Registration No. 33-37338 and 811-6198
As filed with the Securities and Exchange Commission on December 29, 2000
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. 15 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 14 [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)
MURRAY L. SIMPSON, 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
[X] on January 1, 2001 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (DATE) 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, 2001
[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 I or II (the Plans or Plan).
Templeton Capital Accumulation Plans I is no longer available for sale to new
investors. Current Planholders may still make additional payments in order to
complete their plans. Depending upon your monthly investment amount, the sales
charges on the first 12 investments of a Plan can be 50% of the total amount of
those investments. 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]
2 Goal and Strategies
2 Main Risks
4 Performance
4 Fees and Expenses
5 Management
5 Distributions and Taxes
6 Financial Highlights
YOUR ACCOUNT
[Begin callout]
INFORMATION ABOUT SALES CHARGES, ACCOUNT TRANSACTIONS AND SERVICES
[End callout]
7 Buying Shares
7 Investor Services
8 Selling Shares
9 Account Policies
10 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.
MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund invests in
equity securities of companies of any nation. The Fund also may invest in debt
obligations of companies and governments of any nation.
An equity security, or stock, represents a proportionate share of the ownership
of a company; its value is based on the success of the company's business, any
income paid to stockholders, the value of its assets, and general market
conditions. Common stocks and preferred stocks are examples of equity
securities.
A debt security represents 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 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.
When choosing equity investments for this Fund, the manager applies a
"bottom-up," value-oriented, and long-term approach, focusing on the market
price of a company's securities relative to its evaluation of the company's
long-term earnings, asset value and cash flow potential. The manager also
considers a company's price/earnings ratio, profit margins and liquidation
value.
In selecting equity securities, the manager does a company-by-company analysis,
rather than focusing on specific economic sectors or geographic regions.
Nevertheless, the Fund, from time to time, may have significant positions in
particular sectors such as telecommunications or regions such as Europe.
TEMPORARY INVESTMENTS When the manager believes market or economic conditions
are unfavorable for investors, the manager may invest up to 100% of the Fund's
assets in a temporary defensive manner or hold a substantial portion of its
assets in cash, cash equivalents or other high quality short-term investments.
Temporary defensive investments generally may include money market securities
and short-term debt securities. The manager also may invest in these types of
securities or hold cash while looking for suitable investment opportunities or
to maintain liquidity. In these circumstances, the Fund may be unable to achieve
its investment goal.
[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 this may not be the case in foreign markets, in the U.S., stocks
historically have outperformed other asset classes over the long term (over the
short term they tend to go up and down more dramatically). These price movements
may result from factors affecting individual companies, industries or the
securities market as a whole. Value stock prices are considered "cheap" relative
to the company's perceived value. They may not increase in value, as anticipated
by the manager, if other investors fail to recognize the company's value, and
bid up the price or in markets favoring faster-growing companies.
FOREIGN SECURITIES Investing in foreign securities, including securities of
foreign governments and depositary receipts, typically involves more risks than
investing in U.S. securities. Certain of these risks also may apply to
securities of U.S. companies with significant foreign operations. These risks
can increase the potential for losses in the Fund and affect its share price.
CURRENCY EXCHANGE RATES. Foreign securities may be issued and traded in foreign
currencies. As a result, their values may be affected by changes in exchange
rates between foreign currencies and the U.S. dollar, as well as between
currencies of countries other than the U.S. For example, if the value of the
U.S. dollar goes up compared to a foreign currency, an investment traded in that
foreign currency will go down in value because it will be worth less U.S.
dollars. The impact of the euro, a relatively new currency adopted by certain
European countries to replace their national currencies, is unclear at this
time.
POLITICAL AND ECONOMIC DEVELOPMENTS. The political, economic and social
structures of some foreign countries may be less stable and more volatile than
those in the U.S. Investments in these countries may be subject to the risks of
internal and external conflicts, currency devaluations, foreign ownership
limitations and tax increases. It is possible that a government may take over
the assets or operations of a company or impose restrictions on the exchange or
export of currency or other assets. Some countries also may have different legal
systems that may make it difficult for the Fund to vote proxies, exercise
shareholder rights, and pursue legal remedies with respect to its foreign
investments.
TRADING PRACTICES. Brokerage commissions and other fees generally are higher for
foreign securities. Government supervision and regulation of foreign stock
exchanges, currency markets, trading systems and brokers may be less than in the
U.S. The procedures and rules governing foreign transactions and custody
(holding of the Fund's assets) also may involve delays in payment, delivery or
recovery of money or investments.
AVAILABILITY OF INFORMATION. Foreign companies may not be subject to the same
disclosure, accounting, auditing and financial reporting standards and practices
as U.S. companies. Thus, there may be less information publicly available about
foreign companies than about most U.S. companies.
LIMITED MARKETS. Certain foreign securities may be less liquid (harder to sell)
and more volatile than many U.S. securities. This means the Fund may at times be
unable to sell foreign securities at prices which reflect their intrinsic value.
EMERGING MARKETS. The risks of foreign investments typically are greater in less
developed countries, sometimes referred to as emerging markets. For example,
political and economic structures in these countries may be less established and
may change rapidly. These countries also are more likely to experience high
levels of inflation, deflation or currency devaluation, and sensitivity to
interest rate increases, which can harm their economies and securities markets
and increase volatility. In fact, short-term volatility in these markets, and
declines of 50% or more, are not uncommon.
DEBT SECURITIES There is the possibility that an issuer of a debt security may
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 debt security's
value and, thus, impact Fund performance. In addition, 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. Since the Fund can only distribute what it
earns, the Fund's distributions to shareholders may decline when interest rates
fall.
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.
More detailed information about the Fund, its policies and risks 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 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 bull and 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 eight 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]
6.64% 39.52% 2.68% 14.80% 22.98% 11.16% 8.58% 29.20%
92 93 94 95 96 97 98 99
YEAR
[Begin callout]
BEST
QUARTER:
Q4 '99
17.42%
WORST
QUARTER:
Q3 '98
-17.04%
[End callout]
1. Figures do not reflect sales charges. If they did, returns would be lower. As
of September 30, 2000, the Fund's year-to-date return was -2.38%.
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
NO SALES CHARGES
SINCE
INCEPTION
1 YEAR 5 YEARS (3/1/91)
------------------------------------------------------------------------------
Templeton Capital Accumulator Fund/2/ 29.20% 17.10% 15.59%
MSCI All Country World Free Index/3/ 26.82% 19.19% 14.05%
2. Figures reflect NAV returns.
All fund performance assumes reinvestment of dividends and capital gains.
3. Source: Standard & Poor's Micropal. The unmanaged MSCI All Country World Free
Index measures the performance of securities located in 48 countries, including
emerging markets in Latin America, Asia and Eastern Europe. It includes
reinvested dividends. 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 0.75%
Distribution and service (12b-1) fees/4/ 0.30%
Other expenses 0.28%
-----
Total annual Fund operating expenses 1.33%
=====
4. The distribution and service (12b-1) fees applicable to shares of the Fund
will be a blended rate of (i) 0.30% on assets attributable to TCAP II and (ii)
0.00% or 0.10% on assets attributable to TCAP I. The rate on assets attributable
to TCAP I will be 0.00% until such time as the sales charge on investments after
the first 12 are eliminated. Initially, because most Fund assets are
attributable to TCAP I, the blended rate will be close to or equal to 0.00%.
This rate will increase as a percentage of average daily net assets of the Fund
as additional shares of the Fund are acquired outside of TCAP I.
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
-----------------------------------------------------------------------------
$135 $421 $729 $1,601
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 investment that you make. The charge will vary according to the
size of your investment amount. For example, on a $100 per investment Plan, $50
is deducted from each of the first 12 investments. After that, the charge drops
to $6.07 on each subsequent investment under Templeton Capital Accumulation Plan
I and to $0.00 on each subsequent investment under Templeton Capital
Accumulation Plans II. 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 $229
billion in assets.
The Fund's lead portfolio manager is:
GARY P. MOTYL CFA, PRESIDENT AND DIRECTOR OF INVESTMENT COUNSEL
Mr. Motyl has been a manager of the Fund since 1993. He joined Franklin
Templeton Investments 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 1993. He joined Franklin
Templeton Investments in 1985.
GUANG YANG CFA, VICE PRESIDENT OF INVESTMENT COUNSEL
Mr. Yang has been a manager of the Fund since 1999. He joined Franklin Templeton
Investments in 1995.
The Fund pays Investment Counsel a fee for managing the Fund's assets. For the
fiscal year ended August 31, 2000, the Fund paid 0.75% of its average daily net
assets to the manager for its services.
[Insert graphic of dollar signs and stacks of coins] DISTRIBUTIONS AND TAXES
------------------------
INCOME AND CAPITAL GAIN DISTRIBUTIONS
The Fund intends to make a distribution at least annually from its net
investment income and any net realized capital gains. The amount of any
distributions will vary, and there is no guarantee the Fund will pay either
income dividends or a capital gain distributions.
AVOID "BUYING A DIVIDEND" If you invest in the Fund shortly before it makes a
distribution, you may receive some of your investment back in the form of a
taxable distribution.
TAX CONSIDERATIONS In general, if you are a taxable investor, 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 as long-term
capital gains no matter how long you have owned your shares. Every January, you
will receive a statement that shows the tax status of distributions you received
for the previous year.
[Begin callout]
BACKUP WITHHOLDING
-------------------------------------------------------------------------------
By law, the Fund must withhold 31% of your taxable distributions and redemption
proceeds unless you:
o provide your correct social security or taxpayer identification number,
o certify that this number is correct, and
o certify that you are not subject to backup withholding.
The Fund must also withhold if the IRS instructs it to do so.
[End callout]
When you sell your shares of the Fund, you may realize 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.
Fund distributions and gains from the sale or exchange of your shares generally
are subject to state and local taxes. 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 or estate tax, and are subject to
special U.S. tax certification requirements. You should consult your tax advisor
about the federal, state, local or foreign tax consequences of your investment
in the Fund.
[Insert graphic of 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 for the fiscal
years ended August 31, 1999 and 2000, and by other auditors for the fiscal years
before August 31, 1999.
<TABLE>
<CAPTION>
Year ended August 31,
--------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996/2/
------------------------------------------------ -------------- ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA ($)/1/
Net asset value, beginning of year 12.11 9.69 10.97 9.08 7.97
-------------- ------------ ------------ -------------- ------------
Net investment income .16 .18 .18 .18 .19
Net realized and unrealized gains (losses) 1.71 2.78 (1.00) 2.03 1.10
-------------- ------------ ------------ -------------- ------------
Total from investment operations 1.87 2.96 (.82) 2.21 1.29
-------------- ------------ ------------ -------------- ------------
Distributions from net investment income (.15) (.18) (.18) (.18) (.15)
Distributions from net realized gains (.49) (.36) (.28) (.14) (.03)
-------------- ------------ ------------ -------------- ------------
Total distributions (.64) (.54) (.46) (.32) (.18)
-------------- ------------ ------------ -------------- ------------
Net asset value, end of year 13.34 12.11 9.69 10.97 9.08
-------------- ------------ ------------ -------------- ------------
Total return (%) 16.44 32.01 (7.87) 25.06 16.50
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 370,029 291,136 191,913 172,683 108,019
Ratios to average net assets: (%)
Expenses 1.03 1.11 1.00 1.00 1.00
Expenses excluding waiver and payments
by affiliate 1.03 1.11 1.09 1.13 1.16
Net investment income 1.24 1.60 1.77 2.00 2.56
Portfolio turnover rate (%) 32.13 13.96 11.92 7.43 11.08
</TABLE>
1. Based on average weighted shares outstanding effective year ended August 31,
1999.
2. Per share amounts for the period ended August 31, 1996 have been restated to
reflect a 2 for 1 stock split effective March 27, 1996.
YOUR ACCOUNT
DISTRIBUTION AND SERVICE (12B-1) FEES The Fund has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows the Fund to pay distribution
fees of up to 0.30% per year to those who sell and distribute Fund shares and
provide other services to shareholders. Because these fees are paid out of the
Fund's assets on an on-going basis, over time these fees will increase the cost
of your investment and may cost you more than paying other types of sales
charges.
[Insert graphic of paper with lines and someone writing] BUYING SHARES
-------------------
You may acquire 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]
Franklin Templeton funds include all of the U.S. registered mutual funds, of
Franklin Templeton Investments, except Franklin Templeton Variable Insurance
Products Trust and Templeton Capital Accumulator Fund, Inc.
[End callout]
[Insert graphic of person with handset] INVESTOR SERVICES
------------------------
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.
[Begin callout]
For 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 will automatically receive telephone privileges when
you open your account, allowing you and your investment representative to sell
your shares and make certain other changes to your account by phone.
For accounts with more than one registered owner, telephone privileges also
allow the Fund to accept written instructions signed by only one owner for
transactions and account changes that could otherwise be made by phone. For all
other transactions and changes, all registered owners must sign the
instructions.
As long as we take certain measures to verify telephone requests, we will not be
responsible for any losses that may occur from unauthorized requests. Of course,
you can decline telephone redemption privileges on your account application.
EXCHANGE PRIVILEGE If you have completed your plan, or through some legal action
(divorce, death, etc.) and the plan must be discontinued, your plan shares will
be exchanged for Fund shares. You can then liquidate your Fund shares or
exchange them in part or in total for other Franklin Templeton fund. Only
completed plans qualify for the NAV exchange privilege into certain other
Franklin Templeton funds. 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.
Because excessive trading can hurt fund performance, operations and
shareholders, the Fund reserves the right to revise or terminate the exchange
privilege, limit the amount or number of exchanges, reject any exchange, or
restrict or refuse purchases if (i) the Fund or its manager believes 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 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:
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
[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]
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.
SELLING RECENTLY PURCHASED SHARES If you sell shares recently purchased with a
check or draft, we may delay sending you the proceeds until your check or draft
has cleared, which may take seven business days or more. A certified or
cashier's check may clear in less time.
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 Plan account application.
RETIREMENT PLANS You may need to complete additional forms to sell shares in a
retirement plan. For participants under age 591/2, tax penalties may apply. Call
Retirement Services at 1-800/527-2020 for details.
SELLING SHARES
----------- ------------------------------------------------------------------
TO SELL SOME OR ALL OF YOUR SHARES
-------------------------------------------------------------------------------
[Insert graphic of hands
shaking]
THROUGH YOUR INVESTMENT Contact your investment representative
REPRESENTATIVE
-------------------------------------------------------------------------------
[Insert graphic of Send written instructions to FTTrust Company.
envelope] Corporate, partnership or trust accounts may
need to send additional documents.
BY MAIL
Specify 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 $100,000
or less and you have not changed your address
BY PHONE by phone within the last 15 days, you can
1-888/881-TCAP sell your shares by phone.
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 You can call or write to have redemption
lightning bolts] proceeds sent to a bank account. See the
policies above for selling shares by mail or
BY BANK WIRE (ACH) 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 this information, you will
need to send written instructions with your
bank's name and address, a voided check or
savings account deposit slip, and a signature
guarantee if the bank and Fund accounts do
not have at least one common owner.
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 Obtain a current prospectus for the fund you
arrows pointing in opposite are considering.
directions] BY EXCHANGE
Call the TCAP Dedicated Service Group at the
numbers below or send signed written
instructions. See the policies above for
for selling shares by mail or phone.
-------------------------------------------------------------------------------
FTTRUST COMPANY, PO BOX 33033
ST. PETERSBURG, FL 33716
CALL TOLL-FREE: 1-888/881-TCAP
(MONDAY THROUGH FRIDAY 8:00 A.M. TO 6:00 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.
STATEMENTS AND REPORTS You will receive written notification after each
transaction affecting your account. You also will receive the Fund's financial
reports every six months. If you need additional copies, please call
1-888/881-TCAP.
The dealer and investment representative of record on your account will receive
copies of all notifications, statements, and other information about your
account directly from the Fund.
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 "JTWROS" 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, in the
case of an emergency, to make payments in securities or other assets of the
Fund, if the payment of cash proceeds 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 also can call us at the following
number. For your protection and to help ensure we provide you with quality
service, all calls may be monitored or recorded.
DEPARTMENT NAME TELEPHONE NUMBER HOURS (PACIFIC TIME, 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 Plans 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
franklintempleton.com
You also can obtain information about the Plan and Fund by visiting the SEC's
Public Reference Room in Washington, D.C. (phone 1-202/942-8090) or the EDGAR
Database on the SEC's Internet site at http://www.sec.gov. You can obtain copies
of this information, after paying a duplicating fee, by writing to the SEC's
Public Reference Section, Washington, D.C. 20549-0102 or by electronic request
at the following e-mail address: [email protected].
Investment Company Act file #811-6198 TCAP1 P 01/01
PART B
STATEMENT OF ADDITIONAL INFORMATION
TEMPLETON CAPITAL
ACCUMULATOR FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 1, 2001
[Insert Franklin Templeton Ben Head]
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, 2001, 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, 2000, 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, Strategies and Risks 2
Officers and Directors 10
Management and Other Services 14
Portfolio Transactions 15
Distributions and Taxes 16
Organization, Voting Rights
and Principal Holders 18
Buying and Selling Shares 18
Pricing Shares 21
The Underwriter 21
Performance 23
Miscellaneous Information 24
Description of Ratings 25
-------------------------------------------------------------------------------
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
o ARE NOT 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, STRATEGIES AND RISKS
-------------------------------------------------------------------------------
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.
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 trying to
maximize the return to shareholders.
The Fund has adopted certain 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 has also adopted certain restrictions as non-fundamental policies. A
non-fundamental policy may be changed by the Board of Directors without the
approval of shareholders.
FUNDAMENTAL INVESTMENT POLICIES
The Fund's investment goal is long-term capital appreciation.
The Fund may not:
1. Borrow money, except that the Fund may borrow money from banks or other
investment companies to the extent permitted by the Investment Company Act of
1940, as amended (the 1940 Act), or any exemptions therefrom which may be
granted by the SEC, or from any person in a private transaction not intended for
public distribution for temporary or emergency purposes and then in an amount
not exceeding 33 1/3% of the value of the Fund's total assets (including the
amount borrowed).
2. Act as an underwriter except to the extent the Fund may be deemed to be an
underwriter when disposing of securities it owns
or when selling its own shares.
3. Make loans to other persons except (a) through the lending of its portfolio
securities, (b) through the purchase of debt securities, loan participations
and/or engaging in direct corporate loans in accordance with its investment
objectives and policies, and (c) to the extent the entry into a repurchase
agreement is deemed to be a loan. The Fund may also make loans to other
investment companies to the extent permitted by the 1940 Act or any exemptions
therefrom which may be granted by the SEC.
4. Concentrate (investment more than 25% of its net assets) in securities of
issuers in a particular industry (other than securities issued or guaranteed by
the U.S. government or any of its agencies or instrumentalities or securities of
other investment companies).
5. Purchase or sell real estate and commodities, except that the Fund may
purchase or sell securities of real estate investment trusts, may purchase or
sell currencies, may enter into futures contracts on securities, currencies, and
other indices or any other financials instruments, and may purchase and sell
options on such futures contracts.
6.Issue securities senior to the Fund's presently authorized shares of
beneficial interest. Except that this restriction shall not be deemed to
prohibit the Fund from (a) making any permitted borrowings, loans, mortgages, or
pledges, (b) entering into options, futures contracts, forward contracts,
repurchase transactions, or reverse repurchase transactions, or (c) making short
sales of securities to the extent permitted by the 1940 Act and any rule or
order thereunder, or SEC staff interpretations thereof.
7. Purchase the securities of any one issuer (other than the U.S. government or
any of its agencies or instrumentalities or securities of other investment
companies) if immediately after such investment (a) more than 5% of the value of
the Fund's total assets would be invested in such issuer or (b) more than 10% of
the outstanding voting securities of such issuer would be owned by the Fund,
except that up to 25% of the value of the Fund's total assets may be invested
without regard to such 5% and 10% limitations.
NON-FUNDAMENTAL INVESTMENT POLICIES
The following are the Fund's non-fundamental policies:
1. The Fund may invest up to 100% of its total assets in any single foreign
country, developed or developing or emerging markets, including up to 5% of its
total assets in Russian securities. The Fund may invest no more than 5% of its
assets in Eastern European countries.
2. 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.
3. The Fund may invest no more than 5% of its total assets in securities of any
one company or government.
4. The Fund may invest up to 25% of its assets in a single industry (although it
has no present intention of doing so).
5. The Fund may invest up to 5% of its assets in warrants (excluding warrants
acquired in units or attached securities).
6. The Fund may not invest more than 5% of its total assets in debt securities
rated lower than BBB by Standard & Poor's Ratings Group (S&P(R)) or Baa by
Moody's Investor Services, Inc. (Moody's).
7. The Fund will not invest more than 10% of its net assets in illiquid
securities.
8. The Fund may not commit more than 5% of its total assets to initial margin
deposits on futures contracts and related options.
9. The value of the securities on which the futures contracts are based will not
exceed 25% of the Fund's total assets.
INVESTMENTS, TECHNIQUES, STRATEGIES AND THEIR RISKS
In trying to achieve its investment goals, the Fund may invest in various types
of securities or engage in various types of transactions. These types of
securities and transactions and their accompanying risks are described below.
The Fund's manager is under no obligation to invest in any or all of these
securities, or engage in any or all of the types of transactions.
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.
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.
Lower 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.
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.
FOREIGN 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. In addition, there is the possibility of foreign
exchange controls (which may include suspension of the ability to transfer
currency from a given country).
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 in
recent years. Any devaluations in the currencies in which the Fund's portfolio
securities are denominated may have a detrimental impact on the Fund.
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. 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 foreign currency exchange contracts.
The Fund may, but is not obligated to, 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. Favorable
cross-hedging may not always be available to the Fund.
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.
OPTIONS ON FOREIGN CURRENCIES 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.
FOREIGN CURRENCY FUTURES 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.
EURO On January 1, 1999, the European Economic and Monetary Union (EMU)
introduced a new single currency called the euro. By July 1, 2002, the euro,
which will be implemented in stages, will have replaced the national currencies
of the following member countries: Austria, Belgium, Finland, France, Germany,
Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.
Currently, the exchange rate of the currencies of each of these countries is
fixed to the euro. The euro trades on currency exchanges and is available for
non-cash transactions. The participating countries currently issue sovereign
debt exclusively in euro. By July 1, 2002, euro-denominated bills and coins will
replace the bills and coins of the above countries.
The new European Central Bank has control over each country's monetary policies.
Therefore, the participating countries no longer control their own monetary
policies by directing independent interest rates for their currencies. The
national governments of the participating countries, however, have retained the
authority to set tax and spending policies and public debt levels.
The change to the euro as a single currency is new and untested. It is not
possible to predict the impact of the euro on currency values or on the business
or financial condition of European countries and issuers, and issuers in other
regions, whose securities the Fund may hold, or the impact, if any, on Fund
performance. In the two years of the euro's existence, the exchange rates of the
euro versus many of the world's major currencies steadily declined. In this
environment, U.S. and other foreign investors experienced erosion of their
investment returns on their euro-denominated securities. The transition and the
elimination of currency risk among EMU countries may change the economic
environment and behavior of investors, particularly in European markets, but the
impact of those changes cannot be assessed at this time.
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. Foreign markets have
substantially less volume than the New York Stock Exchange 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.
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 or ADRs); or (b) of a foreign or
U.S. issuer deposited in a foreign bank or trust company (Global Depositary
Receipts or GDRs, or European Depositary Receipts EDRs).
EMERGING MARKETS Investments in companies domiciled in emerging 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 economies of some developing countries may
differ 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 emerging countries may involve risks of nationalization,
expropriation and confiscatory taxation. 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. 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 developing 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. Foreign
exchange restrictions may limit the ability of foreign investors to repatriate
their profits. Further, accounting standards that exist in developing countries
may differ from U.S. standards.
Governments in certain developing 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.
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.
STOCK INDEX FUTURES The Fund 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.
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).
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.
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.
ILLIQUID INVESTMENT 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.
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.
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.
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
suitable 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.
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, depending on
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.
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 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.
TEMPORARY INVESTMENTS When the manager believes market or economic conditions
are unfavorable for investors, the manager may invest up to 100% of the Fund's
assets in a temporary defensive manner or hold a substantial portion of its
assets in cash, cash equivalents or other high quality short-term investments.
Unfavorable market or economic conditions may include excessive volatility or a
prolonged general decline in the securities markets, the securities in which the
Fund normally invests, or the economies of the countries where the Fund invests.
Temporary defensive investments generally may include money market instruments
and short-term securities. To the extent allowed by exemptions granted under the
1940 Act and the Fund's other investment policies and restrictions, the manager
also may invest the Fund's assets in shares of one or more money market funds
managed by the manager or its affiliates. The manager also may invest in these
types of securities or hold cash while looking for suitable investment
opportunities or to maintain liquidity.
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 (68)
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 48 of the
investment companies in Franklin Templeton Investments; and FORMERLY, President,
Chief Executive Officer and Chairman of the Board, General Host Corporation
(nursery and craft centers) (until 1998).
*Nicholas F. Brady (70)
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 oil and gas), C2, Inc. (operating and investment business), and H.J.
Heinz Company (processed foods and allied products); director or trustee, as the
case may be, of 18 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Secretary of the United States Department of the
Treasury (1988-1993), Chairman of the Board, Dillon, Read & Co., Inc.
(investment banking) (until 1988) and U.S. Senator, New Jersey (April
1982-December 1982).
Frank J. Crothers (56)
P.O. Box N-3238, Lyford Cay, Nassau, Bahamas
DIRECTOR
Chairman, Caribbean Electric Utility Services Corporation and Atlantic Equipment
& Power Ltd.; Vice Chairman, Caribbean Utilities Co., Ltd.; President, Provo
Power Corporation; director of various other business and non-profit
organizations; and director or trustee, as the case may be, of 13 of the
investment companies in Franklin Templeton Investments.
S. Joseph Fortunato (68)
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 50 of the investment companies in Franklin Templeton
Investments.
Andrew H. Hines, Jr. (77)
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 19 of the investment
companies in Franklin Templeton Investments; 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 former director of various of its subsidiaries.
Edith E. Holiday (48)
3239 38th Street, N.W., Washington, DC 20016
DIRECTOR
Director, Amerada Hess Corporation (exploration and refining of oil and gas)
(1993-present), Hercules Incorporated (chemicals, fibers and resins)
(1993-present), Beverly Enterprises, Inc. (health care) (1995-present), H.J.
Heinz Company (processed foods and allied products) (1994-present) and RTI
International Metals, Inc. (manufacture and distribution of titanium)
(1999-present); director or trustee, as the case may be, of 27 of the investment
companies in Franklin Templeton Investments; and FORMERLY, Assistant to the
President of the United States and Secretary of the Cabinet (1990-1993), General
Counsel to the United States Treasury Department (1989-1990), and Counselor to
the Secretary and Assistant Secretary for Public Affairs and Public
Liaison-United States Treasury Department (1988-1989).
*Charles B. Johnson (67)
777 Mariners Island Blvd., San Mateo, CA 94404
CHAIRMAN OF THE BOARD AND VICE PRESIDENT
Chairman of the Board, Chief Executive Officer, Member - Office of the Chairman
and Director, Franklin Resources, Inc.; Vice President, 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 49 of the investment companies in Franklin Templeton Investments.
*Charles E. Johnson (44)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND DIRECTOR
President, Member - Office of the President and Director, Franklin Resources,
Inc.; Senior Vice President, Franklin Templeton Distributors, Inc.; President
and Director, Templeton Worldwide, Inc. and Franklin Advisers, Inc.; Director,
Templeton Investment Counsel, Inc.; Chairman of the Board and President,
Franklin Investment Advisory 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 33 of the investment companies in Franklin
Templeton Investments.
Betty P. Krahmer (71)
2201 Kentmere Parkway, Wilmington, DE 19806
DIRECTOR
Director or trustee of various civic associations; director or trustee, as the
case may be, of 18 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Economic Analyst, U.S. government.
Gordon S. Macklin (72)
8212 Burning Tree Road, Bethesda, MD 20817
DIRECTOR
Director, Martek Biosciences Corporation, WorldCom, Inc. (communications
services), MedImmune, Inc. (biotechnology), Overstock.com (internet services),
White Mountains Insurance Group, Ltd. (holding company) and Spacehab, Inc.
(aerospace services); director or trustee, as the case may be, of 48 of the
investment companies in Franklin Templeton Investments; and FORMERLY, Chairman,
White River Corporation (financial services) (until 1998) and Hambrecht & Quist
Group (investment banking) (until 1992), and President, National Association of
Securities Dealers, Inc. (until 1987).
Fred R. Millsaps (71)
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 19 of the
investment companies in Franklin Templeton Investments; 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).
Constantine Dean Tseretopoulos (46)
P.O. Box N-7776, Lyford Cay, Nassau Bahamas
DIRECTOR
Physician, Lyford Cay Hospital (1987-present); director of various nonprofit
organizations; director or trustee, as the case may be, of 13 of the investment
companies in Franklin Templeton Investments; and FORMERLY, Cardiology Fellow,
University of Maryland (1985-1987) and Internal Medicine Resident, Greater
Baltimore Medical Center (1982-1985).
Harmon E. Burns (55)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources,
Inc.; Vice President and Director, Franklin Templeton Distributors, Inc.;
Executive Vice President, Franklin Advisers, Inc.; Director, Franklin Investment
Advisory Services, Inc., Franklin/Templeton Investor Services, Inc. and Franklin
Templeton 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 52
of the investment companies in Franklin Templeton Investments.
Jeffrey A. Everett (36)
P.O. Box N-7759, Lyford Cay, Nassau, Bahamas
VICE PRESIDENT
Executive Vice President, Portfolio Management, Templeton Global Advisors
Limited; officer of some of the other investment companies in Franklin Templeton
Investments; and FORMERLY, Investment Officer, First Pennsylvania Investment
Research (until 1989).
Martin L. Flanagan (40)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
President, Member - Office of the President, Chief Financial Officer and Chief
Operating Officer, Franklin Resources, Inc.; Executive Vice President and
Director, Franklin/Templeton Investor Services, Inc.; President and Chief
Financial Officer, 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, Franklin Advisers, Inc. and Franklin Investment
Advisory Services, Inc.; Chief Financial Officer, Franklin Advisory Services,
LLC; Chairman 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 52 of the investment
companies in Franklin Templeton Investments.
David P. Goss (53)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Associate General Counsel, Franklin Templeton Investments; President, Chief
Executive Officer and Director, Franklin Select Realty Trust, Property
Resources, Inc., Property Resources Equity Trust, Franklin Real Estate
Management, Inc. and Franklin Properties, Inc.; officer and director of some of
the other subsidiaries of Franklin Resources, Inc.; officer of 53 of the
investment companies in Franklin Templeton Investments; and FORMERLY, President,
Chief Executive Officer and Director, Franklin Real Estate Income Fund and
Franklin Advantage Real Estate Income Fund (until 1996).
Barbara J. Green (53)
777 Mariners Island Blvd., San Mateo, CA 94404
SECRETARY AND VICE PRESIDENT
Vice President and Deputy General Counsel, Franklin Resources, Inc.; Senior Vice
President, Templeton Worldwide, Inc.; officer of 53 of the investment companies
in Franklin Templeton Investments; 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 (until 1986), and
Judicial Clerk, U.S. District Court (District of Massachusetts) (until 1979).
Rupert H. Johnson, Jr. (60)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources,
Inc.; Vice President and Director, Franklin Templeton Distributors, Inc.;
Director, Franklin Advisers, Inc., Franklin Investment Advisory Services, Inc.
and Franklin/Templeton Investor Services, Inc.; Senior Vice President, Franklin
Advisory Services, LLC; and officer and/or director or trustee, as the case may
be, of most of the other subsidiaries of Franklin Resources, Inc. and of 52 of
the investment companies in Franklin Templeton Investments.
John R. Kay (60)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
VICE PRESIDENT
Vice President, Templeton Worldwide, Inc.; Assistant Vice President, Franklin
Templeton Distributors, Inc.; Senior Vice President, Franklin Templeton
Services, Inc.; officer of 23 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Vice President and Controller, Keystone Group, Inc.
Gary P. Motyl (48)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
PRESIDENT
President and Director, Templeton Investment Counsel, Inc.; officer of other
subsidiaries of Franklin Resources, Inc.; and FORMERLY, Research Analyst and
Portfolio Manager, Landmark First National Bank (1979-1981) and Security
Analyst, Standard & Poor's Corporation (1974-1979).
Bruce S. Rosenberg (39)
500 East Broward Blvd., Fort Lauderdale, FL 33394-3091
TREASURER
Vice President, Franklin Templeton Services, Inc., and officer of 19 of the
investment companies in the Franklin Templeton Investments; FORMERLY, Senior
Manager-Fund Accounting, Templeton Global Investors, Inc. (1995-1996).
Murray L. Simpson (63)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Executive Vice President and General Counsel, Franklin Resources, Inc.; officer
and/or director of some of the subsidiaries of Franklin Resources, Inc.; officer
of 53 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Chief Executive Officer and Managing Director, Templeton Franklin
Investment Services (Asia) Limited (until January 2000) and Director, Templeton
Asset Management Ltd. (until 1999).
*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 Franklin Templeton
Investments receive a flat fee of $2,000 per committee meeting attended, a
portion of which is allocated to the Fund. Members of a committee are not
compensated for any committee meeting held on the day of a board meeting.
Noninterested board members also may serve as directors or trustees of other
funds in Franklin Templeton Investments and may receive fees from these funds
for their services. The following table provides the total fees paid to
noninterested board members and Mr. Brady by the Fund and by Franklin Templeton
Investments.
<TABLE>
<CAPTION>
TOTAL FEES RECEIVED NUMBER OF BOARDS IN
FROM FRANKLIN FRANKLIN TEMPLETON
TOTAL FEES RECEIVED TEMPLETON INVESTMENTS ON WHICH
FROM THE FUND/1/ ($) INVESTMENTS/2/ ($) EACH SERVES/3/
----------------------------- ------------------------- --------------------- ----------------------
<S> <C> <C> <C>
Harris J. Ashton 1,500 359,404 48
Nicholas F. Brady 1,500 128,400 18
Frank J. Crothers 0 82,000 13
S. Joseph Fortunato 1,500 359,629 50
John Wm. Galbraith/4/ 1,541 140,600 0
Andrew H. Hines, Jr. 1,544 199,100 19
Edith E. Holiday 0 248,305 27
Betty P. Krahmer 1,500 136,000 18
Gordon S. Macklin 1,500 359,504 48
Fred R. Millsaps 1,536 199,100 19
Constantine D. Tseretopoulos 0 84,000 13
</TABLE>
1. For the fiscal year ended August 31, 2000.
2. For the calendar year ended December 31, 2000.
3. We base the number of boards on the number of registered investment companies
in Franklin Templeton Investments. This number does not include the total number
of series or funds within each investment company for which the board members
are responsible. Franklin Templeton Investments currently includes 52 registered
investment companies, with approximately 156 U.S. based funds or series.
4.Resigned December 31, 2000.
Noninterested board members and Mr. Brady are reimbursed for expenses incurred
in connection with attending board meetings, paid pro rata by each fund in
Franklin Templeton Investments 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
Franklin Templeton Investments. 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 Franklin Templeton Investments, 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, Canada, China, Cyprus, France, Germany, Hong Kong, Hungary,
India, Ireland, Italy, Japan, Korea, Luxembourg, Mauritius, Netherlands, Poland,
Russia, Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan, Turkey,
United Kingdom, United States and Venezuela.
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.
The Fund, its manager and principal underwriter have each adopted a code of
ethics, as required by federal securities laws. Under the code of ethics,
employees who are designated as access persons may engage in personal securities
transactions, including transactions involving securities that are being
considered for the Fund or that are currently held by the Fund, subject to
certain general restrictions and procedures. The personal securities
transactions of access persons of the Fund, its manager and principal
underwriter will be governed by the code of ethics. The code of ethics is on
file with, and available from, the U.S. Securities and Exchange Commission
(SEC).
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 ($)
------------------- ----------------------------------------------------
2000 2,515,354
1999 1,881,919
1998/1/ 1,334,912
1. For the fiscal year ended August 31, 1998, management fees before any advance
waiver, totaled $1,530,273. 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 $1.2 billion.
During the last three fiscal years ended August 31, the Fund paid FT Services
the following administration fees:
ADMINISTRATION FEES PAID ($)
------------------ ----------------------------------------------------
2000 482,778
1999 368,745
1998 305,449
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 33716-1205. 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 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 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 Franklin Templeton Investments, 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 ($)
------------------ ----------------------------------------------------
2000 545,709
1999 267,592
1998 210,451
For the fiscal year ended August 31, 2000, the Fund paid brokerage commissions
of $501,788 from aggregate portfolio transactions of $211,655,782 to brokers who
provided research services.
As of August 31, 2000, 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. If you are a taxable investor,
any income dividends the Fund pays are taxable to you as ordinary income.
DISTRIBUTIONS OF CAPITAL GAINS The Fund may realize capital gains and losses on
the sale or other disposition of its portfolio securities. Distributions from
net short-term capital gains are taxable to you as ordinary income.
Distributions from net long-term capital gains are taxable to you as long-term
capital gains, regardless of how long you have owned your shares in the Fund.
Any net capital gains realized by the Fund generally are distributed once each
year, and may be distributed more frequently, if necessary, to reduce or
eliminate excise or income taxes on the Fund.
DISTRIBUTIONS OF FIVE YEAR GAINS Beginning in the year 2001 for shareholders in
the 15% federal income tax bracket (or in the year 2006 for shareholders in the
28% or higher bracket), capital gain distributions from the Fund's sale of
securities held for more than five years are subject to a maximum rate of tax of
8% (or 18% for shareholders in the 28% or higher bracket).
PASS-THROUGH OF FOREIGN TAX CREDITS The Fund may be subject to foreign
withholding taxes on income from certain foreign securities. This, in turn,
could reduce the Fund's income dividends paid to you. If more than 50% of the
Fund's total assets at the end of a fiscal year is invested in foreign
securities, 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 Fund may report
more taxable income to you than it actually distributes. You will then be
entitled either to deduct your share of these taxes in computing your taxable
income, or to claim a foreign tax credit for these taxes against your U.S.
federal income tax (subject to limitations for certain shareholders). The Fund
will provide you with the information necessary to complete your personal income
tax return if it makes this election.
EFFECT OF FOREIGN DEBT INVESTMENTS AND HEDGING 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 on the sale of
debt securities generally are treated as ordinary losses. These gains when
distributed are taxable to you as ordinary income, and any losses reduce the
Fund's ordinary income otherwise available for distribution to you. This
treatment could increase or decrease 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. A return of capital generally is not taxable
to you, but reduces the tax basis of your shares in the Fund. Any return of
capital in excess of your basis, however, is taxable as a capital gain.
INFORMATION ON THE AMOUNT AND TAX CHARACTER OF DISTRIBUTIONS The Fund will
inform you of the amount of your income dividends and capital gain 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 owned your Fund shares for a full year, the Fund may designate and
distribute to you, as ordinary income or capital gains, a percentage of income
that may not be equal to the actual amount of each type of income earned during
the period of your investment in the Fund. Distributions declared in December
but paid in January are taxable to you as if paid in December.
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 (Code). It has qualified as a regulated investment company for its
most recent fiscal year, and intends to continue to 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 this course of action to be beneficial to
shareholders. In that case, the Fund would be subject to federal, and possibly
state, corporate taxes on its taxable income and gains, and distributions to you
would be taxed as ordinary income dividends to the extent of the Fund's earnings
and profits.
EXCISE TAX DISTRIBUTION REQUIREMENTS To avoid federal excise taxes, the Code
requires the Fund to distribute to you by December 31 of each year, at a
minimum, the following amounts:
o 98% of its taxable ordinary income earned during the calendar year;
o 98% of its capital gain net income earned during the twelve month period
ending October 31; and
o 100% of any undistributed amounts from the prior year.
The Fund intends to declare and pay these distributions in December (or to pay
them in January, in which case you must treat them as received in December), but
can give no assurances that its distributions will be sufficient to eliminate
all taxes.
REDEMPTION OF FUND SHARES Redemptions (including redemptions in kind) and
exchanges of Fund shares are taxable transactions for federal and state income
tax purposes. If you redeem your Fund shares, or exchange them for shares of a
different Franklin Templeton fund, the IRS requires you to report any gain or
loss on your redemption or exchange. If you hold your shares as a capital asset,
any gain or loss that you realize is a capital gain or loss and is long-term or
short-term, generally depending on how long you have owned your shares.
REDEMPTIONS AND FIVE YEAR GAINS Beginning in the year 2001 for shareholders in
the 15% federal income tax bracket (or in the year 2006 for shareholders in the
28% or higher bracket), gain from the redemption of Fund shares held for more
than five years may be subject to a maximum rate of tax of 8% (or 18% for
shareholders in the 28% or higher bracket). If you are in the 28% or higher tax
bracket, you may elect to mark your Fund shares to market on January 2, 2001. If
you make this election, any Fund shares that you acquired before this date will
be eligible for the 18% maximum rate of tax, beginning in 2006. However, in
making the election, you are required to pay a tax on any appreciation in the
value of your Fund shares on January 2, 2001, and to restart your holding period
in the shares on this date.
REDEMPTIONS AT A LOSS WITHIN SIX MONTHS OF PURCHASE Any loss incurred on the
redemption or exchange of shares held for six months or less is 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.
WASH SALES All or a portion of any loss that you realize on the redemption of
your Fund shares is 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 is added to
your tax basis in the new shares.
DEFERRAL OF BASIS If you redeem some or all of your shares in the Fund, and then
reinvest the redemption 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. In reporting
any gain or loss on your redemption, all or a portion of the sales charge that
you paid for your original shares in the Fund is excluded from your tax basis in
the shares sold and added to your tax basis in the new shares.
U.S. GOVERNMENT SECURITIES The income earned on certain U.S. government
securities is exempt from state and local personal income taxes if earned
directly by you. States also grant tax-free status to mutual fund dividends paid
to you from interest earned on these securities, subject in some states to
minimum investment or reporting requirements that must be met by a fund. The
income on Fund investments in certain securities, such as repurchase agreements,
commercial paper and federal agency-backed obligations (e.g., Government
National Mortgage Association (GNMA) or Federal National Mortgage Association
(FNMA) securities), generally does not qualify for tax-free treatment. The rules
on exclusion of this income are different for corporations.
DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS For corporate shareholders, it is
anticipated that a portion of the dividends paid by the Fund will qualify for
the dividends-received deduction. You may be allowed to deduct these qualified
dividends, thereby reducing the tax that you would otherwise be required to pay.
The dividends-received deduction is available only with respect to dividends
designated by the Fund as qualifying for this treatment. Qualifying dividends
generally are limited to dividends of domestic corporations. All dividends
(including the deducted portion) are included in your calculation of alternative
minimum taxable income.
INVESTMENT IN COMPLEX SECURITIES The Fund may invest in complex securities that
could affect whether gains and losses it recognizes are treated as ordinary
income or capital gains, or could affect the amount and timing of income
distributed to you. For example, if the Fund is allowed to invest in option or
futures contracts, it could be required to mark-to-market these contracts at its
fiscal year end. Under these rules, gains or losses on these contracts would be
treated as 60% long-term and 40% short-term capital gains or losses.
The Fund may also invest in securities issued or purchased at a discount, such
as zero coupon, step-up or payment-in-kind (PIK) bonds, that may require it to
accrue and distribute income not yet received. In order to generate sufficient
cash to make these distributions, the Fund may be required to sell securities in
its portfolio that it otherwise might have continued to hold. These rules could
affect the amount, timing and tax character of income distributed to you by the
Fund.
PFIC SECURITIES The Fund may invest in securities of foreign entities that could
be deemed for tax purposes to be passive foreign investment companies (PFICs).
The Fund intends to mark-to-market these securities, and recognize any gains at
the end of its fiscal year. Deductions for losses are allowable only to the
extent of any current or previously recognized gains. These gains (reduced by
allowable losses) are treated as ordinary income that the Fund is required to
distribute, even though it has not sold the securities.
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.
Certain funds in Franklin Templeton Investments 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. Because the Fund's sales charge structure and
Rule 12b-1 plan are similar to those of Class A shares, shares of the Fund are
considered Class A shares.
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.
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 December 1, 2000, 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 Franklin Templeton Investments.
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 FTTrust Company (FTTrust) as custodian for the unit investment trusts
entitled Templeton Capital Accumulation Plan I and State Street Bank and Trust
Company (State Street) as custodian for the unit investment trusts entitled
Templeton Capital Accumulation Plan II (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 FTTrust or State Street as custodians
of the Plans, will directly hold any shares of the Fund. The terms of the
offering of the Plans are contained in the prospectuses for the Plans.
Other funds advised by the manager, including those having capital growth as an
objective, are currently being offered with a sales charge that, when compared
to the early years of a Plan, would be less than the sales and creation charges
for the Plans. Investors wishing information on any of these funds may contact
Distributors at the address shown on the cover.
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.
Distributors and/or its affiliates may provide financial support to securities
dealers that sell shares of Franklin Templeton Investments. This support is
based primarily on the amount of sales of fund shares and/or total assets with
Franklin Templeton Investments. The amount of support may be affected by: total
sales; net sales; levels of redemptions; the proportion of a securities dealer's
sales and marketing efforts in Franklin Templeton Investments; a securities
dealer's support of, and participation in, Distributors' marketing programs; a
securities dealer's compensation programs for its registered representatives;
and the extent of a securities dealer's marketing programs relating to Franklin
Templeton Investments. Financial support to securities dealers may be made by
payments from Distributors' resources, from Distributors' retention of
underwriting concessions and, in the case of funds that have Rule 12b-1 plans,
from payments to Distributors under such plans. In addition, certain securities
dealers may receive brokerage commissions generated by fund portfolio
transactions in accordance with the rules of the National Association of
Securities Dealers, Inc.
Distributors routinely sponsors due diligence meetings for registered
representatives during which they receive updates on various Franklin Templeton
funds and are afforded the opportunity to speak with portfolio managers.
Invitation to these meetings is not conditioned on selling a specific number of
shares. Those who have shown an interest in Franklin Templeton funds, however,
are more likely to be considered. To the extent permitted by their firm's
policies and procedures, registered representatives' expenses in attending these
meetings may be covered by Distributors.
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 generally are 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 Fund 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 that day 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.
To discontinue a systematic withdrawal plan, change the amount and schedule of
withdrawal payments, or suspend one payment, we must receive instructions from
you at least three business days before a scheduled payment. The Fund may
discontinue a systematic withdrawal plan by notifying you in writing and will
discontinue a systematic withdrawal plan automatically 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. 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.
There are special procedures for banks and other institutions that wish to open
multiple accounts. An institution may open a single master account by filing one
application form with the Fund, signed by personnel authorized to act for the
institution. Individual sub-accounts may be opened when the master account is
opened by listing them on the application, or by providing instructions to the
Fund at a later date. These sub-accounts may be registered either by name or
number. The Fund's investment minimums apply to each sub-account. The Fund will
send confirmation and account statements for the sub-accounts to the
institution.
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 DISTRIBUTORS
RECEIVED ($) ($)
------------- --------------------------- ----------------------------------
2000 3,459,185 89,657
1999 4,466,661 486,007
1998 6,148,670 615,973
Distributors may be entitled to payments from the Fund under the Rule 12b-1
plan, as discussed below. Except as noted, Distributors received no other
compensation from the Fund for acting as underwriter.
DISTRIBUTION AND SERVICE (12B-1) FEES The board has adopted a Distribution Plan
pursuant to Rule 12b-1. Whereby the Fund may pay up to a maximum of 0.30% per
annum of its average daily net assets for expenses incurred in the promotion and
distribution of its shares. The Distribution Plan is designed to benefit the
Fund and its shareholders. The Distribution Plan is expected to, among other
things, increase advertising of the Fund, encourage sales of the Fund and
service to its shareholders, and increase or maintain assets of the Fund so that
certain fixed expenses may be spread over a broader asset base, resulting in
lower per share expense ratios. In addition, a positive cash flow into the Fund
is useful in managing the Fund because the manager has more flexibility in
taking advantage of new investment opportunities and handling shareholder
redemptions.
Under the Distribution Plan, the Fund pays Distributors or others for the
expenses of activities that are primarily intended to sell shares of the Fund.
These expenses also may include service fees paid to securities dealers or
others who have executed a servicing agreement with the Fund, Distributors or
its affiliates and who provide service or account maintenance to shareholders
(service fees); the expenses of printing prospectuses and reports used for sales
purposes, and of preparing and distributing sales literature and advertisements;
and a prorated portion of Distributors' overhead expenses related to these
activities. Together, these expenses, including the service fees, are "eligible
expenses."
In implementing the Distribution Plan, the board has determined that the annual
fees payable under the Distribution Plan will be equal to the sum of: (i) the
amount obtained by multiplying 0.30% by the average daily net assets represented
by shares of the Fund that were acquired by investors on or after Templeton
Capital Accumulation Plans II commencement of operations (new assets), and (ii)
the amount obtained by multiplying the average daily net assets represented by
shares of the Fund that were acquired before Templeton Capital Accumulation
Plans II commencement of operations (old assets) by an "old asset rate." These
fees will be paid to the current securities dealer of record on the account. In
addition, until such time as sales charges are eliminated for Templeton Capital
Accumulation Plans I after the first 12 payments, except for certain face
changes, the "old asset rate" will be 0.00%. Thereafter, the "old asset rate"
will be 0.10%. It is anticipated that the 0.10% will be paid to dealers who are
responsible for the Old Assets having been invested in the Fund, while the new
asset rate will paid to Distributors and/or to dealers responsible for New
Assets to reimburse them for distribution expenses.
The fee is a Fund expense so that all shareholders, regardless of when they
purchased their shares, will bear Rule 12b-1 expenses at the same rate. The
initial rate will be at least 0.00% unless the sales charges on Templeton
Capital Accumulation Plans I payments after the first 12 payments are
eliminated, in which case the rate will be at least 0.10%. As Fund shares are
sold on or after Templeton Capital Accumulation Plans II commencement of
operations, 200[]], the rate will increase over time. Thus, as the proportion of
Fund shares purchased on or after Templeton Capital Accumulation Plans II
commencement of operations, increases in relation to outstanding Fund shares,
the expenses attributable to payments under the Distribution Plan will also
increase (but will not exceed 0.30% of average daily net assets). While this is
the currently anticipated calculation for fees payable under the Distribution
Plan, the Distribution Plan permits the board to allow the Fund to pay a full
0.30% on all assets at any time. The approval of the board would be required to
change the calculation of the payments to be made under the Distribution Plan.
The Distribution Plan is a reimbursement plan. It allows the Fund to reimburse
Distributors for eligible expenses that Distributors has shown it has incurred.
The Fund will not reimburse more than the maximum amount allowed under the
Distribution Plan. Any unreimbursed expenses from one given month, however, may
be reimbursed in future months or years. This includes expenses not reimbursed
because they had exceeded the applicable limit under the Distribution Plan.
To the extent fees are for distribution or marketing functions, as distinguished
from administrative servicing or agency transactions, certain banks may not
participate in the Distribution Plan because of applicable federal law
prohibiting certain banks from engaging in the distribution of mutual fund
shares. These banks, however, are allowed to receive fees under the Distribution
Plan for administrative servicing or for agency transactions.
Distributors must provide written reports to the board at least quarterly on the
amounts and purpose of any payment made under the Distribution Plan and any
related agreements, and furnish the board with such other information as the
board may reasonably request to enable it to make an informed determination of
whether the Distribution Plan should be continued.
The Distribution Plan has been approved according to the provisions of Rule
12b-1. The terms and provisions of the Distribution Plan also are consistent
with Rule 12b-1.
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,
2000, were:
SINCE INCEPTION
1 YEAR (%) 5 YEARS (%) (03/01/91) (%)
----------------- -------------------- -------------------------
16.44 15.59 14.71
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, 2000, were:
SINCE INCEPTION
1 YEAR (%) 5 YEARS (%) (03/01/91) (%)
----------------- -------------------- -------------------------
16.44 106.32 268.49
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
reflecting the Plan's sales charge. Sales literature and advertising may quote a
cumulative total return, average annual total return and other measures of
performance as described elsewhere in this SAI with and/or without including the
effect of paying the sales charges associated with the purchase of Fund shares
through the Plans.
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 Franklin
Templeton Investments. Franklin Resources, Inc. is the parent company of the
advisors and underwriter of Franklin Templeton 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(R) 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 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 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 MSCI AC World Free 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(R)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. 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 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 Franklin Templeton Investments, 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 approximately 3 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, Franklin Templeton Investments has over
$229 billion in assets under management for more than 5 million U.S. based
mutual fund shareholder and other accounts. Franklin Templeton Investments
offers 107 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.
DESCRIPTION OF RATINGS
------------------------------------------------------------------------------
CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
INVESTMENT GRADE
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.
BELOW INVESTMENT GRADE
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 RATINGS GROUP (S&P(R))
INVESTMENT GRADE
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.
BELOW INVESTMENT GRADE
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.
SHORT-TERM DEBT AND COMMERCIAL PAPER RATINGS
MOODY'S
Moody's short-term debt 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.
--------
* 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
(i) Consent of Independent Auditors
(K) OMITTED FINANCIAL STATEMENTS
Not Applicable
(L) INITIAL CAPITAL AGREEMENTS
(i) Initial capital agreement/1/
(M) RULE 12B-1 PLAN
(i) Form of Distribution Plan /5/
(N) RULE 18F-3 PLAN
Not Applicable
(P) CODE OF ETHICS/5/
(Q) POWER OF ATTORNEY
(i) Power of Attorney dated November 28, 2000
---------------------
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. 14 to the Registration
Statement on November 1, 2000.
PAGE
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 B, the Investment
Management Agreement filed as Exhibit D and the Distribution Agreement
filed as Exhibit E 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 action, 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 Franklin
Templeton Investments.
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.
Franklin Asset Allocation Fund
Franklin California Tax Free Income Fund, Inc.
Franklin California Tax Free Trust
Franklin Custodian Funds, Inc.
Franklin Federal Money Fund
Franklin Federal Tax-Free Income Fund
Franklin Floating Rate Master Trust
Franklin Floating Rate Trust
Franklin Gold and Precious Metals Fund
Franklin Growth and Income 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
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 certifies that it
meets al the requirements for effectiveness of the Registration Statement
pursuant to 485(b) under the Securities Act of 1933 and has duly caused this
Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Mateo and the State
of California, on the 29th day of December, 2000.
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
By: /s/David P. Goss
-----------------------------------
David P. Goss, Vice 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>
GARY P. MOTYL
------------------- President (Chief December 29, 2000
Gary P. Motyl* Executive Officer)
BRUCE S. ROSENBERG
------------------- Treasurer (Chief December 29, 2000
Bruce S. Rosenberg* Financial and
Accounting Officer)
CHARLES B. JOHNSON
------------------- Director December 29, 2000
Charles B. Johnson*
CHARLES E. JOHNSON
------------------- Director December 29, 2000
Charles E. Johnson*
NICHOLAS F. BRADY
------------------- Director December 29, 2000
Nicholas F. Brady*
FRED R. MILLSAPS
------------------- Director December 29, 2000
Fred R. Millsaps*
BETTY P. KRAHMER
------------------- Director December 29, 2000
Betty P. Krahmer*
HARRIS J. ASHTON
------------------- Director December 29, 2000
Harris J. Ashton*
S. JOSEPH FORTUNATO
------------------- Director December 29, 2000
S. Joseph Fortunato*
ANDREW H. HINES, JR.
------------------- Director December 29, 2000
Andrew H. Hines, Jr.*
JOHN WM. GALBRAITH
------------------- Director December 29, 2000
John Wm. Galbraith*
GORDON S. MACKLIN
------------------- Director December 29, 2000
Gordon S. Macklin*
EDITH E. HOLIDAY
------------------- Director December 29, 2000
Edith E. Holiday
FRANK J. CROTHERS
------------------- Director December 29, 2000
Frank J. Crothers
CONSTANTINE D. TSERETOPOULOS
------------------------------- Director December 29, 2000
Constantine D. Tseretopoulos
*By:/s/DAVID P. GOSS
----------------------
David P. Goss
Attorney-in-Fact
(Pursuant to Power of Attorney filed herewith).
</TABLE>
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.(j)(i) Consent of Independent Auditors Attached
EX-99.(l)(i) Initial capital Agreement *
EX-99.(m)(i) Form of Distribution Plan *
EX-99.(p)(i) Code of Ethics *
EX-99.(q)(i) Power of Attorney dated November 28, 2000 Attached
</TABLE>
* Incorporated by reference.
