-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QOGbcnnoffyQ3VtTvShcfI2OcdKfMWsvJLMTlaeP95VmpGcuTTT4ctL+7x7uBlXy a/z0G5d0jFbQOjTdeS1QYw== 0000869313-05-000008.txt : 20050429 0000869313-05-000008.hdr.sgml : 20050429 20050429123342 ACCESSION NUMBER: 0000869313-05-000008 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20050225 FILED AS OF DATE: 20050429 DATE AS OF CHANGE: 20050429 EFFECTIVENESS DATE: 20050429 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEMPLETON CAPITAL ACCUMULATOR FUND CENTRAL INDEX KEY: 0000869313 IRS NUMBER: 593040143 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-06198 FILM NUMBER: 05783883 BUSINESS ADDRESS: STREET 1: BROWARD FINANCIAL CERTRE STREET 2: 500 EAST BROWARD BLVD STE 2100 CITY: FORT LAUDERDALE STATE: FL ZIP: 33394-3091 BUSINESS PHONE: 9545277500 MAIL ADDRESS: STREET 1: BROWARD FINANCIAL CERTRE STREET 2: 500 EAST BROWARD BLVD STE 2100 CITY: FORT LAUDERDALE STATE: FL ZIP: 33394-3091 FORMER COMPANY: FORMER CONFORMED NAME: TEMPLETON CAPITAL ACCUMULATOR FUND INC DATE OF NAME CHANGE: 19920703 N-CSRS 1 tcafsemiannualrpt05.txt TCAF SEMIANNUAL RPT DTD 2/28/05 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSRS CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-06198 ---------- TEMPLETON CAPITAL ACCUMULATOR FUND -------------------------------------- (Exact name of registrant as specified in charter) 500 EAST BROWARD BLVD., FORT LAUDERDALE, FL 33394-3091 -------------------------------------------------------- (Address of principal executive offices) (Zip code) MURRAY L. SIMPSON, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906 ----------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (954) 527-7500 -------------- Date of fiscal year end: 8/31 ---- Date of reporting period: 2/28/05 ------- ITEM 1. REPORTS TO STOCKHOLDERS [GRAPHIC OMITTED] FEBRUARY 28, 2005 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SEMIANNUAL REPORT AND SHAREHOLDER LETTER | GLOBAL - -------------------------------------------------------------------------------- TEMPLETON CAPITAL ACCUMULATOR FUND [LOGO](R) FRANKLIN(R) TEMPLETON(R) INVESTMENTS Franklin o TEMPLETON o Mutual Series Franklin Templeton Investments GAIN FROM OUR PERSPECTIVE Franklin Templeton's distinct multi-manager structure combines the specialized expertise of three world-class investment management groups--Franklin, Templeton and Mutual Series. Each of our portfolio management groups operates autonomously, relying on its own research and staying true to the unique investment disciplines that underlie its success. SPECIALIZED EXPERTISE FRANKLIN. Founded in 1947, Franklin is a recognized leader in fixed income investing and also brings expertise in growth- and value-style U.S. equity investing. TEMPLETON. Founded in 1940, Templeton pioneered international investing and, in 1954, launched what has become the industry's oldest global fund. Today, with research offices in over 25 countries, they offer investors the broadest global reach in the industry. MUTUAL SERIES. Founded in 1949, Mutual Series is dedicated to a unique style of value investing, searching aggressively for opportunity among undervalued stocks, arbitrage situations and distressed companies. TRUE DIVERSIFICATION Because our management groups work independently and adhere to distinctly different investment approaches, Franklin, Templeton and Mutual Series funds typically have a low overlap of securities. That's why our funds can be used to build truly diversified portfolios covering every major asset class. RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to consistently provide investors with exceptional risk-adjusted returns over the long term, as well as the reliable account services that have helped us become one of the most trusted names in financial services. - -------------------------------------------------------------------------------- MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] Not part of the semiannual report Contents SHAREHOLDER LETTER ........................................................ 1 SEMIANNUAL REPORT Templeton Capital Accumulator Fund ........................................ 3 Performance Summary ....................................................... 7 Your Fund's Expenses ...................................................... 9 Important Notice to Shareholders .......................................... 11 Financial Highlights and Statement of Investments .................................................. 12 Financial Statements ...................................................... 18 Notes to Financial Statements ............................................. 21 Shareholder Information ................................................... 30 - -------------------------------------------------------------------------------- Semiannual Report Templeton Capital Accumulator Fund YOUR FUND'S GOAL AND MAIN INVESTMENTS: Templeton Capital Accumulator Fund seeks long-term capital growth. Under normal market conditions, the Fund invests mainly in equity securities of companies of any nation. - -------------------------------------------------------------------------------- PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. PLEASE CALL 1-800/632-2301 FOR MOST RECENT MONTH-END PERFORMANCE. - -------------------------------------------------------------------------------- We are pleased to bring you Templeton Capital Accumulator Fund's semiannual report for the period ended February 28, 2005. PERFORMANCE OVERVIEW For the six months under review, Templeton Capital Accumulator Fund delivered a 19.15% cumulative total return. The Fund outperformed its benchmark, the Morgan Stanley Capital International (MSCI) All Country (AC) World Index, which posted a 16.21% total return for the same period.(1) You can find the Fund's long-term performance in the Performance Summary beginning on page 7. Please note that index performance information is provided for reference and that we do not attempt to track the index, but rather undertake investments on the basis of fundamental research. ECONOMIC AND MARKET OVERVIEW For the six months under review, the global economy generally continued to expand. In fourth quarter 2004, gross domestic product (GDP) increased at annualized rates of 3.8% in the U.S. and 9.5% in China.(2) For the same quarter, GDP grew an annualized 1.7% in Canada, while rising 2.8% in the U.K. and 1.6% in the euro zone.(3) Japan's GDP rose only 0.5% annualized.(4) Industrial metals and several other commodity prices rose particularly due to increased demand from China. While Chile, Brazil, Canada, Australia and Argentina (1) Source: Standard & Poor's Micropal. The MSCI AC World Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global developed and emerging markets. The index is unmanaged and includes reinvested dividends. One cannot invest directly in an index, nor is an index representative of the Fund's portfolio. (2) Source: National Bureau of Statistics of China. (3) Sources: Statistics Canada; Office for National Statistics (U.K.); Eurostat. (4) Source: Japan Cabinet Office. THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE SOI BEGINS ON PAGE 13. Semiannual Report | 3 GEOGRAPHIC DISTRIBUTION Based on Total Net Assets as of 2/28/05 [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] Europe 50.4% North America 16.6% Asia 16.3% Australia & New Zealand 3.2% Latin America 1.4% Middle East & Africa 0.7% Short-Term Investments & Other Net Assets 11.4% benefited from strong overall demand for natural resources, Mexico and other oil-exporting countries benefited specifically from high oil prices. Investors' major concerns during the six months were rising energy costs (oil prices reached a high of $56 in October 2004) and the large U.S. budget and current account deficits.(5) Offsetting this, relatively low inflation and short-term interest rates supported global stock market levels, despite recent rate increases by the U.S. Federal Reserve Board and other central banks. An additional factor was the large number of companies that returned cash to shareholders during the period through rising dividends and share repurchases. During the six-month period under review, the MSCI AC World Index's six-month total return was 16.21% and the MSCI Emerging Markets Index's was 35.36%, in U.S. dollars.(6) In local currencies, their respective total returns were 11.96% and 23.89%.(6) For most of the period, the majority of the world's currencies strengthened in relation to the U.S. dollar. However, the U.S. dollar's protracted decline versus these currencies reversed course in January 2005, as the dollar appreciated. Still, the currency effect benefited U.S.-based investors who invested in non-U.S. equities from developed and emerging market countries, as local currency returns were boosted when translated into a weaker U.S. dollar. INVESTMENT STRATEGY Our investment strategy employs a bottom-up, value-oriented, long-term approach. We focus on the market price of a company's securities relative to our evaluation of the company's long-term earnings, asset value and cash flow potential. As we look worldwide, we consider specific companies, rather than sectors or countries, while doing in-depth research to construct a bargain list from which we buy. MANAGER'S DISCUSSION During the six months under review, the Fund's outperformance versus the benchmark MSCI AC World Index was driven largely by our stock selection and overweighted positions relative to the benchmark in the industrials, (5) Source: U.S. Department of Energy. (6) Source: Standard & Poor's Micropal. See footnote 1 for a description of the MSCI AC World Index. The MSCI Emerging Markets Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in global emerging markets. 4 | Semiannual Report materials and utilities sectors.(7) Our investments in consumer discretionary, health care and financial stocks also outpaced those within the benchmark index.(8) Among the Fund's best-performing individual stocks were LG Electronics (+65%), BHP Billiton (+60%), Kidde (+52%), Nordea Bank (+38%), Volvo (+35%) and Iberdrola (+31%). It is also important to recognize the effect of currency movements on the Fund's performance. In general, if the value of the U.S. dollar goes up compared with a foreign currency, an investment traded in that foreign currency will go down in value because it will be worth fewer U.S. dollars. This can have a negative effect on Fund performance. Conversely, when the U.S. dollar weakens in relation to a foreign currency, an investment traded in that foreign currency will increase in value, which can contribute to Fund performance. For the six months ended February 28, 2005, the U.S. dollar declined in value relative to most non-U.S. currencies. The Fund's performance was positively affected by the portfolio's primary investment in securities with non-U.S. currency exposure due to the U.S. dollar's decrease in value during the period. However, one cannot expect the same result in future periods. Despite the Fund's solid returns, there were some disappointments. For example, poor stock selection among some of our transportation- and media-related stocks hindered relative performance. Fund holdings that detracted from performance included media companies such as DIRECTV and News Corp., and transportation companies such as East Japan Railway and AMR. Portfolio activity was fairly modest during the past six months. On the buy side, we initiated positions in Compass Group, a U.K.-based global foodservice provider, and Compal Electronics, a Taiwanese producer of laptop computers and electrical devices. We also added to our existing holdings of AMVESCAP, a U.K.-based mutual fund company; Japanese drug maker Takeda Pharmaceutical; and Switzerland-based Nestle, a leading global food products company. On the sell side, we eliminated our holdings of Cia de Telecommunicaciones de Chile because we felt the longer-term fundamental outlook had worsened (7) In the SOI, the industrials sector comprises aerospace and defense, air freight and logistics, airlines, commercial services and supplies, electrical equipment, industrial conglomerates, machinery, and road and rail; the materials sector comprises chemicals, construction materials, metals and mining, and paper and forest products; and the utilities sector comprises electrical utilities, and multi-utilities and unregulated power. (8) In the SOI, the consumer discretionary sector comprises auto components; automobiles; hotels, restaurants and leisure; household durables; media; multiline retail and specialty retail; while the health care sector comprises health care equipment and supplies, health care providers and services, and pharmaceuticals; and the financial sector comprises capital markets, commercial banks, diversified financial services, insurance and real estate. TOP 10 SECTORS/INDUSTRIES 2/28/05 - -------------------------------------------------------------------------------- % OF TOTAL NET ASSETS - -------------------------------------------------------------------------------- Insurance 6.9% - -------------------------------------------------------------------------------- Oil & Gas 6.8% - -------------------------------------------------------------------------------- Diversified Telecommunication Services 6.7% - -------------------------------------------------------------------------------- Pharmaceuticals 6.5% - -------------------------------------------------------------------------------- Commercial Banks 6.1% - -------------------------------------------------------------------------------- Health Care Providers & Services 3.9% - -------------------------------------------------------------------------------- Household Durables 3.5% - -------------------------------------------------------------------------------- Media 3.5% - -------------------------------------------------------------------------------- Food Products 3.3% - -------------------------------------------------------------------------------- Machinery 3.1% - -------------------------------------------------------------------------------- TOP 10 EQUITY HOLDINGS 2/28/05 - -------------------------------------------------------------------------------- COMPANY % OF TOTAL SECTOR/INDUSTRY, COUNTRY NET ASSETS - -------------------------------------------------------------------------------- Samsung Electronics Co. Ltd. 2.3% SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT, SOUTH KOREA - -------------------------------------------------------------------------------- Shell Transport & Trading Co. PLC, ADR 1.9% OIL & GAS, U.K. - -------------------------------------------------------------------------------- Telefonica SA 1.6% DIVERSIFIED TELECOMMUNICATION SERVICES, SPAIN - -------------------------------------------------------------------------------- E.ON AG 1.5% ELECTRIC UTILITIES, GERMANY - -------------------------------------------------------------------------------- Sanofi-Aventis 1.4% PHARMACEUTICALS, FRANCE - -------------------------------------------------------------------------------- Michelin SA, B 1.3% AUTO COMPONENTS, FRANCE - -------------------------------------------------------------------------------- Volvo AB, B 1.2% MACHINERY, SWEDEN - -------------------------------------------------------------------------------- Eni SpA 1.2% OIL & GAS, ITALY - -------------------------------------------------------------------------------- Koninklijke Philips Electronics NV 1.2% HOUSEHOLD DURABLES, NETHERLANDS - -------------------------------------------------------------------------------- Vodafone Group PLC 1.2% WIRELESS TELECOMMUNICATION SERVICES, U.K. - -------------------------------------------------------------------------------- Semiannual Report | 5 due to some corporate restructuring decisions, while WMC Resources and WPP Group were sold as they reached our stock price objectives. We also reduced our weightings in several materials and energy stocks, including BHP Billiton, Alcan, Norsk Hydro and Husky Energy. Thank you for your participation in Templeton Capital Accumulator Fund. /s/ Gary P. Motyl [PHOTO OMITTED] Gary P. Motyl, CFA Portfolio Manager Templeton Capital Accumulator Fund THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF FEBRUARY 28, 2005, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY. 6 | Semiannual Report Performance Summary as of 2/28/05 Your dividend income will vary depending on dividends or interest paid by securities in the Fund's portfolio, adjusted for operating expenses. Capital gain distributions are net profits realized from the sale of portfolio securities. The performance table does not reflect any taxes due on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund's dividends and capital gain distributions, if any, and any unrealized gains or losses. PRICE AND DISTRIBUTION INFORMATION - -------------------------------------------------------------------------------- CHANGE 2/28/05 8/31/04 - -------------------------------------------------------------------------------- Net Asset Value (NAV) +$2.12 $13.88 $11.76 - -------------------------------------------------------------------------------- DISTRIBUTIONS (9/1/04-2/28/05) - -------------------------------------------------------------------------------- Dividend Income $0.1167 - -------------------------------------------------------------------------------- PERFORMANCE(1) FUND RETURNS SHOWN IN THE FOLLOWING TABLE DO NOT INCLUDE THE EFFECT OF THE SEPARATE SALES AND CREATION CHARGES ASSESSED THROUGH TEMPLETON CAPITAL ACCUMULATION PLANS. IF THESE CHARGES WERE INCLUDED, THE FUND'S RETURNS WOULD HAVE BEEN LOWER.
- ----------------------------------------------------------------------------------------------------------------- FUND RETURNS 6-MONTH 1-YEAR 5-YEAR 10-YEAR INCEPTION (3/1/91) - ----------------------------------------------------------------------------------------------------------------- Cumulative Total Return(2) 19.15% 14.38% 25.90% 170.29% 343.07% - ----------------------------------------------------------------------------------------------------------------- Average Annual Total Return(3) 19.15% 14.38% 4.71% 10.45% 11.22% - ----------------------------------------------------------------------------------------------------------------- Value of $10,000 Investment(4) $11,915 $11,438 $12,590 $27,029 $44,307 - ----------------------------------------------------------------------------------------------------------------- Avg. Ann. Total Return (3/31/05)(5) -- 13.24% 3.68% 10.10% 11.01% - ----------------------------------------------------------------------------------------------------------------- PLAN RETURNS* 6-MONTH 1-YEAR 5-YEAR 10-YEAR INCEPTION (3/1/91) - ----------------------------------------------------------------------------------------------------------------- Average Annual Total Return* -40.43% -42.81% 2.53% 9.89% 11.06%** - ----------------------------------------------------------------------------------------------------------------- Avg. Ann. Total Return (3/31/05)(5) -43.24% -43.38% 1.51% 9.53% 10.73%*** - -----------------------------------------------------------------------------------------------------------------
* Plan returns include the effects of the separate sales and creation charges assessed through Templeton Capital Accumulation Plans' $50/month 15-year plan. Performance calculations are based upon an initial lump sum investment, taking into account sales and creation charges applicable in the first year and the effect of subsequent, systematic investments at net asset value through the remainder of the applicable time period. They do not reflect what investors would have earned had they made the actual monthly investments over each time period. The rate of sales and creation charges decreases over longer investment periods. ** Based on prorated sales charges from Fund inception through 2/28/05. *** Based on prorated sales charges from Fund inception through 3/31/05. PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, CALL 1-800/632-2301. For the first year of a Plan, sales and creation charges can amount to 50% of the total amount invested during the year. Since shares of the Fund can only be acquired through Templeton Capital Accumulation Plans, investors should read the Plan prospectus for more complete information on the impact of the sales and creation charges applicable to the Plan. Effective December 27, 2004, the Fund was closed to new investors. Semiannual Report | 7 Performance Summary (CONTINUED) ENDNOTES THE FUND INVESTS IN FOREIGN SECURITIES, WHICH CAN INVOLVE EXPOSURE TO CURRENCY VOLATILITY AND POLITICAL, ECONOMIC AND REGULATORY UNCERTAINTY. INVESTMENTS IN DEVELOPING MARKETS INVOLVE HEIGHTENED RISKS RELATED TO THE SAME FACTORS, IN ADDITION TO THOSE ASSOCIATED WITH THEIR RELATIVELY SMALL SIZE AND LESSER LIQUIDITY. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS. (1) Past expense reductions by the Fund's manager increased the Fund's total returns. Without these reductions, the Fund's total returns would have been lower. (2) Cumulative total return represents the change in value of an investment over the periods indicated. (3) Average annual total return represents the average annual change in value of an investment over the periods indicated. Six-month return has not been annualized. (4) These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated. (5) In accordance with SEC rules, we provide standardized average annual total return information through the latest calendar quarter. 8 | Semiannual Report Your Fund's Expenses As a Fund shareholder, you can incur two types of costs: o Transaction costs, including sales charges (loads) on Fund purchases and redemption fees; and o Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The following table shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated. ACTUAL FUND EXPENSES The first line (Actual) for each share class listed in the table below provides actual account values and expenses. The "Ending Account Value" is derived from the Fund's actual return, which includes the effect of Fund expenses. You can estimate the expenses you paid during the period, by following these steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS ILLUSTRATION: 1. Divide your account value by $1,000. IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6. 2. Multiply the result by the number under the heading "Expenses Paid During Period." IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50. In this illustration, the estimated expenses paid this period are $64.50. HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS Information in the second line (Hypothetical) for each class in the table can help you compare ongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical "Ending Account Value" is based on the actual expense ratio for each class and an assumed 5% annual rate of return before expenses, which does not represent the Fund's actual return. The figure under the heading "Expenses Paid During Period" shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds. Semiannual Report | 9 Your Fund's Expenses (CONTINUED) PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR REDEMPTION FEES. Therefore, the second line for each class is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transaction costs were included, your total costs would have been higher. Please refer to the Fund prospectus for additional information on operating expenses.
- ----------------------------------------------------------------------------------------------------------- BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING VALUE 8/31/04 VALUE 2/28/05 PERIOD* 8/31/04-2/28/05 - ----------------------------------------------------------------------------------------------------------- Actual $1,000 $1,191.50 $5.98 - ----------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,019.34 $5.51 - -----------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio of 1.10% multiplied by the average account value over the period, multiplied by 181/365 to reflect the one-half year period. 10 | Semiannual Report Important Notice to Shareholders PROPOSED REORGANIZATION On December 4, 2004, the Board of Trustees of the Fund approved a proposal providing for the reorganization of the Fund into Templeton Growth Fund, Inc. ("Templeton Growth Fund"), a registered open-end management investment company. The proposed reorganization involves Templeton Growth Fund's acquisition of substantially all of the Fund's assets in exchange solely for Class A shares of Templeton Growth Fund and the distribution of the Class A shares of Templeton Growth Fund to shareholders of the Fund as a part of the complete liquidation and dissolution of the Fund. This transaction, which is expected to be tax-free, is subject to the approval of the shareholders of the Fund, and, if approved, shares will be exchanged based on the respective net asset values of the Fund and Class A shares of Templeton Growth Fund. The Fund's Board of Trustees plans to submit the proposed reorganization to shareholders at a Special Meeting of Shareholders currently scheduled for May 5, 2005. Any solicitation of proxies by the Fund in connection with its Special Meeting of Shareholders will be made only pursuant to separate proxy materials filed under federal securities laws. These materials were available beginning in February 2005. There can be no assurances that Fund shareholders will vote in favor of the proposed reorganization. In connection with the proposed reorganization transaction, the Fund and Templeton Growth Fund filed relevant materials with the U.S. Securities and Exchange Commission ("SEC"), including a Form N-14 combined proxy statement for the Fund and registration statement for Templeton Growth Fund that contains a prospectus. Because those documents contain important information, shareholders are urged to read them. They are available at the SEC's website, sec.gov. Shareholders can also obtain copies of these documents and other transaction-related documents for free by calling 1-800/334-7056. Semiannual Report | 11 Templeton Capital Accumulator Fund FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------- SIX MONTHS ENDED FEBRUARY 28, 2005 YEAR ENDED AUGUST 31, (UNAUDITED) 2004 2003 2002 2001 2000 -------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period ............ $ 11.76 $ 10.18 $ 9.29 $ 10.85 $ 13.34 $ 12.11 -------------------------------------------------------------------------------- Income from investment operations: Net investment income(a) ....................... .04 .12 .12 .12 .16 .16 Net realized and unrealized gains (losses) ..... 2.20 1.57 .87 (1.57) (1.45) 1.71 -------------------------------------------------------------------------------- Total from investment operations ................ 2.24 1.69 .99 (1.45) (1.29) 1.87 -------------------------------------------------------------------------------- Less distributions from: Net investment income .......................... (.12) (.11) (.10) (.11) (.16) (.15) Net realized gains ............................. -- -- -- -- (1.04) (.49) -------------------------------------------------------------------------------- Total distributions ............................. (.12) (.11) (.10) (.11) (1.20) (.64) -------------------------------------------------------------------------------- Net asset value, end of period .................. $ 13.88 $ 11.76 $ 10.18 $ 9.29 $ 10.85 $ 13.34 ================================================================================ Total return(b) ................................. 19.15% 16.72% 10.86% (13.38)% (9.96)% 16.44% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) ............... $740,556 $596,015 $457,645 $354,042 $364,236 $370,029 Ratios to average net assets: Expenses ....................................... 1.10%(c) 1.21% 1.12% 1.11% 1.05% 1.03% Net investment income .......................... .55%(c) 1.04% 1.35% 1.13% 1.35% 1.24% Portfolio turnover rate ......................... 2.46% 12.93% 21.32% 14.28% 22.37% 32.13%
(a) Based on average daily shares outstanding. (b) Total return is not annualized for periods less than one year. (c) Annualized. 12 | See notes to financial statements. | Semiannual Report Templeton Capital Accumulator Fund STATEMENT OF INVESTMENTS, FEBRUARY 28, 2005 (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------------- INDUSTRY SHARES VALUE - -------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS 88.6% AUSTRALIA 3.2% Alumina Ltd. ....................................... Metals & Mining 1,054,060 $ 5,037,434 AMP Ltd. ........................................... Insurance 1,126,860 6,537,440 National Australia Bank Ltd. ....................... Commercial Banks 362,220 8,267,831 Qantas Airways Ltd. ................................ Airlines 1,276,080 3,671,227 ------------ 23,513,932 ------------ BERMUDA 1.3% ACE Ltd. ........................................... Insurance 137,470 6,111,916 XL Capital Ltd., A ................................. Insurance 50,300 3,772,500 ------------ 9,884,416 ------------ BRAZIL .6% Embraer-Empresa Brasileira de Aeronautica SA, ADR ............................................... Aerospace & Defense 125,985 4,253,253 ------------ CANADA 2.8% Alcan Inc. ......................................... Metals & Mining 134,700 5,383,959 BCE Inc. ........................................... Diversified Telecommunication Services 325,460 7,588,480 (a)Celestica Inc. ..................................... Electronic Equipment & Instruments 204,530 2,620,797 Husky Energy Inc. .................................. Oil & Gas 166,670 4,841,749 (a)Novelis Inc. ....................................... Metals & Mining 26,940 633,629 ------------ 21,068,614 ------------ CHINA .9% (a)BYD Co. Ltd., H .................................... Electrical Equipment 923,000 2,828,548 China Mobile (Hong Kong) Ltd. ...................... Wireless Telecommunication Services 1,230,500 4,015,441 ------------ 6,843,989 ------------ DENMARK .3% (a)Vestas Wind Systems AS ............................. Electrical Equipment 124,170 1,656,646 (a)Vestas Wind Systems AS, 144A ....................... Electrical Equipment 41,390 552,215 ------------ 2,208,861 ------------ FINLAND .7% Stora Enso OYJ, R (EUR/FIM Traded) ................. Paper & Forest Products 203,900 3,106,536 Stora Enso OYJ, R (SEK Traded) ..................... Paper & Forest Products 145,997 2,219,513 ------------ 5,326,049 ------------ FRANCE 5.5% Accor SA ........................................... Hotels Restaurants & Leisure 61,110 2,863,949 AXA SA ............................................. Insurance 210,901 5,672,325 Michelin SA, B ..................................... Auto Components 137,430 9,809,409 Sanofi-Aventis ..................................... Pharmaceuticals 130,141 10,409,350 Suez SA ............................................ Multi-Utilities & Unregulated Power 201,170 5,447,899 Total SA, B ........................................ Oil & Gas 26,062 6,188,146 ------------ 40,391,078 ------------
Semiannual Report | 13 Templeton Capital Accumulator Fund STATEMENT OF INVESTMENTS, FEBRUARY 28, 2005 (UNAUDITED) (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------------------- INDUSTRY SHARES VALUE - -------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS (CONT.) GERMANY 6.1% BASF AG ............................................ Chemicals 80,690 $ 6,016,969 Bayer AG, Br. ...................................... Chemicals 111,770 3,892,723 Celesio AG ......................................... Health Care Providers & Services 105,466 7,960,858 Deutsche Post AG ................................... Air Freight & Logistics 335,080 8,040,429 E.ON AG ............................................ Electric Utilities 119,990 10,768,496 Muenchener Rueckversicherungs-Gesellschaft ......... Insurance 18,960 2,327,505 Muenchener Rueckversicherungs-Gesellschaft, 144A .............................................. Insurance 5,417 664,984 Volkswagen AG ...................................... Automobiles 107,970 5,326,009 ------------ 44,997,973 ------------ HONG KONG 1.1% Cheung Kong Holdings Ltd. .......................... Real Estate 436,000 4,150,943 Hutchison Whampoa Ltd. ............................. Industrial Conglomerates 247,650 2,238,676 Swire Pacific Ltd., A .............................. Industrial Conglomerates 190,000 1,553,094 Swire Pacific Ltd., B .............................. Industrial Conglomerates 112,500 168,773 ------------ 8,111,486 ------------ INDIA 1.4% ICICI Bank Ltd. .................................... Commercial Banks 325,519 2,840,412 ICICI Bank Ltd., ADR ............................... Commercial Banks 80,185 1,816,190 Satyam Computers Services Ltd. ..................... IT Services 394,520 3,719,166 Satyam Computers Services Ltd., ADR ................ IT Services 71,700 1,748,763 ------------ 10,124,531 ------------ ISRAEL .7% (a)Check Point Software Technologies Ltd. ............. Software 234,490 5,189,264 ------------ ITALY 1.7% Eni SpA ............................................ Oil & Gas 339,760 8,863,617 Riunione Adriatica di Sicurta SpA .................. Insurance 177,381 4,115,416 ------------ 12,979,033 ------------ JAPAN 6.5% East Japan Railway Co. ............................. Road & Rail 581 3,095,480 Hitachi Ltd. ....................................... Electronic Equipment & Instruments 955,000 6,056,387 Komatsu Ltd. ....................................... Machinery 682,000 5,114,429 NEC Corp. .......................................... Computers & Peripherals 447,000 2,903,180 Nintendo Co. Ltd. .................................. Software 32,000 3,550,624 Nippon Telegraph & Telephone Corp. ................. Diversified Telecommunication Services 1,118 4,844,364 Nomura Holdings Inc. ............................... Capital Markets 206,000 2,843,350 Seiko Epson Corp. .................................. Computers & Peripherals 117,500 4,630,542 Sompo Japan Insurance Inc. ......................... Insurance 682,000 7,241,092 Sony Corp. ......................................... Household Durables 109,900 4,194,376 Takeda Pharmaceutical Co. Ltd. ..................... Pharmaceuticals 73,800 3,536,640 ------------ 48,010,464 ------------ MEXICO .8% Telefonos de Mexico SA de CV (Telmex), L, ADR ............................................... Diversified Telecommunication Services 151,360 5,934,826 ------------
14 | Semiannual Report Templeton Capital Accumulator Fund STATEMENT OF INVESTMENTS, FEBRUARY 28, 2005 (UNAUDITED) (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------------------- INDUSTRY SHARES VALUE - -------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS (CONT.) NETHERLANDS 3.4% IHC Caland NV ...................................... Energy Equipment & Services 80,950 $ 5,370,653 ING Groep NV ....................................... Diversified Financial Services 271,600 8,362,291 Koninklijke Philips Electronics NV ................. Household Durables 317,267 8,776,793 Wolters Kluwer NV .................................. Media 150,890 2,917,332 ------------ 25,427,069 ------------ NORWAY 1.1% Norsk Hydro ASA .................................... Oil & Gas 59,710 5,172,860 Norske Skogindustrier ASA, A ....................... Paper & Forest Products 145,300 3,088,453 ------------ 8,261,313 ------------ PORTUGAL .9% Portugal Telecom SGPS SA ........................... Diversified Telecommunication Services 553,710 6,723,946 ------------ SINGAPORE .6% DBS Group Holdings Ltd. ............................ Commercial Banks 484,900 4,454,109 ------------ SOUTH KOREA 4.9% Kookmin Bank ....................................... Commercial Banks 110,304 5,095,177 Korea Electric Power Corp. ......................... Electric Utilities 101,110 2,768,069 KT Corp., ADR ...................................... Diversified Telecommunication Services 140,600 3,263,326 LG Electronics Inc. ................................ Household Durables 104,610 8,227,168 Samsung Electronics Co. Ltd. ....................... Semiconductors & Semiconductor Equipment 32,810 17,213,409 ------------ 36,567,149 ------------ SPAIN 4.5% Banco Santander Central Hispano SA ................. Commercial Banks 685,240 8,493,586 Endesa SA .......................................... Electric Utilities 82,930 1,876,836 Iberdrola SA, Br. .................................. Electric Utilities 225,770 5,955,635 Repsol YPF SA ...................................... Oil & Gas 191,120 5,203,574 Telefonica SA ...................................... Diversified Telecommunication Services 656,090 12,076,769 ------------ 33,606,400 ------------ SWEDEN 5.4% Atlas Copco AB, A .................................. Machinery 169,810 8,464,436 Electrolux AB, B ................................... Household Durables 208,170 5,005,696 Foreningssparbanken AB, A .......................... Commercial Banks 159,350 3,936,581 Nordea Bank AB, FDR ................................ Commercial Banks 684,060 7,228,857 Securitas AB, B .................................... Commercial Services & Supplies 379,700 6,049,890 Volvo AB, B ........................................ Machinery 198,470 9,124,224 ------------ 39,809,684 ------------ SWITZERLAND 3.2% Adecco SA .......................................... Commercial Services & Supplies 81,100 4,430,874 Lonza Group AG ..................................... Chemicals 70,850 4,426,028 Nestle SA .......................................... Food Products 31,090 8,633,508 Swiss Reinsurance Co. .............................. Insurance 88,990 6,532,395 ------------ 24,022,805 ------------
Semiannual Report | 15 Templeton Capital Accumulator Fund STATEMENT OF INVESTMENTS, FEBRUARY 28, 2005 (UNAUDITED) (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------------------- INDUSTRY SHARES VALUE - -------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS (CONT.) TAIWAN .9% Chunghwa Telecom Co. Ltd., ADR ..................... Diversified Telecommunication Services 152,310 $ 3,320,358 Compal Electronics Inc., 144A ...................... Computers & Peripherals 502,460 2,487,177 Compal Electronics Inc., GDR, Reg S ................ Computers & Peripherals 132,000 653,400 ------------ 6,460,935 ------------ UNITED KINGDOM 17.6% Alliance Unichem ................................... Health Care Providers & Services 333,080 4,657,409 AMVESCAP PLC ....................................... Capital Markets 777,152 5,093,581 BAE Systems PLC .................................... Aerospace & Defense 1,017,850 5,008,257 BHP Billiton PLC ................................... Metals & Mining 397,764 5,936,491 BP PLC ............................................. Oil & Gas 586,250 6,332,600 Brambles Industries PLC ............................ Commercial Services & Supplies 878,378 5,149,252 (a)British Airways PLC ................................ Airlines 835,990 4,298,211 British Sky Broadcasting Group PLC ................. Media 640,000 6,968,555 Cadbury Schweppes PLC .............................. Food Products 574,410 5,641,645 Compass Group PLC .................................. Hotels Restaurants & Leisure 1,299,250 6,255,519 GlaxoSmithKline PLC ................................ Pharmaceuticals 358,150 8,556,555 Hanson PLC ......................................... Construction Materials 495,621 4,813,034 Kidde PLC .......................................... Electrical Equipment 1,340,880 4,284,641 National Grid Transco PLC .......................... Multi-Utilities & Unregulated Power 562,790 5,459,911 Pearson PLC ........................................ Media 472,140 5,789,677 (a)Rolls-Royce Group PLC .............................. Aerospace & Defense 1,117,630 5,585,143 Shell Transport & Trading Co. PLC, ADR ............. Oil & Gas 242,900 13,774,859 Shire Pharmaceuticals Group PLC .................... Pharmaceuticals 373,550 4,164,277 Smiths Group PLC ................................... Industrial Conglomerates 253,380 4,159,040 Standard Chartered PLC ............................. Commercial Banks 185,080 3,395,457 Unilever PLC ....................................... Food Products 631,940 6,045,747 Vodafone Group PLC ................................. Wireless Telecommunication Services 3,346,670 8,764,200 ------------ 130,134,061 ------------ UNITED STATES 12.5% Abbott Laboratories ................................ Pharmaceuticals 167,650 7,710,223 American International Group Inc. .................. Insurance 72,920 4,871,056 AmerisourceBergen Corp. ............................ Health Care Providers & Services 78,610 4,708,739 (a)AMR Corp. .......................................... Airlines 424,060 3,600,269 (a)BMC Software Inc. .................................. Software 165,810 2,478,859 Bristol-Myers Squibb Co. ........................... Pharmaceuticals 143,620 3,594,809 CIGNA Corp. ........................................ Health Care Providers & Services 53,200 4,830,560 (a)DIRECTV Group Inc. ................................. Media 390,840 5,866,508 Electronic Data Systems Corp. ...................... IT Services 2,240 47,712 (a)Hospira Inc. ....................................... Health Care Equipment & Supplies 16,765 496,244 International Paper Co. ............................ Paper & Forest Products 121,830 4,550,350 Kraft Foods Inc., A ................................ Food Products 122,940 4,112,343 (a)Maxtor Corp. ....................................... Computers & Peripherals 261,960 1,451,258 Mylan Laboratories Inc. ............................ Pharmaceuticals 377,220 6,639,072 (a)News Corp. Ltd., A ................................. Media 255,030 4,243,699 Officemax Inc. ..................................... Specialty Retail 120,710 3,810,815 Pfizer Inc. ........................................ Pharmaceuticals 141,342 3,715,881
16 | Semiannual Report Templeton Capital Accumulator Fund STATEMENT OF INVESTMENTS, FEBRUARY 28, 2005 (UNAUDITED) (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------------------- INDUSTRY SHARES VALUE - -------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS (CONT.) UNITED STATES (CONT.) SBC Communications Inc. ............................ Diversified Telecommunication Services 229,350 $ 5,515,868 (a)Synopsys Inc. ...................................... Software 103,940 1,881,314 Target Corp. ....................................... Multiline Retail 118,990 6,047,072 (a)Tenet Healthcare Corp. ............................. Health Care Providers & Services 604,970 6,600,223 (a)Western Digital Corp. .............................. Computers & Peripherals 226,410 2,549,377 Willis Group Holdings Ltd. ......................... Insurance 75,990 3,005,405 ------------ 92,327,656 ------------ TOTAL COMMON STOCKS (COST $455,210,547) ............ 656,632,896 ------------ SHORT TERM INVESTMENTS (COST $80,492,680) 10.9% (b)Franklin Institutional Fiduciary Trust Money Market Portfolio ........................................ 80,492,680 80,492,680 ------------ TOTAL INVESTMENTS (COST $535,703,227) 99.5% ........ 737,125,576 OTHER ASSETS, LESS LIABILITIES .5% ................. 3,430,002 ------------ NET ASSETS 100.0% .................................. $740,555,578 ============
PORTFOLIO ABBREVIATIONS: ADR - American Depository Receipt FDR - Foreign Depository Receipt GDR - Global Depository Receipt CURRENCY ABBREVIATIONS: EUR - Euro FIM - Finnish Markka SEK - Swedish Krona (a) Non-income producing. (b) See Note 7 regarding investments in Franklin Institutional Fiduciary Trust Money Market Portfolio. Semiannual Report | See notes to financial statements. | 17 Templeton Capital Accumulator Fund FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES February 28, 2005 (unaudited) Assets: Investments in securities: Cost - Unaffiliated issuers ................................... $455,210,547 Cost - Sweep Money Fund (Note 7) .............................. 80,492,680 ------------ Total cost of investments ..................................... $535,703,227 ============ Value - Unaffiliated issuers .................................. $656,632,896 Value - Sweep Money Fund (Note 7) ............................. 80,492,680 ------------ Total value of investments .................................... 737,125,576 Foreign currency, at value (cost $3,950) ....................... 4,303 Receivables: Investment securities sold .................................... 3,033,046 Capital shares sold ........................................... 108,625 Dividends and interest ........................................ 1,454,422 Affiliates (Note 8) ........................................... 12,346 ------------ Total assets ............................................ 741,738,318 ------------ Liabilities: Payables: Capital shares redeemed ....................................... 305,422 Affiliates .................................................... 737,048 Funds advanced by custodian .................................... 63,689 Other liabilities .............................................. 76,581 ------------ Total liabilities ....................................... 1,182,740 ------------ Net assets, at value .................................. $740,555,578 ============ Net assets consist of: Undistributed net investment income ............................ $ 925,948 Net unrealized appreciation (depreciation) ..................... 201,478,323 Accumulated net realized gain (loss) ........................... 5,415,669 Capital shares ................................................. 532,735,638 ------------ Net assets, at value .................................. $740,555,578 ============ Shares outstanding .............................................. 53,339,147 ============ Net asset value and maximum offering price per share ............ $ 13.88 ============ 18 | See notes to financial statements. | Semiannual Report Templeton Capital Accumulator Fund FINANCIAL STATEMENTS (CONTINUED) STATEMENT OF OPERATIONS for the six months ended February 28, 2005 (unaudited) Investment income: Dividends (net of foreign taxes of $278,240) Unaffiliated issuers ...................................................... $ 5,025,035 Sweep Money Fund (Note 7) ................................................. 501,279 Other income (Note 8) ..................................................... 12,346 ------------ Total investment income ............................................... 5,538,660 ------------ Expenses: Management fees (Note 3) ................................................... 2,410,273 Administrative fees (Note 3) ............................................... 465,777 Distribution fees (Note 3) ................................................. 426,276 Transfer agent fees (Note 3) ............................................... 242,100 Custodian fees (Note 4) .................................................... 101,127 Reports to shareholders .................................................... 18,500 Trustees' fees and expenses ................................................ 8,600 Other ...................................................................... 2,000 ------------ Total expenses ........................................................ 3,674,653 Expense reductions (Note 4) ........................................... (761) ------------ Net expenses ........................................................ 3,673,892 ------------ Net investment income ............................................. 1,864,768 ------------ Realized and unrealized gains (losses): Net realized gain (loss) from: Investments - Unaffiliated issuers ........................................ 16,317,376 Foreign currency transactions ............................................. (21,257) ------------ Net realized gain (loss) .............................................. 16,296,119 ------------ Net change in unrealized appreciation (depreciation) on: Investments ................................................................ 98,685,269 Translation of assets and liabilities denominated in foreign currencies .... 47,005 Deferred taxes ............................................................. 123,362 ------------ Net change in unrealized appreciation (depreciation) .................. 98,855,636 ------------ Net realized and unrealized gain (loss) ..................................... 115,151,755 ------------ Net increase (decrease) in net assets resulting from operations ............. $117,016,523 ============
Semiannual Report | See notes to financial statements. | 19 Templeton Capital Accumulator Fund FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF CHANGES IN NET ASSETS for the six months ended February 28, 2005 (unaudited) and the year ended August 31, 2004
---------------------------------- SIX MONTHS ENDED YEAR ENDED FEBRUARY 28, 2005 AUGUST 31, 2004 ---------------------------------- Increase (decrease) in net assets: Operations: Net investment income ........................................................................ $ 1,864,768 $ 5,814,496 Net realized gain (loss) from investments and foreign currency transactions .................. 16,296,119 16,664,603 Net change in unrealized appreciation (depreciation) on investments, translation of assets and liabilities denominated in foreign currencies, and deferred taxes ....................... 98,855,636 55,275,775 -------------------------------- Net increase (decrease) in net assets resulting from operations ........................... 117,016,523 77,754,874 -------------------------------- Distributions to shareholders from net investment income ...................................... (6,042,174) (5,087,057) Capital share transactions (Note 2) ........................................................... 33,566,281 65,702,058 -------------------------------- Net increase (decrease) in net assets ..................................................... 144,540,630 138,369,875 Net assets: Beginning of period ........................................................................... 596,014,948 457,645,073 -------------------------------- End of period ................................................................................. $ 740,555,578 $ 596,014,948 ================================ Undistributed net investment income included in net assets: End of period ................................................................................. $ 925,948 $ 5,103,354 ================================
20 | See notes to financial statements. | Semiannual Report Templeton Capital Accumulator Fund NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Templeton Capital Accumulator Fund (the Fund) is registered under the Investment Company Act of 1940 as a diversified, open-end investment company. Shares of the Fund are offered to the general public only through Templeton Capital Accumulation Plans. The Fund seeks long term capital growth. Under normal market conditions, the Fund invests mainly in equity securities of companies of any nation. The following summarizes the Fund's significant accounting policies. On December 4, 2004, the Board of Trustees for the Templeton Capital Accumulator Fund approved a proposal to merge Templeton Capital Accumulator Fund into the Templeton Growth Fund, subject to approval by the shareholders of Templeton Capital Accumulator Fund. A. SECURITY VALUATION Securities listed on a securities exchange or on the NASDAQ National Market System are valued at the last quoted sale price or the official closing price of the day, respectively. Over-the-counter securities and listed securities for which there is no reported sale are valued within the range of the most recent quoted bid and ask prices. Securities that trade in multiple markets or on multiple exchanges are valued according to the broadest and most representative market. Investments in open-end mutual funds are valued at the closing net asset value. Foreign securities are valued as of the close of trading on the foreign stock exchange on which the security is primarily traded, or the NYSE, whichever is earlier. The value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at the close of the NYSE on the day that the value of the foreign security is determined. If no sale is reported at that time, the foreign security will be valued within the range of the most recent quoted bid and ask prices. The Fund has procedures to determine the fair value of individual securities and other assets for which market prices are not readily available or which may not be reliably priced. Some methods for valuing these securities may include: fundamental analysis, matrix pricing, discounts from market prices of similar securities, or discounts applied due to the nature and duration of restrictions on the disposition of the securities. Occasionally, events occur between the time at which trading in a security is completed and the close of the NYSE that might call into question the availability (including the reliability) of the value of a portfolio security held by the Fund. If such an event occurs, the securities may be valued using fair value procedures, which may include the use of independent pricing services. All security valuation procedures are approved by the Fund's Board of Trustees. B. FOREIGN CURRENCY TRANSLATION Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the exchange rate of such currencies against U.S. dollars on the date of valuation. Purchases and sales of securities, income and expense items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. Occasionally, events may impact the availability or reliability of foreign exchange rates used to convert the U.S. dollar equivalent value. If such an event occurs, the foreign exchange rate will be valued at fair value using procedures established and approved by the Fund's Board of Trustees. Semiannual Report | 21 Templeton Capital Accumulator Fund NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) B. FOREIGN CURRENCY TRANSLATION (CONTINUED) The Fund does not separately report the effect of changes in foreign exchange rates from changes in market prices on securities held. Such changes are included in net realized and unrealized gain or loss from investments on the Statement of Operations. Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the recorded amounts of dividends, interest, and foreign withholding taxes and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities held at the end of the reporting period. C. FOREIGN CURRENCY CONTRACTS When the Fund purchases or sells foreign securities it may enter into foreign exchange contracts to minimize foreign exchange risk from the trade date to the settlement date of the transactions. A foreign exchange contract is an agreement between two parties to exchange different currencies at an agreed upon exchange rate on a specified date. Realized and unrealized gains and losses are included in the Statement of Operations. The risks of these contracts include movement in the values of the foreign currencies relative to the U.S. dollar and the possible inability of the counterparties to fulfill their obligations under the contracts. D. INCOME AND DEFERRED TAXES No provision has been made for U.S. income taxes because the Fund's policy is to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code and to distribute substantially all of its taxable income. Fund distributions to shareholders are determined on an income tax basis and may differ from net investment income and realized gains for financial reporting purposes. The Fund is subject to a tax imposed on net realized gains of securities of certain foreign countries. The Fund records an estimated deferred tax liability for net unrealized gains on these securities in an amount that would be payable if the securities were disposed of on the valuation date. E. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. 22 | Semiannual Report Templeton Capital Accumulator Fund NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) F. ACCOUNTING ESTIMATES The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of income and expenses during the reporting period. Actual results could differ from those estimates. G. REDEMPTION FEES Effective June 1, 2004, redemptions and exchanges of Fund shares held five trading days or less may be subject to the Fund's redemption fee, which is 2% of the amount redeemed. Such fees are retained by the Fund and accounted for as additional paid-in capital. There were no redemption fees for the period. H. GUARANTEES AND INDEMNIFICATIONS Under the Fund's organizational documents, its officers and trustees are indemnified by the Fund against certain liability arising out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote. 2. SHARES OF BENEFICIAL INTEREST At February 28, 2005, there were an unlimited number of shares authorized (without par value). Transactions in the Fund's shares were as follows:
---------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED FEBRUARY 28, 2005 AUGUST 31, 2004 ---------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT ---------------------------------------------------------------- Shares sold ......................... 3,898,342 $ 49,973,289 7,671,485 $ 88,767,548 Shares issued in reinvestment of distributions ...................... 486,067 5,970,928 472,305 5,019,603 Shares redeemed ..................... (1,720,050) (22,377,936) (2,407,696) (28,085,093) ---------------------------------------------------------------- Net increase (decrease) ............. 2,664,359 $ 33,566,281 5,736,094 $ 65,702,058 ================================================================
Semiannual Report | 23 Templeton Capital Accumulator Fund NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 3. TRANSACTIONS WITH AFFILIATES Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Fund are also officers and/or directors of the following subsidiaries:
- ---------------------------------------------------------------------------------------------- SUBSIDIARY AFFILIATION - ---------------------------------------------------------------------------------------------- Templeton Investment Counsel LLC (TIC) Investment manager Franklin Templeton Services LLC (FT Services) Administrative manager Franklin Templeton Distributors Inc. (Distributors) Principal underwriter Franklin Templeton Investor Services LLC (Investor Services) Transfer agent
A. MANAGEMENT FEE The Fund pays an investment management fee to TIC based on the Fund's average daily net assets as follows: - -------------------------------------------------------------------------------- ANNUALIZED FEE RATE NET ASSETS - -------------------------------------------------------------------------------- 0.750% Up to and including $1 billion 0.730% Over $1 billion, up to and including $5 billion 0.710% Over $5 billion, up to and including $10 billion 0.690% Over $10 billion, up to and including $15 billion 0.670% Over $15 billion, up to and including $20 billion 0.650% Over $20 billion B. ADMINISTRATIVE FEES The Fund pays an administrative fee to FT Services based on the Fund's average daily net assets as follows: - -------------------------------------------------------------------------------- ANNUALIZED FEE RATE NET ASSETS - -------------------------------------------------------------------------------- 0.150% Up to and including $200 million 0.135% Over $200 million, up to and including $700 million 0.100% Over $700 million, up to and including $1.2 billion 0.075% Over $1.2 billion C. DISTRIBUTION FEES The Fund reimburses Distributors up to 0.30% per year of its average daily net assets for costs incurred in marketing the Fund's shares under a Rule 12b-1 plan. Under the distribution plan, costs exceeding the maximum for the current plan period may be reimbursed in subsequent periods. At February 28, 2005, Distributors advised the Fund that unreimbursed costs were $821,718. 24 | Semiannual Report Templeton Capital Accumulator Fund NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 3. TRANSACTIONS WITH AFFILIATES (CONTINUED) D. SALES CHARGES/UNDERWRITING AGREEMENTS Distributors has advised the Fund of the following commission transactions related to the sales and redemptions of the Fund's shares for the period: Net sales charges received ......................... $363,839 E. TRANSFER AGENT FEES The Fund paid transfer agent fees of $242,100, of which $2,064 was paid to Investor Services. 4. EXPENSE OFFSET ARRANGEMENT The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund's custodian expenses. During the period ended February 28, 2005, the custodian fees were reduced as noted in the Statement of Operations. 5. INCOME TAXES At August 31, 2004, the Fund had tax basis capital losses which may be carried over to offset future capital gains. Such losses expire as follows: Capital loss carryovers expiring in: 2010 .............................................. $ 3,847,447 2011 .............................................. 5,327,434 2012 .............................................. 1,654,849 ----------- $10,829,730 =========== At August 31, 2004, the Fund had deferred currency losses occurring subsequent to October 31, 2003 of $50,720. For tax purposes, such losses will be reflected in the year ending August 31, 2005. Net investment income and net realized gains differ for financial statements and tax purposes primarily due to differing treatments of foreign currency transactions. At February 28, 2005, the net unrealized appreciation (depreciation) based on the cost of investments for income tax purposes were as follows: Cost of investments ................................ $535,703,227 ============ Unrealized appreciation ............................ $216,793,231 Unrealized depreciation ............................ (15,370,882) ------------ Net unrealized appreciation (depreciation) ......... $201,422,349 ============ Semiannual Report | 25 Templeton Capital Accumulator Fund NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 6. INVESTMENT TRANSACTIONS Purchases and sales of investments (excluding short-term securities) for the period ended February 28, 2005 aggregated $15,137,257 and $31,624,555, respectively. 7. INVESTMENTS IN FRANKLIN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO The Fund may invest in the Franklin Institutional Fiduciary Trust Money Market Portfolio (the Sweep Money Fund), an open-end investment company managed by Franklin Advisers Inc. (an affiliate of the investment manager). Management fees paid by the Fund are reduced on assets invested in the Sweep Money Fund, in an amount not to exceed the management fees paid by the Sweep Money Fund. 8. REGULATORY MATTERS INVESTIGATIONS As part of various investigations by a number of federal, state, and foreign regulators and governmental entities, including the Securities and Exchange Commission ("SEC"), the California Attorney General's Office ("CAGO"), and the National Association of Securities Dealers, Inc. ("NASD"), relating to certain practices in the mutual fund industry, including late trading, market timing and marketing support payments to securities dealers who sell fund shares, Franklin Resources, Inc. and certain of its subsidiaries (as used in this section, together, the "Company"), as well as certain current or former executives and employees of the Company, received subpoenas and/or requests for documents, information and/or testimony. The Company and its current employees provided documents and information in response to those requests and subpoenas. SETTLEMENTS Beginning in August 2004, the Company entered into settlements with certain regulators investigating the mutual fund industry practices noted above. The Company believes that settlement of each of the matters described in this section is in the best interest of the Company and shareholders of the Franklin, Templeton, and Mutual Series mutual funds (the "funds"). On August 2, 2004, Franklin Resources, Inc. announced that its subsidiary, Franklin Advisers, Inc., reached an agreement with the SEC that resolved the issues resulting from the SEC investigation into market timing activity. In connection with that agreement, the SEC issued an "Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Sections 203(e) and 203(k) of the Investment Advisers Act of 1940 and Sections 9(b) and 9(f) of the Investment Company Act of 1940, Making Findings and Imposing Remedial Sanctions and a Cease-and-Desist Order" (the "Order"). The SEC's Order concerned the activities of a limited number of third parties that ended in 2000 and those that were the subject of the first Massachusetts administrative complaint described below. 26 | Semiannual Report Templeton Capital Accumulator Fund NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 8. REGULATORY MATTERS (CONTINUED) SETTLEMENTS (CONTINUED) Under the terms of the SEC's Order, pursuant to which Franklin Advisers, Inc. neither admitted nor denied any of the findings contained therein, Franklin Advisers, Inc. agreed to pay $50 million, of which $20 million is a civil penalty, to be distributed to shareholders of certain funds in accordance with a plan to be developed by an independent distribution consultant. At this time, it is unclear which funds or which shareholders of any particular fund will receive distributions. The Order also required Franklin Advisers, Inc. to, among other things, enhance and periodically review compliance policies and procedures. On September 20, 2004, Franklin Resources, Inc. announced that two of its subsidiaries, Franklin Advisers, Inc. and Franklin Templeton Alternative Strategies, Inc. ("FTAS"), reached an agreement with the Securities Division of the Office of the Secretary of the Commonwealth of Massachusetts (the "State of Massachusetts") related to its administrative complaint filed on February 4, 2004, concerning one instance of market timing that was also a subject of the August 2, 2004 settlement that Franklin Advisers, Inc. reached with the SEC, as described above. Under the terms of the settlement consent order issued by the State of Massachusetts, Franklin Advisers, Inc. and FTAS consented to the entry of a cease-and-desist order and agreed to pay a $5 million administrative fine to the State of Massachusetts (the "Massachusetts Consent Order"). The Massachusetts Consent Order included two different sections: "Statements of Fact" and "Violations of Massachusetts Securities Laws." Franklin Advisers, Inc. and FTAS admitted the facts in the Statements of Fact. On October 25, 2004, the State of Massachusetts filed a second administrative complaint, alleging that Franklin Resources, Inc.'s Form 8-K filing (in which it described the Massachusetts Consent Order and stated that "Franklin did not admit or deny engaging in any wrongdoing") failed to state that Franklin Advisers, Inc. and FTAS admitted the Statements of Fact portion of the Massachusetts Consent Order (the "Second Complaint"). Franklin Resources, Inc. reached a second agreement with the State of Massachusetts on November 19, 2004, resolving the Second Complaint. As a result of the November 19, 2004 settlement, Franklin Resources, Inc. filed a new Form 8-K. The terms of the Massachusetts Consent Order did not change and there was no monetary fine associated with this second settlement. On November 17, 2004, Franklin Resources, Inc. announced that Franklin Templeton Distributors, Inc. ("FTDI") reached an agreement with the CAGO, resolving the issues resulting from the CAGO's investigation concerning sales and marketing support payments. Under the terms of the settlement, FTDI neither admitted nor denied the allegations in the CAGO's complaint and agreed to pay $2 million to the State of California as a civil penalty, $14 million to the funds, to be allocated by an independent distribution consultant to be paid for by FTDI, and $2 million to the CAGO for its investigative costs. Semiannual Report | 27 Templeton Capital Accumulator Fund NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 8. REGULATORY MATTERS (CONTINUED) SETTLEMENTS (CONTINUED) On December 13, 2004, Franklin Resources, Inc. announced that its subsidiaries FTDI and Franklin Advisers, Inc. reached an agreement with the SEC, resolving the issues resulting from the SEC's investigation concerning marketing support payments to securities dealers who sell fund shares. In connection with that agreement, the SEC issued an "Order Instituting Administrative and Cease-and-Desist Proceedings, Making Findings, and Imposing Remedial Sanctions Pursuant to Sections 203(e) and 203(k) of the Investment Advisers Act of 1940, Sections 9(b) and 9(f) of the Investment Company Act of 1940, and Section 15(b) of the Securities Exchange Act of 1934" (the "Second Order"). Under the terms of the Second Order, in which FTDI and Franklin Advisers, Inc. neither admitted nor denied the findings contained therein, they agreed to pay the funds a penalty of $20 million and disgorgement of $1 (one dollar). FTDI and Franklin Advisers, Inc. also agreed to implement certain measures and undertakings relating to marketing support payments to broker-dealers for the promotion or sale of fund shares, including making additional disclosures in the funds' Prospectuses and Statements of Additional Information. The Second Order further requires the appointment of an independent distribution consultant, at the Company's expense, who shall develop a plan for the distribution of the penalty and disgorgement to the funds. The SEC's Second Order and the CAGO settlement agreement concerning marketing support payments provide that the distribution of settlement monies are to be made to the relevant funds, not to individual shareholders. The independent distribution consultant has substantially completed preparation of these distribution plans. The CAGO has approved the distribution plan pertaining to the distribution of the monies owed under the CAGO settlement agreement and, in accordance with the terms and conditions of that settlement, the monies were disbursed to the participating funds and are recorded as other income in the current period. The SEC has not yet approved the distribution plan pertaining to the Second Order. When approved, disbursements of settlement monies under the SEC's Second Order will be made promptly in accordance with the terms and conditions of that order. 28 | Semiannual Report Templeton Capital Accumulator Fund NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 8. REGULATORY MATTERS (CONTINUED) OTHER LEGAL PROCEEDINGS The Fund, in addition to the Company and other funds, and certain current and former officers, employees, and directors have been named in multiple lawsuits in different federal courts in Nevada, California, Illinois, New York and Florida, alleging violations of various federal securities laws and seeking, among other relief, monetary damages, restitution, removal of fund trustees, directors, advisers, administrators, and distributors, rescission of management contracts and 12b-1 Plans, and/or attorneys' fees and costs. Specifically, the lawsuits claim breach of duty with respect to alleged arrangements to permit market timing and/or late trading activity, or breach of duty with respect to the valuation of the portfolio securities of certain Templeton funds managed by Franklin Resources, Inc. subsidiaries, resulting in alleged market timing activity. The majority of these lawsuits duplicate, in whole or in part, the allegations asserted in the February 4, 2004 Massachusetts administrative complaint and the findings in the SEC's August 2, 2004 Order, as described above. The lawsuits are styled as class actions or derivative actions on behalf of either the named funds or Franklin Resources, Inc. In addition, the Company, as well as certain current and former officers, employees, and directors, have been named in multiple lawsuits alleging violations of various securities laws and pendent state law claims relating to the disclosure of directed brokerage payments and/or payment of allegedly excessive advisory, commission, and distribution fees, and seeking, among other relief, monetary damages, restitution, rescission of advisory contracts, including recovery of all fees paid pursuant to those contracts, an accounting of all monies paid to the named advisers, declaratory relief, injunctive relief, and/or attorneys' fees and costs. These lawsuits are styled as class actions or derivative actions brought on behalf of certain funds. The Company and fund management strongly believe that the claims made in each of the lawsuits identified above are without merit and intend to vigorously defend against them. The Company cannot predict with certainty, however, the eventual outcome of the remaining governmental investigations or private lawsuits, nor whether they will have a material negative impact on the Company. Public trust and confidence are critical to the Company's business and any material loss of investor and/or client confidence could result in a significant decline in assets under management by the Company, which would have an adverse effect on the Company's future financial results. If the Company finds that it bears responsibility for any unlawful or inappropriate conduct that caused losses to the Fund, it is committed to making the Fund or its shareholders whole, as appropriate. The Company is committed to taking all appropriate actions to protect the interests of its funds' shareholders. Semiannual Report | 29 Templeton Capital Accumulator Fund SHAREHOLDER INFORMATION PROXY VOTING POLICIES AND PROCEDURES The Fund has established Proxy Voting Policies and Procedures ("Policies") that the Fund uses to determine how to vote proxies relating to portfolio securities. Shareholders may view the Fund's complete Policies online at franklintempleton.com. Alternatively, shareholders may request copies of the Policies free of charge by calling the Proxy Group collect at 1-954/847-2268 or by sending a written request to: Franklin Templeton Companies, LLC, 500 East Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy Group. Copies of the Fund's proxy voting records are also made available online at franklintempleton.com and posted on the U.S. Securities and Exchange Commission's website at sec.gov and reflect the most recent 12-month period ended June 30. QUARTERLY STATEMENT OF INVESTMENTS The Fund files a complete statement of investments with the U.S. Securities and Exchange Commission for the first and third quarters for each fiscal year on Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's website at sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may be obtained by calling 1-800/SEC-0330. 30 | Semiannual Report This page intentionally left blank. This page intentionally left blank. Literature Request LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT 1-800/DIAL BEN(R) (1-800/342-5236) OR VISIT FRANKLINTEMPLETON.COM. INVESTORS SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE CAREFULLY READ THE PROSPECTUS BEFORE INVESTING. To ensure the highest quality of service, we may monitor, record and access telephone calls to or from our service departments. These calls can be identified by the presence of a regular beeping tone. FRANKLIN TEMPLETON INVESTMENTS INTERNATIONAL Mutual European Fund Templeton China World Fund Templeton Developing Markets Trust Templeton Foreign Fund Templeton Foreign Smaller Companies Fund Templeton International (Ex EM) Fund GLOBAL Mutual Discovery Fund Templeton Global Long-Short Fund Templeton Global Opportunities Trust Templeton Global Smaller Companies Fund Templeton Growth Fund Templeton World Fund GROWTH Franklin Aggressive Growth Fund Franklin Capital Growth Fund Franklin Flex Cap Growth Fund Franklin Small-Mid Cap Growth Fund Franklin Small Cap Growth Fund II(1) VALUE Franklin Balance Sheet Investment Fund(2) Franklin Equity Income Fund Franklin Large Cap Value Fund Franklin MicroCap Value Fund(2) Franklin Small Cap Value Fund Mutual Beacon Fund Mutual Qualified Fund Mutual Recovery Fund(3) Mutual Shares Fund BLEND Franklin Blue Chip Fund Franklin Convertible Securities Fund Franklin Growth Fund Franklin Rising Dividends Fund Franklin U.S. Long-Short Fund SECTOR Franklin Biotechnology Discovery Fund Franklin DynaTech Fund Franklin Global Communications Fund Franklin Global Health Care Fund Franklin Gold and Precious Metals Fund Franklin Natural Resources Fund Franklin Real Estate Securities Fund Franklin Technology Fund Franklin Utilities Fund Mutual Financial Services Fund ASSET ALLOCATION Franklin Templeton Corefolio Allocation Fund Franklin Templeton Founding Funds Allocation Fund Franklin Templeton Perspectives Allocation Fund TARGET FUNDS Franklin Templeton Conservative Target Fund Franklin Templeton Growth Target Fund Franklin Templeton Moderate Target Fund INCOME Franklin Adjustable U.S. Government Securities Fund(4) Franklin's AGE High Income Fund Franklin Floating Rate Daily Access Fund Franklin Income Fund Franklin Limited Maturity U.S. Government Securities Fund(4),(5) Franklin Low Duration Total Return Fund Franklin Real Return Fund Franklin Strategic Income Fund Franklin Strategic Mortgage Portfolio Franklin Templeton Hard Currency Fund Franklin Total Return Fund Franklin U.S. Government Securities Fund(4) Templeton Global Bond Fund TAX-FREE INCOME(6) NATIONAL FUNDS Double Tax-Free Income Fund Federal Tax-Free Income Fund High Yield Tax-Free Income Fund Insured Tax-Free Income Fund(7) LIMITED-TERM FUNDS California Limited-Term Tax-Free Income Fund Federal Limited-Term Tax-Free Income Fund New York Limited-Term Tax-Free Income Fund INTERMEDIATE-TERM FUNDS California Intermediate-Term Tax-Free Income Fund Federal Intermediate-Term Tax-Free Income Fund New York Intermediate-Term Tax-Free Income Fund STATE-SPECIFIC Alabama Arizona California(8) Colorado Connecticut Florida(8) Georgia Kentucky Louisiana Maryland Massachusetts(7) Michigan(7) Minnesota(7) Missouri New Jersey New York(8) North Carolina Ohio(7) Oregon Pennsylvania Tennessee Virginia INSURANCE FUNDS Franklin Templeton Variable Insurance Products Trust(9) (1) The fund is closed to new investors. Existing shareholders can continue adding to their accounts. (2) The fund is only open to existing shareholders and select retirement plans. (3) The fund is a continuously offered, closed-end fund. Shares may be purchased daily; there is no daily redemption. However, each quarter, pending board approval, the fund will authorize the repurchase of 5%-25% of the outstanding number of shares. Investors may tender all or a portion of their shares during the tender period. (4) An investment in the fund is neither insured nor guaranteed by the U.S. government or by any other entity or institution. (5) Formerly Franklin Short-Intermediate U.S. Government Securities Fund. Effective 9/1/04, the fund's name changed; its investment goal and strategy remained the same. (6) For investors subject to the alternative minimum tax, a small portion of fund dividends may be taxable. Distributions of capital gains are generally taxable. (7) Portfolio of insured municipal securities. (8) These funds are available in two or more variations, including long-term portfolios, portfolios of insured securities, a high-yield portfolio (CA) and limited-term, intermediate-term and money market portfolios (CA and NY). (9) The funds of the Franklin Templeton Variable Insurance Products Trust are generally available only through insurance company variable contracts. 01/05 Not part of the semiannual report LOGO(R) One Franklin Parkway FRANKLIN(R) TEMPLETON(R) San Mateo, CA 94403-1906 INVESTMENTS SEMIANNUAL REPORT AND SHAREHOLDER LETTER TEMPLETON CAPITAL ACCUMULATOR FUND INVESTMENT MANAGER Templeton Investment Counsel, LLC PRINCIPAL UNDERWRITER Franklin Templeton Distributors, Inc. 1-800/DIAL BEN(R) franklintempleton.com SHAREHOLDER SERVICES 1-800/632-2301 Authorized for distribution only when accompanied or preceded by a prospectus. Investors should carefully consider a fund's investment goals, risks, charges and expenses before investing. Like any investment in securities, the value of the Fund's portfolio will be subject to the risk of loss from market, currency, economic, political and other factors. The Fund and its investors are not protected from such losses by the Investment Manager. Therefore, investors who cannot accept this risk should not invest in shares of the Fund. The prospectus contains this and other information; please read it carefully before investing. To ensure the highest quality of service, telephone calls to or from our service departments may be monitored, recorded and accessed. These calls can be identified by the presence of a regular beeping tone. TCAP S2005 04/05 ITEM 2. CODE OF ETHICS. (a) The Registrant has adopted a code of ethics that applies to its principal executive officers and principal financial and accounting officer. (c) N/A (d) N/A (f) Pursuant to Item 11(a), the registrant is attaching as an exhibit a copy of its code of ethics that applies to its principal executive officers and principal financial and accounting officer. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. (a)(1) The Registrant has an audit committee financial expert serving on its audit committee. (2) The audit committee financial experts are Fred R. Millsaps and Frank A. Olson, they are "independent" as defined under the relevant Securities and Exchange Commission Rules and Releases. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. N/A ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. N/A ITEM 6. SCHEDULE OF INVESTMENTS. N/A ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. N/A ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANIES AND AFFILIATED PURCHASES. N/A ITEM 9. SUBMISSION OF MATTERS OF A VOTE OF SECURITY HOLDERS. There have been no changes to the procedures by which shareholders may recommend nominees to the Registrant's Board of Trustees that would require disclosure herein. ITEM 10. CONTROLS AND PROCEDURES. (a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Registrant maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Registrant's filings under the Securities Exchange Act of 1934 and the Investment Company Act of 1940 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. Such information is accumulated and communicated to the Registrant's management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Registrant's management, including the principal executive officer and the principal financial officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Within 90 days prior to the filing date of this Shareholder Report on Form N-CSR, the Registrant had carried out an evaluation, under the supervision and with the participation of the Registrant's management, including the Registrant's principal executive officer and the Registrant's principal financial officer, of the effectiveness of the design and operation of the Registrant's disclosure controls and procedures. Based on such evaluation, the Registrant's principal executive officer and principal financial officer concluded that the Registrant's disclosure controls and procedures are effective. (b) CHANGES IN INTERNAL CONTROLS. There have been no significant changes in the Registrant's internal controls or in other factors that could significantly affect the internal controls subsequent to the date of their evaluation in connection with the preparation of this Shareholder Report on Form N-CSR. ITEM 11. EXHIBITS (a) Code of Ethics (b)(1) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and Galen G. Vetter, Chief Financial Officer (b)(2) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and Galen G. Vetter, Chief Financial Officer SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TEMPLETON CAPITAL ACCUMULATOR FUND By /s/JIMMY D. GAMBILL Chief Executive Officer - Finance and Administration Date April 25, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By /s/JIMMY D. GAMBILL Chief Executive Officer - Finance and Administration Date April 25, 2005 By /s/GALEN G. VETTER Chief Financial Officer Date April 25, 2005 EX-99.CODE ETH 2 ncsr-code704.txt N-CSR CODE OF ETHICS CODE OF ETHICS FOR PRINCIPAL EXECUTIVES & SENIOR FINANCIAL OFFICERS - ------------------------------------------------------------------------------ PROCEDURES Dated July 2004 - ------------------------------------------------------------------------------- FRANKLIN TEMPLETON FUNDS CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS I. Covered Officers and Purpose of the Code This code of ethics (the "Code") applies to the Principal Executive Officers, Principal Financial Officer and Principal Accounting Officer (the "Covered Officers," each of whom is set forth in Exhibit A) of each investment company advised by a Franklin Resources subsidiary and that is registered with the United States Securities & Exchange Commission ("SEC") (collectively, "FT Funds") for the purpose of promoting: o Honest and ethical conduct, including the ethical resolution of actual or apparent conflicts of interest between personal and professional relationships; o Full, fair, accurate, timely and understandable disclosure in reports and documents that a registrant files with, or submits to, the SEC and in other public communications made by or on behalf of the FT Funds; o Compliance with applicable laws and governmental rules and regulations; o The prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and o Accountability for adherence to the Code. Each Covered Officer will be expected to adhere to a high standard of business ethics and must be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. II. Other Policies and Procedures This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Franklin Resources, Inc. has separately adopted the CODE OF ETHICS AND BUSINESS CONDUCT ("Business Conduct"), which is applicable to all officers, directors and employees of Franklin Resources, Inc., including Covered Officers. It summarizes the values, principles and business practices that guide the employee's business conduct and also provides a set of basic principles to guide officers, directors and employees regarding the minimum ethical requirements expected of them. It supplements the values, principles and business conduct identified in the Code and other existing employee policies. Additionally, the Franklin Templeton Funds have separately adopted the CODE OF ETHICS AND POLICY STATEMENT ON INSIDER TRADING governing personal securities trading and other related matters. The Code for Insider Trading provides for separate requirements that apply to the Covered Officers and others, and therefore is not part of this Code. Insofar as other policies or procedures of Franklin Resources, Inc., the Funds, the Funds' adviser, principal underwriter, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superceded by this Code to the extent that they overlap or conflict with the provisions of this Code. Please review these other documents or consult with the Legal Department if have questions regarding the applicability of these policies to you. III. Covered Officers Should Handle Ethically Actual and Apparent Conflicts of Interest OVERVIEW. A "conflict of interest" occurs when a Covered Officer's private interest interferes with the interests of, or his or her service to, the FT Funds. For example, a conflict of interest would arise if a Covered Officer, or a member of his family, receives improper personal benefits as a result of apposition with the FT Funds. Certain conflicts of interest arise out of the relationships between Covered Officers and the FT Funds and already are subject to conflict of interest provisions in the Investment Company Act of 1940 ("Investment Company Act") and the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the FT Funds because of their status as "affiliated persons" of the FT Funds. The FT Funds' and the investment advisers' compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between the FT Funds, the investment advisers and the fund administrator of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the FT Funds, for the adviser, the administrator, or for all three), be involved in establishing policies and implementing decisions that will have different effects on the adviser, administrator and the FT Funds. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the FT Funds, the adviser, and the administrator and is consistent with the performance by the Covered Officers of their duties as officers of the FT Funds. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. In addition, it is recognized by the FT Funds' Boards of Directors ("Boards") that the Covered Officers may also be officers or employees of one or more other investment companies covered by this or other codes. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the FT Funds. Each Covered Officer must: o Not use his or her personal influence or personal relationships improperly to influence investment decisions orfinancial reporting by the FT Funds whereby the Covered Officer would benefit personally to the detriment of the FT Funds; o Not cause the FT Funds to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit the FT Funds; o Not retaliate against any other Covered Officer or any employee of the FT Funds or their affiliated persons for reports of potential violations that are made in good faith; o Report at least annually the following affiliations or other relationships:/ 1 o all directorships for public companies and all companies that are required to file reports with the SEC; o any direct or indirect business relationship with any independent directors of the FT Funds; o any direct or indirect business relationship with any independent public accounting firm (which are not related to the routine issues related to the firm's service as the Covered Persons accountant); and o any direct or indirect interest in any transaction with any FT Fund that will benefit the officer (not including benefits derived from the advisory, sub-advisory, distribution or service agreements with affiliates of Franklin Resources). These reports will be reviewed by the Legal Department for compliance with the Code. There are some conflict of interest situations that should always be approved in writing by Franklin Resources General Counsel or Deputy General Counsel, if material. Examples of these include/2: o Service as a director on the board of any public or private Company; o The receipt of any gifts in excess of $100 from any person, from any corporation or association o The receipt of any entertainment from any Company with which the FT Funds has current or prospective business dealings unless such entertainment is business related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety. Notwithstanding the foregoing, the Covered Officers must obtain prior approval from the Franklin Resources General Counsel for any entertainment with a value in excess of $1000. o Any ownership interest in, or any consulting or employment relationship with, any of the FT Fund's service providers, other than an investment adviser, principal underwriter, administrator or any affiliated person thereof; - ----------------------------- 1 Reporting of these affiliations or other relationships shall be made by completing the annual Directors and Officers Questionnaire and returning the questionnaire to Franklin Resources Inc, General Counsel or Deputy General Counsel. 2 Any activity or relationship that would present a conflict for a Covered Officer may also present a conflict for the Covered Officer if a member of the Covered Officer's immediate family engages in such an activity or has such a relationship. The Cover Person should also obtain written approval by FT's General Counsel in such situations. o A direct or indirect financial interest in commissions, transaction charges or spreads paid by the FT Funds for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment, such as compensation or equity ownership. Franklin Resources General Counsel or Deputy General Counsel will provide a report to the FT Funds Audit Committee of any approvals granted at the next regularly scheduled meeting. IV. Disclosure and Compliance o Each Covered Officer should familiarize himself with the disclosure requirements generally applicable to the FT Funds; o Each Covered Officer should not knowingly misrepresent, or cause others to misrepresent, facts about the FT Funds to others, whether within or outside the FT Funds, including to the FT Funds' directors and auditors, and to governmental regulators and self-regulatory organizations; o Each Covered Officer should, to the extent appropriate within his or her area of responsibility, consult with other officers and employees of the FT Funds, the FT Fund's adviser and the administrator with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the FT Funds file with, or submit to, the SEC and in other public communications made by the FT Funds; and o It is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. V. Reporting and Accountability Each Covered Officer must: o Upon becoming a covered officer affirm in writing to the Board that he or she has received, read, and understands the Code (see Exhibit B); o Annually thereafter affirm to the Board that he has complied with the requirements of the Code; and o Notify Franklin Resources' General Counsel or Deputy General Counsel promptly if he or she knows of any violation of this Code. Failure to do so is itself is a violation of this Code. Franklin Resources' General Counsel and Deputy General Counsel are responsible for applying this Code to specific situations in which questions are presented under it and have the authority to interpret this Code in any particular situation./3 However, the Independent Directors of the respective FT Funds will consider any approvals or waivers/4 sought by any Chief Executive Officers of the Funds. - ----------------- 3 Franklin Resources General Counsel and Deputy General Counsel are authorized to consult, as appropriate, with members of the Audit Committee, counsel to the FT Funds and counsel to the Independent Directors, and are encouraged to do so. 4 Item 2 of Form N-CSR defines "waiver" as "the approval by the registrant of a material departure from a provision of the code of ethics" and "implicit waiver," which must also be disclosed, as "the registrant's failure to take action within a reasonable period of time regarding a material departure from a provision of the code of ethics that has been made known to an executive officer" of the registrant. See Part X. The FT Funds will follow these procedures in investigating and enforcing this Code: o Franklin Resources General Counsel or Deputy General Counsel will take all appropriate action to investigate any potential violations reported to the Legal Department; o If, after such investigation, the General Counsel or Deputy General Counsel believes that no violation has occurred, The General Counsel is not required to take any further action; o Any matter that the General Counsel or Deputy General Counsel believes is a violation will be reported to the Independent Directors of the appropriate FT Fund; o If the Independent Directors concur that a violation has occurred, it will inform and make a recommendation to the Board of the appropriate FT Fund or Funds, which will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer; o The Independent Directors will be responsible for granting waivers, as appropriate; and o Any changes to or waivers of this Code will, to the extent required, are disclosed as provided by SEC rules./5 VI. Other Policies and Procedures This Code shall be the sole code of ethics adopted by the FT Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the FT Funds, the FT Funds' advisers, principal underwriter, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. The FT Code of Ethics and Policy Statement On Insider Trading, adopted by the FT Funds, FT investment advisers and FT Fund's principal underwriter pursuant to Rule 17j-1 under the Investment Company Act, the Code of Ethics and Business Conduct and more detailed policies and procedures set forth in FT's Employee Handbook are separate requirements applying to the Covered Officers and others, and are not part of this Code. VII. Amendments Any amendments to this Code, other than amendments to Exhibit A, must be approved or ratified by a majority vote of the FT Funds' Board including a majority of independent directors. VIII. Confidentiality All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the FT Funds' Board and their counsel. - --------------------- 5 See Part X. IX. Internal Use The Code is intended solely for the internal use by the FT Funds and does not constitute an admission, by or on behalf of any FT Funds, as to any fact, circumstance, or legal conclusion. X. Disclosure on Form N-CSR Item 2 of Form N-CSR requires a registered management investment company to disclose annually whether, as of the end of the period covered by the report, it has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these officers are employed by the registrant or a third party. If the registrant has not adopted such a code of ethics, it must explain why it has not done so. The registrant must also: (1) file with the SEC a copy of the code as an exhibit to its annual report; (2) post the text of the code on its Internet website and disclose, in its most recent report on Form N-CSR, its Internet address and the fact that it has posted the code on its Internet website; or (3) undertake in its most recent report on Form N-CSR to provide to any person without charge, upon request, a copy of the code and explain the manner in which such request may be made. Disclosure is also required of amendments to, or waivers (including implicit waivers) from, a provision of the code in the registrant's annual report on Form N-CSR or on its website. If the registrant intends to satisfy the requirement to disclose amendments and waivers by posting such information on its website, it will be required to disclose its Internet address and this intention. The Legal Department shall be responsible for ensuring that: o a copy of the Code is filed with the SEC as an exhibit to each Fund's annual report; and o any amendments to, or waivers (including implicit waivers) from, a provision of the Code is disclosed in the registrant's annual report on Form N-CSR. In the event that the foregoing disclosure is omitted or is determined to be incorrect, the Legal Department shall promptly file such information with the SEC as an amendment to Form N-CSR. In such an event, the Fund Chief Compliance Officer shall review the Code and propose such changes to the Code as are necessary or appropriate to prevent reoccurrences. EXHIBIT A Persons Covered by the Franklin Templeton Funds Code of Ethics August 2004 FRANKLIN GROUP OF FUNDS Edward B. Jamieson, President and Chief Executive Officer - Investment Management Charles B. Johnson, President and Chief Executive Officer - Investment Management Gregory E. Johnson, President and Chief Executive Officer - Investment Management Rupert H. Johnson, Jr. President and Chief Executive Officer - Investment Management William J. Lippman, President and Chief Executive Officer - Investment Management Christopher Molumphy President and Chief Executive Officer - Investment Management Jimmy D. Gambill, Senior Vice President and Chief Executive Officer - Finance and Administration Galen G. Vetter Chief Financial Officer FRANKLIN MUTUAL SERIES FUNDS David Winters Chairman of the Board, President, Chief Executive Officer-Investment Management Jimmy D. Gambill Senior Vice President and Chief Executive Officer- Finance and Administration Galen G. Vetter Chief Financial Officer TEMPLETON GROUP OF FUNDS Jeffrey A. Everett President and Chief Executive Officer - Investment Management Martin L. Flanagan President and Chief Executive Officer - Investment Management Mark Mobius President and Chief Executive Officer - Investment Management Christopher J. Molumphy President and Chief Executive Officer - Investment Management Gary P. Motyl President and Chief Executive Officer - Investment Management Donald F. Reed President and Chief Executive Officer - Investment Management Jimmy D. Gambill, Senior Vice President and Chief Executive Officer - Finance and Administration Galen G. Vetter Chief Financial Officer EXHIBIT B ACKNOWLEDGMENT FORM JULY 2004 FRANKLIN TEMPLETON FUNDS CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS. INSTRUCTIONS: 1. Complete all sections of this form. 2. Print the completed form, sign, and date. 3. Submit completed form to FT's General Counsel within 10 days of becoming a Covered Officer and by January 30th of each subsequent year. INTER-OFFICE MAIL: Murray Simpson, General Counsel, Legal SM-920/2 TELEPHONE: (650) 312-7331 Fax: (650) 312-2221 E-MAIL: Simpson, Murray (internal address); mlsimpson@frk.com (external address) - ---------------------------------------------------------------------------- COVERED OFFICER'S NAME: - ---------------------------------------------------------------------------- TITLE: - ---------------------------------------------------------------------------- DEPARTMENT: - ---------------------------------------------------------------------------- LOCATION: - ---------------------------------------------------------------------------- CERTIFICATION FOR YEAR ENDING: - ---------------------------------------------------------------------------- TO: Franklin Resources General Counsel, Legal Department I hereby acknowledge receipt of a copy of Franklin Templeton Fund's code of ethics for Principal Executive Officers and Senior Financial Officers (the "Code") that I have read and understand. I will comply fully with all provisions of the Code to the extent they apply to me during the period of my employment. I further understand and acknowledge that any violation of the Code may subject me to disciplinary action, including termination of employment - ---------------------------- ---------------------- Signature Date signed EX-99.CERT 3 d15185_ex99cert.txt CEO/CFO CERTIFICATION PURSUANT TO SECTION 302 I, Jimmy D. Gambill, certify that: 1. I have reviewed this report on Form N-CSR of Templeton Capital Accumulator Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. April 25, 2005 S\JIMMY D. GAMBILL Jimmy D. Gambill Chief Executive Officer - Finance and Administration I, Galen G. Vetter, certify that: 1. I have reviewed this report on Form N-CSR of Templeton Capital Accumulator Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. April 25, 2005 S\GALEN G. VETTER Galen G. Vetter Chief Financial Officer EX-99.906 CERT 4 ex99-906cert205.txt CEO/CFO CERTIFICATION PURSUANT TO SECTION 906 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURUSANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Galen G. Vetter, Chief Financial Officer of the TEMPLETON CAPITAL ACCUMULATOR FUND (the "Registrant"), certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: 1. The periodic report on Form N-CSR of the Registrant for the period ended 2/28/05 (the "Form N-CSR") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Dated: April 25, 2005 S\GALEN G. VETTER Galen G. Vetter Chief Financial Officer A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, OR OTHER DOCUMENT AUTHENTICATING, ACKNOWLEDGING, OR OTHERWISE ADOPTING THE SIGNATURE THAT APPEARS IN TYPED FORM WITHIN THE ELECTRONIC VERSION OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, HAS BEEN PROVIDED TO REGISTRANT AND WILL BE RETAINED BY REGISTRANT AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURUSANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Jimmy D. Gambill, Chief Executive Officer of the TEMPLETON CAPITAL ACCUMULATOR FUND (the "Registrant"), certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: 1. The periodic report on Form N-CSR of the Registrant for the period ended 2/28/05 (the "Form N-CSR") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Dated: April 25, 2005 S\JIMMY D. GAMBILL Jimmy D. Gambill Chief Executive Officer - Finance and Administration A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, OR OTHER DOCUMENT AUTHENTICATING, ACKNOWLEDGING, OR OTHERWISE ADOPTING THE SIGNATURE THAT APPEARS IN TYPED FORM WITHIN THE ELECTRONIC VERSION OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, HAS BEEN PROVIDED TO REGISTRANT AND WILL BE RETAINED BY REGISTRANT AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. -----END PRIVACY-ENHANCED MESSAGE-----