SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
[X] Filed by the Registrant
Filed by a Party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and O-11.
(1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule O-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined.):
-----------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
-----------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
-----------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------
(4) Date Filed:
-----------------------------------------------------------------
PAGE
[GRAPHIC]
FRANKLIN TEMPLETON
INVESTMENTS
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
IMPORTANT SHAREHOLDER INFORMATION
These materials are for a special shareholders' meeting scheduled for September
14, 2000 at 10:00 a.m. Eastern time. They discuss the proposals to be voted on
at the meeting, and contain your proxy statement and proxy card/voting
instruction card. A proxy/voting instruction card is, in essence, a ballot.
When you vote your proxy, it tells us how you wish to vote on important issues
relating to your Fund. If you complete and sign the proxy, we'll vote it
exactly as you tell us. If you simply sign the proxy, we'll vote it in
accordance with the Board of Directors' recommendations on page 1 of the proxy
statement. Similarly, when you complete your voting instruction card, it tells
the Templeton Capital Accumulation Plan ("TCA Plan") how to vote on these
important issues relating to the Fund. If you simply sign the voting
instruction card, but don't specify a vote for one or more Proposals, your
shares will be voted in favor of each Nominee, Proposal and Sub-Proposal. If
you fail to return your voting instruction card, your shares will be voted in
the same proportion as shares for which instructions have been received by the
TCA Plan from the other TCA plan holders.
We urge you to spend a few minutes reviewing the proposals in the proxy
statement. Then, fill out the proxy/voting instruction card and return it to us
so that we know how you would like to vote. When shareholders return their
proxies promptly, the Fund may be able to save money by not having to conduct
additional mailings.
We welcome your comments. If you have any questions, call 1-888/881-TCAP
(8227).
TELEPHONE AND INTERNET VOTING
For your convenience, you may be able to vote by telephone or through the
Internet, 24 hours a day. If your account is eligible, a control number and
separate instructions are enclosed.
<PAGE>
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
500 East Broward Boulevard
Fort Lauderdale, Flordia 33394-3091
A LETTER FROM THE PRESIDENT
Dear Shareholders:
I am writing to request that you consider a number of important matters
relating to your investment in Templeton Capital Accumulator Fund, Inc. (the
"Fund") in connection with a Special Meeting of Shareholders to be held on
September 14, 2000 at 10:00 a.m. Eastern time at the Fund's offices, 500 East
Broward Boulevard, Fort Lauderdale, Florida 33394. The materials that we have
included discuss the proposals to be voted on at the meeting that will affect
the future of the Fund.
The Board of Directors recommends that, among other items, you cast your vote
in favor of:
1. The election of a Board of Directors;
2. Ratifying the appointment by the Directors of PricewaterhouseCoopers
LLP as the independent auditors for the Fund for the fiscal year ended
August 31, 2001;
3. Amending certain of the Fund's fundamental investment restrictions;
4. Eliminating certain of the Fund's fundamental investment restrictions;
5. Adopting a Rule 12b-1 Distribution Plan; and
6. Reorganizing the Fund from a Maryland corporation to a Delaware
business trust.
PLEASE TAKE A MOMENT TO REVIEW THIS DOCUMENT AND FILL OUT, SIGN AND RETURN THE
ENCLOSED PROXY/INSTRUCTION CARD.
We ask you to confirm the Board's recommendation by re-electing the current
Directors of the Fund and electing the Board's nominees for three additional
Directors. We also ask that you ratify the Board's selection of
PricewaterhouseCoopers LLP as independent auditors of the Fund.
We propose amending or eliminating certain of the Fund's fundamental investment
restrictions. We believe that the recommended changes will provide additional
investment opportunities to the Fund, as further described in the attached
proxy statement. We urge you to approve these proposals, which are designed to
benefit all shareholders by providing the Fund with greater flexibility in
pursuing its investment objectives.
We also propose that a Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 be adopted in an effort to ensure that the Fund
<PAGE>
is properly positioned in the marketplace to compete with other mutual funds
and, in particular, other mutual funds offered through contractual plans.
Finally, we propose that the Fund be reorganized as a Delaware business trust
because Delaware law permits a less complicated structure and allows greater
flexibility in a mutual fund's business operations.
The proxy statement includes a question and answer format designed to provide
you with a simpler and more concise explanation of certain issues. Although
much of the information in the proxy statement is technical and is required by
the various regulations that govern the Fund, we hope that this format will be
helpful to you.
I am sure that you, like most people, lead a busy life and are tempted to put
this proxy aside for another day. Please don't. When shareholders do not return
their proxies, additional expenses are incurred to pay for follow-up mailings
and telephone calls.
Sincerely,
Gary P. Motyl
President
<PAGE>
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
500 East Broward Boulevard
Fort Lauderdale, Florida 33394-3091
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 14, 2000
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders ("Meeting") of
TEMPLETON CAPITAL ACCUMULATOR FUND, INC. (the "Fund") will be held at the
office of the Fund, 500 East Broward Boulevard, Fort Lauderdale, Florida 33394,
on September 14, 2000 at 10:00 a.m. Eastern time to vote on the following
Proposals and Sub-Proposals:
1. The election Directors of the Fund (Proposal 1).
2. The ratification or rejection of the selection of the independent
auditors (Proposal 2);
3. To approve the amendment of certain of the Fund's fundamental
investment restrictions (Sub-Proposals 3(a) - 3(g));
4. To approve the elimination of certain of the Fund's fundamental
investment restrictions (Proposal 4);
5. To adopt a Rule 12b-1 Distribution Plan (Proposal 5);
6. To approve the reorganization of the Fund from a Maryland corporation
to a Delaware business trust (Proposal 6); and
7. To grant the proxyholders authority to vote upon any other business
that may properly come before the Meeting or any adjournments thereof
(Proposal 7).
The Board of Directors has fixed August 2, 2000 as the record date for
determination of the shareholders entitled to notice of, and to vote at, the
Meeting or any adjourned Meeting.
Please note that a separate vote is required for each Proposal or Sub-Proposal.
By Order of the Board of Directors,
Barbara J. Green
Secretary
Fort Lauderdale, Florida
August 14, 2000
Please sign and return your proxy card in the self-addressed envelope
regardless of the number of shares you own.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
PROXY STATEMENT
Questions and Answers ................................................ 1
Proposal 1: The Election of Directors ................................ 5
Proposal 2: The Ratification or Rejection of the Selection of
PricewaterhouseCoopers LLP as Independent Auditors ....... 15
Introduction to Proposals 3 and 4 .................................... 16
Proposal 3: To Approve Amendments to Certain of the Fund's
Fundamental Investment Restrictions (Includes 7
Sub-Proposals) ........................................... 17
3(a) Borrowing ................................................... 17
3(b) Underwriting ................................................ 19
3(c) Lending ..................................................... 20
3(d) Industry concentration ...................................... 22
3(e) Real Estate and Commodities ................................. 23
3(f) Senior Securities ........................................... 24
3(g) Diversification ............................................. 26
Proposal 4: To Approve the Elimination of Certain of the Fund's
Fundamental Investment Restrictions ...................... 28
Proposal 5: To Adopt a Rule 12b-1 Distribution Plan .................. 34
Proposal 6: To Approve the Reorganization of the Fund from a Maryland
Corporation to a Delaware Business Trust ................. 40
Proposal 7: Other Business ........................................... 45
Information about the Fund ........................................... 45
Further Information about Voting and the Meeting ..................... 46
EXHIBITS
Exhibit A: Fundamental Investment Restrictions Proposed to be Amended A-1
Exhibit B: Current Fundamental Investment Policies and Restrictions
Proposed to be Eliminated ................................. B-1
Exhibit C: Rule 12b-1 Distribution Plan .............................. C-1
Exhibit D: Agreement and Plan of Reorganization ...................... D-1
Exhibit E: Comparison and Significant Differences between Delaware
Business Trusts and Maryland Corporations ................. E-1
</TABLE>
<PAGE>
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
PROXY STATEMENT
- Questions and Answers -
INFORMATION ABOUT VOTING
Q. Who is asking for my vote?
A. The Board of Directors of Templeton Capital Accumulator Fund, Inc. (the
"Fund"), in connection with the Special Shareholders' Meeting to be held at
10:00 a.m. Eastern Time September 14, 2000 (the "Meeting") at the offices of
the Fund, 500 East Broward Boulevard, Fort Lauderdale, Florida 33394, has
requested your vote on several matters.
Q. Who is eligible to vote?
A. Shareholders of record of the Fund at the close of business on August
2, 2000 are entitled to vote at the Meeting or any adjourned Meeting, and will
be entitled to one vote for each full share and a fractional vote for each
fractional share that they hold on each matter presented at the Meeting. The
Notice of Meeting, the proxy card, and the proxy statement were mailed to
shareholders of record on or about August 14, 2000.
Q. What is being voted on at the Meeting?
A. The Board of Directors is asking shareholders to vote on following
proposals affecting the Fund:
1. The election of a Board of Directors of the Fund (Proposal 1);
2. The ratification or rejection of the selection of
PricewaterhouseCoopers LLP as the independent auditors for the Fund
for the fiscal year ended August 31, 2001 (Proposal 2);
3. To amend certain of the Fund's fundamental investment restrictions
(Sub-Proposals 3(a) - 3(g));
4. To eliminate certain of the Fund's fundamental investment
restrictions (Proposal 4);
5. To adopt a Rule 12b-1 Distribution Plan (Proposal 5);
6. To reorganize the Fund from a Maryland corporation to a Delaware
business trust (Proposal 6); and
7. To grant proxyholders authority to vote upon any other business that
may properly come before the Meeting or any adjournment thereof
(Proposal 7).
1
<PAGE>
Q. How do the Directors recommend that I vote on these proposals?
A. The Directors recommend that you vote:
1. FOR the election of all nominees as Directors;
2. FOR the ratification of the selection of PricewaterhouseCoopers LLP
as independent auditors for the Fund for the fiscal year ended
August 31, 2001;
3. FOR the amendment of each of the Fund's fundamental investment
restrictions proposed to be amended;
4. FOR the elimination of each of the Fund's fundamental investment
restrictions proposed to be eliminated;
5. FOR the adoption of the proposed 12b-1 Distribution Plan;
6. FOR the reorganization of the Fund from a Maryland corporation to a
Delaware business trust; and
7. FOR the proxyholders to vote, in their discretion, on any other
business that may properly come before the Meeting or any
adjournment thereof.
Q. Are there any proposals that will impact the Fund's investment policies
or limitations?
A. Yes. Although no substantive changes to the Fund's investment program
are currently contemplated, it is proposed that all of the Fund's investment
restrictions that are "fundamental" (that is, those that cannot be changed
without shareholder approval) be amended or eliminated. If these proposals are
approved by shareholders, the Fund's Board of Directors will have greater
flexibility to respond to future developments by changing the Fund's investment
restrictions in a manner intended to achieve the Fund's investment objective of
long-term capital growth without obtaining shareholder approval. Shareholders,
of course, will be informed of any significant changes to the Fund's investment
restrictions. These proposals are intended only to eliminate the cost and delay
of seeking shareholder approval for changes in investment policies and
restrictions that would not otherwise require convening a shareholder meeting.
Shareholder approval of these proposals is not expected to affect the Fund's
current investment program or overall level of risk.
Q. Why am I being asked to approve amendments to certain of the Fund's
fundamental investment restrictions?
A. Certain of the Fund's fundamental investment restrictions were adopted
in response to state laws that are no longer applicable, or to market
conditions that no longer exist, and thus may be overly restrictive. Approval
of the proposed amendment of these fundamental restrictions will provide the
Fund with greater investment flexibility within the boundaries imposed by
applicable law. The
2
<PAGE>
proposed changes are not expected to have any immediate effect on the manner in
which the Fund is managed.
Q. Why am I being asked to approve the elimination of certain of the
Fund's fundamental investment restrictions?
A. Several of the Fund's current fundamental investment restrictions
reflect past regulatory, business or industry conditions, and practices or
requirements that are outdated, unnecessary and potentially burdensome in the
future. Approval of this proposal to eliminate certain restrictions initially
will not result in changes to the management of the Fund, but will provide the
Fund with greater flexibility to pursue its investment goal of long-term
capital growth.
Q. Why am I being asked to approve a Rule 12b-1 Distribution Plan?
A. The Board believes that, by adopting a Rule 12b-1 Distribution Plan,
your Fund may be in a better competitive position in the marketplace, which
could potentially allow the Fund to increase net new sales. In addition, it is
expected that, if the Rule 12b-1 Distribution Plan is approved by shareholders,
all Templeton Capital Accumulation Plan ("TCA Plan") sales charges after the
first 12 payments will be eliminated, except for certain face changes, which
would allow all existing shareholders to have a greater percentage of their TCA
Plan payments actually invested in the Fund. Second, adopting the Distribution
Plan would allow the Fund to be competitively priced. Such competitive pricing
structure may result in increased Fund assets resulting from increased sales of
new TCA Plans, thereby potentially allowing efficiencies in portfolio
management. Finally, paying dealers continuing compensation should motivate
them to maintain and enhance the level of service provided to Fund
shareholders. If the Rule 12b-1 Distribution Plan is approved by shareholders,
the Fund's expenses will be increased by the amount of the 12b-1 fee.
Q. Why am I being asked to approve the reorganization of the Fund from a
Maryland corporation to a Delaware business trust?
A. Delaware law offers several advantages to mutual funds organized as a
Delaware business trust as compared to a Maryland corporation. The Delaware
business trust is a less complicated structure, allows greater flexibility in a
mutual fund's business operations, and may offer certain state tax and fee
savings.
Q. When will the proposals take effect if they are approved?
A. If approved, each of the Proposals and Sub-Proposals will become
effective on or about October 2, 2000.
Q. How do I vote my shares?
A. You may vote your shares in one of several ways. You can vote by mail,
fax, or in person at the Meeting. If you were a holder of a TCA Plan on the
Record Date, then you will be sent a voting instruction card for those shares
of
3
<PAGE>
the Fund attributable to your investment in the TCA Plan as of the record date
for the Meeting. A voting instruction card is, in essence, a ballot. The TCA
Plan will vote in accordance with your instructions. When you complete your
voting instruction card, it tells the TCA Plan how to vote its proxy on these
important issues relating to the Fund. If you hold Fund shares through a TCA
Plan and would like to vote in person, you should make a written request prior
to the Meeting to the TCA Plan Custodian, FTTrust Company, P.O. Box 33030, St.
Petersburg, Florida, 33733-8030, for a proxy that will permit the shares to be
voted in person. If you hold Fund shares directly (not through a TCA Plan),
then you will receive a proxy card by which you can vote your shares directly.
If you are eligible to vote by telephone or through the internet, a
control number and separate instructions are enclosed. To vote by mail, sign,
date and send us the enclosed proxy/voting instruction card in the envelope
provided. You can fax your vote by signing the proxy/voting instruction card
and faxing both sides of the card to 1-888-796-9932.
Proxy/voting instruction cards that are properly signed, dated and
received at or prior to the Meeting will be voted exactly as you specify. If
you specify a vote for any of the Proposals 1 through 7, your proxy/voting
instruction card will be voted as you indicate. If you simply sign and date the
proxy/voting instruction card but don't specify a vote for any of the Proposals
1 through 7, your shares will be voted IN FAVOR of the nominees for the Board
of Directors (Proposal 1), IN FAVOR of ratifying the selection of
PricewaterhouseCoopers LLP as independent auditors (Proposal 2), IN FAVOR of
amending certain of the Fund's fundamental investment restrictions
(Sub-Proposals 3(a)-3(g)), IN FAVOR of eliminating certain of the Fund's
fundamental investment restrictions (Proposal 4), IN FAVOR of adopting a Rule
12b-1 Plan (Proposal 5), IN FAVOR of the reorganization of the Fund from a
Maryland corporation to a Delaware business trust (Proposal 6), and/or IN FAVOR
of granting the proxyholders named in the proxy card the authority to vote in
their discretion as to any other matters that may properly come before the
meeting or any adjournment (Proposal 7). If you fail to return a voting
instruction card, your shares will be voted in the same proportion as shares
for which instructions have been received by the TCA Plan from other TCA Plan
holders.
Q. If I send my proxy/voting instruction card in now as requested, can I
change my vote later?
A. You may revoke your proxy/voting instruction at any time before it is
voted by: forwarding a written revocation or a later-dated proxy/voting
instruction card to the Fund that is received at or prior to the Meeting, or by
attending the Meeting and voting in person. Even if you plan to attend the
Meeting, we ask that you return the enclosed proxy/voting instruction. This
will help us ensure that an adequate number of shares are present for the
Meeting to be held.
4
<PAGE>
THE PROPOSALS
PROPOSAL 1: ELECTION OF DIRECTORS
How are nominees selected?
The Board of Directors of the Fund (the "Board") has a Nominating and
Compensation Committee (the "Committee") consisting of Andrew H. Hines, Jr. and
Gordon S. Macklin, both of whom are independent Directors. The Committee is
responsible for the selection and nomination of candidates to serve as
Directors of the Fund. The Committee reviews shareholders' nominations to fill
vacancies on the Board if these nominations are submitted in writing and
addressed to the Committee at the Fund's offices. However, the Committee
expects to be able to identify from its own resources an ample number of
qualified candidates.
Who are the nominees for the Board of Directors?
The Board currently consists of ten (10) directors. The Board has approved the
nomination of three (3) additional individuals to stand for election as
Directors in order to make the Board of the Fund consistent with the boards of
the other funds in Franklin Templeton Investments.
The nominees for election to the Board are: Harris J. Ashton, Nicholas F.
Brady, Frank J. Crothers, S. Joseph Fortunato, John Wm. Galbraith, Andrew H.
Hines, Jr., Edith E. Holiday, Charles B. Johnson, Charles E. Johnson, Betty P.
Krahmer, Gordon S. Macklin, Fred R. Millsaps, and Constantine D. Tseretopoulos
(the "Nominees"). With the exception of Ms. Holiday and Messrs. Crothers and
Tseretopoulos, all of the nominees currently are members of the Board. All of
the Nominees are also directors and/or trustees of other Franklin(R) funds
and/or Templeton(R) funds (collectively, the "Franklin Templeton funds").
Certain Directors of the Fund hold director and/or officer positions with
Franklin Resources, Inc. ("Resources") and its affiliates. Resources is a
publicly owned holding company. The principal shareholders are Charles B.
Johnson and Rupert H. Johnson, Jr., who own approximately 19% and 16%,
respectively, of Resources' outstanding shares. Resources, a global investment
organization operating as Franklin Templeton Investments, is primarily engaged,
through various subsidiaries, in providing investment management, share
distribution, transfer agent and administrative services to a family of
investment companies. Resources is a New York Stock Exchange, Inc. ("NYSE")
listed holding company (NYSE: BEN). Charles E. Johnson, a Director and Vice
President of the Fund, is the son and nephew, respectively, of brothers Charles
B. Johnson, the Chairman of the Board and a Vice President of the Fund, and
Rupert H. Johnson, Jr., a Vice President of the Fund. There are no other family
relationships among any of the Directors or Nominees.
5
<PAGE>
Each Nominee is currently available and has consented to serve if elected. If
elected, the Directors will hold office without limit in time until death,
resignation, retirement or removal, or until the next meeting of shareholders
to elect Directors and the election and qualification of their successors.
Election of a Director is by a plurality vote, which means that the thirteen
(13) individuals receiving the greatest number of votes at the meeting will be
deemed to be elected. If any of the Nominees should become unavailable, the
persons named in the proxy card will vote in their discretion for another
person or persons who may be nominated as Directors.
Listed below, for each Nominee, is a brief description of his or her recent
professional experience and ownership of shares of the Fund and shares of all
the Franklin Templeton funds.
<TABLE>
<CAPTION>
Shares Beneficially
Owned in the
Fund Shares Franklin Templeton
Beneficially Owned funds
and % of Total (including the Fund)
Name and Principal Occupation Outstanding Shares as of
During Past Five Years and Age as of August 2, 2000 June 30, 2000
-------------------------------------------------- ---------------------- ---------------------
<S> <C> <C>
HARRIS J. ASHTON (Age 68) 0 508,050
Director since 1992
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 (Age 70) 0 60,602
Director since 1993
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 19 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).
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially
Owned in the
Fund Shares Franklin Templeton
Beneficially Owned funds
and % of Total (including the Fund)
Name and Principal Occupation Outstanding Shares as of
During Past Five Years and Age as of August 2, 2000 June 30, 2000
-------------------------------------------------- ---------------------- ---------------------
<S> <C> <C>
FRANK J. CROTHERS (Age 56) 0 7,994
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 12 of the investment companies in
Franklin Templeton Investments.
S. JOSEPH FORTUNATO (Age 68) 0 644,201
Director since 1992
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.
JOHN Wm. GALBRAITH (Age 79) 0 3,198,310
Director since 1995
President, Galbraith Properties, Inc. (personal
investment company); Director Emeritus, Gulf
West Banks, Inc. (bank holding company)
(1995-present); director or trustee, as the case
may be, of 18 of the investment companies in
Franklin Templeton Investments; and formerly,
Director, Mercantile Bank (1991-1995), Vice
Chairman, Templeton, Galbraith & Hansberger
Ltd. (1986-1992), and Chairman, Templeton
Funds Management, Inc. (1974-1991).
ANDREW H. HINES, JR. (Age 77) 0 58,443
Director since 1992
Consultant, Triangle Consulting Group;
Executive-in-Residence, Eckerd College
(1991-present); director or trustee, as the case
may be, of 20 of the investment companies in
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
director of various of its subsidiaries.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially
Owned in the
Fund Shares Franklin Templeton
Beneficially Owned funds
and % of Total (including the Fund)
Name and Principal Occupation Outstanding Shares as of
During Past Five Years and Age as of August 2, 2000 June 30, 2000
-------------------------------------------------- ---------------------- ---------------------
<S> <C> <C>
EDITH E. HOLIDAY (Age 48) 0 18,195
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) (July
1999-present); director or trustee, as the case
may be, of 26 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 (Age 67) 0 22,617,159
Chairman since 1995 and Vice President since
1992 Chairman of the Board, Chief Executive
Officer, Member - Office of the Chairman and
Director, Franklin Resources, Inc.; Chairman of
the Board and Director, Franklin Investment
Advisory Services, 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 (Age 44) 0 1,963
Director since 1992 and
Vice President since 1996
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.; 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.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially
Owned in the
Fund Shares Franklin Templeton
Beneficially Owned funds
and % of Total (including the Fund)
Name and Principal Occupation Outstanding Shares as of
During Past Five Years and Age as of August 2, 2000 June 30, 2000
-------------------------------------------------- ---------------------- ---------------------
<S> <C> <C>
BETTY P. KRAHMER (Age 70) 0 141,995
Director since 1991 Director or trustee of
various civic associations; director or trustee, as
the case may be, of 19 of the investment
companies in Franklin Templeton Investments;
and formerly, Economic Analyst, U.S.
government.
GORDON S. MACKLIN (Age 72) 0 301,534
Director since 1993 Director, Martek
Biosciences Corporation, WorldCom, Inc.
(communication 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 (Age 71) 0 1,846,295
Director since 1991
Manager of personal investments (1978-present);
director of various business and nonprofit
organizations; director or trustee, as the case
may be, of 20 of the investment companies in
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).
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially
Owned in the
Fund Shares Franklin Templeton
Beneficially Owned funds
and % of Total (including the Fund)
Name and Principal Occupation Outstanding Shares as of
During Past Five Years and Age as of August 2, 2000 June 30, 2000
-------------------------------------------------- ---------------------- ---------------------
<S> <C> <C>
CONSTANTINE D. TSERETOPOULOS 0 68,645
(Age 46)
Physician, Lyford Cay Hospital (1987-present);
director of various nonprofit organizations;
director or trustee, as the case may be, of 12 of
the investment companies in Franklin Templeton
Investments; and formerly, Cardiology Fellow,
University of Maryland (1985-1987) and Internal
Medicine Intern, Greater Baltimore Medical
Center (1982-1985).
</TABLE>
-----------
* Nicholas F. Brady, Charles B. Johnson and Charles E. Johnson are "interested
persons" of the Fund as defined by the Investment Company Act of 1940, as
amended (the "1940 Act"). The 1940 Act limits the percentage of interested
persons that can comprise a fund's board of directors. Mr. Charles B.
Johnson is an interested person due to his ownership interest in Resources,
his employment affiliation with Resources and his position with the Fund.
Mr. Charles E. Johnson is an interested person due to his employment
affiliation with Resources and his position with the Fund. Mr. Brady's
status as an interested person results from his business affiliations with
Resources and Templeton Global Advisors Limited. Mr. Brady and Resources are
both limited partners of Darby Overseas Partners, L.P. ("Darby Overseas").
Mr. Brady is Chairman and shareholder of Darby Emerging Markets Investments
LDC, which is the corporate general partner of Darby Overseas. The remaining
nominees and Directors of the Fund are not interested persons of the Fund
(the "Independent Directors").
10
<PAGE>
How often do the Directors meet and what are they paid?
The role of the Directors is to provide general oversight of the Fund's
business, and to ensure that the Fund is operated for the benefit of
shareholders. The Directors anticipate meeting at least five (5) times during
the current fiscal year to review the operations of the Fund and the Fund's
investment performance. The Directors also oversee the services provided to the
Fund by Templeton Investment Counsel, Inc., the Fund's investment manager
("Investment Manager"), and various other service providers. The Fund currently
pays the Independent Directors and Mr. Brady an annual retainer of $1,000 and a
fee of $100 per Board meeting attended. Directors serving on the Audit
Committee of the Fund and other investment companies in Franklin Templeton
Investments receive a flat fee of $2,000 per Audit Committee meeting attended,
a portion of which is allocated to the Fund. Members of a committee are not
compensated for any committee meeting held on the day of a Board meeting.
During the fiscal year ended August 31, 1999, there were five meetings of the
Board, four meetings of the Audit Committee, and three meeting of the
Nominating and Compensation Committee. Each of the Directors attended at least
75% of the total number of meetings of the Board and the total number of
meetings held by all committees of the Board on which the Directors served.
There was 100% attendance at the meetings of the Audit Committee and the
Nominating and Compensation Committee.
Certain Directors and Officers of the Fund are shareholders of Resources and
may receive indirect remuneration due to their participation in management fees
and other fees received from Franklin Templeton Investments by the Investment
Manager and its affiliates. The Investment Manager or its affiliates pay the
salaries and expenses of the Fund's Officers. No pension or retirement benefits
are accrued as part of Fund expenses.
11
<PAGE>
<TABLE>
<CAPTION>
Total Fees Number of Boards
Total Fees Received from in Franklin Templeton
Received from the Franklin Templeton Investments which each
Name of Director the Fund ($)/1/ Investments ($)/2/ Director Serves/3/
---------------------- --------------- ------------------------ -----------------------
<S> <C> <C> <C>
Harris J. Ashton 1,500 363,165 48
Nicholas F. Brady 1,500 138,700 19
S. Joseph Fortunato 1,500 363,238 50
John Wm. Galbraith 1,544 144,200 18
Andrew H. Hines, Jr. 1,544 203,700 20
Betty P. Krahmer 1,500 138,700 19
Gordon S. Macklin 1,500 363,165 48
Fred R. Millsaps 1,542 201,700 20
</TABLE>
-----------
/1./ Compensation received for the fiscal year ended August 31, 1999.
/2./ For the calendar year ended December 31, 1999.
/3./ We base the number of boards on the number of registered investment
companies in 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
157 U.S. based funds or series.
The table above indicates the total fees paid to Directors by the Fund
individually and by all of the Franklin Templeton funds. These Directors also
serve as directors or trustees of other investment companies in Franklin
Templeton Investments, many of which hold meetings at different dates and
times. The Directors and the Fund's management believe that having the same
individuals serving on the boards of many of the Franklin Templeton funds
enhances the ability of each fund to obtain, at a relatively modest cost to
each separate fund, the services of high caliber, experienced and knowledgeable
Independent Directors who can more effectively oversee the management of the
funds.
Board members historically have followed a policy of having substantial
investments in one or more of the funds in the Franklin Templeton funds, as is
consistent with their individual financial goals. In February 1998, this policy
was formalized through adoption of a requirement that each board member invest
one-third of fees received for serving as a director or trustee of a Templeton
fund in shares of one or more Templeton funds and one-third of fees received
for serving as a director or trustee of a Franklin fund in shares of one or
more Franklin funds until the value of such investments equals or exceeds five
times the annual fees paid to 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.
12
<PAGE>
Who are the Executive Officers of the Fund?
Officers of the Fund are appointed by the Directors and serve at the pleasure
of the Board. Listed below, for each Executive Officer, is a brief description
of recent professional experience:
<TABLE>
<CAPTION>
Name and Offices Principal Occupation
With the Fund During Past Five Years and Age
--------------------------------- ---------------------------------------------------------
<S> <C>
President and Portfolio Manager, Templeton Investment
GARY P. MOTYL Counsel, Inc.; officer of other subsidiaries of Franklin
President since 1994 Resources, Inc.; and formerly, Research Analyst and
Portfolio Manager, Landmark First National Bank
(1979-1981) and Security Analyst, Standard & Poor's
Corporation (1974-1979). Age 48.
CHARLES B. JOHNSON See Proposal 1, "Election of Directors."
Chairman since 1995 and
Vice President since 1992
MARK G. HOLOWESKO President, Templeton Global Advisors Limited; Chief
Vice President since 1991 Investment Officer, Global Equity Group; Executive
Vice President and Director, Templeton Worldwide,
Inc.; officer of 19 of the investment companies in
Franklin Templeton Investments; and formerly,
Investment Administrator, RoyWest Trust Corporation
(Bahamas) Limited (1984-1985). Age 40.
RUPERT H. JOHNSON, JR. Vice Chairman, Member - Office of the Chairman and
Vice President since 1996 Director, Franklin Resources, Inc.; Executive 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. Age 60.
HARMON E. BURNS Vice Chairman, Member - Office of the Chairman and
Vice President since 1996 Director, Franklin Resources, Inc.; Executive 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 the Franklin
Templeton Investments. Age 55.
CHARLES E. JOHNSON See Proposal 1, "Election of Directors."
Director 1992 and Vice President
since 1996
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Name and Offices Principal Occupation
With the Fund During Past Five Years and Age
----------------------------------- ---------------------------------------------------------
<S> <C>
MARTIN L. FLANAGAN President, Member - Office of the President, Chief
Vice President since 1991 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. Age 40.
JOHN R. KAY Vice President, Templeton Worldwide, Inc.; Assistant
Vice President since 1994 Vice President, Franklin Templeton Distributors, Inc.;
officer of 24 of the investment companies in Franklin
Templeton Investments; and formerly, Vice President
and Controller, Keystone Group, Inc. Age 60.
MURRAY L. SIMPSON Executive Vice President and General Counsel,
Vice President and Assistant Franklin Resources, Inc.; officer and/or director of
Secretary since February 2000 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). Age 63.
BARBARA J. GREEN Vice President and Deputy General Counsel, Franklin
Vice President since February 2000 Resources, Inc.; Senior Vice President, Templeton
and Secretary since 1996 Worldwide, Inc. and Templeton Global Investors, 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). Age 52.
DAVID P. GOSS Associate General Counsel, Franklin Resources, Inc.;
Vice President and Assistant President, Chief Executive Officer and Director,
Secretary since February 2000 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). Age 53.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Name and Offices Principal Occupation
With the Fund During Past Five Years and Age
---------------------------------- ---------------------------------------------------------
<S> <C>
ELIZABETH M. KNOBLOCK General Counsel, Secretary and Senior Vice President,
Vice President - Compliance since Templeton Investment Counsel, Inc.; Senior Vice
1996 President, Templeton Global Investors, Inc.; officer of
other subsidiaries of Franklin Resources, Inc. and of 23
of the investment companies in Franklin Templeton
Investments; and formerly, Vice President and
Associate General Counsel, Kidder Peabody & Co. Inc.
(1989-1990), Assistant General Counsel, Gruntal &
Co., Inc. (1988), Vice President and Associate General
Counsel, Shearson Lehman Hutton Inc. (1988), Vice
President and Assistant General Counsel, E.F. Hutton
& Co. Inc. (1986-1988), and Special Counsel, Division
of Investment Management, U.S. Securities and
Exchange Commission (1984-1986). Age 45.
JAMES R. BAIO Certified Public Accountant; Senior Vice President,
Treasurer since 1994 Templeton Worldwide, Inc., Templeton Global
Investors, Inc. and FTTrust Company; officer of 20 of
the investment companies in Franklin Templeton
Investments; and formerly, Senior Tax Manager, Ernst
& Young (certified public accountants) (1977-1989).
Age 46.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU APPROVE PROPOSAL 1
PROPOSAL 2: RATIFICATION OR REJECTION OF
PRICEWATERHOUSECOOPERS LLP AS THE
INDEPENDENT AUDITORS
How are independent auditors selected?
The Board has a standing Audit Committee consisting of Messrs. Galbraith, Hines
and Millsaps, all of whom are Independent Directors. The Audit Committee
reviews the maintenance of the Fund's records and the safekeeping arrangements
of the Fund's custodian, reviews both the audit and non-audit work of the
Fund's independent auditors, and submits a recommendation to the Board as to
the selection of independent auditors.
Which independent auditors did the Board select?
Upon the recommendation of the Audit Committee, the Board selected the firm of
PricewaterhouseCoopers LLP, 333 Market Street, San Francisco, CA 94105, as
auditors of the Fund. PricewaterhouseCoopers LLP has examined and reported on
the fiscal year-end financial statements, dated August 31, 1999, and certain
related U.S. Securities and Exchange Commission filings. You are being asked to
ratify the Board's selection of PricewaterhouseCoopers LLP as auditors of the
Fund. Services to be performed by the auditors include examining and reporting
15
<PAGE>
on the fiscal year-end financial statements of the Fund and certain related
filings with the U.S. Securities and Exchange Commission.
McGladrey & Pullen, LLP resigned as independent auditors of the Fund on August
13, 1999. McGladrey & Pullen, LLP served as the Fund's auditors since its
inception March 1, 1991 through the fiscal year ended August 31, 1998. There
have not been any disputes or disagreements with McGladrey & Pullen, LLP on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedures. H&R Block, a public company, acquired certain
assets of McGladrey & Pullen, LLP on August 2, 1999. Following the acquisition
by a public company, McGladrey & Pullen, LLP elected not to continue servicing
clients in the mutual fund business. As a result, the partners and professional
staff who were previously responsible for auditing the Fund's financial
statements became associated with PricewaterhouseCoopers LLP.
Neither the firm of PricewaterhouseCoopers LLP nor any of its members have any
material direct or indirect financial interest in the Fund. Representatives of
PricewaterhouseCoopers LLP are not expected to be present at the Meeting, but
will have the opportunity to make a statement if they wish, and will be
available should any matter arise requiring their presence.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU APPROVE PROPOSAL 2
INTRODUCTION TO PROPOSALS 3 AND 4.
Why is the Fund amending or eliminating certain of its fundamental investment
restrictions?
The Fund's investment activities are governed by its investment policies and
investment restrictions. Under the 1940 Act, certain investment restrictions
are required to be "fundamental,"which means that they can only be changed by a
shareholder vote. An investment company may designate additional investment
policies and restrictions as fundamental, and it may also adopt
"non-fundamental" policies and restrictions, which may be changed by the
Directors without shareholder approval.
After the Fund was formed, certain legal and regulatory requirements applicable
to mutual funds changed. For example, certain restrictions imposed by state
laws and regulations were eliminated by the National Securities Markets
Improvement Act of 1996 ("NSMIA") and therefore are no longer applicable to
funds. The Fund currently is subject to fundamental investment restrictions
that, as a result of NSMIA, are either more restrictive than required or no
longer required at all under current law. Accordingly, the Directors recommend
that the Fund's
16
<PAGE>
shareholders approve the amendment or elimination of certain of the Fund's
current fundamental investment restrictions. The proposed restrictions satisfy
current federal regulatory requirements and are written to provide flexibility
to respond to future legal, regulatory, market or technical changes.
By reducing the total number of investment restrictions that can be changed
only by a shareholder vote, the Directors believe that the Fund may be able to
minimize the costs and delays associated with holding future shareholder
meetings to revise fundamental restrictions that become outdated or
inappropriate. Directors also believe that the Investment Manager's ability to
manage the Fund's assets in a changing investment environment will be enhanced,
and that investment management opportunities may increase as a result of these
changes.
The proposed changes will not affect the Fund's investment objective of
long-term capital growth. Although the proposed changes in fundamental
investment restrictions will provide the Fund greater flexibility to respond to
future investment opportunities, the Investment Manager does not anticipate
that the changes, individually or in the aggregate, will result in a material
change in the level of investment risk associated with investment in the Fund
or materially affect the manner in which the Fund is managed.
The fundamental investment restrictions proposed for amendment, together with
the recommended changes to these restrictions, are detailed in Exhibit A.
Shareholders are requested to vote separately on each Sub-Proposal in Proposal
3.
PROPOSAL 3: AMENDMENT OF CERTAIN OF THE FUND'S
FUNDAMENTAL INVESTMENT RESTRICTIONS
(this Proposal involves separate votes on
Sub-Proposals 3(a) - 3(g))
Sub-Proposal 3(a): To amend the Fund's fundamental investment restriction
regarding borrowing.
The 1940 Act requires investment companies to impose certain limitations on
borrowing activities. The limitations on borrowing are generally designed to
protect shareholders and their investment by restricting a fund's ability to
subject its assets to the claims of creditors who might have a claim to the
fund's assets that would take precedence over the claims of shareholders. A
fund's borrowing restriction must be fundamental.
Under the 1940 Act, a fund may borrow from banks up to one-third of its total
assets (including the amount borrowed). In addition, a fund may borrow up to 5%
of its total assets for temporary purposes from any person, provided that such
borrowing is privately arranged. Funds typically borrow money to meet
17
<PAGE>
redemptions in order to avoid forced, unplanned sales of portfolio securities.
This technique allows a fund greater flexibility to buy and sell portfolio
securities for investment or tax considerations, rather than for cash flow
considerations.
What is the Fund's current borrowing restriction?
The Fund's current borrowing restriction states that the Fund may not:
Borrow money for any purpose other than redeeming its shares or purchasing
its shares for cancellation, and then only as a temporary measure up to an
amount not exceeding 5% of the value of its total assets; or pledge,
mortgage, or hypothecate its assets for any purpose other than to secure
such borrowings, and then only up to such extent not exceeding 10% of the
value of its total assets as the board may by resolution approve. For the
purposes of this investment restriction, collateral arrangements with
respect to margin for a futures contract or a forward contract are not
deemed to be a pledge of assets.
What effect will amending the current borrowing restriction have on the Fund?
As described in the Fund's current investment restriction number 7, the Fund is
presently limited to borrowing up to 5% of assets, rather than the 33 1/3%
allowed under current law. The proposed revision would increase this borrowing
limit to the legally permissible limit of 33 1/3%. The proposed restriction
would also clarify that the Fund may borrow: (1) from banks to the extent
permitted by the 1940 Act or any exemptions therefrom, and (2) from any person
in a private transaction not intended for public distribution for temporary or
emergency purposes, but (3) in any event all borrowings must not exceed 33 1/3%
of total assets. The Fund's current restriction also states that the Fund may
not borrow for any purpose other than redeeming its shares or purchasing its
shares for cancellation. The proposed restriction would permit the Fund to
borrow for investment purposes.
The proposed restriction also permits the Fund to borrow cash from other
investment companies. The SEC recently granted an exemptive order to the Fund,
together with other funds in Franklin Templeton Investments, permitting the
Fund to borrow money from other funds in Franklin Templeton Investments. The
proposed borrowing restriction would permit the Fund, under certain
circumstances and in accordance with the exemptive order, to borrow money from
other Franklin and Templeton funds at rates that are more favorable than those
the Fund would receive if it borrowed from banks or other lenders.
Current investment restriction number 7 also addresses limitations on the
Fund's ability to mortgage, pledge or hypothecate its securities, except to
secure borrowings. The actual limitation on pledging, mortgaging or
hypothecating the
18
<PAGE>
Fund's securities is proposed to be eliminated (See Proposal 4) as it is no
longer necessary for a Fund to have a specific policy in this regard. Since
pledging, mortgaging or hypothecating the Fund's securities in connection with
borrowings could be deemed to involve the issuance of senior securities, an
appropriate carve-out in the senior securities restriction is being proposed
(See Sub-Proposal 3(f)). Thus, approval of Sub-Proposal (a) would have the
effect of isolating the Fund's borrowing restriction from other limitations
currently contained in the restriction, which, in connection with borrowing
activities, may raise senior security issues.
Since the proposed borrowing restriction would provide the Fund with greater
borrowing flexibility, the Fund may be subject to additional costs, as well as
the risks inherent to borrowing, such as reduced total return.
What is the Fund's proposed borrowing restriction?
If approved by shareholders, the borrowing restriction will be revised to state
that the Fund may not:
Borrow money, except that the Fund may borrow money from banks or other
investment companies to the extent permitted by 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).
Sub-Proposal 3(b): To amend the Fund's fundamental investment restriction
regarding underwriting.
Under the 1940 Act, the Fund's policy concerning underwriting is required to be
fundamental. Under U.S. Federal securities laws, a person or company generally
is considered an underwriter if it participates in the public distribution of
securities of other issuers, usually by purchasing the securities from the
issuer with the intention of reselling the securities to the public. From time
to time, a mutual fund may purchase a security for investment purposes that it
later sells or redistributes to institutional investors or others under
circumstances where the Fund could possibly be considered to be an underwriter
under the technical definition of underwriter contained in U.S. Federal
securities laws. For example, funds often purchase securities in private
securities transactions where a resale could raise a question relating to
whether or not the fund is technically acting as an underwriter. However,
relatively recent SEC interpretations clarify that resales of privately placed
securities by institutional investors do not make the institutional investor an
underwriter in these circumstances. The proposed restriction encompasses these
SEC positions.
19
<PAGE>
The Fund's current restriction relating to underwriting is combined with
restrictions relating to other issues in investment restriction 5. The adoption
of this Sub-Proposal would result in the separation of the Fund's underwriting
restriction from the others currently contained in the Fund's fundamental
investment restriction 5. These restrictions relate to (i) the issuance of
senior securities; (ii) the purchase of securities on margin or selling short;
and (iii) the writing, buying and selling of puts, calls, straddles, or
spreads, which are proposed to be amended or eliminated in other Proposals of
this proxy statement (namely, Sub-Proposal 3(f) and Proposal 4).
What is the Fund's current underwriting restriction?
The Fund's current restriction relating to underwriting states, in relevant
part, that the Fund may not "Act as an underwriter."
What effect will amending the current underwriting restriction have on the
Fund?
The proposed restriction relating to underwriting is substantially similar to
the current restriction. However, the proposed underwriting restriction
clarifies that the Fund may sell its own shares without being deemed an
underwriter. Under the 1940 Act, a mutual fund will not be considered an
underwriter if it sells its own shares pursuant to a written distribution plan
that complies with certain provisions of the 1940 Act.
The proposed restriction also specifically permits the Fund to resell
restricted securities in those instances where there may be a question as to
whether the Fund is technically acting as an underwriter. By separating the
proposed underwriting restriction from several other issues, the Fund's
investment restrictions would be clarified. It is not anticipated that adoption
of the proposed restriction would involve any additional risk as the proposed
restriction would not affect the way the Fund is currently managed.
What is the Fund's proposed underwriting restriction?
If approved by shareholders, the Fund's underwriting restriction will be
revised to state that the Fund may not:
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.
Sub-Proposal 3(c): To amend the Fund's fundamental investment restriction
regarding lending.
Under the 1940 Act, a fund's policy regarding lending must be fundamental.
Certain investment techniques could, under certain circumstances, be considered
to be loans. For example, if the Fund invests in debt securities, such
investments
20
<PAGE>
might be considered to be loans from the Fund to the issuer of the debt
securities. In order to ensure that the Fund may invest in certain debt
securities or repurchase agreements, which could technically be characterized
as the making of loans, the Fund's current fundamental investment restriction
specifically carves out such policies from its prohibitions.
In addition, the Fund's current fundamental investment restriction explicitly
permits the Fund to lend its portfolio securities. Securities lending is a
practice that has become common in the mutual fund industry and involves the
temporary loan of portfolio securities to parties who use the securities for
the settlement of securities transactions. The collateral delivered to the Fund
in connection with such a transaction is then invested to provide the Fund with
additional income it might not otherwise have. Securities lending involves
certain risks if the borrower fails to return the securities.
What is the Fund's current lending restriction?
The Fund's lending restriction currently states that the Fund may not:
Loan money, apart from the purchase of a portion of an issue of publicly
distributed bonds, debentures, notes and other evidences of indebtedness,
although the fund may enter into repurchase agreements and lend its
portfolio securities.
What effect will amending the current lending restriction have on the Fund?
The proposed restriction would provide the Fund with greater lending
flexibility. While the proposed restriction retains the carve-outs in the
existing restriction, it also would permit the Fund to invest in loan
participations and direct corporate loans that recently have become more common
as investments for investment companies. The proposed restriction also would
provide the Fund additional flexibility to make loans to affiliated investment
companies. The investment companies in Franklin Templeton Investments,
including the Fund, recently received an exemptive order from the SEC that
permits the Fund to lend cash to other Franklin and Templeton funds. The
proposed restriction permits the Fund, under certain conditions, to lend cash
to other Franklin or Templeton funds at more favorable rates than those the
Fund would receive if the Fund loaned cash to banks through short-term lendings
such as repurchase agreements. The Board anticipates that this additional
flexibility to lend cash to affiliated investment companies would provide
additional investment opportunities, and would enhance the Fund's ability to
respond to changes in market, industry or regulatory conditions.
It is not anticipated that adoption of the proposed restriction would involve
any additional risk as the proposed restriction would not affect the way the
Fund is currently managed.
21
<PAGE>
What is the Fund's proposed lending restriction?
If approved by shareholders, the Fund's lending restriction will be revised to
state that the Fund may not:
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 affiliated investment companies to the extent permitted
by the 1940 Act or any exemptions therefrom which may be granted by the
SEC.
Sub-Proposal 3(d): To amend the Fund's fundamental investment restriction
regarding concentration of the Fund's investments in the same industry.
Under the 1940 Act, a fund's policy of concentrating its investments in
securities of companies in the same industry must be fundamental. Under U.S.
Federal securities laws, a mutual fund "concentrates" its investments if it
invests more than 25% of its "net" assets (exclusive of certain items such as
cash, U.S. government securities, securities of other investment companies, and
tax-exempt securities) in a particular industry or group of industries. A fund
is not permitted to concentrate its investments in a particular industry unless
it so states. The Fund's current concentration policy does not include the
carve-outs contained in the 1940 Act and also relates to the Fund's "total"
assets rather than "net" assets.
What is the Fund's current restriction regarding industry concentration?
The Fund's current restriction regarding concentration states that the Fund may
not "invest more than 25% of the Fund's total assets in a single industry."
What effect will amending the current restriction regarding industry
concentration have on the Fund?
The proposed restriction provides the Fund with added flexibility because,
consistent with the 1940 Act, it exempts from the 25% limitation (i) securities
issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities, and (ii) the securities of other investment companies. It
also recites the current U.S. Federal securities law requirement with respect
to concentration that limits investments to "net" assets as opposed to "total"
assets. This investment flexibility may help the Fund respond to future legal,
regulatory, market or technical changes. However, adoption of the proposed
restriction is not expected to change materially the way in which the Fund is
currently managed as the Fund does not intend to begin concentrating in shares
of the U.S. government or any of its agencies or instrumentalities or of other
investment companies.
22
<PAGE>
What is the fund's proposed restriction regarding industry concentration?
If approved by shareholders, the Fund's restriction relating to concentration
will be revised to state that the Fund may not:
Concentrate (invest 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).
Sub-Proposal 3(e): To amend the Fund's fundamental investment restrictions
regarding investments in real estate and commodities.
Under the 1940 Act, a fund's restrictions regarding investments in real estate
and commodities must be fundamental. The Fund's current investment restrictions
relating to real estate and commodities are included in investment restriction
1. This restriction also includes restrictions relating to investment in other
open-end investment companies and investment in oil, gas or other mineral
exploration or development programs. Adoption of this Sub-Proposal would result
in the creation of an investment restriction relating only to real estate and
commodities investments. The restrictions relating to the other activities
contained in current restriction 1 are proposed to be eliminated in another
Proposal in this proxy statement (namely, Proposal 4).
What are the Fund's current restrictions regarding investments in real estate
and commodities?
The Fund's current restriction regarding investments in real estate and
commodities states, in relevant part, that the Fund may not:
Invest in real estate or mortgages on real estate (although the fund may
invest in marketable securities secured by real estate or interests
therein or issued by companies or investment trusts which invest in real
estate or interests therein); ... purchase or sell commodity contracts
(except forward contracts and futures contracts as described in the fund's
Prospectus).
What effect will amending the real estate and commodities restrictions have on
the Fund?
Real Estate: The proposed restriction specifically would reference the Fund's
ability to purchase securities of real estate investment trusts ("REITS") to
the extent that an investment in REITS would otherwise meet the Fund's
investment criteria. Investing in REITS has gained in popularity since the
early 1990s, and the number of REITS available for investment also has
increased dramatically. The proposed restriction also would eliminate the
current prohibition on the Fund's investing in mortgages. The Fund's existing
restriction would permit an investment in REITS as well because REITS are
"marketable securities secured
23
<PAGE>
by real estate or interests therein" as recited in existing restriction l.
However, the Fund will continue to be prohibited from directly purchasing or
selling real estate. It is not anticipated that this modification will involve
any additional risk to the Fund as the Fund does not currently invest, and has
not in the past invested, in real estate or real estate-related securities.
Commodities: Generally, commodities are considered to be physical commodities
such as wheat, cotton, rice and corn. However, futures contracts, including
financial futures contracts such as those related to currencies, stock indices
or interest rates, are also considered to be commodities. Funds typically
invest in such contracts and options on contracts for hedging or other
investment purposes.
The proposed restriction clarifies that the Fund has the flexibility to invest
in financial futures contracts and related options. This authority has been
disclosed in the Fund's statement of additional information and has been
referenced in the current carve-out to investment restriction 1, as well as in
investment restriction 5. Therefore, it is not anticipated that the proposed
restriction would involve any additional risk to the Fund.
What is the Fund's proposed restriction regarding investments in real estate
and commodities?
If approved by shareholders, the Fund's proposed restriction regarding
investments in real estate and commodities will state that the Fund may not:
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 financial instruments, and may
purchase and sell options on such futures contracts.
Sub-Proposal 3(f): To amend the Fund's fundamental investment restriction
regarding short sales and issuing senior securities.
Under the 1940 Act, the Fund must have an investment policy describing its
position with respect to senior securities. A "senior security" is an
obligation of a fund with respect to its earnings or assets that takes
precedence over the claims of the fund's shareholders with respect to the same
earnings or assets. The 1940 Act generally prohibits an open-end fund from
issuing senior securities in order to limit the use of leverage. In general, a
fund uses leverage when it borrows money to enter into securities transactions,
or acquires an asset without being required to make payment until a later time.
SEC staff interpretations allow a fund to engage in a number of types of
transactions that might otherwise be considered to create "senior securities"
or "leverage," so long as the fund meets certain collateral requirements
designed to
24
<PAGE>
protect shareholders. For example, some transactions that may create senior
security concerns include short sales, certain options and futures
transactions, reverse repurchase agreements and securities transactions that
obligate the fund to pay money at a future date (such as when-issued, forward
commitment or delayed delivery transactions). When engaging in such
transactions, a fund must mark on its or its custodian bank's books, or set
aside money or securities with its custodian bank to meet the SEC staff's
collateralization requirements. This procedure effectively eliminates a fund's
ability to engage in leverage for these types of transactions.
The Fund's current investment restriction relating to senior securities
specifically carves-out certain types of leveraging transactions, and also is
combined with restrictions relating to other issues. The adoption of this
Sub-Proposal would result in the separation of the Fund's senior securities
restriction from the underwriting restriction, which is currently contained in
fundamental investment restriction 5, as is set forth in its entirety in
Exhibit B, and which is proposed to be amended in another Sub-Proposal in this
proxy statement (namely, Sub-Proposal 3(b)). Current restriction 5 also
contains a restriction prohibiting the purchase of securities on margin and
short sales. The restriction relating to the purchase of securities on margin
is proposed to be eliminated as part of another proposal in this proxy
statement (namely, Proposal 4). The restriction on short sales, included in
current investment restriction 5, would be carved out of the new senior
securities restriction, as further described below.
What is the Fund's current restriction concerning issuing senior securities and
short sales?
The Fund's current restriction concerning issuing senior securities is
fundamental and states that the Fund may not:
...[I]ssue senior securities;... sell short;...write buy or sell puts,
calls, straddles or spreads (but the fund may make margin payments in
connection with futures contracts, forward contracts and options on
securities indices and foreign currencies).
What effect will amending the restriction regarding short sales and issuing
senior securities have on the Fund?
The proposed restriction, like current restriction 5, would permit the Fund to
engage in permissible types of leveraging transactions and would expand the
types of permissible leveraging transactions beyond those currently permitted.
Essentially, the proposed restriction clarifies the Fund's ability to engage in
those investment transactions (such as options and futures contracts,
repurchase transactions and short sales) that, while appearing to raise senior
security concerns, have been interpreted over the years as not constituting the
issuance of
25
<PAGE>
senior securities under the federal securities laws provided that certain
regulatory conditions are met.
By separating the proposed senior securities restriction from several other
issues, the restrictions on the Fund will also be clarified. The Board does not
anticipate that any additional risk to the Fund will occur as a result of
amending the current restriction and making it fundamental because the Fund has
no present intention of changing its current investment policies or engaging in
transactions that may be interpreted as issuing senior securities that it
previously was not permitted to do.
What is the Fund's proposed restriction regarding issuing senior securities?
If approved by shareholders, the Fund's senior securities restriction will be a
fundamental restriction, and will state that the Fund may not:
Issue securities senior to the Fund's presently authorized shares of
common stock. 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.
If shareholders approve Proposal 6, then the phrase "authorized shares of
beneficial interest" will be used instead of "authorized shares of common
stock," because Delaware business trusts issue shares of beneficial interest
and Maryland corporations issue common stock.
Sub-Proposal 3(g): To amend the Fund's fundamental investment restrictions
regarding diversification.
The 1940 Act prohibits a "diversified" investment company, like the Fund, from
purchasing securities of any one issuer if, at the time of purchase, as to 75%
of the fund's total assets more than 5% of the fund's total assets would be
invested in securities of that issuer, or the fund would own or hold more than
10% of the outstanding voting securities of that issuer, except that up to 25%
of the fund's total assets may be invested without regard to these limitations.
Under the 1940 Act, these 5% and 10% limitations do not apply to securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities,
or to the securities of other investment companies.
What are the Fund's current diversification requirements?
The Fund's diversification restrictions currently state that the Fund may not:
3. Invest more than 5% of its total assets in the securities of any one
issuer (exclusive of U.S. government securities).
26
<PAGE>
4. Purchase more than 10% of any class of securities of any one company,
including more than 10% of its outstanding voting securities, or invest in
any company for the purpose of exercising control or management.
What effect will standardization of the current investment diversification
restriction have on the Fund?
The current restriction applies the 5% limitation and a more narrow version of
the 10% limitation to 100% of the Fund's total assets rather than the lower
statutorily imposed 75% limit. Further, although the 1940 Act excludes the
securities of other investment companies as well as those of the U.S.
government and its agencies and instrumentalities, the current restrictions do
not include such carve-outs for the securities of other investment companies.
Investment restriction 4 is proposed to be eliminated as part of another
proposal in this proxy statement (namely Proposal 4). Current restriction 4 is
broader than what is required under the 1940 Act definition of diversification,
as it imposes the 10% limitation on all classes of securities of a company not
just outstanding voting securities. The proposed restriction tracks more
closely the 1940 Act definition.
Amending the Fund's diversification policy would make it consistent with the
definition of a diversified investment company under the 1940 Act, and would
provide the Fund with greater investment flexibility. The proposed restriction
is similar to a combination of the current restrictions, but would help the
Fund achieve the goal of standardizing the language of the investment
restrictions among Franklin Templeton Investments.
The proposed investment restriction clarifies that the 5% and 10% limitations
do not apply to 25% of the Fund's total assets and that the 10% requirement is
limited to outstanding voting securities. However, it is not currently
anticipated that adoption of the proposed restriction would materially change
the way the Fund is managed.
The proposed restriction excludes from the 5% and 10% limitations the purchase
by the Fund of the securities of other investment companies. With this
exclusion, the Fund would be able to invest cash held at the end of the day in
money market funds or other short-term investments without regard to the 5% and
10% investment limitations. The Fund, together with the other funds in Franklin
Templeton Investments, has obtained an exemptive order from the SEC (the "Cash
Sweep Order") to permit the Franklin and Templeton funds to invest their
uninvested cash in one or more Franklin or Templeton money market funds.
Amending the Fund's current restriction would permit the Fund to take advantage
of the investment opportunities presented by the Cash Sweep Order since the
Cash Sweep Order contemplates relief from the 1940 Act restrictions relating to
the permissible percentage investments in other investment companies.
27
<PAGE>
What is the Fund's proposed investment diversification restriction?
If approved by shareholders, the Fund's diversification restriction will be
revised to state that the Fund may not:
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.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU APPROVE
EACH SUB-PROPOSAL 3(a) - 3(g)
PROPOSAL 4: ELIMINATION OF CERTAIN OF THE FUND'S
FUNDAMENTAL INVESTMENT RESTRICTIONS
Which twelve fundamental investment restrictions is the Board recommending that
the Fund eliminate?
Twelve of the Fund's fundamental investment restrictions were originally
drafted in response to state laws and regulations, which, due to NSMIA, are no
longer required to be included in the Fund's restrictions. Further, many of the
restrictions are not consistent with SEC staff positions since the positions
have either changed or are no longer relevant to the Fund. Since NSMIA
eliminated the states' ability to substantively regulate investment companies,
the Fund is no longer legally required to include all or certain portions of
current restrictions 1, 2, 4, 5, 7, 8, 9, 10, 12, 13 and 14 among its
fundamental investment restrictions. Templeton Investment Counsel, Inc., the
Fund's Investment Manager, has recommended, and the Board has determined, that
certain of these current fundamental investment restrictions should be
eliminated.
The exact wording of the restrictions proposed to be eliminated (referred to in
this Proposal 4 as the "Restrictions"), has been compiled in Exhibit B, which
is entitled, "Current Fundamental Investment Restrictions Proposed to be
Eliminated," for ease of reference.
Oil, Gas or Other Mineral Exploration or Development Programs
The Fund's current fundamental investment restriction number 1, which limits
the Fund's ability to buy or sell interests in oil, gas or mineral exploration
or development programs, is no longer required to be fundamental. These
restrictions were originally enacted in response to various state law
requirements, but under NSMIA, the Fund is no longer legally required to retain
such policies
28
<PAGE>
as fundamental restrictions. As a general matter, elimination of these
fundamental restrictions should not have an impact on the day-to-day management
of the Fund as the Fund has not previously, nor does it currently intend to
engage in these types of investment activities.
Investment in Other Investment Companies
The Fund's current restriction 1 limits the Fund's ability to invest in the
securities of other open-end investment companies. This restriction 1, which is
inconsistent with the 1940 Act provisions in this regard, was originally
included in the Fund's fundamental investment restrictions in response to
various state law requirements. Under NSMIA, however, the Fund is no longer
legally required to retain such a policy as a fundamental restriction.
Upon elimination of this restriction, the Fund would remain subject to the 1940
Act restrictions (or any exemption from such restrictions) on a fund's ability
to invest in other open-end funds. The 1940 Act restrictions state that a fund
may not purchase more than 3% of another fund's total outstanding voting stock,
commit more than 5% of its assets to the purchase of another fund's securities,
or have more than 10% of its total assets invested in securities of all other
funds. Eliminating the present restriction would permit the Fund to invest cash
held at the end of the day in money market funds and to take advantage of the
investment opportunities presented by the Cash Sweep Order (as described in
Sub-Proposal 3(a)) since the Cash Sweep Order contemplates relief from the 1940
Act restrictions relating to the permissible percentage investments in other
investment companies in certain limited circumstances.
Elimination of this restriction should not have an impact on the day-to-day
management of the Fund as the Fund does not intend to begin pursuing its
investment objective through the purchase of other open-end investment company
securities except to the extent of cash management through the Cash Sweep Order
described above.
Management Ownership of Securities
The Fund's current restriction number 2 limits the Fund's ability to invest in
securities issued by companies whose securities are owned in certain amounts by
Directors and officers of the Fund, or its Investment Manager. This policy
originated many years ago with a now obsolete state securities law. As a
general matter, elimination of this fundamental restriction should not have an
impact on the day-to-day management of the Fund because the 1940 Act
restrictions relating to diversification will still apply to the Fund and the
Fund has no present intention to accumulate ownership of securities currently
held by Fund management.
29
<PAGE>
Control or Management
The Fund's current fundamental investment restriction number 4 limits the
Fund's ability to invest for purposes of exercising control or management. This
restriction was enacted in response to various state securities laws and is no
longer required under NSMIA. Typically, if a fund acquires a large percentage
of the securities of a single issuer, it will be deemed to have invested in
such issuer for the purposes of exercising control or management. This
restriction was intended to ensure that a mutual fund would not be engaged in
the business of managing another company. Eliminating this restriction will not
have any impact on the day-to-day management of the Fund because the Fund has
no present intention to invest in an issuer for the purposes of exercising
control or management. Further, the goal of this restriction, namely to limit a
fund's ability to control another issuer, is embodied in the 1940 Act
diversification rule, which is proposed to be incorporated in the proposed
investment restriction relating to diversification (described in Sub-Proposal
3(g)). The diversification restriction limits the Fund's ability to own more
than a certain percentage of the outstanding voting securities of any one
issuer, which acts to limit its ability to exercise control or management over
another company.
Securities on Margin or Short Sales
The Fund's current fundamental investment restriction number 5 limits the
Fund's ability to purchase securities on margin or sell securities short. This
restriction was originally included in response to the various state law
requirements to which mutual funds used to be subject. Under NSMIA, the Fund is
no longer required to retain a fundamental policy regarding both of these types
of investment activities.
As a general matter, elimination of this fundamental restriction relating to
purchasing securities on margin or selling securities short should not have an
impact on the day-to-day management of the Fund because the 1940 Act
prohibitions on these types of transactions would continue to apply to the
Fund. The Fund's ability to sell securities short, while no longer required to
be fundamental, raises senior security issues. Accordingly, the Fund's ability
to sell securities short is addressed in the proposed restriction relating to
issuing senior securities (described in Sub-Proposal 3(f)). Under the proposed
restriction, the Fund would be permitted to sell securities short to the extent
permitted by the 1940 Act, and any rule or exemptive order granted by the
Securities and Exchange Commission ("SEC"). The Fund's ability to purchase
securities on margin also raises senior security issues and is similarly
prohibited under the 1940 Act. Elimination of the restriction, therefore, would
not affect the Fund's ability to purchase on margin. Finally, the Fund has not
previously engaged, nor does it currently intend to engage, in these investment
activities.
30
<PAGE>
The Fund's current investment restriction relating to the purchase of
securities on margin and short sales is combined with restrictions relating to
other issues. The adoption of Proposal 4 would result in the elimination of the
Fund's prohibition against the purchase of securities on margin and short sales
presently contained in this restriction. The other issues covered by this
restriction, namely, the restrictions relating to underwriting, are proposed to
be amended in Sub-Proposal 3(a), and the restriction relating to senior
securities and short sales are proposed to be amended in Sub-Proposal 3(f).
Pledge, Mortgage or Hypothecate Assets:
The Fund's current fundamental investment restriction 7 limits the Fund's
ability to pledge, mortgage or hypothecate its assets in many instances which
are otherwise permitted under SEC staff interpretations. This broad restriction
was originally included in response to state law requirements, but under NSMIA,
the Fund is no longer legally required to retain such policies as fundamental
restrictions. The activities addressed in this restriction arguably raise
senior security issues. Under SEC interpretations, however, it is now accepted
that many activities relating to pledging, mortgaging or hypothecating
securities do not create senior security issues for a fund. The proposed senior
security restriction (see Sub-Proposal 3(f)) would specifically address the
fact that activities permitted by SEC interpretation in this area would not be
prohibited.
As a general matter, elimination of this fundamental restriction should not
have an impact on the day-to-day management of the Fund as the Fund does not
currently intend to pledge, mortgage or hypothecate its assets beyond what it
would be permitted to do under its present restrictions, and did not previously
engage in these investment activities.
Unseasoned Issuers
The Fund's current fundamental investment restriction 8 limits the Fund's
ability to invest in "unseasoned issuers," issuers that have not been in
continuous operation for three years or more. This restriction was originally
included in response to state law requirements, but under NSMIA, the Fund is no
longer legally required to retain such policies as fundamental restrictions.
Elimination of this fundamental restriction should not have an impact on the
day-to-day management of the Fund as the Fund does not currently intend to
invest in unseasoned issuers beyond what it would be permitted to do under its
present restrictions.
Warrants
The Fund's current fundamental investment restriction 9 limits the Fund's
ability to invest in certain listed and unlisted warrants. This restriction was
originally included in response to state law requirements, but under NSMIA, the
Fund is no longer legally required to retain such policies as fundamental
restrictions. As a
31
<PAGE>
general matter, elimination of this fundamental restriction should not have an
impact on the day-to-day management of the Fund as the Fund has not previously
invested and does not currently intend to invest in warrants beyond what it
would be permitted to do under its present restrictions.
Unlisted, Restricted and Illiquid Securities and Over-the-Counter Options
The Fund's current fundamental investment restriction number 10 limits the
Fund's ability to invest more than 15% of its total assets in certain unlisted
securities, including no more than 10% in restricted securities, securities
that are not readily marketable, repurchase agreements having more than seven
days to maturity, and over-the-counter options (assets used as cover for
over-the-counter options written by the Fund are considered not readily
marketable). These types of securities generally have the potential to be
considered "illiquid" under the SEC definition of "illiquidity." That
definition states that a security is illiquid if it cannot be sold at
approximately the price at which it is carried on the Fund's books within seven
days.
This restriction arose out of a SEC staff position that is not required to be
fundamental. Under NSMIA, the Fund is no longer required to retain a
fundamental policy regarding investments in such securities and the SEC has
recently amended its position to permit funds to invest up to 15% of their
assets in illiquid securities. Elimination of this fundamental restriction
would permit the Fund to take advantage of the current SEC position, which the
Fund cannot presently do because its policy relating to investments in illiquid
securities is fundamental. Elimination of the Fund's policy relating to
illiquid securities as a fundamental policy should not have an impact on the
day-to-day management of the Fund because the Fund will still be subject to the
SEC rules and regulations in this area.
Letter Stocks
The Fund's current fundamental investment restriction number 12, like
investment restriction number 10, limits the Fund's ability to invest in
"letter stocks" or securities on which there are any sales restrictions under a
purchase agreement. The restriction is no longer required to be fundamental for
the reasons described above with respect to current restriction number 10. As a
general matter, elimination of this fundamental restriction should not have an
impact on the day-to-day management of the Fund because the Fund has not
previously engaged and does not currently intend to engage in this type of
investment activity.
Joint and Joint and Several Trading Accounts:
The Fund's current fundamental investment restriction 13 limits the Fund's
ability to participate on a joint or a joint and several basis in any trading
account in securities. This restriction was originally included in response to
the various
32
<PAGE>
state law requirements to which mutual funds were subject, but under NSMIA, the
Fund is no longer legally required to retain such a policy as a fundamental
restriction. As a general matter, elimination of this fundamental restriction
relating to participating in a securities trading account should not have an
impact on the day-to-day management of the Fund, since the 1940 Act
prohibitions on these types of transactions would continue to apply to the
Fund. Joint transactions are generally prohibited under the 1940 Act, and the
Fund would continue to remain subject to the conditions imposed on joint
transactions by the 1940 Act and any exemptions granted by the SEC. The SEC
recently granted an exemptive order to the Fund, together with other funds in
Franklin Templeton Investments, permitting the Fund to enter into joint
repurchase agreements for cash management purposes that could be considered to
be a joint trading account. The proposed elimination of the restriction would
permit the Fund, under circumstances prescribed by the SEC order, to engage in
joint repurchase agreements with other funds in Franklin Templeton Investments
at rates that are more favorable than those the Fund would receive if it were
to enter into repurchase agreements on its own.
Defaulted Debt Securities
The Fund's current fundamental investment restriction 14 limits the Fund's
ability to invest in defaulted debt securities. This restriction was originally
included in response to state law requirements, but under NSMIA, the Fund is no
longer legally required to retain such policies as fundamental restrictions.
Elimination of this fundamental restriction should not have an impact on the
day-to-day management of the Fund as the Fund has not invested and does not
currently intend to invest in defaulted debt securities.
Why is the Board recommending that the Restrictions be eliminated, and what
effect will such elimination have on the Fund?
Eliminating the Restrictions, as described above, is consistent with the
federal securities laws. Further, by reducing the total number of investment
restrictions that can be changed only by a shareholder vote, the management of
the Fund believes that the Fund will be able to minimize the costs and delays
associated with holding future shareholder meetings to revise fundamental
policies that become outdated or inappropriate. Management of the Fund also
believes that eliminating the Restrictions is in the best interest of the
Fund's shareholders as it will provide the Fund with increased flexibility to
pursue its investment goals.
What are the risks, if any, in eliminating the Restrictions?
It is not anticipated that eliminating the Restrictions will result in any
additional risk to the Fund. Although many of the Fund's current Restrictions,
as drafted, are no longer legally required, the Fund's ability to invest in
these areas will continue to be subject to the limitations of the 1940 Act and
any exemptive
33
<PAGE>
orders granted under the 1940 Act. Further, the Fund has no current intention
of changing its present investment practices as a result of the elimination of
these Restrictions.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU APPROVE
PROPOSAL 4
PROPOSAL 5: ADOPTION OF A RULE 12B-1 DISTRIBUTION PLAN
What is a Rule 12b-1 Distribution Plan?
Rule 12b-1 under the 1940 Act permits a fund, as a registered open-end
investment company, only to bear expenses relating to the distribution of its
shares pursuant to a written plan that has been approved by the fund's
directors and shareholders. The Investment Manager and Franklin Templeton
Distributors, Inc. ("Distributors") are proposing that the Fund adopt a Plan of
Distribution pursuant to Rule 12b-1 ("Distribution Plan").
Why is the Distribution Plan being proposed for the Fund?
The Distribution Plan is being proposed to ensure that the Fund is in a
position to compete effectively with other mutual funds, which like the Fund,
are offered through contractual plans, in light of the changing trends in
pricing structures for funds offered through contractual plans. In addition to
the Distribution Plan, such restructuring is anticipated to include the
elimination of all sales charges imposed on payments after the first 12
payments of a TCA Plan, except for face changes.
In proposing the adoption of the Distribution Plan to the Fund's Board of
Directors, Distributors reported that the broker-dealer community primarily
responsible for sales of the TCA Plan units and ultimately Fund shares, has
expressed a general reluctance to continue to sell shares of funds associated
with contractual plans, that are not priced in such a way as to provide
on-going compensation to dealers for distribution services as well as servicing
of shareholders. Distributors explained that many of the Fund's competitors
recently had adjusted their distribution charges in an attempt to accommodate
the broker-dealer community and provide continuing compensation. As a result,
when dealers select funds for their clients from a menu of choices, most of
which have 12b-1 plans incorporated into their pricing structures, other
considerations being equal, dealers may be more likely to select funds with
12b-1 charges than those without. Distributors also stated that, if dealers
receive continuing compensation, then they may be more motivated to maintain
and enhance the level of service provided to Fund shareholders, which may
enable all shareholders to have the opportunity to have their accounts serviced
by responsive dealers.
34
<PAGE>
Distributors and the Investment Manager informed the Board that failure to
revise the distribution methods to include a Distribution Plan will make it
increasingly difficult to increase sales of new contractual plans and
therefore, Fund shares as well. Distributors informed the Board that, in its
opinion, the adoption of the proposed Distribution Plan would enhance selling
efforts with respect to the TCA Plan and Fund shares by providing an incentive
to dealers to continue to sell TCA Plans and to maintain investments in the TCA
Plans and the Fund.
In May and July 2000, the Board of Directors, including the directors who are
not "interested persons" of the Fund as defined in the 1940 Act and who have no
direct or indirect financial interest in the operation of the Distribution Plan
or any related agreements (the "Independent Directors"), reviewed the proposal
to implement the Distribution Plan described below with the assistance of
independent legal counsel. After carefully evaluating the potential benefits of
the Distribution Plan to the Fund and its shareholders, the entire Board and
the Independent Directors, voting separately, approved the Distribution Plan
and determined to recommend the Distribution Plan to and for approval by the
shareholders.
What does the Distribution Plan do?
The proposed Distribution Plan provides that the Fund shall reimburse
Distributors or others for all expenses incurred by Distributors and others in
the promotion and distribution of Fund shares in an amount not to exceed 0.30%
per annum of the Fund's average daily net assets. Reimbursable expenses
include, but are not limited to, the printing of prospectuses and reports used
for sales purposes, expenses of preparing and distributing sales literature and
related expenses, advertisements, and other distribution-related expenses,
including a prorated portion of Distributors' overhead expenses attributable to
the distribution of Fund shares, as well as any distribution or service fees
paid to securities dealers or there firms or others who have executed a
servicing agreement with the Fund, Distributors or its affiliates. Service fees
received by a dealer or financial institution may not exceed 0.25% per annum of
the average net assets of the Fund attributable to its customers. Any fees the
dealer or financial institution receives in excess of that amount are
characterized as asset-based sales charges. A copy of the Distribution Plan is
attached to this Proxy Statement as Exhibit C.
In addition to the payments that the Fund is otherwise authorized to make under
the Distribution Plan, to the extent that certain parties make payments that
are deemed to be payments by the Fund for the financing of any activity
primarily intended to result in the sale of shares issued by the Fund within
the context of Rule 12b-1, then such payments are deemed to have been made
pursuant to the Plan.
35
<PAGE>
Under the Distribution Plan, Distributors will furnish to the Board of
Directors of the Fund, for its review, on a quarterly basis, a written report
of the monies reimbursed to it and to others under the Distribution Plan, and
shall furnish the Board with such other information as the Board may reasonably
request in connection with the payments made under the Distribution Plan in
order to enable the Board to make an informed determination of whether the
Distribution Plan shall be continued. The Distribution Plan shall continue in
effect for periods of more than one year only so long as its continuance is
specifically approved at least annually by a majority vote of the Fund's Board
of Directors, and by a majority vote of Independent Directors, cast in person
at a meeting called for the purpose of voting on the continuance of the
Distribution Plan. The Distribution Plan, or any agreements entered into
pursuant to the Distribution Plan, may be terminated at any time, without
penalty, by vote of a majority of the outstanding voting securities, or by vote
of a majority of the Independent Directors, on not more than sixty (60) days'
written notice, or by Distributors on not more than sixty (60) days' written
notice. In addition, the Distribution Plan terminates automatically in the
event of any act that constitutes an assignment of the management agreement
with the Investment Manager.
If the proposed Distribution Plan is approved by the shareholders of the Fund
at this Meeting, it will become effective on such date as Distributors shall
notify the Fund, which date shall not be earlier than the date on which the
Distribution Plan is approved by shareholders as required by Rule 12b-1 (the
"Effective Date"). It is currently anticipated that the Effective Date will be
on or about July 1, 2000, however, implementation may be delayed at the
discretion of the Board of Directors.
What did the Board consider in making their decision?
In connection with their consideration of the proposed Distribution Plan, the
Directors were furnished with drafts of the Distribution Plan and related
materials. In addition, the Directors were furnished with detailed information
concerning the effect of the imposition of the Distribution Plan based on
historical figures and projected on a pro forma basis. In addition, the Fund's
legal counsel provided additional information, summarized the provisions of the
proposed Distribution Plan, and discussed the legal and regulatory
considerations in adopting such a Distribution Plan.
In approving the Distribution Plan, the Directors determined, in the exercise
of their business judgment and in light of their fiduciary duties under
relevant state law and the 1940 Act, that, based upon the material requested
and evaluated by them, the Plan is reasonably likely to benefit the Fund and
its shareholders. The Directors considered various factors relevant to the
situation, including: the nature and causes of the circumstances which make
implementation of the Distribution Plan necessary and appropriate; the way in
which the Distribution
36
<PAGE>
Plan would address those circumstances, including the nature and potential
amount of the expenditures; the relationship of such expenditures to the
overall cost structure of the Fund; the nature of the anticipated benefits; the
merits of possible alternative plans or pricing structures; the anticipated
elimination of the sales charges on the sales of TCA Plan units; the effect of
the Distribution Plan on existing shareholders and new shareholders; the
investment and sales history of the Fund; and the additional revenue to be
earned by the Investment Manager and Distributors.
What are the Potential Benefits that the Board Considered?
The Board concluded unanimously that approval of the proposed Distribution Plan
was warranted because there was a reasonable likelihood that the Fund and its
shareholders will benefit in at least one of several potential ways. First,
along with the adoption of the Distribution Plan, it is anticipated that all
sales charges after the first 12 payments on a TCA Plan will be eliminated.
Thus, all existing shareholders would be able to have a higher percentage of
their Plan payments actually invested in the Fund after the first year.
Second, adopting the Distribution Plan would allow the Fund to be competitively
priced. Such competitive pricing structure may result in increased Fund assets
resulting from increased sales of new TCA Plans, thereby potentially allowing
efficiencies in portfolio management. Such competitive pricing structure would
also assist in maintaining Fund assets by discouraging dealers from
recommending redemption from the Fund. Net cash outflow increases the
likelihood of having to dispose of portfolio securities for other than
investment considerations. Net cash inflow generally minimizes the need to sell
securities to meet redemptions when investment considerations indicate that
they should continue to be held, reduces the impact of changes in daily
liquidity requirements, and generally permits an orderly restructuring of a
portfolio without the need to dispose of present holdings. The Board also
concluded that enhanced marketing efforts, if successful, should result in an
increase in net assets and afford greater flexibility in pursuing the
investment objectives of the Fund.
Third, paying dealers continuing compensation should motivate them to maintain
and enhance the level of service provided to Fund shareholders. It should also
enable all shareholders to have the opportunity to have their accounts serviced
by dealers. Such services may include, among other things, answering inquiries
regarding the Fund's investment policies and performance, and assisting
shareholders in maintaining records, processing purchase and redemption orders,
changing dividend reinvestment options or account registrations, and enrolling
in special investment plans offered by the Fund.
37
<PAGE>
How will the fees be calculated under the Distribution Plan?
In implementing the Distribution Plan, the Board has determined that,
initially, 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 the Effective Date of the Distribution Plan ("New Assets"), and (ii)
the amount obtained by multiplying the average daily net assets represented by
shares of the Fund that were acquired before the Effective Date of the
Distribution Plan ("Old Assets") by an "old asset rate." Until such time as
sales charges are eliminated for the TCA Plan 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 be 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 12b-1 expenses at the same rate. That rate
initially will be close to or equal to 0.00%, unless, as mentioned above, the
sales charges on TCA Plan 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 the Effective Date, the rate will increase over time. Thus, as the
proportion of Fund shares purchased on or after the Effective Date increases in
relation to outstanding Fund shares, the expenses attributable to payments
under the proposed Distribution Plan will also increase (but will not exceed
0.30% of average daily net assets without shareholder approval). While this is
the currently anticipated calculation for fees payable under the Distribution
Plan, the Distribution Plan permits the Fund's Directors to allow the Fund to
pay a full 0.30% on all assets both Old and New 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.
How will the Distribution Plan affect the Fund's expense ratio?
The Directors gave particular attention in their deliberations to the estimated
additional costs that would be incurred by the Fund under the proposed
Distribution Plan. The following table indicates the pro forma expense ratios
reflecting the estimated increases in the operating expenses of the Fund if the
Distribution Plan had been in effect during the Fund's previous fiscal year.
These pro forma expense ratios are based on actual sales and redemptions of
Fund shares and certain assumptions as to other factors affecting expenses
under the proposed Distribution Plan. To facilitate a shareholder's analysis of
this Proposal, the table also includes the actual ratio of operating expenses
to average daily net assets of the Fund for the previous fiscal year. The pro
forma expenses are also
38
<PAGE>
shown as if Fund assets were comprised of only Old Assets (where the
Distribution Plan fee would be effectively 0.10%) and as if Fund assets were
comprised of only New Assets (where the Distribution Plan fee would be
effectively 0.30%).
<TABLE>
<CAPTION>
Actual Expense Pro Forma Pro Forma
Ratio for FYE Expenses with Expenses with
August 31, 1999 a 12b-1 Fee* Maximum 12b-1 Fee**
----------------- --------------- --------------------
<S> <C> <C> <C>
Management Fees 0.75% 0.75% 0.75%
Distribution Fee
(12b-1 Fee) 0.00% 0.10% 0.30%
Other Expenses 0.36% 0.36% 0.36%
Total Annual Operating
Expenses 1.11% 1.21% 1.41%
</TABLE>
-----------
* As stated above, the Distribution Plan fees are expected to acrue at the
rate of 0.00% or 0.10% for Old Assets. Currently, all of the assets of the
Fund are attributable to Old Assets. If the TCA Plan sales charges after
the first 12 payments have not been eliminated, then the rate would be
0.00%. As a result, the blended Distribution Plan fee rate currently would
be 0.00% per annum of the average daily net assets of the Fund.
** The maximum allowable Distribution Plan fee would be 0.30% per annum and
would not be reached until substantially all of the assets of the Fund are
attributable to New Assets.
The Directors concluded that while the Investment Manager would benefit from
increased management fees as a result of the anticipated growth in Fund assets
and Distributors would experience increased revenues as a result of the change
in distribution charges, such benefits to the Investment Manager and
Distributors would not be disproportionate to the above-described anticipated
benefits to the Fund and its shareholders. Finally, while adoption of the
proposed Distribution Plan will increase the Fund's expense ratios by the
amount of the distribution payments from the Fund's assets, the Directors were
satisfied that the increased expense ratios would be justified by the benefits
to be received by the Fund and its shareholders.
The Directors realized that there is no assurance that the expenditures of Fund
assets to finance distribution of Fund shares will have the anticipated
results. The Directors determined, however, that there is a reasonable
likelihood that one or more of such benefits will result and they will be in a
position to monitor the distribution expenses of the Fund and to evaluate the
benefit of such expenditures in deciding whether to continue the Distribution
Plan.
What about the anticipated TCA Plan Elimination of Sales Charges? What about
TCA Plan II?
The Directors were aware at the time of their decision to approve and to
recommend your approval of the Distribution Plan that it was expected that the
sales charges imposed on all investments after the first 12 payments would be
eliminated, except for certain face changes. This would result in a greater
amount
39
<PAGE>
of each existing shareholder's continuing TCA Plan payments being actually
invested in the Fund. The TCA Plan would be closed by Distributors to new
investors. The TCA Plan will remain open to current planholders still
completing their plans.
Further, the Directors were aware that Distributors plans to offer under a
separate prospectus a new contractual plan investing in the Fund, Templeton
Capital Accumulation Plan II ("TCA Plan II"), to new investors in the fall of
2000. TCA Plan II is expected to be offered with additional service and
operational features not available on the original TCA Plans. It is anticipated
that the TCA Plan II will be offered with sales charges only for the first 12
plan payments (except for certain face changes).
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU APPROVE
PROPOSAL 5
PROPOSAL 6: REORGANIZATION OF THE FUND FROM A
MARYLAND CORPORATION TO A DELAWARE
BUSINESS TRUST
What will the Reorganization mean for the Fund and its shareholders?
The Directors recommend that you approve a change in the place of organization
of the Fund from a Maryland corporation to a Delaware business trust. This
proposed change will be referred to in this proxy statement as the
"Reorganization." The Board of Directors has approved an Agreement and Plan of
Reorganization (the "Reorganization Plan"), substantially in the form attached
to this proxy statement as Exhibit D. The Reorganization Plan provides for the
Reorganization, which involves the continuation of the Fund (referred to in
this Proposal 6 as the "MD Corporation") in the form of a newly created
Delaware business trust, named "Templeton Capital Accumulator Fund" (and
referred to in this Proposal 6 as the "DE Trust").
The DE Trust will have the same investment objective, policies and restrictions
as the MD Corporation. This means that the DE Trust's fundamental investment
policies and restrictions will reflect the results of the shareholders' vote on
Proposals 3 and 4 of this proxy statement. The Board, officers and employees
will be the same and will operate the DE Trust in the same manner as they
previously operated the MD Corporation. On the closing date of the
Reorganization, you will hold an interest in the DE Trust that is equivalent to
your interest in the MD Corporation. Essentially, your investment will not
change, and the Reorganization will have no material impact on your economic
interests as a shareholder.
40
<PAGE>
Why are the Directors recommending that I approve the Reorganization?
The Directors have determined that mutual funds formed as Delaware business
trusts have certain advantages over those funds organized as Maryland
corporations. Delaware law contains provisions specifically designed for mutual
funds, which take into account their unique structure and operations. Under
Delaware law, funds are able to simplify their operations by reducing
administrative burdens. The Delaware law allows greater flexibility in drafting
a fund's governing documents, which can result in greater efficiencies of
operation and savings for a fund and its shareholders. Delaware law also
provides favorable state tax treatment. Furthermore, there is a
well-established body of corporate legal precedent that may be relevant in
deciding issues pertaining to the DE Trust.
A comparison of the Delaware business trust law and the Maryland General
Corporation law, and a comparison of the relevant provisions of the governing
documents of the DE Trust and the MD Corporation, are included in Exhibit E,
which is entitled, "Comparison and Significant Differences Between Delaware
Business Trusts and Maryland Corporations."
The Reorganization also would increase uniformity among the investment
companies in Franklin Templeton Investments, since many of the funds are
already organized as Delaware business trusts, and the Delaware trust form has
been chosen for new Franklin and Templeton funds that have been created over
the past few years. Increased uniformity among the funds, many of which share
common Directors, officers and service providers, is expected to reduce the
costs and resources needed to comply with state corporate laws, and also reduce
administrative burdens.
For these reasons, the Directors believe that it is in the best interests of
the shareholders to approve the Reorganization.
What are the procedures and consequences of the Reorganization?
Upon completion of the Reorganization, the DE Trust will continue the business
of the MD Corporation with the same investment objective and policies as exist
on the date of the Reorganization, and will hold the same portfolio of
securities previously held by the MD Corporation. The DE Trust will be operated
under substantially identical overall management, investment management,
distribution and administrative arrangements as those of the MD Corporation. As
the successor to the MD Corporation's operations, the DE Trust will adopt the
MD Corporation's registration statement under the federal securities laws with
amendments to show the new Delaware business trust structure.
The DE Trust was created solely for the purpose of becoming the successor
organization to, and carrying on the business of, the MD Corporation. To
accomplish the Reorganization, the Reorganization Plan provides that the MD
41
<PAGE>
Corporation will transfer all of its portfolio securities and any other assets,
subject to its related liabilities, to the DE Trust. In exchange for these
assets and liabilities, the DE Trust will issue its own shares to the MD
Corporation, which will then distribute those shares pro rata to you as a
shareholder of the MD Corporation. Through this procedure, you will receive
exactly the same number and dollar amount of shares of the DE Trust as you
previously held in the MD Corporation. The net asset value of each share of the
DE Trust will be the same as that of the MD Corporation on the date of the
Reorganization. You will retain the right to any declared but undistributed
dividends or other distributions payable on the shares of the MD Corporation
that you may have had as of the effective date of the Reorganization. As soon
as practicable after the date of the Reorganization, the MD Corporation will be
dissolved and will go out of existence.
The Directors may terminate the Reorganization Plan and abandon the
Reorganization at any time prior to the effective date of the Reorganization if
they determine that such actions are in the best interests of the MD
Corporation's shareholders. If the Reorganization is not approved, or if the
Directors abandon the Reorganization, the MD Corporation will continue to
operate as a corporation under the laws of the State of Maryland.
What effect will the Reorganization have on the current investment management
agreement?
As a result of the Reorganization, the DE Trust will be subject to a new
investment management agreement between the DE Trust and the Investment
Manager. The new management agreement will be substantially identical to the
current management agreement between the Investment Manager and the MD
Corporation. It is anticipated that there will be no material change to the
investment management agreement as a result of the Reorganization.
What effect will the Reorganization have on the shareholder servicing
agreements and distribution plans?
The DE Trust will enter into agreements with Franklin/Templeton Investor
Services, Inc. for transfer agency, dividend disbursing, shareholder servicing
and fund accounting services that are substantially identical to the agreements
currently in place for the MD Corporation. Franklin Templeton Distributors,
Inc. will serve as the distributor for the shares of the DE Trust under a
separate distribution agreement that is substantially identical to the
distribution agreement currently in effect for the MD Corporation.
As of the effective date of the Reorganization, if shareholders of the MD
Corporation approve Proposal 5, the DE Trust will have a distribution plan
under Rule 12b-1 of the 1940 Act relating to the distribution of Fund shares
substantially identical to that approved pursuant to Proposal 5. It is
anticipated
42
<PAGE>
that there will be no material change to the distribution plans as a request of
the Reorganization. If shareholders of the MD Corporation do not approve
Proposal 5, then the DE Trust will not have a distribution plan.
What is the effect of shareholder approval of the Reorganization?
Under the 1940 Act, the shareholders of a mutual fund must vote on the
following: (1) election of Directors; (2) selection of the independent
auditors; and (3) approval of initial investment management agreement for the
fund. Theoretically, if the Reorganization is approved, the shareholders would
need to vote on these three items for the DE Trust. In fact, the DE Trust must
have shareholder approval of these issues or else it will not comply with the
1940 Act. However, the Directors have determined that it is in the best
interests of the shareholders to avoid the considerable expense of another
shareholder meeting to obtain these approvals after the Reorganization.
Therefore, the Directors have determined that approval of the Reorganization
also will constitute the requisite shareholder approval for the Reorganization
Plan contained in Exhibit D, and also, for purposes of the 1940 Act, constitute
shareholder approval of: (1) the election of the Directors of the MD
Corporation who are in office at the time of the Reorganization as Trustees of
the DE Trust,/1/ (2) the selection of PricewaterhouseCoopers LLP as independent
auditors for the DE Trust; and (3) a new investment management agreement
between the DE Trust and the Investment Manager, which is substantially
identical to the investment management agreement currently in place for the MD
Corporation.
Prior to the Reorganization, the officers will cause the MD Corporation, as the
sole shareholder of the DE Trust, to vote its shares FOR the matters specified
above. This action will enable the DE Trust to satisfy the requirements of the
1940 Act without involving the time and expense of another shareholder meeting.
What is the capitalization and structure of the DE Trust?
The DE Trust was created on June 26, 2000 pursuant to Delaware law. The DE
Trust has an unlimited number of shares of beneficial interest with a par value
of $0.01 per share. As of the effective date of the Reorganization, shares of
the MD Corporation and the DE Trust will have equal dividend and redemption
rights, will be fully paid, non-assessable, freely transferable, have the same
conversion rights, and have no preemptive or subscription rights. Shares of
both the DE Trust and the MD Corporation will have equal voting and liquidation
rights and have one vote per share. Both the DE Trust and MD Corporation
provide for noncumulative voting in the election of their Trustee/Directors.
The DE Trust also will have the same fiscal year as the MD Corporation.
/1/ The members of the board of a Delaware business trust are referred to as
Trustees.
43
<PAGE>
Who will bear the expenses of the Reorganization?
Since the Reorganization will benefit the MD Corporation and its shareholders,
the Board has authorized that the expenses incurred in the Reorganization shall
be paid by the MD Corporation.
Are there any tax consequences for shareholders?
The Reorganization is designed to be tax free for federal income tax purposes
so that you will not experience a taxable gain or loss when the Reorganization
is completed. Generally, the basis and holding period of your shares in the DE
Trust will be the same as the basis and holding period of your shares in the MD
Corporation. Consummation of the Reorganization is subject to receipt of a
legal opinion from the law firm of Stradley Ronon Stevens & Young, LLP, counsel
to the DE Trust and the MD Corporation, that, under the Internal Revenue Code
of 1986, as amended, the exchange of assets of the MD Corporation for the
shares of the DE Trust, the transfer of such shares to the holders of shares of
the MD Corporation and the liquidation and dissolution of the MD Corporation
pursuant to the Reorganization Plan will not give rise to the recognition of a
gain or loss for federal income tax purposes to the MD Corporation, the DE
Trust, or shareholders of either the MD Corporation or the DE Trust.
What if I choose to sell my shares at any time?
A request to sell MD Corporation shares that is received and processed prior to
the Reorganization will be treated as a redemption of shares of the MD
Corporation. A request to sell shares that is received and processed after the
Reorganization will be treated as a request for the redemption of the same
number of shares of the DE Trust. The value of your shares will not be affected
by the Reorganization.
What is the effect of my "Yes" vote?
By voting "YES" to the Reorganization, you will be agreeing to become a
shareholder of a mutual fund organized as a Delaware business trust, with its
Trustees, independent auditors, and investment management agreement, already in
place, and distribution plan, if Proposal 5 is approved by shareholders, and
all such arrangements that are substantially identical to those of the MD
Corporation.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU APPROVE
PROPOSAL 6
44
<PAGE>
PROPOSAL 7: OTHER BUSINESS
The Directors know of no other business to be presented at the Meeting.
However, if any additional matters should be properly presented, proxies will
be voted or not voted as specified. Proxies reflecting no specification will be
voted in accordance with the judgment of the persons named in the proxy.
INFORMATION ABOUT THE FUND
The Investment Manager. The Investment Manager of the Fund is Templeton
Investment Counsel, Inc., located at Broward Financial Centre, 500 East Broward
Boulevard, Fort Lauderdale, Florida 33394-3091. Pursuant to an investment
management agreement, the Investment Manager manages the investment and
reinvestment of Fund assets. The Investment Manager is a wholly owned
subsidiary of Resources.
The Administrator. The administrator of the Fund is Franklin Templeton
Services, Inc. ("FT Services") with offices at 777 Mariners Island Boulevard,
San Mateo, California 94404. FT Services is a wholly owned subsidiary of
Resources. Pursuant to an administration agreement, FT Services performs
certain administrative functions for the Fund.
The Shareholder Servicing and Transfer Agent. The shareholder servicing agent,
transfer agent, and dividend disbursement agent for the Fund is Franklin/
Templeton Investor Services, Inc., 100 Fountain Parkway, St. Petersburg,
Florida 33716-1205.
The Custodian. The custodian for the Fund is The Chase Manhattan Bank,
MetroTech Center, Brooklyn, New York 11245.
Other Matters. The Fund's last audited financial statements and annual report
dated August 31, 1999, and its semiannual report dated February 29, 2000, are
available free of charge. To obtain copies, please call 1-800/DIAL BEN(R) or
forward a written request to Franklin/Templeton Investor Services, Inc., P.O.
Box 33030, St. Petersburg, Florida 33733-8030.
Principal Shareholders. As of August 2, 2000, the Fund had 27,790,674 shares
outstanding and total net assets of $359,930,627.65. From time to time, the
number of shares held in "street name" accounts of various securities dealers
for the benefit of their clients may exceed 5% of the total shares outstanding.
On August 2, 2000, Templeton Capital Accumulation Plan held approximately 99%
of the Fund's outstanding shares. To the knowledge of the Fund's management, as
of August 2, 2000, there were no other entities holding beneficially or of
record more than 5% of a class of the Fund's outstanding shares.
In addition, to the knowledge of the Fund's management, as of August 2, 2000,
no nominee or Director of the Fund owned 1% or more of the outstanding shares
of the Fund, and the Directors and Officers of the Fund owned, as a group, less
than 1% of the outstanding shares of the Fund.
45
<PAGE>
FURTHER INFORMATION ABOUT VOTING AND THE MEETING
Record Date. Shareholders of record at the close of business on August 2, 2000,
are entitled to be present and to vote at the Meeting or any adjourned Meeting.
Each share of record is entitled to one vote on each matter presented at the
Meeting. The notice of the Meeting, proxy card and proxy statement are being
mailed to shareholders of record on or about August 14, 2000.
Voting Methods. You may vote your shares in one of several ways. You can vote
by mail, fax, or in person at the Meeting. If you were a holder of a TCA Plan
on the Record Date, then you will be sent a voting instruction card for those
shares of the Fund attributable to your investment in the TCA Plan as of the
record date for the Meeting. A voting instruction card is, in essence, a
ballot. The TCA Plan will vote in accordance with your instructions. When you
complete your voting instruction card, it tells the TCA Plan how to vote its
proxy on these important issues relating to the Fund. If you hold Fund shares
directly (not through a TCA Plan), then you will receive a proxy card by which
you can vote your shares directly.
If you are eligible to vote by telephone or through the internet, a control
number and separate instructions are enclosed. To vote by mail, sign, date and
send us the enclosed proxy/voting instruction card in the envelope provided.
Proxy/voting instruction cards that are properly signed, dated and received at
or prior to the Meeting will be voted as specified. If you specify a vote for
any of the Proposals 1 through 7, your proxy/voting instruction card will be
voted as you indicated. If you simply sign and date the proxy/voting
instruction card, but don't specify a vote for any of the Proposals 1 through
7, your shares will be voted IN FAVOR of the nominees for Director (Proposal
1), IN FAVOR of ratifying the selection of PricewaterhouseCoopers LLP as
independent auditors (Proposal 2), IN FAVOR of amending certain of the Fund's
fundamental investment restrictions (Sub-Proposals 3(a) - 3(g)), IN FAVOR of
eliminating twelve (12) of the fundamental investment restrictions of the Fund
(Proposal 4), IN FAVOR of the adoption of a Rule 12b-1 Distribution Plan
(Proposal 5), IN FAVOR of the Reorganization of the Fund as a Delaware business
trust (Proposal 6), and/or IN ACCORDANCE with the discretion of the persons
named in the proxy card as to any other matters that may properly come before
the Meeting or any adjournments thereof (Proposal 7).
Revocation of Proxies/Voting Instructions. You may revoke your proxy/voting
instructions at any time by sending to the Fund a written revocation or a
later-dated proxy/voting instruction card that is received at or before the
Meeting, or by attending the Meeting and voting in person.
Solicitation of Proxies/Voting Instructions. Your vote is being solicited by
the Board of Directors of the Fund. The cost of soliciting proxies, including
the fees of a proxy soliciting agent, will be borne by the Fund. The Fund
reimburses brokerage firms and others for their expenses in forwarding proxy
material to the
46
<PAGE>
beneficial owners and soliciting them to execute proxies. In addition, the Fund
may retain a professional proxy solicitation firm to assist with any necessary
solicitation of proxies. The Fund expects that the solicitation would be
primarily by mail, but also may include telephone, telecopy or oral
solicitations. If the Fund does not receive your proxy or the TCA Plan
Custodian your voting instructions by a certain time you may receive a
telephone call from Shareholder Communications Corporation asking you to vote.
If professional proxy solicitors are retained, it is expected that soliciting
fees would be approximately $3,500, plus expenses. The Fund does not reimburse
Directors and Officers of the Fund, or regular employees and agents of the
Investment Manager involved in the solicitation of proxies. The Fund intends to
pay all costs associated with the solicitation and the Meeting.
In addition to solicitation by mail, some of the Officers and employees of the
Fund, the Investment Manager and its affiliates, without extra compensation,
may conduct additional solicitations by telephone, personal interviews and
other means.
Voting by Broker-Dealers. The Fund expects that, before the Meeting,
broker-dealer firms holding shares of the Fund in "street name" for their
customers will request voting instructions from their customers and beneficial
owners. If these instructions are not received by the date specified in the
broker-dealer firms' proxy solicitation materials, the Fund understands that
NYSE rules permit the broker-dealers to vote on certain of the proposals to be
considered at the Meeting on behalf of their customers and beneficial owners.
Certain broker-dealers may exercise discretion over shares held in their name
for which no instructions are received by voting these shares in the same
proportion as they vote shares for which they received instructions.
Quorum. A majority of the shares entitled to vote - present in person or
represented by proxy - constitutes a quorum at the Meeting. The shares over
which broker-dealers have discretionary voting power, the shares that represent
"broker non-votes" (i.e., shares held by brokers or nominees as to which (i)
instructions have not been received from the beneficial owners or persons
entitled to vote and (ii) the broker or nominee does not have discretionary
voting power on a particular matter), and the shares whose proxies reflect an
abstention on any item are all counted as shares present and entitled to vote
for purposes of determining whether the required quorum of shares exists.
Method of Tabulation. Approval of the Fund's election of nominees for Director,
as described in Proposal 1, will require the affirmative vote of a plurality of
the Fund's shares present and voting at the Meeting. Approval of the selection
of independent auditors (as described in Proposal 2) requires the affirmative
vote of a majority of the Fund's shares present and voting on the Proposal at
the Meeting. Amending certain of the Fund's fundamental investment restrictions
(as set forth in Sub-Proposals 3(a) through 3(g)), eliminating certain
47
<PAGE>
of the Fund's fundamental investment restrictions (as set forth in Proposal 4),
and adopting a Rule 12b-1 Distribution Plan (as set forth in Proposal 5) will
each require the affirmative vote of the lesser of: (i) more than 50% of the
outstanding shares of the Fund; or (ii) 67% or more of the voting securities of
the Fund present at the Meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present in person or by proxy. Proposal 6,
the reorganization of the Fund as a Delaware business trust, requires the
affirmative vote of a majority of the Fund's shares outstanding and entitled to
vote. Proposal 7, for the proxyholders to have discretion to vote on any other
business that may properly come before the Meeting or any adjournments thereof,
requires the affirmative vote of a majority of the Fund's shares present and
voting on the Proposal at the Meeting or any adjournments thereof. Abstentions
and broker non-votes will be treated as votes not cast and, therefore, will not
be counted for purposes of obtaining approval of Proposal 1, but will have the
effect of votes cast against the other Proposals.
Adjournment. In the event that a quorum is not present at the Meeting, the
Meeting will be adjourned to permit further solicitation of proxies/voting
instructions. In the event that a quorum is present, but sufficient votes have
not been received to approve one or more of the Proposals, the persons named as
proxies may propose one or more adjournments of the Meeting to permit further
solicitation of proxies/voting instructions with respect to those Proposals.
The persons named as proxies will vote in their discretion on questions of
adjournment those shares for which proxies have been received that grant
discretionary authority to vote on matters that may properly come before the
Meeting.
Shareholder Proposals. The Fund is not required, and does not intend, to hold
regular annual meetings of shareholders. Shareholders wishing to submit
proposals for consideration for inclusion in a proxy statement for the next
meeting of shareholders should send their written proposals to the Fund's
offices, 500 East Broward Boulevard, Fort Lauderdale, Florida 33394, Attn:
Secretary, so they are received within a reasonable time before any such
meeting. No business other than the matters described above is expected to come
before the Meeting. Should any other matter requiring a vote of shareholders
arise, including any question as to an adjournment or postponement of the
Meeting, the persons named as proxies will vote on such matters according to
their best judgment in the interests of the Fund.
By the Order of the Board of Directors of
Templeton Capital Accumulator Fund, Inc.
Barbara J. Green
Secretary
August 14, 2000
48
<PAGE>
EXHIBIT A
FUNDAMENTAL INVESTMENT RESTRICTIONS PROPOSED TO BE AMENDED
<TABLE>
<CAPTION>
Current Fundamental Proposed Fundamental
Proposal Restriction The Fund may not: The Fund may not:
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
3(a) Borrowing 7. Borrow money for any purpose other Borrow money, except that the Fund may
than redeeming its shares or purchasing borrow money from banks or other
its shares for cancellation, and then investment companies to the extent
only as a temporary measure up to an permitted by the 1940 Act, or any
amount not exceeding 5% of the value of exemptions therefrom which may be
its total assets; or [[P]ledge, granted by the SEC, or from any person
mortgage, or hypothecate its assets for in a private transaction not intended
any purpose other than to secure such for public distribution for temporary or
borrowings, and then only up to such emergency purposes and then in an amount
extent not exceeding 10% of the value of not exceeding 33 1/3% of the value of
its total assets as the Board may by the fund's total assets (including the
resolution approve./1/ For the purposes of amount borrowed).
this investment restriction, collateral
arrangements with respect to margin for
a futures contract or a forward contract
are not deemed to be a pledge of
assets.]
3(b) Underwriting 5. Act as an underwriter. 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(c) Lending 6. Loan money, apart from the purchase Make loans to other persons except (a)
of a portion of an issue of publicly through the lending of its portfolio
distributed bonds, debentures, notes and securities, (b) through the purchase of
other evidences of indebtedness, debt securities, loan participations
although the fund may enter into and/or engaging in direct corporate
repurchase agreements and lend its loans in accordance with its investment
portfolio securities. 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.
3(d) Industry 11. Invest more than 25% of the fund's Concentrate (invest more than 25% of its
Concentration total assets in a single industry. 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).
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
Current Fundamental Proposed Fundamental
Proposal Restriction The Fund may not: The Fund may not:
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
3(e) Real Estate and 1. Invest in real estate or mortgages on Purchase or sell real estate and
Commodities real estate (although the fund may commodities, except that the Fund may
invest in marketable securities secured purchase or sell securities of real
by real estate or interests therein or estate investment trusts, may purchase
issued by companies or investment trusts or sell currencies, may enter into
which invest in real estate or interests futures contracts on securities,
therein); or . . . purchase or sell currencies, and other indices or any
commodity contracts (except forward other financial instruments, and may
contracts and futures contracts as purchase and sell options on such
described in the Fund's Prospectus). futures contracts.
3(f) Senior 5...[I]ssue senior securities; purchase Issue securities senior to the Fund's
Securities on margin or sell short; write buy or presently authorized shares of
sell puts, calls, straddles or spreads beneficial interest. Except that this
(but the Fund may make margin payments restriction shall not be deemed to
in connection with futures contracts, prohibit the Fund from (a) making any
forward contracts and options on permitted borrowings, loans, mortgages,
securities indices and foreign or pledges, (b) entering into options,
currencies). futures contracts, forward contracts,
repurchase transactions, or reverse
Add in short sales and margin language 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.
3(g) Diversification 3. Invest more than 5% of its total Purchase the securities of any one
assets in the securities of any one issuer (other than the U.S. government
issuer (exclusive of U.S. government or any of its agencies or
securities). instrumentalities or securities of other
investment companies) if immediately
4. Purchase more than 10% of any class after such investment (a) more than 5%
of securities of any one company, of the value of the Fund's total assets
including more than 10% of its would be invested in such issuer or (b)
outstanding voting securities, or invest more than 10% of the outstanding voting
in any company for the purposed of securities of such issuer would be owned
exercising control or management. 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.
</TABLE>
-------
/1/ As an operating policy approved and subject to change or elimination solely
by the Board, the Fund will not pledge, mortgage or hypothecate its assets
to the extent that at any time the percentage of pledged assets plus the
sales commission will exceed 10% of the Offering Price of the shares of the
Fund.
A-2
<PAGE>
EXHIBIT B
FUNDAMENTAL INVESTMENT RESTRICTIONS PROPOSED TO BE ELIMINATED
<TABLE>
<CAPTION>
Current Fundamental Restriction
Restriction The Fund may not: Proposed Change
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Oil, Gas or Other Mineral Exploration or 1... [I]nvest in interests (other than To be eliminated
Development Programs debentures or equity stock interests) in
oil, gas or other mineral exploration or
development programs . . .
Investment in Other Investment 1...[I]nvest in other open-end To be eliminated
Companies investment companies.
Management Ownership of Securities 2...Purchase or retain securities of any To be eliminated
company in which directors or officers
of the fund or of the Manager,
individually owning more than 1/2 of 1%
of the securities of such company, in
the aggregate own more than 5% of the
securities of such company.
Control or Management 4. Purchase more than 10% of any class To be eliminated
of securities of any one company,
including more than 10% of its
outstanding voting securities, or invest
in any company for the purpose of
exercising control or management.
Securities on Margin or Short Sales 5.. [P]urchase on margin or sell short To be eliminated
Pledge, Mortgage or Hypothecate Assets 7.. [P]ledge, mortgage, or hypothecate To be eliminated
its assets for any purpose other than to
secure such borrowings, and then only up
to such extent not exceeding 10% of the
value of its total assets as the Board
may by resolution approve./1/
Unseasoned Issuers 8. Invest more than 5% of the value of To be eliminated
the fund's total assets in securities of
issuers which have been in continuous
operation less than three years.
Warrants 9. Invest more than 5% of the fund's To be eliminated
total assets in warrants, whether or not
listed on the New York Stock Exchange
(NYSE) or the American Stock Exchange,
including no more than 2% of its total
assets which may be invested in warrants
that are not listed on those exchanges.
Warrants acquired by the fund in units
or attached to securities are not
included in this investment restriction.
This investment restriction does not
apply to options on securities indices.
</TABLE>
B-1
<PAGE>
<TABLE>
<CAPTION>
Current Fundamental Restriction
Restriction The Fund may not: Proposed Change
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Unlisted, Restricted and Illiquid 10. Invest more than 15% of the fund's To be eliminated
Securities and Over-the Counter Options total assets in securities of foreign
issuers that are not listed on a
recognized U.S. or foreign securities
exchange, including no more than 10% of
its total assets in restricted
securities, securities that are not
readily marketable, repurchase
agreements having more than seven days
to maturity, and over-the-counter
options purchased by the fund. Assets
used as cover for over-the-counter
options written by the fund are
considered not readily marketable.
Letter Stocks 12. Invest in "letter stocks" or To be eliminated
securities on which there are any sales
restrictions under a purchase agreement.
Joint and Joint and Several Trading 13. Participate on a joint or a joint To be eliminated
Accounts and several basis in any trading account
in securities. (See Portfolio
Transactions on page 15 [of the Fund's
Statement of Additional Information] as
to transactions in the same securities
for the fund, other clients and/or other
mutual funds within the Franklin
Templeton Group of Funds.)
Defaulted Debt Securities 14. Invest more than 10% of its total To be eliminated
assets in defaulted debt securities,
some of which may be illiquid.
</TABLE>
-------
/1/ As an operating policy approved and subject to change or elimination solely
by the Board, the Fund will not pledge, mortgage or hypothecate its assets
to the extent that at any time the percentage of pledged assets plus the
sales commission will exceed 10% of the Offering Price of the shares of the
Fund.
B-2
<PAGE>
EXHIBIT C
DISTRIBUTION PLAN
WHEREAS, Templeton Capital Accumulator Fund (the "Fund") is registered as
an open-end diversified management investment company under the Investment
Company Act of 1940 (the "1940 Act"); and
WHEREAS, the Fund and Franklin/Templeton Distributors, Inc. (the "Selling
Company"), a wholly owned subsidiary of Franklin Resources, Inc. and a
broker-dealer registered under the Securities Exchange Act of 1934, have
entered into a Distribution Agreement pursuant to which the Selling Company
will act as principal underwriter of Shares of the Fund for sale to the public;
and
WHEREAS, the Board of [Directors/Trustees] of the Fund has determined to
adopt this Distribution Plan (the "Plan"), in accordance with the requirements
of the 1940 Act and has determined that there is a reasonable likelihood that
the Plan will benefit the Fund and its Shareholders.
NOW THEREFORE, the Fund hereby adopts the Plan on the following terms and
conditions:
1. The Fund will reimburse the Selling Company for costs and expenses
incurred in connection with the distribution and marketing of Shares of the
Fund. Such distribution costs and expenses may include: (1) payments to
broker-dealers who provide certain services of value to the Fund's Shareholders
(sometimes referred to as a "trail fee"); (2) expenses relating to selling and
servicing efforts; (3) expenses of organizing and conducting sales seminars;
(4) payments to employees or agents of the Selling Company who engage in or
support distribution of Shares; (5) the costs of preparing, printing and
distributing prospectuses and reports to prospective investors; (6) printing
and advertising expenses; (7) dealer commission and wholesaler compensation in
connection with sales of Fund Shares exceeding $1 million; and (8) such other
similar services as the Fund's Board of [Directors/Trustees] determines to be
reasonably calculated to result in the sale of Shares.
The Selling Company will be reimbursed for such costs, expenses or
payments on a monthly basis, subject to an annual limit of 0.30% of the Fund's
average daily net assets. Payments made out of or charged against the assets of
the Fund must be in reimbursement for costs and expenses in connection with any
activity which is primarily intended to result in the sale of Fund Shares. The
costs and expenses not reimbursed in any one given month (including costs and
expenses not reimbursed because they exceeded the limit of 0.30% per annum of
the Fund's average daily net assets) may be reimbursed in subsequent months or
years.
C-1
<PAGE>
2. The Plan shall not take effect with respect to the Fund until it has
been approved by a vote of at least a majority (as defined in the 1940 Act) of
the outstanding voting Shares of the Fund. With respect to the submission of
the Plan for such a vote, it shall have been effectively approved with respect
to the Fund if a majority of the outstanding voting Shares of the Fund votes
for approval of the Plan.
3. The Plan shall not take effect until it has been approved, together
with any related agreements and supplements, by votes of a majority of both (a)
the Board of [Directors/Trustees] of the Fund, and (b) those
[Directors/Trustees] of the Fund who are not "interested persons" (as defined
in the 1940 Act) and have no direct or indirect financial interest in the
operation of the Plan or any agreements related to it (the "Plan
[Directors/Trustees]"), cast in person at a meeting (or meetings) called for
the purpose of voting on the Plan and such related agreements.
4. The Plan shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
the Plan in paragraph 3.
5. Any person authorized to direct the disposition of monies paid or
payable by the Fund pursuant to the Plan or any related agreement shall provide
to the Fund's Board of [Directors/Trustees], and the Board shall review, at
least quarterly, a written report of the amounts so expended and the purposes
for which such expenditures were made.
6. Any agreement related to the Plan shall be in writing and shall
provide: (a) that such agreement may be terminated at any time as to the Fund,
without payment of any penalty, by vote of a majority of the Plan
[Directors/Trustees] or by vote of a majority of the outstanding voting Shares
of the Fund, on not more than sixty days' written notice to any other party to
the agreement; and (b) that such agreement shall terminate automatically in the
event of its assignment.
7. The Plan may be terminated at any time with respect to the Fund,
without payment of any penalty, by vote of a majority of the Plan
[Directors/Trustees], or by vote of a majority of the outstanding voting Shares
of the Fund.
8. The Plan may be amended at any time with respect to the Fund by the
Fund's Board of [Directors/Trustees], provided that (a) any amendment to
increase materially the costs which the Fund may bear for distribution pursuant
to the Plan shall be effective only upon approval by a vote of a majority of
the outstanding voting Shares of the Fund, and (b) any material amendments of
the terms of the Plan shall become effective only upon approval as provided in
paragraph 3 hereof.
C-2
<PAGE>
9. While the Plan is in effect, the selection and nomination of
[Directors/ Trustees] who are not "interested persons" (as defined in the 1940
Act) of the Fund shall be committed to the discretion of the
[Directors/Trustees] who are not interested persons.
10. The Fund shall preserve copies of the Plan, any related agreement and
any report made pursuant to paragraph 5 hereof, for a period of not less than
six years from the date of the Plan, such agreement or report, as the case may
be, the first two years of which shall be in an easily accessible place.
11. It is understood and expressly stipulated that neither the holders of
Shares of the Fund nor any [Director/Trustee], officer, agent or employee of
the Fund shall be personally liable hereunder, nor shall any resort be had to
other private property for the satisfaction of any claim or obligation
hereunder, but the Fund only shall be liable.
IN WITNESS WHEREOF, the Fund has executed this Distribution Plan on this
___ day of ___________, 2000.
TEMPLETON CAPITAL ACCUMULATOR FUND
By: --------------------------------
ATTEST:
---------------------------------------------
Barbara J. Green
Secretary
C-3
<PAGE>
EXHIBIT D
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made this
day of , 2000 by and between Templeton Capital Accumulator Fund,
Inc., a corporation created under the laws of the State of Maryland (the
"Fund"), and Templeton Capital Accumulator Fund, a business trust created under
the laws of the State of Delaware (the "Trust").
In consideration of the mutual promises contained herein, and intending to
be legally bound, the parties hereto agree as follows:
1. Plan of Reorganization.
(a) Upon satisfaction of the conditions precedent described in Section
3 hereof, the Fund will convey, transfer and deliver to the Trust, at
the closing provided for in Section 2 (hereinafter referred to as the
"Closing") all of its then-existing assets. In consideration thereof,
the Trust agrees at the Closing (i) to assume and pay, to the extent
that they exist on or after the Effective Date of the Reorganization
(as defined in Section 2 hereof), all of the Fund's obligations and
liabilities, whether absolute, accrued, contingent or otherwise,
including all fees and expenses in connection with the Agreement,
including without limitation costs of legal advice, accounting,
printing, mailing, proxy solicitation and transfer taxes, if any, and
taxes assessed by the State of Maryland, if any, the obligations and
liabilities allocated to the Fund to become the obligations and
liabilities of the Trust, and (ii) to deliver to the Fund full and
fractional shares of the Trust equal in number to the number of full
and fractional shares outstanding of the Fund. The transactions
contemplated hereby are intended to qualify as a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended ("Code").
(b) The Trust will effect such delivery by establishing an open account
for each shareholder of the Fund and by crediting to such account the
exact number of full and fractional shares of the Trust such
shareholder held in the Fund on the Effective Date of the
Reorganization. Fractional shares of the Trust will be carried to the
third decimal place. On the Effective Date of the Reorganization, the
net asset value per share of beneficial interest of the Trust shall be
deemed to be the same as the net asset value per share of the Fund. On
such date, each certificate representing shares of the Fund will
represent the same number of shares of the Trust. Each shareholder of
the Fund will have the right to exchange his (her) share certificates
for share certificates of the Trust.
D-1
<PAGE>
However, a shareholder need not make this exchange of certificates
unless he (she) so desires. Simultaneously with the crediting of the
shares of the Trust to the shareholders of record of the Fund, the
shares of the Fund held by such shareholder shall be canceled.
(c) As soon as practicable after the Effective Date of the
Reorganization, the Fund shall take all necessary steps under Maryland
law to terminate the Fund.
2. Closing and Effective Date of the Reorganization. The Closing shall
commence at Eastern time on , 2000, or on such later date as the
parties may agree, and shall be effective on the business day following the
commencement of the Closing (the "Effective Date"). The Closing will take place
at the principal offices of the Fund and the Trust at 500 East Broward
Boulevard, Fort Lauderdale, Florida 33394.
3. Conditions Precedent. The obligations of the Fund and the Trust to
effectuate the Reorganization hereunder shall be subject to the satisfaction of
each of the following conditions:
(a) Such authority and orders from the U.S. Securities and Exchange
Commission (the "Commission") and state securities commissions as may
be necessary to permit the parties to carry out the transactions
contemplated by this Agreement shall have been received;
(b) (i) One or more post-effective amendments to the Fund's
Registration Statement on Form N-1A ("Registration Statement") under
the Securities Act of 1933, as amended, and the Investment Company Act
of 1940, as amended, ("1940 Act") containing such amendments to such
Registration Statement as are determined under the supervision of the
Directors of the Fund to be necessary and appropriate as a result of
the Agreement shall have been filed with the Commission, (ii) the
Trust shall have adopted as its own such Registration Statement, as so
amended, (iii) the most recent post-effective amendment or amendments
to the Fund's Registration Statement shall have become effective, and
no stop order suspending the effectiveness of the Registration
Statement shall have been issued, and no proceeding for that purpose
shall have been initiated or threatened by the Commission (other than
any such stop order, proceeding or threatened proceeding which shall
have been withdrawn or terminated), and (iv) an amendment of the Form
N-8A Notification of Registration filed pursuant to Section 8(a) of
the 1940 Act ("Form N-8 A") reflecting the change in legal form of the
Fund to a Delaware business trust shall have been filed with the
Commission and the Fund shall have expressly adopted such amended Form
N-8A as its own for purposes of the 1940 Act;
D-2
<PAGE>
(c) Confirmation shall have been received from the Commission or the
Staff thereof that the Trust shall, effective upon or before the
Effective Date of the Reorganization, be duly registered as an
open-end management investment company under the Investment Company
Act of 1940, as amended;
(d) Each party shall have received a ruling from the Internal Revenue
Service or an opinion from Messrs. Stradley Ronon Stevens & Young,
LLP, to the effect that the Reorganization contemplated by this
Agreement qualifies as a "reorganization" under Section 368(a) of the
Code, and, thus, will not give rise to the recognition of income, gain
or loss for federal income tax purposes to the Fund, the Trust or
shareholders of the Fund or the Trust;
(e) The Fund shall have received an opinion from Messrs. Stradley Ronon
Stevens & Young, LLP, addressed to and in form and substance
satisfactory to it, to the effect that (i) this Agreement and the
Reorganization provided for herein, and the execution and delivery of
this Agreement, has been duly authorized and approved by the Trust and
constitutes a legal, valid and binding agreement of the Trust in
accordance with its terms; (ii) the shares of the Trust to be issued
pursuant to the terms of this Agreement have been duly authorized and,
when issued and delivered as provided in this Agreement, will have
been validly issued and fully paid and will be non-assessable by the
Trust; and (iii) the Trust is duly organized and validly existing
under the laws of the State of Delaware;
(f) The Trust shall have received an opinion from Messrs. Stradley
Ronon Stevens & Young, LLP, addressed to and in form and substance
satisfactory to it, to the effect that (i) this Agreement and the
Reorganization provided herein, and the execution of this Agreement,
has been duly authorized and approved by the Fund and constitutes a
legal, valid and binding agreement of the Fund in accordance with its
terms; and (ii) the Fund is duly organized, validly existing and in
good standing under the laws of the State of Maryland.
(g) The shares of the Trust shall have been duly registered, qualified
or otherwise authorized for offering to the public in all states of
the United States, the Commonwealth of Puerto Rico and the District of
Columbia so as to permit the transfers contemplated by this Agreement
to be consummated;
(h) This Agreement and the Reorganization contemplated hereby shall
have been adopted by an affirmative vote of at least a majority the
D-3
<PAGE>
outstanding voting securities of the Fund (as defined in the Investment
Company Act of 1940, as amended) at a meeting of shareholders of such
Fund;
(i) The Trustees shall have taken the following action at a meeting
duly called for such purposes:
(1) Approval of the Trust's Custodian Agreement;
(2) Approval of the Trust's Shareholders Services Agreement and
Transfer Agent Agreement with Franklin/Templeton Investors
Services, Inc.;
(3) Selection of PricewaterhouseCoopers LLP as the Trust's
independent public accountants for the fiscal year ending August
31, 2000;
(4) Approval of the investment management agreement between the
Trust and Templeton Investment Counsel, Inc., which is
substantially identical to the current investment management
agreement between the Fund and Templeton Investment Counsel,
Inc.;
(5) Authorization of the issuance by the Trust, prior to the
Effective Date of the Reorganization, of one share of the Trust
to the Fund in consideration for the payment of the current
public offering price of a share of the Trust, for the purpose of
enabling the Fund to vote on matters referred to in paragraph (j)
of this Section 3;
(6) Submission of the matters referred to in paragraph (j) of this
Section 3 to the Fund as sole shareholder of the Trust; and
(7) Authorization of the issuance and delivery by the Trust of
shares of the Trust on the Effective Date of the Reorganization
in exchange for the assets of the Fund pursuant to the terms and
provisions of this Agreement.
(j) The shareholders of the Fund shall have voted to approve the
Reorganization and, in connection with that vote, been informed that
such a vote would have the effect of directing the Fund to vote, as
sole shareholder of the Trust, to:
(1) Elect as Trustees of the Trust (the "Trustees") the following
individuals: Harris J. Ashton, Nicholas F. Brady, Frank J.
Crothers, S. Joseph Fortunato, John Wm. Galbraith, Andrew H. Hines,
Jr., Edith E. Holiday, Charles B. Johnson, Charles E. Johnson,
Betty P. Krahmer, Gordon S. Macklin, Fred R. Millsaps, Constantine
D. Tseretopoules,
D-4
<PAGE>
(2) Select PricewaterhouseCoopers LLP as the independent public
accountants for the Trust for the fiscal year ending August 31,
2000, and
(3) Approve a new investment management agreement between the Trust
and Templeton Investment Counsel, Inc., which is substantially
identical to the current investment management agreement between
the Fund and Templeton Investment Counsel, Inc.; and the Fund
shall have voted to approve each such item.
At any time prior to the Closing, any of the foregoing conditions may be
waived by the Board of Directors of the Fund if, in the judgment of the
Directors, such waiver will not have a material adverse effect on the benefits
intended under this Agreement to the shareholders of the Fund.
4. Termination. The Board of Directors of the Fund may terminate this
Agreement and abandon the Reorganization contemplated hereby, notwithstanding
approval thereof by the shareholders of the Fund, at any time prior to the
Effective Date of the Reorganization if, in the judgment of the Directors, the
facts and circumstances make proceeding with the Agreement inadvisable.
5. Entire Agreement. This Agreement embodies the entire agreement between
the parties and there are no agreements, understandings, restrictions or
warranties among the parties other than those set forth herein or herein
provided for.
6. Further Assurances. The Fund and the Trust shall take such further
action as may be necessary or desirable and proper to consummate the
transactions contemplated hereby.
7. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument.
8. Governing Law. This Agreement and the transactions contemplated hereby
shall be governed by and construed and enforced in accordance with the laws of
the State of Delaware.
D-5
<PAGE>
IN WITNESS WHEREOF, the Fund and the Trust have each caused this Agreement
and Plan of Reorganization to be executed on its behalf by its ________ and its
seal to be affixed hereto and attested by its ________, all as of the day and
year first-above written.
<TABLE>
<S> <C>
ATTEST: TEMPLETON CAPITAL
ACCUMULATOR FUND
(a Delaware business trust)
By:_______________________________ By:_______________________________
ATTEST: TEMPLETON CAPITAL
ACCUMULATOR FUND, INC.
(a Maryland corporation)
By:_______________________________ By:_______________________________
</TABLE>
D-6
<PAGE>
EXHIBIT E
COMPARISON AND SIGNIFICANT DIFFERENCES BETWEEN
DELAWARE BUSINESS TRUSTS AND MARYLAND CORPORATIONS
<TABLE>
<CAPTION>
Delaware Business Trust Maryland Corporation
------------------------------------- --------------------------------------
<S> <C> <C>
Governing A Delaware Business Trust (a A Maryland corporation (a
Documents "DBT") is created by a governing "corporation") is created by filing
instrument (which may consist of articles of incorporation with the
one or more instruments, including Maryland Department of
an agreement and declaration of Assessments and Taxation. The law
trust and Bylaws) and a Certificate governing corporations is referred to
of Trust, which must be filed with in this chart as the "Maryland
the Delaware Secretary of State. Law."
The law governing DBTs is referred
to in this chart as the "Delaware
Act."
A DBT is an unincorporated A corporation is incorporated under
association organized under the the Maryland Law. A corporation's
Delaware Act which operates operations are governed by its
similar to a typical corporation. A articles of incorporation and Bylaws
DBT's operations are governed by a and its business and affairs are
trust instrument and Bylaws and its managed by or under the direction
business and affairs are managed by of a Board of Directors.
or under the direction of a Board of
Trustees.
A DBT organized as an open-end A corporation organized as an
investment company is subject to open-end investment company is
the Investment Company Act of subject to the 1940 Act.
1940, as amended (the "1940 Act"). Shareholders own shares of
Shareholders of business trusts "common stock" issued by the
(sometimes referred to as corporation.
"beneficial owners") own shares of
"beneficial interest" which are
similar to the shares of "common
stock" issued by corporations.
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
Delaware Business Trust Maryland Corporation
------------------------------------------ ----------------------------------------
<S> <C> <C>
Multiple Series and Under the Delaware Act, a The Maryland Law permits a
Classes declaration of trust may provide for corporation to issue one or more
classes, groups or series of shares, classes of stock and, if the stock is
or classes, groups or series of divided into classes, the charter is
shareholders, having such relative required to describe each class,
rights, powers and duties as the including any preferences,
declaration of trust may provide. conversion or other rights, voting
The series and classes of a DBT powers, restrictions, limitations as
may be described in the declaration to dividends, qualifications and
of trust or in resolutions adopted by terms or conditions of redemption.
the Board of Trustees. Additionally, The charter documents that describe
no state filings or shareholder a new series or class, or a change to
approval is required to create series an existing series or class, are
or classes. The Directors of amendments to the fund's charter
Templeton Capital Accumulator documents and must be filed with
Fund, Inc. (the "Fund") have the State of Maryland. Provided that
proposed to reorganize the Fund the charter documents contain the
from a Maryland corporation into a proper language, the Maryland Law
Delaware business trust (the "DE allows a fund's board to exchange,
Trust"). The DE Trust's Declaration classify, reclassify, cancel any of its
of Trust permits the creation of issued or unissued stock, or increase
multiple series and classes and or decrease the aggregate number of
establishes the provisions relating to shares of stock without shareholder
shares. approval by filing Articles
Supplementary in Maryland. The
Maryland Law also permits a board
to change the preferences,
conversion and other rights, voting
powers, restrictions, limitation as to
dividends, qualifications, and terms
and conditions of redemption of any
of its issued or unissued stock
without shareholder approval.
Limitation of Series The Delaware Act explicitly The Maryland Law does not contain
Liability provides for a reciprocal limitation specific statutory provisions
of interseries liability. Generally, the addressing series liability with
debts, liabilities, obligations and respect to a multiple series
expenses incurred, contracted for or investment company; however, if
otherwise existing with respect to a the stock of a corporation is divided
particular series of a multiple series into classes, the Maryland Law
investment company registered requires the corporation's charter
under the 1940 Act are enforceable documents to set forth any
only against the assets of such preferences or restrictions relating
series, and not against the assets of to such classes. The Fund is not
the DBT, or any other series, divided into series or classes and as
provided that: (i) the governing a result, the Fund's charter
instrument creates one or more documents are silent with respect to
series, (ii) the DBT separately the issue of interseries liability.
maintains the records and the assets
of the series; (iii) notice of the
limitation on liabilities of the series
is set forth in the Certificate of
Trust; and (iv) the governing
instrument so provides. The
Declaration of Trust for the DE
Trust specifically limits interseries
liability.
</TABLE>
E-2
<PAGE>
<TABLE>
<CAPTION>
Delaware Business Trust Maryland Corporation
--------------------------------------- --------------------------------------
<S> <C> <C>
Shareholder Voting The Declaration of Trust of the DE Under Maryland Law, unless the
Rights, Quorum and Trust requires that forty percent charter of a corporation provides
Proxy Requirements (40%) of the shares entitled to vote otherwise, or there is another
at any meeting must be present in governing provision in the
person or by proxy to establish a Maryland Law, a majority of
proper quorum for voting purposes. outstanding shares constitutes a
Further, when a quorum is present, quorum. Under Maryland Law, an
a majority of votes cast shall decide affirmative vote of two-thirds of all
any issues, and a plurality shall the votes entitled to be cast shall
elect a Trustee, unless a larger vote approve a proposed amendment to a
is required by the Trust or under corporation's charter, consolidation,
applicable law. The effect of the merger, share exchange or transfer
quorum and voting provisions is to of assets. However, under Maryland
make it easier for the Trust to seek Law, the Articles of Incorporation
appropriate shareholder approvals may include a provision that
for many actions not related to requires less than a two-thirds vote,
regulatory issues without provided that the Articles require at
experiencing the added costs or least a majority vote. Under the
delays of soliciting additional Fund's Articles of Incorporation,
proxies or votes and without being shareholder approval by a majority
disadvantaged by abstentions or of all votes entitled to be cast is
broker non-votes. The Delaware Act required to approve any
also affords the Trustees the ability amendments or restatements of the
to adapt a DBT to future articles, a merger, consolidation,
contingencies. For example, share exchange, transfer of assets or
Trustees have the authority to to approve similar transactions.
incorporate a DBT, to merge or
consolidate with another entity, to
cause multiple series of a DBT to
become separate trusts, to change
the domicile or to liquidate a DBT,
all without having to obtain a
shareholder vote.
The DE Trust's Declaration of Trust Pursuant to the Maryland Law,
provides that all shares of the Trust unless the corporation's charter
entitled to vote on a matter shall provides for a greater or lesser
vote separately by series, and if number of votes per share, or limits
applicable, by class. Shareholders or denies voting rights, each
are entitled to whole and fractional outstanding share of stock is
votes for each whole and fractional entitled to one vote on each matter
share owned. submitted to a vote at a meeting of
shareholders. The Fund's Articles of
Incorporation provide that the
holder of each shares of stock is
entitled to whole and fractional
votes for each whole and fractional
share owned, irrespective of the
class or subclass.
</TABLE>
E-3
<PAGE>
<TABLE>
<CAPTION>
Delaware Business Trust Maryland Corporation
----------------------------------------- ---------------------------------------
<S> <C> <C>
The Delaware Act and the Trust's The Maryland Law provides for
Bylaws also permit the Trust to shareholders to authorize another
accept proxies by any electronic person to act as proxy by providing
telephonic, computerized, telecom- such authorization by telegram,
munications or other reasonable cablegram, datagram, electronic
alternative to the execution of a mail, or any other electronic or
written instrument authorizing the telephonic means. In addition, a
proxy to act, provided that such copy, facsimile telecommunication
authorization is received within or other reliable reproduction of the
eleven (11) months before the writing or transmission authorized
meeting. This flexibility may may be substituted for the original
facilitate proxy solicitations and writing or transmission for any
result in savings to the Trust. purpose for which the original
writing or transmission could be
used. The authorization must be
received within eleven (11) months
before the meeting.
Shareholders' The Delaware Act permits special The Maryland Law requires
Meetings shareholder meetings to be called corporations operating as registered
for any purpose. However, the investment companies to hold
governing instrument determines shareholder meetings when required
shareholders' rights to call to do so under the 1940 Act. The
meetings. The Declaration of Trust Maryland Law also provides that a
for the DE Trust provides that the special meeting shall be called by
Board of Trustees shall call the secretary of the corporation
shareholder meetings for the upon written request of the
purpose of: (i) electing Trustees, (ii) shareholders entitled to cast at least
for such other purposes as may be twenty-five percent (25%) of all of
prescribed by law, the Declaration the votes entitled to be cast at the
of Trust or the Bylaws, and (iii) meeting. The Fund's Bylaws also
taking action upon any other matter provide that a special meeting upon
deemed by the Trustees to be the written request of the holders of
necessary or desirable. The Bylaws at least ten percent (10%) of the
further provide that a special capital stock of the corporation
meeting may be called at any time entitled to vote at such meeting.
by the Board of Trustees, by the
Chairperson of the Board, or by the
President or any Vice President or
the Secretary or any two (2)
Trustees. An annual shareholders'
meeting is not required by either the
Delaware Act, or the DE Trust's
Declaration of Trust, or the Bylaws.
Amendments to The Delaware Act provides broad Under Maryland Law, the charter of
Governing flexibility with respect to amending a Maryland corporation may be
Documents to the governing documents of a amended only: (i) upon adoption of
DBT. The DE Trust's Declaration of a resolution by the Directors which
Trust provides that the Declaration sets forth the proposed amendments;
of Trust may be restated and/or and (ii) if shares are outstanding,
amended at any time by an approval of the proposed
instrument in writing signed by a amendment by the affirmative vote
majority of the then Trustees, and if of two-thirds of all votes entitled to
required, by approval of such be cast on the matter, unless the
amendment by shareholders. charter provides that a majority of
all such votes is permissible.
</TABLE>
E-4
<PAGE>
<TABLE>
<CAPTION>
Delaware Business Trust Maryland Corporation
--------------------------------------- --------------------------------------
<S> <C> <C>
The DE Trust's Declaration of Trust The Maryland Law does, however,
also provides that the Trustees shall permit investment companies to
have the power to amend the amend their charter documents
Declaration of Trust without without shareholder approval in
shareholder approval so as to add order to change its corporate name,
to, delete, replace or otherwise to exchange, classify, reclassify or
modify any provisions relating to cancel any of its issued or unissued
shares contained in the Declaration stock, to allocate or re-allocate
of Trust. If shares have been issued, authorized by unissued shares or to
shareholder approval is required to increase or decrease the aggregate
adopt any amendments to the number of shares that the
Declaration of Trust which would corporation has authority to issue.
adversely affect to a material degree Under Maryland Law, a corporation
the rights and preferences of the must file articles of amendment or
shares of any series or class. articles supplementary, as the case
may be, with the State Department
of Assessments and Taxation.
The DE Trust's Declaration of Trust The Maryland Law provides that,
provides that the Trustees may after the organizational meeting of
amend and repeal the Bylaws to the the Board of Directors, the power to
extent that the Bylaws do not adopt, alter or repeal the Bylaws is
reserve that right to the vested in the shareholders, except to
shareholders. The Bylaws of the DE the extent that the charter or Bylaws
Trust provide that the Bylaws may vest such a power in the Board of
be amended or repealed by the Directors. Consistent with the
affirmative vote or written consent Maryland Law, the Fund's Bylaws
of a majority of the outstanding provide that they may be amended,
shares entitled to vote, or by the adopted or repealed by the
Board of Trustees subject to the affirmative vote of the holders of a
rights of the shareholders. majority of shares entitled to vote
thereon, or by a majority of the
Board of Directors as the case
may be.
Record Date/Notice The Delaware Act permits a The Maryland Law contains specific
governing instrument to provide for provisions by which a corporation
the establishment of record dates for may determine which shareholders
determining voting rights. are entitled to notice of a meeting,
to vote at a meeting, or to any other
rights.
The Declaration of Trust for the DE The Maryland Law requires that the
Trust provides that the Board of record date be not more than ninety
Trustees may fix in advance a (90) days and not less than ten (10)
record date which shall not be more days before the date on which the
than one hundred eighty (180) days, action requiring determination will
nor less than seven (7) days, before be taken.
the date of any such meeting.
The Bylaws for the DE Trust Pursuant to the Maryland Law, the
provide that all notices of Fund's Bylaws allow the
shareholder meetings shall be sent corporation to set a date not more
or otherwise given to shareholders than ninety (90) days and not less
not more than seventy-five (75) than ten (10) days before a meeting
days and not less than seven for determining such rights.
(7) days before the date of the
meeting.
</TABLE>
E-5
<PAGE>
<TABLE>
<CAPTION>
Delaware Business Trust Maryland Corporation
--------------------------------------- ----------------------------------------
<S> <C> <C>
Removal of Trustees/ The Delaware Act is silent with Under the Maryland Law, a
Directors respect to the removal of Trustees. Director may be removed with or
However, the DE Trust's without cause by the affirmative
Declaration of Trust states that the vote of a majority of the
Board of Trustees, by action of a outstanding shares entitled to vote.
majority of the then Trustees at a The Fund's Bylaws provide that
duly constituted meeting, may fill Directors may be removed with or
vacancies in the Board of Trustees without cause by the affirmative
or remove Trustees with or without vote of a majority of all of the
cause. votes entitled to be cast thereon.
Shareholder Rights The Delaware Act sets forth the Like the Delaware Act, the
of Inspection rights of shareholders to gain access Maryland Law permits shareholders
to and receive copies of certain to make reasonable demands to gain
DBT Trust documents and records access to and receive copies of
upon written request by the certain corporate documents and
shareholder. This right is qualified records. Specifically, a shareholder
by the extent otherwise provided in may, upon written demand and for a
the governing instrument of the purpose reasonably related to such
DBT as well as a reasonable shareholder's interest as a
demand standard related to the shareholder, inspect and copy the
shareholder's interest as a accounting books and records,
shareholder of the DBT. Consistent minutes of shareholder and board
with Delaware law, the Bylaws of meetings, and the record of
the DE Trust provide that a shareholders' names and addresses
shareholder shall have the right to at any time. The Fund's Articles of
inspect and copy the minutes and Incorporation and Bylaws do not
accounting books and records of the address shareholder inspection
company upon written demand at rights.
any reasonable time during usual
business hours for a purpose
reasonably related to the
shareholder's interest as a
shareholder.
Shareholder Liability Personal liability is limited by the As a general matter, the
Delaware Act to the amount of shareholders of a Maryland
investment in the DBT, and may be corporation are not liable for the
further limited or restricted by the obligations of the corporation. The
governing instrument. Shareholders liability of shareholders is limited to
of a DBT are entitled to the same the consideration, if applicable, that
limitation of personal liability they are obligated to pay for the
extended to stockholders of a stock. There is no provision in the
private corporation organized for Fund's charter documents varying
profit under the general corporation this protection. A shareholder of a
law of the State of Delaware. The Maryland corporation may be liable
DE Trust's Declaration of Trust in the amount of any distribution he
specifically limits the personal or she accepts knowing that the
liability of shareholders. distribution was made in violation
of the corporation's charter or the
Maryland Law.
</TABLE>
E-6
<PAGE>
<TABLE>
<CAPTION>
Delaware Business Trust Maryland Corporation
---------------------------------------- ---------------------------------------
<S> <C> <C>
Trustee/Director Subject to the declaration of trust, The Maryland Law requires a
Liability the Delaware Act provides that a Director to perform his or her duties
Trustee, when acting in such in good faith, in a manner he or she
capacity, may not be held reasonably believes to be in the best
personally liable to any person other interests of the corporation and with
than the DBT or a shareholder for the care that an ordinarily prudent
any act, omission or obligation of person in a like position would use
the DBT or any Trustee. A Trustee's under similar circumstances. A
duties and liabilities to the DBT and Director who performs his or her
its shareholders may be expanded or duties in accordance with this
restricted by the provisions of the standard has no liability by reason
Declaration of Trust. The DE of being or having been a Director.
Trust's Declaration of Trust shields If it is established that a Director
Trustees from liability for the acts did not meet the foregoing standard,
or omissions of any officer, agent, the Director, for example, may be
employee, manager or principal personally liable to the corporation
underwriter or other Trustee. for (i) voting or assenting to a
Trustees and officers of the DE distribution of assets to shareholders
Trust may be held liable to the DE which is in violation of either the
Trust and any shareholder for Fund's charter documents or the
willful misfeasance, bad faith, gross Maryland Law; or (ii) voting or
negligence or reckless disregard of assenting to a repurchase of the
the duties involved in the conduct corporation's shares in violation of
of their office as a Trustee or the Maryland Law.
officer, but may not be held liable
for errors of judgment or mistakes
of fact or law.
Indemnification The Delaware Act permits a DBT to There is no provision in the
indemnify and hold harmless any Maryland Law relating to indemni-
Trustee, shareholder or agent from fication of shareholders. The Fund's
and against any and all claims and Articles of Incorporation and
demands. Consistent with the Bylaws are also silent with respect
Delaware Act, the Declaration of to this issue. The Maryland Law
Trust for the DE Trust provides for provides a comprehensive statutory
the indemnification of officers and framework relating to the indemni-
Trustees from and against any and fication of Directors and officers.
all claims and demands arising out The Fund's Bylaws require
of or related to the performance of indemnification of officers and
their duties as an officer or Trustee. Directors to the fullest extent
The DE Trust will not indemnify, permitted by Maryland Law and the
hold harmless or relieve Trustees Investment Company Act. Under
from liability that results from the Maryland Law, a Director or
willful misfeasance, bad faith, gross officer who is threatened or made a
negligence or reckless disregard of party to a proceeding, may be
their duties. indemnified against judgments,
penalties, fines, and reasonable
expenses. Indemnification will not
be permitted if the act or omission
of the Director or officer: (i) was
material to the matter giving rise to
the proceeding and was committed
in bad faith, or was the result of
active and deliberate dishonesty;
(ii) resulted in an improper benefit
to the individual; or (iii) if the
Director or officer had reasonable
cause to believe that the act or
omission was unlawful.
</TABLE>
E-7
<PAGE>
<TABLE>
<CAPTION>
Delaware Business Trust Maryland Corporation
---------------------------------------- ----------------------------------------
<S> <C> <C>
The Declaration of Trust of the DE The Fund's charter documents
Trust also provides that any provide for substantially similar
shareholder or former shareholder indemnification of Directors or
that is exposed to liability by reason officers out of the assets of the trust
of a claim or demand related to or corporation, from and against
such person having been a any and all claims, demands, costs,
shareholder, and not because of his losses, expenses, and damages,
or her acts or omissions, shall be arising out of, or related to, such
entitled to be held harmless and persons' performance of their duties
indemnified out of the assets of the as a Director or officer.
DE Trust.
Insurance The Delaware Act does not contain Under Maryland Law, a corporation
a provision specifically related to may purchase insurance on behalf
insurance. The DE Trust's of any Director, officer or employee
Declaration of Trust provides that against any liability asserted against
the Trustees shall be entitled and and incurred by such person in any
empowered to the fullest extent such capacity or arising out of such
permitted by law to purchase person's position, whether or not
insurance with the DE Trust's assets the corporation would have the
for liability and for all expenses power to indemnify such person
reasonably incurred or paid or against such liability. The Fund's
expected to be paid by a Trustee or Bylaws permit the purchase of such
officer in connection with any claim insurance for Directors, officers and
or proceeding in which he or she agents.
becomes involved by virtue of his
or her capacity (or former capacity)
with the DE Trust, whether or not
the DE Trust would have the power
to indemnify against such liability.
The DE Trust's Bylaws permit
insurance coverage to extent to any
agents of the Trust.
</TABLE>
E-8
<PAGE>
TLCAP PROXY 08/00
PROXY/VOTING INSTRUCTION PROXY/VOTING INSTRUCTION
TEMPLETON CAPITAL ACCUMULATOR FUND, INC.
SPECIAL SHAREHOLDERS' MEETING -- SEPTEMBER 14, 2000
The undersigned hereby revokes all previous proxies for his or her shares and
appoints BARBARA J GREEN, BRUCE S. ROSENBERG, and SAMUEL J. FORESTER, JR., and
each of them, proxies of the undersigned with full power of substitution to vote
all shares of Templeton Capital Accumulator Fund, Inc. (the "Fund") that the
undersigned is entitled to vote at the Fund's Special Shareholders' Meeting to
be held at the offices of the Fund, 500 East Broward Boulevard, Suite 2100, Fort
Lauderdale, Florida at 10:00 a.m., Eastern time, on September 14, 2000,
including any adjournments thereof, upon the matters set forth on the reverse
side of this Proxy. If this Proxy/Voting Instruction card is properly executed
and returned by a hold of Templeton Capital Accumulation Plan, the Custodian for
the Plan will vote the shares held in the Plan for the choices indicated.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. IT WILL BE VOTED AS
SPECIFIED. IF NO SPECIFICATION IS MADE, THIS PROXY SHALL BE VOTED FOR PROPOSALS
1 (INCLUDING ALL NOMINEES FOR DIRECTORS), 2, 3 (INCLUDING 7 SUB-PROPOSALS), 4,
5, 6 AND WITHIN THE DISCRETION OF THE PROXYHOLDERS AS TO ANY OTHER MATTER
PURSUANT TO PROPOSAL 7.
VOTE VIA THE INTERNET: HTTPS://VOTE.PROXY-DIRECT.COM
VOTE VIA THE TELEPHONE: 1-800/597-7836
CONTROL NUMBER: 999 9999 9999 999
NOTE: Please sign exactly as your name appears on
this proxy. If signing for estates, trusts or
corporations, title or capacity should be stated.
If shares are held jointly, each holder should sign.
----------------------------------------------
Signature
----------------------------------------------
Signature
, 2000
----------------------------------------------
Date TCA_11069
I PLAN TO ATTENT MEETING: YES [ ] NO [ ]
PLEASE SIGN AND PROMPTLY RETURN IN THE ACCOMPANYING ENVELOPE. NO POSTAGE
REQUIRED IF MAILED IN THE U.S.
PAGE
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 THROUGH 7.
TO VOTE, FILL IN THE BOX COMPLETELY. EXAMPLE
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Proposal 1 - Election of Directors. TO WITHHOLD AUTHORITY TO VOTE FOR ANY FOR WITHHOLD FOR ALL NOMINEES
INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW. ALL NOMINEE AUTHOIRTY (EXCEPT AS MARKED
FOR ALL TO THE LEFT)
NOIMINEES
LISTED
[] [] []
<CAPTION>
<S> <C> <C> <C>
01 Harris J. Ashton 02 Nicholas F. Brady 03 Frank J. Crothers 04 S. Joseph Fortunato
05 John Wm. Galbraith 05 Andrew H. Hines, Jr. 06 Edith E. Holiday 07 Charles B. Johnson
08 Charles E. Johnson 09 Betty P. Krahmer 10 Gordon S. Macklin 11 Fred R. Millsaps
12 Constantine Dean Tseretopoulos
</TABLE>
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
Proposal 2 - Ratification of the selection of PricewaterhouseCoopers LLP as
independent auditors for the Fund. [] [] []
Proposal 3 - Amendment of certain of the Fund's fundamental investment restrictions
(includes 7 Sub-Proposals) regarding:
3.a. Borrowing. [] [] []
3.b. Underwriting. [] [] []
3.c. Lending. [] [] []
3.d. Industry concentration. [] [] []
3.e. Real Estate and Commodities. [] [] []
3.f. Senior Securities [] [] []
3.g. Diversification [] [] []
Proposal 4 - Elimination of certain of the Fund's fundamental investment restrictions. [] [] []
Proposal 5 - Adoption of a Rule 12b-1 Distribution Plan. [] [] []
Proposal 6 - Reorganization of the Fund from a Maryland corporation
to a Delaware business trust. [] [] []
Proposal 7 - Grant the proxyholders authority to vote upon any other business that
may properly come before the Meeting or any adjournments thereof. [] [] []
</TABLE>
IMPORTANT: PLEASE SIGN AND MAIL IN YOUR PROXY/VOTING INSTRUCTION...TODAY
