the case may be, of most of the other
subsidiaries of Franklin Resources, Inc. and of 51 of the investment companies
in the Franklin Templeton Group of Funds.
*Rupert H. Johnson, Jr. (59)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers, Inc.
and Franklin Investment Advisory Services, Inc.; Senior Vice President, Franklin
Advisory Services, LLC; Director, Franklin/Templeton Investor Services, Inc.;
and officer and/or director or trustee, as the case may be, of most of the other
subsidiaries of Franklin Resources, Inc. and of 51 of the investment companies
in the Franklin Templeton Group of Funds.
Deborah R. Gatzek (51)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Senior Vice President and General Counsel, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Services, Inc. and Franklin Templeton
Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.; Vice
President, Franklin Advisory Services, LLC and Franklin Mutual Advisers, LLC;
Vice President, Chief Legal Officer and Chief Operating Officer, Franklin
Investment Advisory Services, Inc.; and officer of 52 of the investment
companies in the Franklin Templeton Group of Funds.
*Martin L. Flanagan (39)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Senior Vice President and Chief Financial Officer, Franklin Resources, Inc.,
Franklin/Templeton Investor Services, Inc. and Franklin Mutual Advisers, LLC;
Executive Vice President, Chief Financial Officer and Director, Templeton
Worldwide, Inc.; Executive Vice President, Chief Operating Officer and Director,
Templeton Investment Counsel, Inc.; Executive Vice President and Chief Financial
Officer, Franklin Advisers, Inc.; Chief Financial Officer, Franklin Advisory
Services, LLC and Franklin Investment Advisory Services, Inc.; President and
Director, Franklin Templeton Services, Inc.; officer and/or director of some of
the other subsidiaries of Franklin Resources, Inc.; and officer and/or director
or trustee, as the case may be, of 51 of the investment companies in the
Franklin Templeton Group of Funds.
John R. Kay (59)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
VICE PRESIDENT
Vice President, Templeton Worldwide, Inc.; Assistant Vice President, Franklin
Templeton Distributors, Inc.; officer of 24 of the investment companies in the
Franklin Templeton Group of Funds; and FORMERLY, Vice President and Controller,
Keystone Group, Inc.
Elizabeth M. Knoblock (44)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
VICE PRESIDENT - COMPLIANCE
General Counsel, Secretary and Senior Vice President, Templeton Investment
Counsel, Inc.; Senior Vice President, Templeton Global Investors, Inc.; officer
of 23 of the investment companies in the Franklin Templeton Group of Funds; and
FORMERLY, Vice President and Associate General Counsel, Kidder Peabody & Co.
Inc. (1989-1990), Assistant General Counsel, Gruntal & Co., Inc. (1988), Vice
President and Associate General Counsel, Shearson Lehman Hutton Inc. (1988),
Vice President and Assistant General Counsel, E.F. Hutton & Co. Inc.
(1986-1988), and Special Counsel, Division of Investment Management, U.S.
Securities and Exchange Commission (1984-1986).
James R. Baio (45)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
TREASURER
Certified Public Accountant; Senior Vice President, Templeton Worldwide, Inc.,
Templeton Global Investors, Inc. and Templeton Funds Trust Company; officer of
20 of the investment companies in the Franklin Templeton Group of Funds; and
FORMERLY, Senior Tax Manager, Ernst & Young (certified public accountants)
(1977-1989).
Barbara J. Green (52)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
SECRETARY
Senior Vice President, Templeton Worldwide, Inc. and Templeton Global Investors,
Inc.; officer of 19 of the investment companies in the Franklin Templeton Group
of Funds; and FORMERLY, Deputy Director, Division of Investment Management,
Executive Assistant and Senior Advisor to the Chairman, Counselor 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).
*This board member is considered an "interested person" under federal securities
laws. Mr. Brady's status as an interested person results from his business
affiliations with Franklin Resources, Inc. and Templeton Global Advisors
Limited. Mr. Brady and Franklin Resources, Inc. are both limited partners of
Darby Overseas Partners, L.P. (Darby Overseas). In addition, Darby Overseas and
Templeton Global Advisors Limited are limited partners of Darby Emerging Markets
Fund, L.P.
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the father
and uncle, respectively, of Charles E. Johnson.
The fund pays noninterested board members and Mr. Brady an annual retainer of
$1,000 and a fee of $100 per board meeting attended. Board members who serve on
the audit committee of the fund and other funds in the Franklin Templeton Group
of Funds receive a flat fee of $2,000 per committee meeting attended, a portion
of which is allocated to the fund. Members of a committee are not compensated
for any committee meeting held on the day of a board meeting. Noninterested
board members also may serve as directors or trustees of other funds in the
Franklin Templeton Group of Funds and may receive fees from these funds for
their services. The following table provides the total fees paid to
noninterested board members and Mr. Brady by the fund and by the Franklin
Templeton Group of Funds.
<TABLE>
<CAPTION>
NUMBER OF BOARDS IN
TOTAL FEES RECEIVED THE FRANKLIN
TOTAL FEES FROM TH EFRANKLIN TEMPLETON GROUP OF
RECEIVED FROM THE TEMPLETON GROUP OF FUNDS ON WHICH EACH
NAME FUND/1/ ($) FUNDS/2/ ($) SERVES/3/
- ------------------------- -------------------- ---------------------- -----------------------
<S> <C> <C> <C>
Harris J. Ashton 47
Nicholas F. Brady 19
S. Joseph Fortunato 49
John Wm. Galbraith 18
Andrew H. Hines, Jr. 20
Betty P. Krahmer 19
Gordon S. Macklin 47
Fred R. Millsaps 20
</TABLE>
1. For the fiscal year ended August 31, 1999.
2. For the calendar year ended December 31, 1999.
3. 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 currently
includes 54 registered investment companies, with approximately 157 U.S. based
funds or series.
Noninterested board members 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 or trustee.
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 Franklin Resources, Inc. may be deemed to receive indirect
remuneration by virtue of their participation, if any, in the fees paid to its
subsidiaries.
Board members historically have followed a policy of having substantial
investments in one or more of the funds in the Franklin Templeton Group of
Funds, as is consistent with their individual financial goals. In February 1998,
this policy was formalized through adoption of a requirement that each board
member invest one-third of fees received for serving as a director or trustee of
a Templeton fund in shares of one or more Templeton funds and one-third of fees
received for serving as a director or trustee of a Franklin fund in shares of
one or more Franklin funds until the value of such investments equals or exceeds
five times the annual fees paid such board member. Investments in the name of
family members or entities controlled by a board member constitute fund holdings
of such board member for purposes of this policy, and a three year phase-in
period applies to such investment requirements for newly elected board members.
In implementing such policy, a board member's fund holdings existing on February
27, 1998, are valued as of such date with subsequent investments valued at cost.
MANAGEMENT AND OTHER SERVICES
- -------------------------------------------------------------------------------
MANAGER AND SERVICES PROVIDED The fund's manager is Templeton Investment
Counsel, Inc. the manager is a wholly owned subsidiary of Franklin Resources,
Inc. (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.
The manager provides investment research and portfolio management services, and
selects the securities for the fund to buy, hold or sell. The manager also
selects the brokers who execute the fund's portfolio transactions. The manager
provides periodic reports to the board, which reviews and supervises the
manager's investment activities. To protect the fund, the manager and its
officers, directors and employees are covered by fidelity insurance.
The Templeton organization has been investing globally since 1940. The manager
and its affiliates have offices in Argentina, Australia, Bahamas, Belgium,
Bermuda, Brazil, the British Virgin Islands, Canada, China, Cyprus, France,
Germany, Hong Kong, India, Italy, Japan, Korea, Luxembourg, Mauritius, the
Netherlands, Poland, Russia, Singapore, South Africa, Spain, Sweden,
Switzerland, Taiwan, Turkey, United Kingdom, Venezuela and the U.S.
The manager and its affiliates manage numerous other investment companies and
accounts. The manager 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 the manager on behalf of the fund. Similarly, with respect to the fund,
the manager is not obligated to recommend, buy or sell, or to refrain from
recommending, buying or selling any security that the manager and access
persons, as defined by applicable federal securities laws, may buy or sell for
its or their own account or for the accounts of any other fund. The manager is
not obligated to refrain from investing in securities held by the fund or other
funds it manages. Of course, any transactions for the accounts of the manager
and other access persons will be made in compliance with the fund's code of
ethics.
Under the fund's code of ethics, employees of the Franklin Templeton Group who
are access persons may 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 by the close
of the business day following the day clearance is granted; (ii) copies of all
brokerage confirmations and statements must be sent to a compliance officer;
(iii) all brokerage accounts must be disclosed on an annual basis; and (iv)
access persons involved in preparing and making investment decisions must, in
addition to (i), (ii) and (iii) 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.
MANAGEMENT FEES The fund pays the manager a fee equal to an annual rate of 0.75%
of the fund's average daily net assets. The fee is computed according to the
terms of the management agreement.
For the last three fiscal years ended August 31, the fund paid the following
management fees:
MANAGEMENT FEES PAID ($)
- --------------------------------------------------
1999
1998/1/ 1,334,912
1997/1/ 888,512
1. For the fiscal years ended August 31, 1998 and 1997, management fees, before
any advance waiver, totaled $1,530,273 and $1,072,883, respectively. This
agreement by the manager to limit its fees was terminated as of September 1,
1998.
ADMINISTRATOR AND SERVICES PROVIDED Franklin Templeton Services, Inc. (FT
Services) has an agreement with the fund to provide certain administrative
services and facilities for the fund. FT Services is wholly owned by Resources
and is an affiliate of the fund's manager and principal underwriter.
The administrative services FT Services provides include preparing and
maintaining books, records, and tax and financial reports, and monitoring
compliance with regulatory requirements.
ADMINISTRATION FEES The fund pays FT Services a monthly fee equal to an annual
rate of:
o 0.15% of the fund's average daily net assets up to $200 million;
o 0.135% of average daily net assets over $200 million up to $700 million;
o 0.10% of average daily net assets over $700 million up to $1.2 billion; and
o 0.075% of average daily net assets over $1.2 billion.
During the last three fiscal years ended August 31, the fund paid the following
administration fees:
ADMINISTRATION FEES PAID ($)
- ----------------------------------------------------------
1999
1998 305,449
1997/1/ 214,577
1. Before October 1, 1996, Templeton Global Investors, Inc. provided
administrative services to the fund.
SHAREHOLDER SERVICING AND TRANSFER AGENT Franklin/Templeton Investor Services,
Inc. (Investor Services) is the fund's shareholder servicing agent and acts as
the fund's transfer agent and dividend-paying agent. Investor Services is
located at 100 Fountain Parkway, St. Petersburg, FL 33733-8030. Please send all
correspondence to Investor Services to P.O. Box 33030, St. Petersburg, FL
33733-8030.
For its services, Investor Services receives a fixed fee per account. The fund
also will reimburse Investor Services for certain out-of-pocket expenses, which
may include payments by Investor Services to entities, including affiliated
entities, that provide sub-shareholder services, recordkeeping and/or transfer
agency services to beneficial owners of the fund. The amount of reimbursements
for these services per benefit plan participant fund account per year will not
exceed the per account fee payable by the fund to Investor Services in
connection with maintaining shareholder accounts.
CUSTODIAN The Chase Manhattan Bank, at its principal office at MetroTech Center,
Brooklyn, NY 11245, and at the offices of its branches and agencies throughout
the world, acts as custodian of the fund's assets. As foreign custody manager,
the bank selects and monitors foreign sub-custodian banks, selects and evaluates
non-compulsory foreign depositories, and furnishes information relevant to the
selection of compulsory depositories.
AUDITOR PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, NY
10036, is the fund's independent auditor. The auditor gives an opinion on the
financial statements included in the fund's Annual Report to Shareholders and
reviews the fund's registration statement filed with the U.S. Securities and
Exchange Commission (SEC).
PORTFOLIO TRANSACTIONS
- -------------------------------------------------------------------------------
The manager selects brokers and dealers to execute the fund's portfolio
transactions in accordance with criteria set forth in the management agreement
and any directions that the board may give.
When placing a portfolio transaction, the manager seeks to obtain prompt
execution of orders at the most favorable net price. For portfolio transactions
on a securities exchange, the amount of commission paid is negotiated between
the manager and the broker executing the transaction. The determination and
evaluation of the reasonableness of the brokerage commissions paid are based to
a large degree on the professional opinions of the persons responsible for
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. The manager 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 the
manager, 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 manager may pay certain brokers commissions that are higher than those
another broker may charge, if the manager determines in good faith that the
amount paid is reasonable in relation to the value of the brokerage and research
services it receives. This may be viewed in terms of either the particular
transaction or the manager's overall responsibilities to client accounts over
which it exercises investment discretion. The services that brokers may provide
to the manager include, among others, supplying information about particular
companies, markets, countries, or local, regional, national or transnational
economies, statistical data, quotations and other securities pricing
information, and other information that provides lawful and appropriate
assistance to the manager in carrying out its investment advisory
responsibilities. These services may not always directly benefit the fund. They
must, however, be of value to the manager in carrying out its overall
responsibilities to its clients.
It is not possible to place a dollar value on the special executions or on the
research services the manager receives from dealers effecting transactions in
portfolio securities. The allocation of transactions in order to obtain
additional research services allows the manager to supplement its own research
and analysis activities and to receive the views and information of individuals
and research staffs of other securities firms. As long as it is lawful and
appropriate to do so, the manager 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, the sale of fund
shares, as well as shares of other funds in the Franklin Templeton Group of
Funds, also may be considered a factor in the selection of broker-dealers to
execute the fund's portfolio transactions.
Because Franklin Templeton Distributors, Inc. (Distributors) is a member of the
National Association of Securities Dealers, Inc., it may sometimes receive
certain fees when the fund tenders portfolio securities pursuant to a
tender-offer solicitation. To recapture 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 the manager 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 the manager 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 the
manager, 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 may improve execution and reduce transaction costs to the
fund.
During the last three fiscal years ended August 31, the fund paid the following
brokerage commissions:
BROKERAGE COMMISSIONS ($)
- ----------------------------------------------------------
1999
1998 210,451
1997 139,387
[For the fiscal year ended August 31, 1999, the fund [did not pay][paid]
brokerage commissions [of $[] from aggregate portfolio transactions of $[]] to
brokers who provided research services.]
As of [], 199[], the fund did not own securities of its regular broker-dealers.
DISTRIBUTIONS AND TAXES
- ------------------------------------------------------------------------------
Distributions are subject to approval by the board. The fund does not pay
"interest" or guarantee any fixed rate of return on an investment in its shares.
DISTRIBUTIONS OF NET INVESTMENT INCOME The fund receives income generally in the
form of dividends and interest on its investments. This income, less expenses
incurred in the operation of the fund, constitutes the fund's net investment
income from which dividends may be paid to you. Any distributions by the fund
from such income will be taxable to you as ordinary income, whether you take
them in cash or in additional shares.
DISTRIBUTIONS OF CAPITAL GAINS The fund may derive capital gains and losses in
connection with sales or other dispositions of its portfolio securities.
Distributions from net short-term capital gains will be taxable to you as
ordinary income. Distributions from net long-term capital gains will be taxable
to you as long-term capital gain, regardless of how long you have held your
shares in the fund. Any net capital gains realized by the fund generally will be
distributed once each year, and may be distributed more frequently, if
necessary, in order to reduce or eliminate excise or income taxes on the fund.
EFFECT OF FOREIGN INVESTMENTS ON DISTRIBUTIONS Most foreign exchange gains
realized on the sale of debt securities are treated as ordinary income by the
fund. Similarly, foreign exchange losses realized by the fund on the sale of
debt securities are generally treated as ordinary losses by the fund. These
gains when distributed will be taxable to you as ordinary dividends, and any
losses will reduce the fund's ordinary income otherwise available for
distribution to you. This treatment could increase or reduce the fund's ordinary
income distributions to you, and may cause some or all of the fund's previously
distributed income to be classified as a return of capital.
The fund may be subject to foreign withholding taxes on income from certain of
its foreign securities. If more than 50% of the fund's total assets at the end
of the fiscal year are invested in securities of foreign corporations, the fund
may elect to pass-through to you your pro rata share of foreign taxes paid by
the fund. If this election is made, the year-end statement you receive from the
fund will show more taxable income than was actually distributed to you.
However, you will be entitled to either deduct your share of such taxes in
computing your taxable income or (subject to limitations) claim a foreign tax
credit for such taxes against your U.S. federal income tax. The fund will
provide you with the information necessary to complete your individual income
tax return if it makes this election.
INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS The fund will inform you of
the amount of your ordinary income dividends and capital gains distributions at
the time they are paid, and will advise you of their tax status for federal
income tax purposes shortly after the close of each calendar year. If you have
not held fund shares for a full year, the fund may designate and distribute to
you, as ordinary income or capital gain, a percentage of income that is not
equal to the actual amount of such income earned during the period of your
investment in the fund.
ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY The fund has elected to
be treated as a regulated investment company under Subchapter M of the Internal
Revenue Code, has qualified as such for its most recent fiscal year, and intends
to so qualify during the current fiscal year. As a regulated investment company,
the fund generally pays no federal income tax on the income and gains it
distributes to you. The board reserves the right not to maintain the
qualification of the fund as a regulated investment company if it determines
such course of action to be beneficial to shareholders. In such case, the fund
will be subject to federal, and possibly state, corporate taxes on its taxable
income and gains, and distributions to you will be taxed as ordinary dividend
income to the extent of the fund's earnings and profits.
EXCISE TAX DISTRIBUTION REQUIREMENTS To avoid federal excise taxes, the Internal
Revenue Code requires the fund to distribute to you by December 31 of each year,
at a minimum, the following amounts: 98% of its taxable ordinary income earned
during the calendar year; 98% of its capital gain net income earned during the
twelve month period ending October 31; and 100% of any undistributed amounts
from the prior year. The fund intends to declare and pay these amounts in
December (or in January that are treated by you as received in December) to
avoid these excise taxes, but can give no assurances that its distributions will
be sufficient to eliminate all taxes.
REDEMPTION OF FUND SHARES Redemptions and exchanges of fund shares are taxable
transactions for federal and state income tax purposes. If you redeem your fund
shares, or exchange your fund shares for shares of a different Franklin
Templeton Fund, the IRS will require that you report a gain or loss on your
redemption or exchange. If you hold your shares as a capital asset, the gain or
loss that you realize will be capital gain or loss and will be long-term or
short-term, generally depending on how long you hold your shares. Any loss
incurred on the redemption or exchange of shares held for six months or less
will be treated as a long-term capital loss to the extent of any long-term
capital gains distributed to you by the fund on those shares.
All or a portion of any loss that you realize upon the redemption of your fund
shares will be disallowed to the extent that you buy other shares in the fund
(through reinvestment of dividends or otherwise) within 30 days before or after
your share redemption. Any loss disallowed under these rules will be added to
your tax basis in the new shares you buy.
DEFERRAL OF BASIS If you redeem some or all of your shares in the fund, and then
reinvest the sales proceeds in the fund or in another Franklin Templeton Fund
within 90 days of buying the original shares, the sales charge that would
otherwise apply to your reinvestment may be reduced or eliminated. The IRS will
require you to report gain or loss on the redemption of your original shares in
the fund. In doing so, all or a portion of the sales charge that you paid for
your original shares in the fund will be excluded from your tax basis in the
shares sold (for the purpose of determining gain or loss upon the sale of such
shares). The portion of the sales charge excluded will equal the amount that the
sales charge is reduced on your reinvestment. Any portion of the sales charge
excluded from your tax basis in the shares sold will be added to the tax basis
of the shares you acquire from your reinvestment.
U.S. GOVERNMENT OBLIGATIONS Many states grant tax-free status to dividends paid
to you from interest earned on direct obligations of the U.S. government,
subject in some states to minimum investment requirements that must be met by
the fund. Investments in Government National Mortgage Association or Federal
National Mortgage Association securities, bankers' acceptances, commercial paper
and repurchase agreements collateralized by U.S. government securities do not
generally qualify for tax-free treatment. The rules on exclusion of this income
are different for corporations.
DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS If you are a corporate
shareholder, you should note that ___% of the dividends paid by the fund for the
most recent fiscal year qualified for the dividends-received deduction. In some
circumstances, you will be allowed to deduct these qualified dividends, thereby
reducing the tax that you would otherwise be required to pay on these dividends.
The dividends-received deduction will be available only with respect to
dividends designated by the fund as eligible for such treatment. All dividends
(including the deducted portion) must be included in your alternative minimum
taxable income calculation.
INVESTMENT IN COMPLEX SECURITIES The fund may invest in complex securities.
These investments may be subject to numerous special and complex tax rules.
These rules could affect whether gains and losses recognized by the fund are
treated as ordinary income or capital gain, accelerate the recognition of income
to the fund and/or defer the fund's ability to recognize losses, and, in limited
cases, subject the fund to U.S. federal income tax on income from certain of its
foreign securities. In turn, these rules may affect the amount, timing or
character of the income distributed to you by the fund.
ORGANIZATION, VOTING RIGHTS AND PRINCIPAL HOLDERS
- ------------------------------------------------------------------------------
The fund is a diversified open-end management investment company, commonly
called a mutual fund. The fund was organized as a Maryland corporation on
October 26, 1990, and is registered with the SEC.
The fund has noncumulative voting rights. For board member elections, 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.
Certain funds in the Franklin Templeton Funds offer multiple classes of shares.
The different 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. When exchanging shares into another Franklin
Templeton Fund, shares of the fund are considered Class A shares.
The fund does not intend to hold annual shareholder meetings. The fund may hold
special meetings, however, for matters requiring shareholder approval. A meeting
may be called by the board to consider the removal of a board member if
requested in writing by shareholders holding at least 10% of the outstanding
shares. In certain circumstances, we are required to help you communicate with
other shareholders about the removal of a board member. A special meeting also
may be called by the board in its discretion.
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 outstanding shares of the fund.
As of October 12, 1999, the officers and board members, as a group, owned of
record and beneficially less than 1% of the outstanding shares of the fund. The
board members may own shares in other funds in the Franklin Templeton Group of
Funds.
BUYING AND SELLING SHARES
- -------------------------------------------------------------------------------
The fund has entered into an agreement with Franklin Templeton Distributors,
Inc. (Distributors), under which the fund will issue shares at net asset value
to Templeton Funds Trust Company (TFTC) as custodian for the unit investment
trust entitled Templeton Capital Accumulation Plan (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.
The fund continuously offers its shares through securities dealers who have an
agreement with Distributors. A securities dealer includes any 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. Banks and financial institutions that sell shares of the fund may be
required by state law to register as securities dealers.
For investors outside the U.S., the offering of fund shares may be limited in
many jurisdictions. An investor who wishes to buy shares of the fund should
determine, or have a broker-dealer determine, the applicable laws and
regulations of the relevant jurisdiction. Investors are responsible for
compliance with tax, currency exchange or other regulations applicable to
redemption and purchase transactions in any jurisdiction to which they may be
subject. Investors should consult appropriate tax and legal advisors to obtain
information on the rules applicable to these transactions.
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. We may deduct any applicable banking charges
imposed by the bank from your account.
When you buy shares, if you submit a check or a draft that is returned unpaid to
the fund we may impose a $10 charge against your account for each returned item.
If you buy shares through the reinvestment of dividends, the shares 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.
EXCHANGE PRIVILEGE If you request the exchange of the total value of your
account, declared but unpaid income dividends and capital gain distributions
will be reinvested in the fund and exchanged into the new fund at net asset
value when paid. Backup withholding and information reporting may apply.
If a substantial number of shareholders should, within a short period, sell
their fund shares under the exchange privilege, the fund might have to sell
portfolio securities it might otherwise hold and incur the additional costs
related to such transactions.
The proceeds from the sale of shares of an investment company are generally not
available until the seventh day following the sale. The funds you are seeking to
exchange into may delay issuing shares pursuant to an exchange until that
seventh 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.
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. There are no service charges for establishing or
maintaining a systematic withdrawal plan.
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 next business day. When you sell your shares under a
systematic withdrawal plan, it is a taxable transaction.
To avoid paying sales charges on money you plan to withdraw within a short
period of time, you may not want to set up a systematic withdrawal plan if you
plan to buy shares on a regular basis.
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.
You may discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment by notifying us by mail or by
phone at least seven business days before the end of the month preceding a
scheduled payment. 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.
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 U.S. Securities and Exchange
Commission (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. Redemptions in kind are taxable transactions.
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.
Distribution or redemption checks sent to you do not earn interest or any other
income during the time the checks remain uncashed. Neither the fund nor its
affiliates will be liable for any loss caused by your failure to cash such
checks. The fund is not responsible for tracking down uncashed checks, unless a
check is returned as undeliverable.
In most cases, if mail is returned as undeliverable we are required to take
certain steps to try to find you free of charge. If these attempts are
unsuccessful, however, we may deduct the costs of any additional 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.
Sending redemption proceeds by wire or electronic funds transfer (ACH) is a
special service that we make available whenever possible. By offering this
service to you, the fund is not bound to meet any redemption request in less
than the seven day period prescribed by law. Neither the fund nor its agents
shall be liable to you or any other person if, for any reason, a redemption
request by wire or ACH is not processed as described in the prospectus.
Franklin Templeton Investor Services, Inc. (Investor Services) may pay certain
financial institutions that maintain omnibus accounts with the fund on behalf of
numerous beneficial owners for recordkeeping operations performed with respect
to such owners. For each beneficial owner in the omnibus account, the fund may
reimburse Investor Services an amount not to exceed the per account fee that the
fund normally pays Investor Services. These financial institutions also may
charge a fee for their services directly to their clients.
If you buy or sell shares through your securities dealer, we use the net asset
value next calculated after your securities dealer receives your request, which
is promptly transmitted to the fund. 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. 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. Any loss to you resulting from your dealer's failure to transmit your
redemption order to the fund in a timely fashion must be settled between you and
your securities dealer.
Certain shareholder servicing agents may be authorized to accept your
transaction request.
For institutional accounts, there may be additional methods of buying or selling
fund shares than those described in this SAI or in the prospectus.
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.
PRICING SHARES
- -------------------------------------------------------------------------------
When you buy shares, you pay the offering price. The offering price is the net
asset value (NAV) per share plus any applicable sales charge, calculated to two
decimal places using standard rounding criteria.
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.
The fund calculates the NAV per share each business day at the close of trading
on the New York Stock Exchange (normally 1:00 p.m. pacific time). The fund does
not calculate the NAV on days the New York Stock Exchange (NYSE) is closed for
trading, which include New Year's Day, Martin Luther King Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
When determining its NAV, the fund values cash and receivables at their
realizable amounts, and records interest as accrued and dividends on the
ex-dividend date. If market quotations are readily available for portfolio
securities listed on a securities exchange or on the NASDAQ National Market
System, the fund values those securities at the last quoted sale price of the
day or, if there is no reported sale, within the range of the most recent quoted
bid and ask prices. The fund values over-the-counter portfolio securities within
the range of the most recent quoted bid and ask prices. If portfolio securities
trade both in the over-the-counter market and on a stock exchange, the fund
values them according to the broadest and most representative market as
determined by the manager.
The fund values portfolio securities underlying actively traded call options at
their market price as determined above. The current market value of any option
the fund holds is its last sale price on the relevant exchange before the fund
values its assets. If there are no sales that day or if the last sale price is
outside the bid and ask prices, the fund values options within the range of the
current closing bid and ask prices if the fund believes the valuation fairly
reflects 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 NAV is not calculated. Thus, the calculation of the fund's NAV
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 close of the NYSE. The value of these securities used in computing the NAV
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 close of the NYSE that will not be reflected in the computation of the NAV.
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 use a pricing service, bank or securities dealer to perform any of the
above described functions.
THE UNDERWRITER
- -------------------------------------------------------------------------------
Franklin Templeton Distributors, Inc. (Distributors) acts as the principal
underwriter in the continuous public offering of the fund's shares. Distributors
is located at 777 Mariners Island Blvd., San Mateo, CA 94404.
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.
The table below shows the aggregate underwriting commissions Distributors
received in connection with the offering of the fund's shares, and the net
underwriting discounts and commissions Distributors retained after allowances to
dealers for the last three fiscal years ended August 31,:
TOTAL COMMISSIONS AMOUNT RETAINED BY
RECEIVED ($) DISTRIBUTORS ($)
------------------------------------------------------
1999
1998 6,148,670 615,973
1997 5,140,712 529,236
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.
AVERAGE ANNUAL TOTAL RETURN Average annual total return is determined by finding
the average annual rates of return over the periods indicated below 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 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
charges were taken into account. The quotation assumes the account was
completely redeemed at the end of each period and the deduction of all
applicable charges and fees.
The average annual total returns for the indicated periods ended August 31,
1999, were:
SINCE INCEPTION
1 YEAR (%) 5 YEARS (%) (03/01/91) (%)
- ------------------------------------------------------------------------
The following SEC formula was used to calculate these figures:
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 each period at the end
of each period
CUMULATIVE TOTAL RETURN Like average annual total return, cumulative total
return does not include the effect of paying the sales charges associated with
the purchase of shares of the fund through the Plans; of course, cumulative
total return would be lower if the sales 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, is based on the actual return for a specified period rather than on the
average return over the periods indicated above. The cumulative total returns
for the indicated periods ended August 31, 1999, were:
SINCE INCEPTION
1 YEAR (%) 5 YEARS (%) (03/01/91) (%)
- --------------------------------------------------------------------------
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 also may quote the performance of shares
without a sales charge. Sales literature and advertising may quote a cumulative
total return, average annual total return and other measures of performance 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
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 goals and performance results of funds belonging to the Franklin
Templeton Group of Funds. Franklin Resources, Inc. is the parent company of the
advisors and underwriter of the Franklin Templeton Group of Funds.
COMPARISONS To help you better evaluate how an investment in the fund may
satisfy your investment goal, advertisements and other materials about the fund
may discuss certain measures of fund performance as reported by various
financial publications. Materials also may 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 goals 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 the manager also may refer to the following
information:
o The manager's and its affiliates' market share of international equities
managed in mutual funds prepared or published by Strategic Insight or a
similar statistical organization.
o The performance of U.S. equity and debt markets relative to foreign markets
prepared or published by Morgan Stanley Capital International(R) or a
similar financial organization.
o The capitalization of U.S. and foreign stock markets as prepared or
published by the International Finance Corporation, Morgan Stanley Capital
International(R) or a similar financial organization.
o The geographic and industry distribution of the fund's portfolio and the
fund's top ten holdings.
o 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.
o 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).
o The major industries located in various jurisdictions as published by
the Morgan Stanley Index.
o Rankings by DALBAR Surveys, Inc. with respect to mutual fund shareholder
services.
o Allegorical stories illustrating the importance of persistent long-term
investing.
o The fund's portfolio turnover rate and its ranking relative to industry
standards as published by Lipper Analytical Services, Inc. or Morningstar,
Inc.
o 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.
o Comparison of the characteristics of various emerging markets, including
population, financial and economic conditions.
o Quotations from the Templeton organization's founder, Sir John Templeton,*
advocating the virtues of diversification and long-term investing.
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 also may compare the fund's performance to the
return on certificates of deposit (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 fall. 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 is one of the
oldest mutual fund organizations and now services more than 4 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, a pioneer in international investing. The Mutual Series team,
known for its value-driven approach to domestic equity investing, became part of
the organization four years later. Together, the Franklin Templeton Group has
over $222 billion in assets under management for more than 6 million U.S. based
mutual fund shareholder and other accounts. The Franklin Templeton Group of
Funds offers 106 U.S. based open-end investment companies to the public. The
fund may identify itself by its NASDAQ symbol or CUSIP number.
Currently, there are more mutual funds than there are stocks listed on the New
York Stock Exchange. While many of them have similar investment goals, no two
are exactly alike. Shares of the fund are generally sold through securities
dealers, whose investment representatives are experienced professionals who can
offer advice on the type of investments suitable to your unique goals and needs,
as well as the risks associated with such investments.
The Information Services & Technology division of Franklin Resources, Inc.
(Resources) established a Year 2000 Project Team in 1996. This team has been
making necessary software changes to help the computer systems that service the
fund and its shareholders to be Year 2000 compliant. After completing these
modifications, comprehensive tests are conducted in one of Resources' U.S. test
labs to verify their effectiveness. Resources continues to seek reasonable
assurances from all major hardware, software or data-services suppliers that
they will be Year 2000 compliant on a timely basis. Resources is also developing
a contingency plan, including identification of those mission critical systems
for which it is practical to develop a contingency plan. However, in an
operation as complex and geographically distributed as Resources' business, the
alternatives to use of normal systems, especially mission critical systems, or
supplies of electricity or long distance voice and data lines are limited.
DESCRIPTION OF RATINGS
- -------------------------------------------------------------------------------
CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
Aaa: Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally stable
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds rated Aa are judged to be high quality by all standards. Together with
the Aaa group, they comprise what are generally known as high-grade bonds. They
are rated lower than the best bonds because margins of protection may not be as
large, fluctuation of protective elements may be of greater amplitude, or there
may be other elements present that make the long-term risks appear somewhat
larger.
A: Bonds rated A possess many favorable investment attributes and are considered
upper medium-grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present that suggest a
susceptibility to impairment sometime in the future.
Baa: Bonds rated Baa are considered medium-grade obligations. They are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. These
bonds lack outstanding investment characteristics and, in fact, have speculative
characteristics as well.
Ba: Bonds rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of interest
and principal payments is very moderate and, thereby, not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa: Bonds rated Caa are of poor standing. These issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca: Bonds rated Ca represent obligations that are speculative to a high degree.
These issues are often in default or have other marked shortcomings.
C: Bonds rated C are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
STANDARD & POOR'S CORPORATION (S&P)
AAA: This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA: Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and, in the majority of instances,
differ from AAA issues only in a small degree.
A: Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
BB, B, CCC, CC: Bonds rated BB, B, CCC and CC 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 obligations. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While these bonds will likely have some quality and protective
characteristics, they are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C: Bonds rated C are typically subordinated debt to senior debt that is assigned
an actual or implied CCC- rating. The C rating also may reflect the filing of a
bankruptcy petition under circumstances where debt service payments are
continuing. The C1 rating is reserved for income bonds on which no interest is
being paid.
D: Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
COMMERCIAL PAPER RATINGS
MOODY'S
Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually their promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following designations for both
short-term debt and commercial paper, all judged to be investment grade, to
indicate the relative repayment capacity of rated issuers:
P-1 (Prime-1): Superior capacity for repayment.
P-2 (Prime-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A "plus" (+) designation indicates an even stronger likelihood of
timely payment.
A-2: Capacity for timely payment on issues with this designation is strong. The
relative degree of safety, however, is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
- ------------------
1 As an operating policy approved and subject to change or elimination solely 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 Franklin Resources,
Inc. in October 1992 and resigned from the board on April 16, 1995. He is
no longer involved with the investment management process.
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
The following exhibits are incorporated by reference to the previously filed
documents indicated below, except as noted:
(A) ARTICLES OF INCORPORATIONS
(i) Articles of Incorporation dated October 26, 1990/2/
(B) BY-LAWS
( i) By-Laws as amended and restated March 1, 1991/2/
(ii) By-Laws as amended and restated October 19, 1996/3/
(C) INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS
Not Applicable
(D) INVESTMENT ADVISORY CONTRACTS
(i) Investment Management Agreement dated October 30, 1992 amended and
restated December 6, 1994 and May 25, 1995/2/
(E) UNDERWRITING CONTRACTS
(i) Distribution Agreement amended and restated May 1, 1995/2/
(ii) Form of Dealer Agreement between Registrant and Franklin Templeton
Distributors, Inc. and Securities Dealers dated March 1, 1998/4/
(iii) Amendment of Dealer Agreement dated May 15, 1998/4/
(F) BONUS OR PROFIT SHARING CONTRACTS
Not Applicable
(G) CUSTODIAN AGREEMENTS
(i) Custody Agreement dated January 14, 1991/2/
(ii) Amendment dated March 2, 1998 to the Custody Agreement/4/
(iii) Amendment No. 2 dated July 23, 1998 to the Custody Agreement/4/
(H) OTHER MATERIAL CONTRACTS
(i) Transfer Agent Agreement dated September 1, 1993 amended and restated
August 10, 1995/2/
(ii) Fund Administration Agreement dated October 1, 1996/3/
(I) LEGAL OPINION
(i) Opinion and Consent of Counsel/4/
(J) OTHER OPINION
Not Applicable
(K) OMITTED FINANCIAL STATEMENTS
Not Applicable
(L) INITIAL CAPITAL AGREEMENTS
(i) Initial capital agreement/1/
(M) RULE 12B-1 PLAN
Not Applicable
(O) RULE 18F-3 PLAN
Not Applicable
(P) POWER OF ATTORNEY
(i) Powers of Attorney dated December 11, 1998/5/
- ---------------------
1. Previously filed with Pre-Effective Amendment No. 2 to the Registration
Statement on February 28, 1991.
2. Previously filed with Post-Effective Amendment No. 7 to the Registration
Statement on December 29, 1995.
3. Previously filed with Post-Effective Amendment No. 8 to the Registration
Statement on December 31, 1996.
4. Previously filed with Post-Effective Amendment No. 10 to the Registration
Statement on October 28, 1998.
5. Previously filed with Post-Effective Amendment No. 11 to the Registration
Statement on December 31, 1998.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
NONE.
ITEM 25. 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 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 persons 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 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT
(a) Templeton Investment Counsel, Inc.
The officers and directors of the Registrant's manager also serve as
officers and/or directors for (1) the manager's corporate parent, Franklin
Resources, Inc., and/or (2) other investment companies in the Franklin
Templeton Group of Funds.
For additional information please see Part B and Schedules A and D of Form
ADV of the Fund's Investment Manager (SEC File 801-15125), incorporated
herein by reference, which sets forth the officers and directors of the
investment manager and information as to any business, profession, vocation
or employment of a substantial nature engaged in by those officers and
directors during the past two years.
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Franklin Templeton Distributors, Inc.("Distributors") also acts as
principal underwriter of shares of:
Templeton Developing Markets Trust
Templeton Funds, Inc.
Templeton Global Investment Trust
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund, Inc.
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 Floating Rate Trust
Franklin Gold Fund
Franklin High Income Trust
Franklin Investors Securities Trust
Franklin Managed Trust
Franklin Money Fund
Franklin Mutual Series Fund, Inc.
Franklin Municipal Securities Trust
Franklin New York Tax-Free Income Fund
Franklin New York Tax-Free Trust
Franklin Real Estate Securities Fund
Franklin Strategic Mortgage Portfolio
Franklin Strategic Series
Franklin Tax Exempt Money Fund
Franklin Tax-Free Trust
Franklin Templeton Fund Allocator Series
Franklin Templeton Global Trust
Franklin Templeton International Trust
Franklin Templeton Money Fund Trust
Franklin Templeton Variable Insurance Products Trust
(formerly Franklin Valuemark Funds)
Franklin Value Investors Trust
Institutional Fiduciary Trust
(b) The information required by this Item 27 with respect to each director
and officer of Distributors is incorporated by reference to Part B of this
Form N-1A and Schedule A of Form BD filed by Distributors with the
Securities and Exchange Commission pursuant to the Securities Act of 1934
(SEC File No. 8-5889)
(c) Registrant's principal underwriter is an affiliated person of
Registrant.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
Certain 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 thereunder are located at 500 East Broward Boulevard, Fort
Lauderdale, Florida 33394. Other records are maintained at the offices of
Franklin Templeton Investor Services, Inc., 100 Fountain Parkway, St.
Petersburg, Florida 33716-1205 and Franklin Resources, Inc., 777 Mariners
Island Boulevard, San Mateo, California 94404.
ITEM 29. MANAGEMENT SERVICES
There are no management-related service contracts not discussed in Part A
or Part B.
ITEM 30. UNDERTAKINGS.
Not Applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended and
the Investment Company Act of 1940, as amended, the Registrant 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 Ft. Lauderdale and the
State of Florida, on the 29th day of October, 1999.
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
By:/s/GARY P. MOTYL
-----------------------------
Gary P. Motyl, President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this 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>
____________________ President (Chief October 29, 1999
Gary P. Motyl* Executive Officer)
____________________ Treasurer (Chief October 29, 1999
James R. Baio* Financial and
Accounting Officer)
____________________ Director October 29, 1999
Charles B. Johnson*
____________________ Director October 29, 1999
Charles E. Johnson*
____________________ Director October 29, 1999
Nicholas F. Brady*
____________________ Director October 29, 1999
Fred R. Millsaps*
_____________________ Director October 29, 1999
Betty P. Krahmer*
____________________ Director October 29, 1999
Harris J. Ashton*
____________________ Director October 29, 1999
S. Joseph Fortunato*
____________________ Director October 29, 1999
Andrew H. Hines, Jr.*
____________________ Director October 29, 1999
John Wm. Galbraith*
____________________ Director October 29, 1999
Gordon S. Macklin*
</TABLE>
*By: /s/LEIANN NUZUM
----------------------
Leiann Nuzum
Attorney-in-Fact
(Pursuant to Powers of Attorney previously filed).
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
REGISTRATION STATEMENT
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION LOCATION
<S> <C> <C>
EX-99.(a)(i) Articles of Incorporation dated October 26, 1990 *
EX-99.(b)(i) By-Laws as amended and restated March 1, 1991 *
EX-99.(b)(ii) By-Laws as amended and restated October 16, 1996 *
EX-99.(d)(i) Investment Management Agreement dated October 30, 1992 *
amended and restated December 6, 1994 and May 25, 1995
EX-99.(e)(i) Distribution Agreement amended and restated May 1, 1995 *
EX-99.(e)(ii) Form of Dealer Agreement between Registrant and *
Franklin Templeton Distributors, Inc. and Securities
Dealers
EX-99.(e)(iii) Amendment of Dealer Agreement *
EX-99.(g)(i) Custody Agreement dated January 14, 1991 *
EX-99.(g)(ii) Amendment dated March 2, 1998 to the Custody Agreement *
EX-99.(g)(iii) Amendment No.2 dated July 23, 1998 to the Custody Agreement *
EX-99.(h)(i) Transfer Agent Agreement dated September 1, 1993 amended and *
restated August 10, 1995
EX-99.(h)(ii) Fund Administration Agreement dated October 1, 1996 *
EX-99.(i)(i) Opinion and Consent Counsel *
EX-99.(l)(i) Initial capital Agreement *
EX-99.(p)(i) Power of Attorney dated December 11, 1998 *
</TABLE>
* Incorporated by reference.
