Registration No. 33-11771
As filed with the Securities and Exchange Commission on May 1,
1995
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 8 / X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY / X /
ACT OF 1940
Amendment No. 11 / X /
(Check appropriate box or boxes)
TEMPLETON VARIABLE ANNUITY FUND
(Exact Name of Registrant as Specified in Charter)
700 Central Avenue, P.O. Box 33030
St. Petersburg, Florida 33733-8030
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: (813) 823-8712
Thomas M. Mistele, Esq.
700 Central Avenue, P. O. Box 33030
St. Petersburg, Florida 33733-8030
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check
appropriate box):
____
/ / immediately upon filing pursuant to paragraph (b) or
____
/ X / on May 1, 1995 pursuant to paragraph (b) or
____
/ / 60 days after filing pursuant to paragraph (a) or
____
/ / on May 1, 1994 pursuant to paragraph (a) of Rule 485
* The Registrant has registered an indefinite number of shares
under the Securities Act of 1933 pursuant to Rule 24f-2
under the Investment Company Act of 1940, and filed its Rule
24f-2 Notice for the fiscal year ended December 31, 1993 on
February 28, 1995.
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TEMPLETON VARIABLE ANNUITY FUND
CROSS REFERENCE SHEET
ITEM NO. CAPTION
PART A
1 Cover Page
2 N/A
3 Financial Highlights
4 General Description
5 Management of the Fund
6 Description of Shares
7 Sale and Redemption of Shares;
General Description
8 Sale and Redemption of Shares
9 N/A
PART B
10 Cover Page
11 Table of Contents
12 General Information and History
13 Investment Practices and
Restrictions
14 Management of the Fund
15 General Description (Prospectus)
16 Investment Management and Other
Services
17 Brokerage Allocation
18 Description of Shares (Prospectus)
19 Purchase, Redemption and Pricing of
Shares
20 Tax Status
21 Sale and Redemption of Shares;
General Description (Prospectus)
22 Performance Information
23 Financial Statements
<PAGE>
A MUTUAL FUND SEEKING LONG TERM GROWTH
TEMPLETON VARIABLE ANNUITY FUND
PROSPECTUS
MAY 1, 1995
TEMPLETON VARIABLE ANNUITY FUND (the 'Fund') has for its investment
objective long term capital growth. It pursues this objective through a flexible
policy of investing primarily in stocks and debt obligations of companies and
governments of any nation, including the United States.
This Prospectus sets forth concisely information about the Fund that a
prospective investor ought to know before investing.
A STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1995, HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION AND IS INCORPORATED IN ITS ENTIRETY BY
REFERENCE IN AND MADE A PART OF THIS PROSPECTUS. THIS STATEMENT IS AVAILABLE
WITHOUT CHARGE UPON REQUEST TO THE FUND AT THE ADDRESS GIVEN BELOW OR BY CALLING
THE ANNUITY DEPARTMENT AT (800) 774-5001 OR (813) 823-8712.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY.
Investors are advised to read and retain this Prospectus for future
reference.
TEMPLETON VARIABLE ANNUITY FUND
P.O. Box 33030
St. Petersburg, Florida 33733-8030
Telephone: (800) 774-5001
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TABLE OF CONTENTS
FINANCIAL HIGHLIGHTS............................. T-2
GENERAL DESCRIPTION.............................. T-3
INVESTMENT OBJECTIVE
AND POLICIES................................... T-3
Stock Index Futures Contracts.................. T-4
Loans of Portfolio Securities.................. T-4
Repurchase Agreements.......................... T-4
Commercial Paper............................... T-5
Debt Securities................................ T-5
Depositary Receipts............................ T-5
RISK FACTORS..................................... T-6
SALE AND REDEMPTION OF SHARES.................... T-7
Net Asset Value................................ T-8
MANAGEMENT OF THE FUND........................... T-8
Trustees and Officers.......................... T-8
Investment Manager............................. T-8
Business Manager............................... T-9
Expenses....................................... T-9
Brokerage Commissions.......................... T-9
GENERAL INFORMATION.............................. T-9
Capitalization................................. T-9
Voting Rights.................................. T-9
Dividends and Distributions.................... T-10
Federal Tax Information........................ T-10
Inquiries...................................... T-10
Performance Information........................ T-11
Statements and Reports......................... T-11
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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FINANCIAL HIGHLIGHTS
The following statement of Financial Highlights has been audited by
McGladrey & Pullen, LLP, independent certified public accountants, whose report
thereon, which is incorporated by reference, appears in the Fund's 1994 Annual
Report to Shareholders. This statement should be read in conjunction with the
other financial statements and notes thereto included in the Fund's 1994 Annual
Report to Shareholders, which contains further information about the Fund's
performance, and which is available to Shareholders upon request and without
charge.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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1994 1993 1992 1991 1990 1989 1988*
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<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE (for a
share outstanding throughout the
period)
Net asset value,
beginning of year................... $ 19.50 $ 14.99 $15.20 $11.76 $13.63 $10.26 $10.00
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Income from investment operations:
Net investment income............... .24 .24 .37 .31 .27 .22 .12
Net realized and unrealized
gain (loss)....................... (.96) 5.31 1.16 3.58 (1.80) 3.42 .24
------- ------- ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT
OPERATIONS..................... (.75) 5.55 1.53 3.89 (1.53) 3.64 .36
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Distributions:
Dividends from
net investment income............. -- (.24) (.39) (.29) (.26) (.23) (.10)
Distributions from
net realized gains................ (.79) (.80) (1.33) (.16) (.08) (.04) --
Distributions from
other sources..................... -- -- (.02) -- -- -- --
------- ------- ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS............... (.79) (1.04) (1.74) (.45) (.34) (.27) (.10)
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Change in net asset value
for the year........................ (1.54) 4.51 (.21) 3.44 (1.87) 3.37 .26
------- ------- ------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR.......... $ 17.96 $ 19.50 $14.99 $15.20 $11.76 $13.63 $10.26
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TOTAL RETURN(dagger).................. (4.06)% 37.24% 10.17% 33.29% (11.25)% 35.64% 3.61%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000)....... $12,569 $12,698 $9,258 $9,147 $6,185 $6,317 $3,649
Ratio of expenses to average
net assets.......................... 1.49% 1.37% 1.52% 1.62% 2.00% 2.22% 3.01%**
Ratio of expenses, net of
reimbursement, to average
net assets.......................... 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%**
Ratio of net investment income to
average net assets.................. 1.09% 1.36% 2.06% 2.33% 2.24% 2.21% 2.24%**
Portfolio turnover rate............... 19.85% 22.13% 27.86% 25.84% 24.12% 8.89% 8.85%
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</TABLE>
*Period from February 16, 1988 (commencement of operations) to December 31,
1988.
**Annualized.
(dagger) Total return figures do not include charges applied under the Annuity
Contracts. Inclusion of such charges would reduce the total return
figures for all periods shown.
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GENERAL DESCRIPTION
THE FUND: Templeton Variable Annuity Fund (the 'Fund') is a business trust
organized under the laws of Massachusetts on February 5, 1987. The Fund is
registered under the Investment Company Act of 1940 (the '1940 Act') as an
open-end diversified series investment company. Shares of the Fund are currently
sold only to Templeton Funds Annuity Company ('TFAC') to be held by Templeton
Funds Retirement Annuity and Templeton Immediate Variable Annuity Separate
Accounts for use as the sole funding vehicle for Templeton Retirement Annuities
and Templeton Immediate Variable Annuities (the 'Annuities'). Shares of the Fund
may in the future be sold in connection with other insurance products or as
otherwise permitted by applicable regulations and regulatory interpretations.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is long term capital growth. It pursues this
objective through a flexible policy of investing primarily in stocks and debt
obligations of companies and governments of any nation. Any income realized will
be incidental. The investment objective and investment policy may not be changed
without shareholder approval.
The Fund believes that in a world where investment opportunities change
rapidly, not only from company to company and from industry to industry, but
also from one national economy to another, its objective is more likely to be
achieved through an investment policy that is flexible and mobile. Accordingly,
the Fund will seek investment opportunities in all types of securities issued by
companies or governments of any nation. Although the Fund will usually invest in
common stocks, it also has the flexibility to invest in preferred stocks and
certain debt securities, rated or unrated, such as convertible bonds and bonds
selling at a discount (see 'Debt Securities'). Except for the restrictions
dealing with concentration and diversification of the Fund's investments
described in the following paragraph, there are no restrictions limiting the
Fund's investments in issuers of any nation. The Fund may, for hedging purposes,
purchase and sell stock index futures contracts (see 'Stock Index Futures
Contracts') and may lend its portfolio securities (see 'Loans of Portfolio
Securities'). Notwithstanding its investment objective of capital growth, the
Fund may on occasion, for defensive purposes, without limitation as to amount,
invest in and earn income on debt obligations of the United States government or
its political subdivisions (see 'Debt Securities'); hold cash and time deposits
with banks in United States currency or currency of any major nation; purchase
from banks or broker-dealers U.S. government obligations with a simultaneous
agreement by the seller to repurchase them within no more than seven days at the
original purchase price plus accrued interest (see 'Repurchase Agreements'); or
invest in commercial paper (see 'Commercial Paper').
As to 75% of its total assets, the Fund's investments are diversified among
the securities issued by different companies and foreign governments to the
extent that no more than 5% of its total assets may be invested in securities
issued by any one company or by any one government, other than obligations
issued or guaranteed by the U.S. government, its agencies and instrumentalities.
The Investment Manager generally selects investments for the Fund from among
many different industries, choosing those investments which (except defensive
instruments) in its view have sound economic growth potential and are in
industries it believes to be productive and beneficial. Although the Investment
Manager may invest up to 25% of the Fund's assets in a single industry, it has
no present intention of doing so. The Fund's investment restrictions (see
'Investment Restrictions' in the Statement of Additional Information ('SAI'))
limit the Fund to investing no more than 10% of its assets in securities with a
limited trading market. The Fund may borrow amounts equal to no more than 5% of
the value of its assets. The Fund's investment objective and investment policy
described above, as well as the fundamental investment restrictions described in
the SAI, cannot be changed without shareholder approval. The Fund invests for
long term growth of capital and does not intend to place
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emphasis upon short-term trading profits. Accordingly, the Fund expects usually
to have a portfolio turnover rate of less than 50%.
The Fund is authorized to use the various investment techniques described
below. Although these strategies are regularly used by some investment companies
and other institutional investors in various markets, some of these strategies
cannot at the present time be used to a significant extent by the Fund in some
of the markets in which the Fund will invest and may not be available for
extensive use in the future.
STOCK INDEX FUTURES CONTRACTS: The Fund may purchase and sell stock index
futures contracts with respect to any stock index, provided such contracts are
traded on a recognized stock exchange or board of trade. Such purchases and
sales are for hedging purposes only and are limited to an aggregate amount not
exceeding 20% of the Fund's total assets as of the time the contracts are
entered into. A stock index futures contract is an agreement to buy or sell
units of a stock index under which two parties agree to take or make delivery at
a specified future date of an amount of cash based on the difference between the
value of the stock index units at the beginning and at the end of the contract
period.
During or in anticipation of a period of market appreciation, the Fund may
enter into a 'long hedge' of common stock which it proposes to add to its
portfolio by purchasing stock index futures for the purpose of reducing the
effective purchase price of such common stock. To the extent that the common
stock which the Fund proposes to buy increases in value (in correlation with the
stock index contracted for), the purchase of futures contracts on the index
would result in gains to the Fund which could be offset against rising prices of
such common stock.
During or in anticipation of a period of market decline, the Fund may
'hedge' common stock in its portfolio by selling stock index futures for the
purposes of limiting the exposure of its portfolio to such decline. To the
extent that the Fund's portfolio of securities decreases in value (in
correlation with a given stock index), the net gain from the sale of futures
contracts on that index could substantially reduce the risk to the portfolio. To
the extent the price movements in the relevant markets are not as anticipated,
the costs of such futures transactions will not benefit the Fund.
When the Fund enters into a stock index futures contract, it must make an
initial deposit, known as 'initial margin', as a partial guarantee of its
performance under the contract. As the value of the stock index fluctuates,
either party to the contract may be required to make additional margin deposits,
known as 'variation margin', to cover any additional obligation it may have
under the contract. The Fund may not at any time commit more than 5% of its
total assets to initial margin deposits on futures contracts.
LOANS OF PORTFOLIO SECURITIES: The Fund may lend to broker-dealers portfolio
securities with an aggregate market value of up to one-third of its total
assets. Such loans must be secured by collateral (consisting of any combination
of cash, U.S. government securities or irrevocable letters of credit) in an
amount at least equal (on a daily marked-to-market basis) to the current market
value of the securities loaned. The Fund may terminate the loans at any time and
obtain the return of the securities loaned within one business day. The Fund
will continue to receive any interest or dividends paid on the loaned securities
and will continue to have voting rights with respect to the securities.
REPURCHASE AGREEMENTS: When the Fund acquires a security from a bank or a
broker-dealer, it may simultaneously enter into a repurchase agreement, wherein
the seller agrees to repurchase the security at a specified time (generally
within seven days) and price. The repurchase price is in excess of the purchase
price by an amount which reflects an agreed-upon rate of return, which is not
tied to the coupon rate on the underlying security. Under the 1940 Act,
repurchase agreements are considered to be loans collateralized by the
underlying security and therefore will be fully collateralized. However, if the
seller should default on its obligation to repurchase the underlying security,
the Fund may experience delay or difficulty in exercising its rights to realize
upon the security and might incur a loss if the value of the security declines,
as well as disposition costs in liquidating the security.
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COMMERCIAL PAPER: Commercial paper, in which the Fund may invest for
temporary defensive purposes, must at the date of investment be rated A-1 by
Standard & Poor's Corporation ('S&P') or Prime-1 by Moody's Investors Service,
Inc. ('Moody's') or, if not rated, be issued by a company which at the date of
investment has an outstanding debt issue rated AAA or AA by S&P or Aaa or Aa by
Moody's.
DEBT SECURITIES: The market value of debt securities generally varies in
response to changes in interest rates and the financial condition of each
issuer. During periods of declining interest rates, the value of debt securities
generally increases. Conversely, during periods of rising interest rates, the
value of such securities generally declines. These changes in market value will
be reflected in the Fund 's net asset value.
The Fund is authorized to invest in medium or lower quality debt securities
that are rated between BBB and as low as CC by S&P, and between Baa and as low
as Ca by Moody's or, if unrated, are of equivalent investment quality as
determined by the Investment Manager. As an operating policy, which may be
changed by the Board of Trustees without shareholder approval, the Fund will not
invest more than 5% of its total assets in debt securities rated below BBB by
S&P or Baa by Moody's. The Board may consider a change in this operating policy
if, in its judgment, economic conditions change such that a higher level of
investment in high risk, lower quality debt securities would be consistent with
the interests of the Fund and its shareholders. High risk, lower quality debt
securities, commonly referred to as 'junk bonds,' are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation and may be in
default. Unrated debt securities are not necessarily of lower quality than rated
securities but they may not be attractive to as many buyers. Regardless of
rating levels, all debt securities considered for purchase (whether rated or
unrated) will be carefully analyzed by the Investment Manager to insure, to the
extent possible, that the planned investment is sound.
Debt securities with similar maturities may have different yields, depending
upon several factors, including the relative financial condition of the issuers.
For example, higher yields are generally available from securities in the lower
rating categories of S&P or Moody's. However, the values of lower-rated
securities generally fluctuate more than those of higher-rated securities.
DEPOSITARY RECEIPTS: The Fund may purchase sponsored or unsponsored American
Depositary Receipts ('ADRs'), European Depositary Receipts ('EDRs') and Global
Depositary Receipts ('GDRs') (collectively, 'Depositary Receipts'). ADRs are
Depositary Receipts typically issued by a U.S. bank or trust company which
evidence ownership of underlying securities issued by a foreign corporation.
EDRs and GDRs are typically issued by foreign banks or trust companies, although
they also may be issued by U.S. banks or trust companies, and evidence ownership
of underlying securities issued by either a foreign or a United States
corporation. Generally, Depositary Receipts in registered form are designed for
use in the U.S. securities market and Depositary Receipts in bearer form are
designed for use in securities markets outside the United States. Depositary
Receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. Depositary Receipts may
be issued pursuant to sponsored or unsponsored programs. In sponsored programs,
an issuer has made arrangements to have its securities traded in the form of
Depositary Receipts. In unsponsored programs, the issuer may not be directly
involved in the creation of the program. Although regulatory requirements with
respect to sponsored and unsponsored programs are generally similar, in some
cases it may be easier to obtain financial information from an issuer that has
participated in the creation of a sponsored program. Accordingly, there may be
less information available regarding issuers of securities underlying
unsponsored programs and there may not be a correlation between such information
and the market value of the Depositary Receipts. Depositary Receipts also
involve the risks of other investments in foreign securities, as discussed
below. For purposes of the Fund's investment policies, the Fund's investments in
Depositary Receipts will be deemed to be investments in the underlying
securities.
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<PAGE>
RISK FACTORS
Shareholders should understand that all investments involve risk and there
can be no guarantee against loss resulting from an investment in the Fund, nor
can there be any assurance that the Fund's investment objective will be
attained. As with any investment in securities, the value of, and income from,
an investment in the Fund can decrease as well as increase, depending on a
variety of factors which may affect the values and income generated by the
Fund's portfolio securities, including general economic conditions, market
factors and currency exchange rates. As with any investment in securities, the
value of, and income from, an investment in the Fund, can decrease as well as
increase, depending on a variety of factors which may affect the values and
income generated by the Fund's portfolio securities, including general market
conditions and market factors. In addition to the factors which affect the value
of individual securities, a Shareholder may anticipate that the value of the
Shares of the Fund will fluctuate with movements in the broader equity and bond
markets, as well. A decline in the stock market of any country in which the Fund
is invested may also be reflected in declines in the price of the Shares of the
Fund. Changes in interest rates will affect the value of the Fund's portfolio
and thus its share price. Increased rates of interest which frequently accompany
inflation and/or a growing economy are likely to have a negative effect on the
value of the Fund's Shares. Changes in currency valuations will also affect the
price of the Shares of the Fund. History reflects both decreases and increases
in worldwide stock markets, the prevailing rate of interest, and currency
valuations, and these may reoccur unpredictably in the future. Additionally,
investment decisions made by the Investment Manager will not always be
profitable or prove to have been correct.
The Fund has an unlimited right to purchase securities in any foreign
country, if they are listed on a stock exchange, as well as a limited right to
purchase such securities if they are unlisted. Investors should consider
carefully the substantial risks involved in investing in securities of companies
and governments of foreign nations, some of which are referred to below, which
are in addition to the usual risks inherent in domestic investments.
There is the possibility of expropriation, nationalization or confiscatory
taxation, taxation of income earned in foreign nations or other taxes imposed
with respect to investments in foreign nations, foreign exchange controls (which
may include suspension of the ability to transfer currency from a given
country), foreign investment controls on daily stock market movements, default
in foreign government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in foreign
nations. Some countries may withhold portions of interest and dividends at the
source. In addition, in many countries there is less publicly available
information about issuers than is available in reports about companies in the
United States. Foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards, and auditing practices
and requirements may not be comparable to those applicable to United States
companies. Further, the Fund may encounter difficulties or be unable to vote
proxies, exercise shareholder rights, pursue legal remedies, and obtain
judgments in foreign courts.
Prior governmental approval of foreign investments may be required under
certain circumstances in some developing countries, and the extent of foreign
investment in domestic companies may be subject to limitation in other
developing countries. Foreign ownership limitations also may be imposed by the
charters of individual companies in developing countries to prevent, among other
concerns, violation of foreign investment limitations.
Repatriation of investment income, capital and proceeds of sales by foreign
investors may require governmental registration and/or approval in some
developing countries. The Fund could be adversely affected by delays in or a
refusal to grant any required governmental regulation or approval for such
repatriation.
Further, the economies of developing countries generally are heavily
dependent upon international trade and, accordingly, have been and may continue
to be adversely affected by trade barriers, exchange controls,
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<PAGE>
managed adjustments in relative currency values and other protectionist measures
imposed or negotiated by the countries with which they trade. These economies
also have been and may continue to be adversely affected by economic conditions
in the countries with which they trade.
Commission rates in foreign countries, which are sometimes fixed rather than
subject to negotiation as in the United States, are likely to be higher. Foreign
securities markets also have different clearance and settlement procedures, and
in certain markets there have been times when settlements have been unable to
keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems could
result either in losses to the Fund due to subsequent declines in value of the
portfolio security or, if the Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser. In many foreign
countries, there is less government supervision and regulation of business and
industry practices, stock exchanges, brokers and listed companies than in the
United States. There is an increased risk, therefore, of uninsured loss due to
lost, stolen, or counterfeit stock certificates. In addition, the foreign
securities markets of many of the countries in which the Fund may invest may
also be smaller, less liquid, and subject to greater price volatility than those
in the United States. The Fund may invest in Eastern European countries, which
involves special risks that are described under 'Risk Factors' in the SAI.
The Fund usually effects currency exchange transactions on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign exchange market. Some
price spread on currency exchange (to cover service charges) will be incurred
when the Fund converts assets from one currency to another.
The Trustees consider at least annually the likelihood of the imposition by
any foreign government of exchange control restrictions which would affect the
liquidity of the Fund's assets maintained with custodians in foreign countries,
as well as the degree of risk to which such assets may be exposed from political
acts of foreign governments and the higher costs of foreign settlement and
depositories (see 'Investment Management and Other Services--Custodian' in the
SAI). However, in the absence of willful misfeasance, bad faith or gross
negligence on the part of the Investment Manager, any losses resulting from the
holding of the Fund's portfolio securities in foreign countries and/or with
securities depositories will be at the risk of the shareholders.
Successful use of stock index futures contracts by the Fund is subject to
certain special risk considerations. A liquid stock index futures market may not
be available for a particular contract when the Fund seeks to offset adverse
market movements by reducing or eliminating a particular futures position. In
addition, there may be an imperfect correlation between movements in the
securities included in the index and movements in the securities in the Fund's
portfolio. Successful use of stock index futures contracts is further dependent
on the Investment Manager's ability to predict correctly movements in the
direction of both the stock markets and the futures markets and no assurance can
be given that its judgment in these respects will be correct.
SALE AND REDEMPTION OF SHARES
Shares of the Fund are sold only to TFAC to be held by separate accounts for
use as the funding vehicle for the Annuities. Individuals may not purchase
shares directly from the Fund. Please read the prospectus for the separate
account for more information on the purchase of Fund Shares.
Shares of the Fund are sold and redeemed at their net asset value next
determined after receipt of a purchase or redemption order. No sales or
redemption charge is made. The value of Shares redeemed may be more or less than
their cost, depending upon the market value of the portfolio securities at the
time of
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<PAGE>
redemption. Payment for Shares redeemed will be made as soon as practicable
after receipt, but in no event later than seven days after tender, except that
the Fund may suspend the right of redemption during any period when trading on
the New York Stock Exchange ('NYSE') is restricted or the NYSE is closed for
other than weekends or holidays, or any emergency is deemed to exist by the
Securities and Exchange Commission as a result of which disposal of portfolio
securities or valuation of net assets is not reasonably practicable, and
whenever the Securities and Exchange Commission has by order permitted such
suspension or postponement for the protection of shareholders. The Fund acts as
its own underwriter and transfer agent.
NET ASSET VALUE: The net asset value of the Fund's Shares is determined as
of the scheduled closing time of the NYSE (generally 4:00 p.m., New York time)
on each day the NYSE is open for trading (except on days during which no Shares
are tendered for redemption and no order to purchase or sell Shares is received
by the Fund), by dividing the value of the Fund's securities plus any cash and
other assets (including accrued interest and dividends receivable) less all
liabilities (including accrued expenses) by the number of Shares outstanding,
the result being adjusted to the nearest whole cent. A security listed or traded
on a recognized stock exchange or NASDAQ is valued at its last sale price on the
principal exchange on which the security is traded. The value of a foreign
security is determined in its national currency as of the close of trading on
the foreign exchange on which it is traded, or as of the scheduled closing of
the NYSE (generally 4:00 p.m., New York time), if that is earlier, and that
value is then converted into its U.S. dollar equivalent at the foreign exchange
rate in effect at noon, New York time, on the day the value of the foreign
security is determined. If no sale is reported at that time, the mean between
the current bid and asked price is used. Occasionally, events which affect the
values of such securities and such exchange rates may occur between the times at
which they are determined and the close of the NYSE, and will therefore not be
reflected in the computation of the Fund's net asset value. If events materially
affecting the value of such securities occur during such period, then these
securities will be valued at fair value as determined by the management and
approved in good faith by the Board of Trustees. All other securities for which
over-the-counter market quotations are readily available are valued at the mean
between the current bid and asked price. Securities for which market quotations
are not readily available and other assets are valued at fair value as
determined by the management and approved in good faith by the Board of
Trustees. Futures contracts are valued using the last sale price on that day or,
in the absence of such a price, fair value as determined by the management and
approved in good faith by the Board of Trustees.
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS: The Fund is managed by its Board of Trustees which
may exercise all powers not required by statute, the Declaration of Trust or the
By-laws to be exercised by its Shareholders. Information relating to the
Trustees and executive officers is set forth under the heading 'Management of
the Fund' in the SAI.
INVESTMENT MANAGER: The Investment Manager of the Fund is Templeton
Investment Counsel, Inc., a Florida corporation with offices at Broward
Financial Center, Ft. Lauderdale, Florida 33394-3091. The Investment Manager
manages the investment and reinvestment of the Fund's assets. The Investment
Manager is an indirect wholly owned subsidiary of Franklin Resources, Inc.
('Franklin'). Through its subsidiaries, Franklin is engaged in various aspects
of the financial services industry. The Investment Manager and its affiliates
serve as advisers for a wide variety of public investment mutual funds and
private clients in many nations. The Templeton organization has been investing
globally over the past 52 years and, with its affiliates, provides investment
management and advisory services to a worldwide client base, including over 4.3
million mutual fund shareholders, foundations, endowments, employee benefit
plans and individuals. The Investment Manager and its affiliates have
approximately 4,100 employees in ten different
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<PAGE>
countries, including the United States, Australia, Scotland, Germany, Hong Kong,
Luxembourg, Bahamas, Singapore, Canada and Russia.
The Investment Manager uses a disciplined, long-term approach to value
oriented global and international investing. It has an extensive global network
of investment research sources. Securities are selected for the Fund's portfolio
on the basis of fundamental company-by-company analysis. Many different
selection methods are used for different funds and clients and these methods are
changed and improved by the Investment Manager's research on superior selection
methods.
The Investment Manager does not furnish any other services or facilities for
the Fund, although such expenses are paid by some investment advisers of other
investment companies. As compensation for its services, the Fund pays the
Investment Manager a fee, which during the most recent fiscal year, represented
0.50% of its average daily net assets. Currently, the lead portfolio manager for
the Fund is Daniel L. Jacobs. Mr. Jacobs joined the Templeton organization in
1984 as portfolio manager and security analyst and is Senior Vice President,
Portfolio Management/Research, of the Investment Manager. Prior to joining the
Templeton organization, Mr. Jacobs was with the First National Bank of Atlanta
for eight years, where he was vice president and portfolio manager in the
Institutional Investment Group. His responsibilities included the management of
institutional accounts and international equity portfolios. Lauretta A. Reeves,
Vice President of the Investment Manager, and Peter Nori, Research Analyst for
the Investment Manager, also exercise secondary portfolio management
responsibilities for the Fund. Ms. Reeves joined the Templeton organization in
1987 as an equity trader and moved into the research group in 1989. Prior to
joining the Templeton organization, Ms. Reeves was manager of equity trading for
the First Equity Corporation of Florida, a regional brokerage firm. Previously,
she worked in similar trading positions with two other brokerage houses. Prior
to joining the Templeton organization, Mr. Nori was co-portfolio manager of
Franklin Convertible Securities Fund. Further information concerning the
Investment Manager is included under the heading 'Investment Management and
Other Services' in the SAI.
BUSINESS MANAGER: Templeton Funds Annuity Company, 700 Central Avenue, P.O.
Box 33030, St. Petersburg, Florida 33733-8030, telephone (813) 823-8712 (the
'Business Manager'), provides certain administrative facilities and services for
the Fund, including payment of salaries of Fund officers, preparation and
maintenance of books and records, daily pricing of the Fund's investment
portfolio, filing of tax reports, preparation of financial reports and
monitoring compliance with regulatory requirements. For its services, the
Business Manager receives a monthly fee equivalent to 0.15% of the Fund's
average daily net assets during the year, reduced to 0.135% of such assets in
excess of $200,000,000, to 0.10% of such assets in excess of $700,000,000 and
0.075% of such assets in excess of $1,200,000,000.
EXPENSES: For the fiscal year ended December 31, 1994, expenses (net of
reimbursement by the Business Manager) amounted to 1.0% of the Fund's average
daily net assets.
BROKERAGE COMMISSIONS: The Fund's brokerage policies are described under the
heading 'Brokerage Allocation' in the SAI. The Fund's brokerage policies provide
that the receipt of research services from a broker is a factor which may be
taken into account in allocating securities transactions as long as the prices
and execution provided by the broker equal the best available within the scope
of the Fund's brokerage policies.
GENERAL INFORMATION
CAPITALIZATION: The capitalization of the Fund consists of an unlimited
number of Shares of beneficial interest, par value $0.01 per Share. The Board of
Trustees may, in its discretion, authorize the division of Shares into two or
more series of the Fund without further action by the shareholders.
VOTING RIGHTS: Shareholders of the Fund are given certain rights. Each Share
outstanding entitles the holder to one vote. Massachusetts business trust law
does not require the Fund to hold annual shareholder
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<PAGE>
meetings, although special meetings of the Fund may be called for purposes such
as electing or removing Trustees, changing fundamental policies or approving the
Investment Management Contract. TFAC is currently and likely will continue to be
the Fund's sole shareholder. However, it will vote its Fund Shares in accordance
with the voting instructions of holders of Templeton Retirement Annuities,
Templeton Immediate Variable Annuities and of any other insurance participations
or policies for which the Fund may serve as the underlying investment vehicle.
Shares of the Fund, when issued, are fully paid and non-assessable, fully
transferable and redeemable. Shareholders have no preemptive rights but are
entitled to all dividends declared by the Fund's Trustees. The Shares have
non-cumulative voting rights so that holders of a plurality of the Shares voting
for the election of Trustees at a meeting at which 50% of the outstanding Shares
are present can elect all the Trustees and, in such event, the holders of the
remaining Shares voting for the election of Trustees will not be able to elect
any person or persons to the Board of Trustees.
DIVIDENDS AND DISTRIBUTIONS: The Fund intends normally to pay an annual
dividend representing substantially all of its net investment income and to
distribute any net realized capital gains. In accordance with the direction of
TFAC all income dividends and capital gains distributions paid by the Fund on
its Shares will automatically be reinvested on the payment date in whole or
fractional Shares of the Fund at net asset value as of the record date unless
otherwise requested by TFAC to be paid in cash. The processing for the
reinvestment of dividends may vary from month to month, and does not affect the
amount or value of the Shares acquired. While the payment of dividends and
distributions will decrease the value of each Share, the automatic reinvestment
of such amounts in additional Shares means that the value of accounts invested
in the Fund will not be diminished.
FEDERAL TAX INFORMATION: The Fund intends to qualify and elect to be taxed
as a 'regulated investment company' under Subchapter M of the Internal Revenue
Code ('Code'). In any fiscal year in which the Fund so qualifies and distributes
at least 90% of its investment company taxable income, the Fund generally will
be relieved of federal income tax on the investment company taxable income and
net capital gains distributed to shareholders.
Distributions of any investment company taxable income, even when reinvested
in additional Shares, are treated as ordinary income for tax purposes in the
hands of the recipient (Templeton Funds Retirement Annuity Separate Account and
Templeton Immediate Variable Annuity Separate Account (the 'Separate
Accounts')). Net capital gains (the excess of any net long-term capital gains
over net short-term capital losses) will, to the extent distributed and
designated by the Fund as 'capital gain dividends', be treated as long term
capital gains in the hands of the Separate Accounts, even when reinvested in
additional Shares, regardless of the length of time the Separate Accounts may
have held the Shares. Any distributions that are not from a Fund's investment
company taxable income or net capital gain may be characterized as a return of
capital to shareholders or, in some cases, as capital gain.
To comply with regulations under Section 817(h) of the Code, the Fund must
diversify its investments so that on the last day of each quarter of a calendar
year no more than 55% of the value of its assets is represented by any one
investment, no more than 70% is represented by any two investments, no more than
80% is represented by any three investments, and no more than 90% is represented
by any four investments. Generally, all securities of a given issuer are treated
as a single investment. However, in the case of U.S. government securities, each
U.S. government agency or instrumentality is treated as a separate issuer. Any
security issued, guaranteed or insured (to the extent so guaranteed or insured)
by the United States or an instrumentality of the United States is treated as a
U.S. government security for this purpose.
Reference is made to the prospectuses for the Annuities for information
regarding the federal income tax treatment of distributions to Annuitants.
INQUIRIES: Shareholders' inquiries should be addressed to Templeton Variable
Annuity Fund, P.O. Box 33030, St. Petersburg, Florida 33733-8030; telephone
(800) 774-5001 or (813) 823-8712.
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<PAGE>
PERFORMANCE INFORMATION: The Fund may include its total return in
advertisements or reports to Shareholders or prospective investors. Performance
information for the Fund will not be advertised or included in sales literature
unless accompanied by comparable performance information for a separate account
to which the Fund offers its Shares.
Quotations of average annual total return will be expressed in terms of the
average annual compounded rate of return on a hypothetical investment in the
Fund over a period of 1, 5 and 10 years (or up to the life of the Fund), will
reflect the deduction of the maximum initial sales charge and deduction of a
proportional share of Fund expenses (on an annual basis), and will assume that
all dividends and distributions are reinvested when paid. Total return may be
expressed in terms of the cumulative value of an investment in the Fund at the
end of a defined period of time. Quotations of total return for the Fund will
not take into account charges or deductions against any separate account to
which the Fund's Shares are sold, or charges or deductions against Templeton
Retirement Annuities, Templeton Immediate Variable Annuities, or any other
insurance participations or policies for which the Fund may serve as the
underlying investment vehicle, although comparable performance information for a
separate account will take such charges into account. For a description of the
methods used to determine total return for the Fund, see 'Performance
Information' in the SAI.
STATEMENTS AND REPORTS: The Fund's fiscal year ends on December 31. Annual
reports (containing financial statements audited by independent auditors and
additional information regarding the Fund's performance) and semi-annual reports
(containing unaudited financial statements) are sent to Shareholders each year.
Additional copies may be obtained, without charge, upon request to the Business
Manager.
------------------------------
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<PAGE>
TEMPLETON TEMPLETON
IMMEDIATE VARIABLE IMMEDIATE VARIABLE
ANNUITY ANNUITY
PROSPECTUS
MAY 1, 1995
Franklin/Templeton Distributors, Inc.
700 Central Avenue
St. Petersburg, Florida 33701-3628 [LOGO]
TLTIV P 05/95
<PAGE>
TEMPLETON VARIABLE ANNUITY FUND
THIS STATEMENT OF ADDITIONAL INFORMATION DATED
MAY 1, 1995, IS NOT A PROSPECTUS. IT SHOULD BE READ IN
CONJUNCTION WITH THE PROSPECTUS OF
TEMPLETON VARIABLE ANNUITY FUND DATED MAY 1, 1995,
WHICH CAN BE OBTAINED WITHOUT COST UPON REQUEST TO
TEMPLETON VARIABLE ANNUITY FUND,
700 CENTRAL AVENUE, P.O. BOX 33030,
ST. PETERSBURG, FLORIDA 33733-8030
TOLL FREE TELEPHONE: (800) 774-5001
TABLE OF CONTENTS
PAGE
General Information and History . . . . . . . . . . . 1
Investment Practices and Restrictions . . . . . . . . . 2
-Debt Securities. . . . . . . . . 2
-Investment Restrictions. . . . . . . . . . 3
-Risk Factors . . . . . . 5
-Trading Policies . . . . . . . . 8
-Personal Securities Transactions . . . . . . . . . 8
Management of the Fund. . . . . . . 9
Trustee Compensation. . . . . . . . 16
Principal Shareholder . . . . . . . 16
Investment Management and Other Services. . . . . . . 17
-Investment Management Agreement. . . . . . . . . . 17
-Management Fees. . . . . . . . . 18
-The Investment Manager . . . . . . . . . . 18
-Business Manager . . . . . . . . 18
-Custodian. . . . . . . . 20
-Legal Counsel. . . . . . 20
-Independent Accountants 20
-Reports to Shareholders. . . . . . . . . . 20
Brokerage Allocation. . . . . . . . 21
Purchase, Redemption and Pricing of Shares . . . . . .23
Tax Status. . . . 24
Description of Shares . . . . . . . 26
Performance Information 26
Financial Statements. . . . . . . . 30
GENERAL INFORMATION AND HISTORY
Templeton Variable Annuity Fund (the "Fund") was organized as a
Massachusetts business trust on February 5, 1987. The Fund is registered
under the Investment Company Act of 1940 (the "1940 Act") as an open-end
diversified management investment company. The Fund's Shares are currently
sold only to Templeton Funds Annuity Company ("TFAC") to be held by Templeton
Funds Retirement Annuity and Templeton Immediate Variable Annuity Separate
Accounts (the "Separate Accounts") for use as the sole investment vehicle for
Templeton Retirement Annuities and Templeton Immediate Variable Annuities (the
"Annuities"). The Fund's Shares may in the future be sold in connection with
other insurance products or as otherwise permitted by applicable regulations
and regulatory interpretations.
INVESTMENT PRACTICES AND RESTRICTIONS
DEBT SECURITIES. The Fund may invest in debt securities which are
rated at least Ca by Moody's Investors Service, Inc. ("Moody's"), or CC by
Standard & Poor's Corporation ("S&P"), or deemed to be of comparable quality
by the Fund's investment manager, Templeton Investment Counsel, Inc. (the
"Investment Manager"). As an operating policy, the Fund will invest no more
than 5% of its assets in debt securities rated lower than Baa by Moody's or
BBB by S&P. Bonds rated Ca by Moody's represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings. Bonds rated CC by S&P are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation.
While such bonds may have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
The market value of debt securities generally varies in response to
changes in interest rates and the financial condition of each issuer. During
periods of declining interest rates, the value of debt securities generally
increases. Conversely, during periods of rising interest rates, the value of
such securities generally declines. These changes in market value will be
reflected in the Fund's net asset value.
Although they may offer higher yields than do higher rated securities,
low rated and unrated debt securities generally involve greater volatility of
price and risk of principal and income, including the possibility of default
by, or bankruptcy of, the issuers of the securities. In addition, the markets
in which low rated and unrated debt securities are traded are more limited
than those in which higher rated securities are traded. The existence of
limited markets for particular securities may diminish the Fund's ability to
sell the securities at fair value either to meet redemption requests or to
respond to a specific economic event such as a deterioration in the
creditworthiness of the issuer. Reduced secondary market liquidity for
certain low rated or unrated debt securities may also make it more difficult
for the Fund to obtain accurate market quotations for the purposes of valuing
the Fund's portfolio. Market quotations are generally available on many low
rated or unrated securities only from a limited number of dealers and may not
necessarily represent firm bids of such dealers or prices for actual sales.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of low rated debt
securities, especially in a thinly traded market. Analysis of the
creditworthiness of issuers of low rated debt securities may be more complex
than for issuers of higher rated securities, and the ability of the Fund to
achieve its investment objective may, to the extent of investment in low rated
debt securities, be more dependent upon such creditworthiness analysis than
would be the case if the Fund were investing in higher rated securities.
Low rated debt securities may be more susceptible to real or perceived
adverse economic and competitive industry conditions than investment grade
securities. The prices of low rated debt securities have been found to be
less sensitive to interest rate changes than higher rated investments, but
more sensitive to adverse economic downturns or individual corporate
developments. A projection of an economic downturn or of a period of rising
interest rates, for example, could cause a decline in low rated debt
securities prices because the advent of a recession could lessen the ability
of a highly leveraged company to make principal and interest payments on its
debt securities. If the issuer of low rated debt securities defaults, the
Fund may incur additional expenses to seek recovery.
The Fund may accrue and report interest on high yield bonds structured
as zero coupon bonds or pay-in-kind securities as income even though it
receives no cash interest until the security's maturity or payment date. In
order to qualify for beneficial tax treatment, the Fund must distribute
substantially all of its income to Shareholders (see "Tax Status"). Thus, the
Fund may have to dispose of its portfolio securities under disadvantageous
circumstances to generate cash so that it may satisfy the distribution
requirement.
INVESTMENT RESTRICTIONS. The Fund has imposed upon itself certain
fundamental investment restrictions which, together with its investment
objective and investment policy, are fundamental policies which may not be
changed without the approval of the Fund's Shareholders. For this purpose,
the provisions of the 1940 Act require the affirmative vote of the lesser of
either (A) 67% or more of the Shares of the Fund present at a Shareholders'
meeting at which more than 50% of the outstanding Shares of the Fund are
present or represented by proxy or (B) more than 50% of the outstanding Shares
of the Fund. A vote of the Shareholders satisfying these requirements will
also satisfy the requirements of the Fund's By-laws and the applicable
provisions of Massachusetts law.
A. FUNDAMENTAL INVESTMENT RESTRICTIONS. In accordance with these
restrictions, the Fund will not:
1. Invest in real estate or mortgages on real estate (although
the Fund may invest in marketable securities secured by
real estate or interests therein or issued by companies or
investment trusts which invest in real estate or interests
therein), or purchase or sell commodity contracts, except
that the Fund may purchase or sell stock index futures
contracts.
2. With respect to 75% of its total assets, invest more than
5% of the total value of its assets in the securities of
any one issuer, or purchase more than 10% of any class of
securities of any one company, including more than 10% of
its outstanding voting securities (except for investments
in obligations issued or guaranteed by the U.S. government
or its agencies or instrumentalities).
3. Act as an underwriter or issue senior securities.
4. Lend money, except that the Fund may purchase publicly-
distributed bonds, debentures, notes and other evidences of
indebtedness and may buy from a bank or broker-dealer U.S.
government obligations with a simultaneous agreement by the
seller to repurchase them at the original purchase price
plus accrued interest.
5. Borrow money, for any purpose other than redeeming its
Shares or purchasing its Shares for cancellation, and then
only as a temporary measure up to an amount not exceeding
5% of the value of its total assets.
6. Invest more than 25% of the Fund's total assets in a single
industry.
B. NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. As non-fundamental
policies, which may be changed by the Fund's Trustees without Shareholder
approval, the Fund will not invest more than 15% of its total assets in
securities of foreign issuers which are not listed on a recognized United
States or foreign securities exchange, or more than 10% of its total assets in
(a) securities with a limited trading market, (b) securities subject to legal
or contractual restrictions as to resale, and (c) repurchase agreements not
terminable within seven days. In addition, as a non-fundamental policy, the
Fund will not invest more than 5% of its assets in debt securities rated lower
than Baa by Moody's Investors Service, Inc. or BBB by Standard & Poor's
Corporation.
When an investment restriction states a maximum percentage of the
Fund's assets which may be invested in any security or other property, it is
intended that such maximum percentage limitation be determined immediately
after and as a result of the Fund's acquisition of such security or property.
Assets are calculated as described in the Prospectus under the heading "How
to Sell Shares of the Fund." If the Fund receives from an issuer of
securities held by the Fund subscription rights to purchase securities of
that issuer, and if the Fund exercises such subscription rights at a time
when the Fund's portfolio holdings of securities of that issuer would other-
wise exceed the limits set forth in investment restrictions 2 or 6 above, it
will not constitute a violation if, prior to receipt of securities upon
exercise of such rights, and after announcement of such rights, the Fund has
sold at least as many securities of the same class and value as it would
receive on exercise of such rights.
RISK FACTORS. The Fund has an unlimited right to purchase sec-
urities in any foreign country, if they are listed on a stock exchange, as
well as a limited right to purchase such securities if they are unlisted.
Investors should consider carefully the substantial risks involved in
securities of companies and governments of foreign nations, which are in
addition to the usual risks inherent in domestic investments. There may be
less publicly available information about foreign companies comparable to the
reports and ratings published about companies in the United States. Foreign
companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may
not be comparable to those applicable to United States companies. The Fund,
therefore, may encounter difficulty in obtaining market quotations for pur-
poses of valuing its portfolio and calculating its net asset value. Foreign
markets have substantially less volume than the New York Stock Exchange and
securities of some foreign companies are less liquid and more volatile than
securities of comparable United States companies. Commission rates in
foreign countries, which are generally fixed rather than subject to
negotiation as in the United States, are likely to be higher. In many
foreign countries there is less government supervision and regulation of
stock exchanges, brokers and listed companies than in the United States.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
These risks include (i) less social, political and economic stability; (ii)
the small current size of the markets for such securities and the currently
low or nonexistent volume of trading, which result in a lack of liquidity and
in greater price volatility; (iii) certain national policies which may
restrict the Fund's investment opportunities, including restrictions on
investment in issuers or industries deemed sensitive to national interests;
(iv) foreign taxation; (v) the absence of developed structures governing
private or foreign investment or allowing for judicial redress for injury to
private property; (vi) the absence, until recently in certain Eastern European
countries, of a capital market structure or market-oriented economy; and (vii)
the possibility that recent favorable economic developments in Eastern Europe
may be slowed or reversed by unanticipated political or social events in such
countries.
In addition, many countries in which the Fund may invest have
experienced substantial, and in some periods extremely high, rates of
inflation for many years. Inflation and rapid fluctuations in inflation rates
have had and may continue to have negative effects on the economies and
securities markets of certain countries. Moreover, the economies of some
developing countries may differ favorably or unfavorably from the United
States economy in such respects as growth of gross domestic product, rate of
inflation, currency depreciation, capital reinvestment, resource self-
sufficiency and balance of payments position.
Despite the recent dissolution of the Soviet Union, the communist party
may continue to exercise a significant or, in some countries, dominant role in
certain Eastern European countries. To the extent of the communist party's
influence, investments in such countries will involve risks of
nationalization, expropriation and confiscatory taxation. The communist
governments of a number of Eastern European countries expropriated large
amounts of private property in the past, in many cases without adequate
compensation, and there can be no assurance that such expropriation will not
occur in the future. In the event of such expropriation, the Funds could lose
a substantial portion of any investments it has made in the affected
countries. Further, no accounting standards exist in Eastern European
countries. Finally, even though certain Eastern European currencies may be
convertible into U.S. dollars, the conversion rates may be artificial to the
actual market values and may be adverse to Fund Shareholders.
The Fund endeavors to buy and sell foreign currencies on as favorable a
basis as practicable. Some price spread on currency exchange (to cover
service charges) may be incurred, particularly when the Fund changes
investments from one country to another or when proceeds of the sale of Shares
in U.S. dollars are used for the purchase of securities in foreign countries.
Also, some countries may adopt policies which would prevent the Fund from
transferring cash out of the country, withhold portions of interest and
dividends at the source, or impose other taxes, with respect to the Fund's
investments in securities of issuers of that country. There is the
possibility of expropriation, cessation of trading on national exchanges,
nationalization, confiscatory or other taxation, foreign exchange controls
(which may include suspension of the ability to transfer currency from a given
country), default in foreign government securities, political or social
instability or diplomatic developments that could affect investments in
securities of issuers in foreign nations.
The Fund may be affected either unfavorably or favorably by fluctua-
tions in the relative rates of exchange between the currencies of different
nations, by exchange control regulations and by indigenous economic and poli-
tical developments. Some countries in which the Fund may invest may also
have fixed or managed currencies that are not free-floating against the U.S.
dollar. Further, certain currencies may not be internationally traded.
Certain of these currencies have experienced a steady devaluation relative to
the U.S. dollar. Any devaluations in the currencies in which the Fund's
portfolio securities are denominated may have a detrimental impact on the
Fund. Through the Fund's flexible policy, management endeavors to avoid un-
favorable consequences and to take advantage of favorable developments in
particular nations where from time to time it places the Fund's investments.
The exercise of this flexible policy may include decisions to purchase
securities with substantial risk characteristics and other decisions such as
changing the emphasis on investments from one nation to another and from one
type of security to another. Some of these decisions may later prove
profitable and others may not. No assurance can be given that profits, if
any, will exceed losses.
The Trustees consider at least annually the likelihood of the impos-
ition by any foreign government of exchange control restrictions which would
affect the liquidity of the Fund's assets maintained with custodians in foreign
countries, as well as the degree of risk from political acts of foreign
governments to which such assets may be exposed. The Trustees also consider
the degree of risk involved through the holding of portfolio securities in
domestic and foreign securities depositories (see "Investment Management and
Other Services--Custodian"). However, in the absence of willful misfeasance,
bad faith or gross negligence on the part of the Investment Manager, any
losses resulting from the holding of the Fund's portfolio securities in
foreign countries and/or with securities depositories will be at the risk of
the Shareholders. No assurance can be given that the Trustees' appraisal of
the risks will always be correct or that such exchange control restrictions or
political acts of foreign governments might not occur.
TRADING POLICIES. The Investment Manager and its affiliated companies
serve as investment manager to other investment companies and private clients.
Accordingly, the respective portfolios of these funds and clients may contain
many or some of the same securities. When any two or more of these funds or
clients are engaged simultaneously in the purchase or sale of the same
security, the transactions are placed for execution in a manner designed to be
equitable to each party. The larger size of the transaction may affect the
price of the security and/or the quantity which may be bought or sold for each
party. If the transaction is large enough, brokerage commissions may be
negotiated below those otherwise chargeable.
Sale or purchase of securities, without payment of brokerage
commissions, fees (except customary transfer fees) or other remuneration in
connection therewith, may be effected between any of these funds, or between
funds and private clients, under procedures adopted by the Fund's Board of
Trustees pursuant to Rule 17a-7 under the 1940 Act.
PERSONAL SECURITIES TRANSACTIONS. Access persons of the Franklin
Templeton Group, as defined in the SEC Rule 17(j) under the 1940 Act, who are
employees of Franklin Resources, Inc. or their subsidiaries, are permitted to
engage in personal securities transactions subject to the following general
restrictions and procedures: (1) The trade must receive advance clearance
from a Compliance Officer and must be completed within 24 hours after this
clearance; (2) Copies of all brokerage confirmations must be sent to the
Compliance Officer and within 10 days after the end of each calendar quarter,
a report of all securities transactions must be provided to the Compliance
Officer; (3) In addition to items (1) and (2), access persons involved in
preparing and making investment decisions must file annual reports of their
securities holdings each January and also inform the Compliance Officer (or
other designated personnel) if they own a security that is being considered
for a fund or other client transaction or if they are recommending a security
in which they have an ownership interest for purchase or sale by a fund or
other client.
MANAGEMENT OF THE FUND
The name, address, principal occupation during the past five years and
other information with respect to each of the Trustees and Executive Officers
of the Fund are as follows:
NAME, ADDRESS AND PRINCIPAL OCCUPATION
OFFICES WITH FUND DURING PAST FIVE YEARS
RUPERT H. JOHNSON, JR.* Executive vice president and director
777 Mariners Island Blvd. of Franklin Resources, Inc.; president
San Mateo, California and director, Franklin Advisers, Inc.;
Trustee executive vice president and director, Franklin
Templeton Distributors, Inc.; director, Franklin
administrative Services, Inc.; director or
trustee of other Templeton Funds; and officer
and/or director, trustee or managing general
partner, as the case may
be, of most other subsidiaries of Franklin, and of
most of the investment companies in the Franklin
Group of Funds.
HARRIS J. ASHTON Chairman of the board, president and
Metro Center, 1 Station Place chief executive officer of General Host
Stamford, Connecticut Corporation (nursery and craft centers);
Trustee director of RBC Holdings (U.S.A.) Inc.
(a bank holding
company) and Bar-S Foods.
S. JOSEPH FORTUNATO Member of the law firm of Pitney,
200 Campus Drive Hardin, Kipp & Szuch; director of
Florham Park, New Jersey General Host Corporation.
Trustee
HASSO-G VON DIERGARDT-NAGLO Farmer; president of Clairhaven
R.R. 3 Investments, Ltd. and other private
Stouffville, Ontario investment companies.
Trustee
F. BRUCE CLARKE Retired; former credit adviser,
19 Vista View Blvd. National Bank of Canada, Toronto.
Thornhill, Ontario
Trustee
BETTY P. KRAHMER Director or trustee of various civic
2201 Kentmere Parkway associations; former economic analyst,
Wilmington, DE U.S. Government.
Trustee
FRED R. MILLSAPS Manager of personal investments (1978-
2665 NE 37th Drive present); chairman and chief executive
Fort Lauderdale, FL officer of Landmark Banking Corporation
Trustee (1969-1978); financial vice president of
Florida Power and Light (1965-1969); vice
president of Federal Reserve Bank of
Atlanta (1958-1965); director of
various business and nonprofit organiza-
tions.
ANDREW H. HINES, JR. Consultant, Triangle Consulting Group;
150 2nd Avenue N. chairman of the board and chief
St. Petersburg, Florida executive officer of Florida Progress
Trustee Corporation (1982-1990) and director of
various of its subsidiaries; chairman and
director of Precise Power Corporation;
Executive-in-Residence of Eckerd College
(1991-present); director of Checkers
Drive-In Restaurants, Inc.
JOHN G. BENNETT, JR. Founder, chairman of the board and
3 Radnor Corporate Center president of New Era Philanthropy, Inc.;
Suite 150 chairman of Human Service Systems, Inc.;
100 Matsonford Rd. president of The Foundation for New Era
Radnor, PA Philanthropy; a director or trustee of
Trustee many national and international organiza-
tions, including universities and grant-
making foundations;
member of the Public Policy Committee of the
Advertising Counsel.
GORDON S. MACKLIN Chairman of White River Corporation
8212 Burning Tree Road (information services); director of Fund
Bethesda, Maryland 20817 America Enterprise Holdings, Inc.;
Trustee Lockheed Martin Marietta Corporation, MCI
Communications Corporation and Medimmune,
Inc.; formerly: chairman, Hambrecht and
Quist Group; director, H&Q Healthcare
Investors; and president, National
Association of Securities Dealers, Inc.
NICHOLAS F. BRADY* Chairman and president of Darby Overseas
102 East Dover Street Investments, Ltd. (an investment firm)
Easton, Maryland since 1994; director of the H. J. Heinz
Trustee Company, Amerada Hess Corporation,
Capital Cities/ABC,
Inc. and the Christiana Companies;
Secretary of the
United States Department of the Treasury
from 1988 to January, 1993; chairman of
the board of Dillon, Read &
Co. Inc. (investment banking) prior thereto.
DANIEL L. JACOBS Executive vice president and director
500 East Broward Blvd. of Templeton Investment Counsel, Inc.;
Suite 1400 director of Templeton Global Investors,
Fort Lauderdale, Florida Inc.; president or vice president of
President certain of the Templeton Funds. </R.
JOHN R. KAY Vice President of the Templeton Funds;
500 East Broward Blvd. vice president and treasurer of Templeton
Suite 1400 Global Investors, Inc. and Templeton
Fort Lauderdale, Florida Worldwide, Inc.; formerly, vice president
Vice President and controller of the Keystone Group, Inc.
CHARLES B. JOHNSON President, chief executive officer,
777 Mariners Island Blvd. and director, Franklin Resources, Inc.;
San Mateo, California chairman of the board and director,
Vice President Franklin Templeton Distributors, Inc. and
Franklin Advisers, Inc.; director,
Franklin Administrative
Services, Inc., and General Host
Corporation; director
of Templeton Global Investors, Inc.; and
director or
trustee of other Templeton Funds; and
officer and director, trustee or managing
partner, as the case may
be, of most other subsidiaries of
Franklin and of most of the investment
companies in the Franklin Group of
Funds.
MARK G. HOLOWESKO President, chief executive officer and
Lyford Cay director of Templeton, Galbraith &
Nassau, Bahamas Hansberger Ltd. ("TGH"); director of global
Vice President equity research for TGH; president or
vice president of the Templeton Funds;
investment administrator with Roy West Trust
Corporation (Bahamas) Limited (1984-
1985).
MARTIN L. FLANAGAN Senior vice president, treasurer and
777 Mariners Island Blvd. chief financial officer of Franklin
San Mateo, CA Resources, Inc.; director, chief executive
Vice President officer and executive vice president of
Templeton Investment Counsel, Inc. and
director, president and chief executive
officer of Templeton Global Investors,
Inc.; director or trustee, president or
vice president of the Templeton Funds;
accountant, Arthur
Andersen & Company (1982-1983); member of
the International Society of Financial
Analysts and the
American Institute of Certified Public
Accountants.
THOMAS M. MISTELE Senior vice president of Templeton Global
700 Central Avenue Investors, Inc.; vice president of
St. Petersburg, FL Franklin Templeton Distributors, Inc.;
Secretary secretary of the Templeton Funds;
attorney, Dechert Price & Rhoads
(1985-1988) and Freehill, Hollingdale &
Page (1988); judicial clerk, U.S. District
Court
(Eastern District of Virginia) (1984-1985).
JAMES R. BAIO Certified public accountant; treasurer of
500 East Broward Blvd. the Templeton Funds; senior vice president
Suite 1400 of Templeton Worldwide, Inc., Templeton
Fort Lauderdale, FL Global Investors, Inc., and Templeton Funds
Treasurer Trust Company; formerly, senior tax manager
of Ernst & Young
(certified public accountants) (1977-1989).
JACK L. COLLINS Assistant treasurer, Templeton Funds;
700 Central Avenue assistant vice president of Franklin
St. Petersburg, FL Templeton Investor Services, Inc.; former
Assistant Treasurer partner of Grant Thornton,
independent public accountants.
JEFFREY L. STEELE Partner, Dechert Price & Rhoads.
1500 K Street, N.W.
Washington, D.C.
Assistant Secretary
- -----------------------------
* Messrs. Johnson and Brady are Directors who are "interested persons" of
the Fund as that term is defined in the 1940 Act. Mr. Brady and
Franklin Resources, Inc. are limited partners of Darby Overseas
Partners, L.P. ("Darby Overseas"). Mr. Brady established Darby
Overseas in February, 1994, and is Chairman and a shareholder of the
corporate general partner of Darby Overseas. In addition, Darby
Overseas and Templeton, Galbraith & Hansberger, Ltd. are limited
partners of Darby Emerging Markets Fund, L.P.
There are no family relationships between any of the Trustees.
TRUSTEE COMPENSATION
All of the Trust's officers and Trustees also hold positions with other
investment companies in the Franklin Templeton Group. No compensation is paid
by the Trust to any officer or trustee who is an officer, trustee or employee
of the Investment Manager or its affiliates. Each Templeton Fund pays its
independent directors and trustees and Mr. Brady an annual retainer and/or
fees for attendance at Board and Committee meetings, the amount of which is
based on the level of assets in each fund. Accordingly, based upon the assets
of the Trust as of December 31, 1994, the Trust will pay the independent
Trustees and Mr. Brady an annual retainer of $100.00. The independent
Trustees and Mr. Brady are reimbursed for any expenses incurred in attending
meetings, paid pro rata by each Franklin Templeton Fund in which they serve.
No pension or retirement benefits are accrued as part of Trust expenses.
The following table shows the total compensation paid to the
Trustees by the Trust and by all investment companies in the Franklin
Templeton Group for the fiscal year ended December 31, 1994:
NUMBER OF TOTAL COMPENSATION
NAME AGGREGATE FRANKLIN TEMPLETON FROM ALL FUNDS IN
OF COMPENSATION FUND BOARDS ON WHICH FRANKLIN
TRUSTEE FROM THE TRUST WHICH TRUSTEE SERVES TEMPLETON GROUP
Harris J. Ashton 1,525 54 $319,925
John G. Bennett 2,025 23 105,625
Nicholas F. Brady 1,525 23 86,125
F. Bruce Clarke 2,025 19 95,275
S. Joseph Fortunato 1,525 56 336,065
Andrew H. Hines, Jr. 2,025 23 106,125
Betty P. Krahmer 1,525 19 75,275
Gordon S. Macklin 1,525 51 303,695
Fred R. Millsaps 2,025 23 106,125
Hasso-G von
Diergardt-Naglo 1,525 19 75,275
PRINCIPAL SHAREHOLDER
As of March 31, 1995, TFAC, on behalf of the Separate Accounts,
owned of record 594,635 Shares (100%) of the Fund. However, TFAC will
exercise voting rights attributable to these Shares in accordance with voting
instructions received by holders of the Annuities or any other policies for
which the Fund serves as the underlying investment vehicle. To this extent,
TFAC does not exercise control over the Fund by virtue of the voting rights
from its ownership of Fund Shares.
INVESTMENT MANAGEMENT AND OTHER SERVICES
INVESTMENT MANAGEMENT AGREEMENT. The Investment Manager of the Fund is
Templeton Investment Counsel, Inc., a Florida corporation with offices in Fort
Lauderdale, Florida. The Investment Management Agreement, dated October 30,
1992, was approved by shareholders of the Fund on October 30, 1992, and was
amended and restated on February 25, 1994. It was last approved by the Board
of Trustees, including a majority of the Trustees who were not parties to the
Agreement or interested persons of any such party, at a meeting on February
24, 1995, and will continue through April 30, 1996. The Management Agreement
will continue from year to year thereafter, subject to approval annually by
the Board of Trustees or by vote of the holders of a majority of the
outstanding shares of the Fund (as defined in the 1940 Act) and also, in
either event, with the approval of a majority of those Trustees who are not
parties to the Management Agreement or interested persons of any such party in
person at a meeting called for the purpose of voting on such approval.
The Management Agreement requires the Investment Manager to manage the
investment and reinvestment of the Fund's assets. The Investment Manager is
not required to furnish any overhead items or facilities for the Fund,
including daily pricing or trading desk facilities, although such expenses are
paid by some investment advisers of some other investment companies.
The Management Agreement provides that the Investment Manager will
select brokers and dealers for execution of the Fund's portfolio transactions
consistently with the Fund's brokerage policy. (See "Brokerage Allocation.")
Although services provided by broker-dealers in accordance with the Fund's
brokerage policy may incidentally help reduce the expenses of or otherwise
benefit the Investment Manager and other investment advisory clients of the
Investment Manager and of its affiliates, as well as the Fund, the value of
any such services is indeterminable and is not used to offset the Investment
Manager's fee.
When the Investment Manager determines to buy or sell the same
securities for the Fund that the Investment Manager or one or more of its
affiliates has selected for one or more of its other clients or for clients of
its affiliates, the orders for all such securities transactions are placed for
execution by methods determined by the Investment Manager, with approval by
the Fund's Board of Trustees, to be impartial and fair, in order to seek good
results for all parties (see "Investment Practices and Restrictions--Trading
Policies"). Records of securities transactions of persons who know when
orders are placed by the Fund are available for inspection at least four times
annually by the compliance officer of the Fund so that the non-interested
Trustees (as defined in the 1940 Act) can be satisfied that the procedures are
generally fair and equitable for all parties.
The Management Agreement provides that the Investment Manager shall
have no liability to the Fund or any Shareholder of the Fund for any error of
judgment, mistake of law, or any loss arising out of any investment or other
act or omission in the performance by the Investment Manager of its duties
under the Management Agreement, or for any loss or damage resulting from the
imposition by any government of exchange control restrictions which might
affect the liquidity of the Fund's assets, or from acts or omissions of
custodians or securities depositories, or from any wars or political acts of
any foreign governments to which such assets might be exposed, except for any
liability, loss or damage resulting from willful misfeasance, bad faith or
gross negligence in the performance of the Investment Manager's duties or by
reason of reckless disregard of its obligations and duties under the
Management Agreement. The Management Agreement will terminate automatically
in the event of its assignment, and may be terminated by the Fund at any time
without payment of any penalty on 60 days' written notice, with the approval
of a majority of the Fund's Trustees in office at the time or by vote of a
majority of the outstanding Shares of the Fund (as defined in the 1940 Act).
MANAGEMENT FEES. For its services, the Fund pays the Investment
Manager a monthly fee equal on an annual basis to 0.50% of its average daily net
assets, reduced to 0.45% of such net assets in excess of $200,000,000 and
further reduced to 0.40% of such net assets in excess of $1,300,000,000.
During the fiscal years ended December 31, 1994, 1993, and 1992, the
Investment Manager received fees of $66,500, $54,283 and $50,260,
respectively.
THE INVESTMENT MANAGER. The Investment Manager is an indirect wholly
owned subsidiary of Franklin Resources, Inc. ("Franklin"), a publicly traded
company whose shares are listed on the New York Stock Exchange. Charles B.
Johnson (an officer of the Fund), Rupert H. Johnson, Jr. (a Trustee of the
Fund), and R. Martin Wiskemann are principal shareholders of Franklin and own,
respectively, approximately 20%, 16% and 9.2% of its outstanding shares.
Messrs. Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
BUSINESS MANAGER. Templeton Funds Annuity Company (the "Business
Manager"), 700 Central Avenue, P.O. Box 33030, St. Petersburg, Florida 33733-
8030, telephone (813) 823-8712, performs certain administrative functions as
Business Manager for the Fund pursuant to a Business Management Agreement
dated October 30, 1992. Prior to January 1, 1992, these administrative
functions were performed by Templeton Funds Management, Inc.
The Business Management Agreement requires the Business Manager to be
responsible for various activities on behalf of the Fund, including:
o providing office space, telephone, office equipment and
supplies for the Fund;
o paying compensation of the Fund's officers for services
rendered as such;
o authorizing expenditures and approving bills for payment on
behalf of the Fund;
o preparation of annual and semi-annual reports, notices of
dividends, capital gains distributions and tax credits;
o daily pricing of the Fund's investment portfolio and pre-
paring and supervising publication of daily quotations of
the bid and asked prices of the Fund's Shares, earnings
reports and other financial data;
o monitoring relationships with organizations serving the Fund,
including its custodian and printers;
o providing trading desk facilities for the Fund;
o supervising compliance by the Fund with recordkeeping
requirements under the 1940 Act and regulations promulgated
thereunder, with state regulatory requirements, maintaining
books and records for the Fund (other than those maintained
by the custodian), and filing tax reports, other than the
Fund's income tax returns; and
o providing executive, clerical and secretarial help needed to
carry out its responsibilities.
For its services, the Business Manager receives a monthly fee equal on
an annual basis to 0.15% of the first $200,000,000 of the Fund's average daily
net assets, reduced to 0.135% annually of such net assets in excess of
$200,000,000, further reduced to 0.10% annually of such net assets in excess
of $700,000,000, and further reduced to 0.075% annually of such net assets in
excess of $1,200,000,000. Since the Business Manager's fee covers services
often provided by investment advisers to other funds, the Fund's combined
expenses for advisory and administrative services together may be higher than
those of some other investment companies. During the fiscal years ended
December 31, 1994, 1993, and 1992, TFAC received business management fees of
$19,950, $16,285 and $15,076, respectively.
The Business Manager has voluntarily agreed to limit the total expenses
(excluding interest, taxes, brokerage commissions and extraordinary expenses)
of the Fund to an annual rate of 1.00% of the Fund's average net assets
through May 1, 1996. As long as this expense limitation continues, it may
lower the Fund's expenses and increase its total return. After May 1, 1996,
the expense limitation may be terminated or revised at any time, at which time
the Fund's expenses may increase and its total return may be reduced depending
on the total assets of the Fund.
The Business Manager is relieved of liability to the Fund for any
act or omission in the course of its performance under the Business Management
Agreement in the absence of willful misfeasance, bad faith, gross negligence
or reckless disregard of its duties and obligations under the Agreement. The
Business Management Agreement may be terminated by the Fund at any time on 60
days' written notice without payment of penalty, provided that such
termination by the Fund shall be directed or approved by vote of a majority of
the Trustees (as defined in the 1940 Act), and shall terminate automatically
and immediately in the event of its assignment.
Templeton Funds Annuity Company is an indirect wholly-owned subsidiary
of Franklin.
CUSTODIAN. The Chase Manhattan Bank, N.A., pursuant to an Agreement
dated as of January 27, 1988, serves as custodian of the Fund's securities and
cash, which are kept at the custodian's principal office, MetroTech Center,
Brooklyn, New York 11245, and at the offices of its branches and agencies
throughout the world. Compensation for the services of the custodian is based
on a schedule of charges agreed on from time to time. The custodian generally
domestically, and frequently abroad, does not actually hold certificates for
the securities in its custody, but instead has book records with domestic and
foreign securities depositories, which in turn have book records with the
transfer agents of the issuers of the securities.
LEGAL COUNSEL. Dechert Price & Rhoads, 1500 K Street, N.W.,
Washington, D.C., 20005 is legal counsel for the Fund.
INDEPENDENT ACCOUNTANTS. The firm of McGladrey & Pullen, LLP, 555
Fifth Avenue, New York, New York 10017, serves as independent accountants for
the Fund. Its audit services comprise examination of the Fund's financial
statements and review of the Fund's filings with the Securities and Exchange
Commission and the Internal Revenue Service.
REPORTS TO SHAREHOLDERS. The Fund's fiscal year ends on December 31.
Shareholders will be provided at least semiannually with reports showing the
portfolio of the Fund and other information, including an annual report with
financial statements audited by independent accountants.
BROKERAGE ALLOCATION
The Management Agreement provides that the Investment Manager is
responsible for selecting members of securities exchanges, brokers and dealers
(such members, brokers and dealers being hereinafter referred to as "brokers")
for the execution of the portfolio transactions of the Fund and, when
applicable, the negotiation of commissions in connection therewith. All
decisions and placements are made in accordance with the following principles:
1. Purchase and sale orders are usually placed with brokers who
are selected by the Investment Manager as able to achieve
"best execution" of such orders. "Best execution" means
prompt and reliable execution at the most favorable sec-
urity price, taking into account the other provisions
hereinafter set forth. The
determination of what may constitute best execution and
price in the execution of a securities transaction by a
broker involves a number of considerations, including, with
out limitation, the
overall direct net economic result to the Fund (involving both
price paid or received and any commissions and other costs
paid), the efficiency with which the transaction is
effected, the ability to effect the transaction at all
where a large block is involved, availability of the broker
to stand ready to execute possibly
difficult transactions in the future, and the financial
strength and stability of the broker. Such considerations
are judgmental
and are weighed by the Investment Manager in determining the
overall reasonableness of brokerage commissions.
2. In selecting brokers for portfolio transactions, the Invest-
ment Manager takes into account its past experience as to
brokers qualified to achieve "best execution," including
brokers who specialize in any foreign securities held by
the Fund.
3. The Investment Manager is authorized to allocate brokerage
business to brokers who have provided brokerage and research
services, as such services are defined in Section 28(e) of the
Securities Exchange Act of 1934 (the "1934 Act"), for the Fund
and/or other accounts, if any, for which the Investment
Manager exercises investment discretion (as defined in
Section 3(a)(35) of the 1934 Act) and, for transactions as
to which fixed minimum
commission rates are not applicable, to cause the Fund to
pay a commission for effecting a securities transaction in
excess of the amount another broker would have charged for
effecting that transaction, if the Investment Manager in
making the selection in question determines in good faith
that such amount of commission
is reasonable in relation to the value of the brokerage and
research services provided by such broker, viewed in terms of
either that particular transaction or the Investment Manager's
overall responsibilities with respect to the Fund and the
other accounts, if any, as to which it exercises investment
discretion.
In reaching such determination, the Investment Manager is not
required to place or to attempt to place a specific dollar
value on the research or execution services of a broker or
on the portion of any commission reflecting either of those
services. In
demonstrating that such determinations were made in good
faith, the Investment Manager shall be prepared to show
that all commissions were allocated and paid for purposes
contemplated by
the Fund's brokerage policy, that the research services
provide
lawful and appropriate assistance to the Investment Manager
in the performance of its investment decision-making
responsibilities and
that the commissions paid were within a reasonable range. The
determination that commissions were within a reasonable range
shall be based on any available information as to the level of
commissions known to be charged by other brokers on comparable
transactions, but there shall be taken into account the Fund's
policies that: (i) obtaining a low commission is deemed
secondary
to obtaining a favorable securities price, since it is
recognized
that usually it is more beneficial to the Fund to obtain a
favorable price than to pay the lowest commission and (ii) the
quality, comprehensiveness and frequency of research studies
which are provided for the Investment Manager are useful to
the Investment Manager in performing its advisory services
under its Management Agreement with the Fund. Research
services provided by brokers to the Investment Manager are
considered to be in addition to, and not in lieu of,
services required to be performed by the
Investment Manager under its Management Agreement with the
Fund. Research furnished by brokers through whom the Fund
effects securities transactions may be used by the Invest-
ment Manager for
any of its accounts, and not all such research may be used
by the
Investment Manager for the Fund. When execution of portfolio
transactions is allocated to brokers trading on exchanges with
fixed brokerage commission rates, account may be taken of
various
services provided by the broker, including quotations
outside the
United States for daily pricing of foreign securities held
in the
Fund's portfolio.
4. Purchases and sales of portfolio securities within the United
States other than on a securities exchange shall be executed
with
primary market makers acting as principal except where, in the
judgment of the Investment Manager, better prices and
execution
may be obtained on a commission basis or from other sources.
5. Sales of shares of investment companies registered under the
1940 Act which have either the same investment adviser, or an
investment adviser affiliated with the Investment Manager,
made by a broker is one factor among others to be taken
into account in deciding to allocate portfolio transactions
(including agency
transactions, principal transactions, purchases in
underwritings
or tenders in response to tender offers) for the account
of the
Fund to that broker; provided that the broker shall furnish
"best execution" as defined in paragraph 1 above, and that
such
allocation shall be within the scope of the Fund's other
policies
as stated above; and provided further, that in every
allocation
made to a broker in which such sale of shares is taken into
account there shall be no increase in the amount of the
commissions or other compensation paid to such broker beyond a
reasonable commission or other compensation determined, as set
forth in paragraph 3 above, on the basis of best execution
alone
or best execution plus research services, without taking
account
of or placing any value upon such sale of shares.
Insofar as known to the Fund's management, no Trustee or officer of the
Fund, nor the Investment Manager or any person affiliated with any of them,
has any material direct or indirect interest in any broker employed by or on
behalf of the Fund. The total brokerage commissions on portfolio transactions
for the Fund during the fiscal years ended December 31, 1994, 1993, and 1992
were $19,000, $12,220 and $13,000, respectively. All portfolio transactions
are allocated to broker-dealers only when their prices and execution, in the
judgment of the Investment Manager, are equal to the best available within the
scope of the Fund's policies. There is no fixed method used in determining
which broker-dealers receive which order or how many orders.
PURCHASE, REDEMPTION AND PRICING OF SHARES
The Prospectus describes the manner in which the Fund's Shares may be
purchased and redeemed. See "Sale and Redemption of Shares.
"
The net asset value of the Fund's Shares is determined as of the
scheduled closing time on the New York Stock Exchange (NYSE), (generally 4:00
p.m., New York time) every Monday through Friday (exclusive of national
business holidays), except on days during which no Shares are tendered for
redemption and no order to purchase or sell Shares is received by the Fund.
The Fund's offices will be closed and net asset value will not be calculated
on those days on which the NYSE is closed, which currently are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Trading in securities on European and Far Eastern exchanges and over-
the-counter markets is normally completed well before the close of business in
New York on each day on which the NYSE is open. Trading of European or Far
Eastern securities generally, or in a particular country or countries, may not
take place on every New York business day. Furthermore, trading takes place
in various foreign markets on days which are not business days in New York and
on which the Fund's net asset value is not calculated. The Fund calculates
net asset value per Share, and therefore effects sales, redemptions and
repurchases of its Shares, as of the close of the NYSE once on each day on
which that Exchange is open. Such calculation does not take place
contemporaneously with the determination of the prices of many of the
portfolio securities used in such calculation and if events occur which
materially affect the value of those foreign securities, they will be valued
at fair market value as determined by the management and approved in good
faith by the Board of Trustees.
The Board of Trustees may establish procedures under which the Fund may
suspend the right of redemption for the whole or any part of any period during
which (1) the NYSE is closed other than for customary weekend and holiday
closings, (2) trading on the NYSE is restricted, (3) an emergency exists, as
determined under rules and regulations of the Securities and Exchange
Commission, as a result of which disposal of securities owned by the Fund is
not reasonably practicable or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, or (4) for such other period
as the Securities and Exchange Commission may by order permit for the
protection of the holders of the Fund's Shares. Any subscription may be
rejected by the Fund.
TAX STATUS
The Fund intends to qualify and elect to be taxed as a "regulated
investment company" under Subchapter M of the Internal Revenue Code (the
"Code"). In any fiscal year in which the Fund so qualifies and distributes at
least 90% of its investment company taxable income, the Fund will be relieved
of federal income tax on the investment company taxable income and net capital
gains distributed to its Shareholders, the Separate Accounts. However,
because the Separate Accounts are not separate entities and their operations
form a part of TFAC, TFAC will be liable for any federal income taxes which
become payable with respect to the income of the Separate Accounts. The
Separate Accounts will bear their allocable share of such liabilities. Under
current law, no item of dividend income, interest income or realized capital
gain of the Separate Accounts attributable, at a minimum, to appreciation
after January 1, 1985, will be taxed to TFAC to the extent it is applied to
increase the reserves under the Contracts.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are also subject to a nondeductible 4% excise
tax unless the exception described below applies. To avoid the tax if it
otherwise applies, the Fund must distribute during each calendar year, (i) at
least 98% of its ordinary income (not taking into account any capital gains or
losses) for the calendar year, (ii) at least 98% of its capital gains in
excess of its capital losses for the twelve-month period ending on October 31
of the calendar year (adjusted for certain ordinary losses), and (iii) all
ordinary income and capital gains for previous years that were not distributed
during such years. To avoid application of the excise tax, the Fund intends
to make its distributions in accordance with the calendar year distribution
requirement. A distribution will be treated as paid on December 31 of the
calendar if it is declared by the Fund during October, November, or December
of that year to Shareholders of record on a date in such a month and paid by
the Fund during January of the following calendar year. Such distributions
will be taxable to Shareholders (a Separate Account) in the calendar year in
which the distributions are declared, rather than the calendar year in which
the distributions are received. The excise tax provisions described above
will not apply in a given calendar year to the Fund if all of its Shareholders
at all times during the calendar year are segregated asset accounts of life
insurance companies where the shares are held in connection with variable
contracts. (For this purpose, any shares of a regulated investment company
attributable to an investment not exceeding $250,000 made in connection with
the organization of the company is not taken into account.) Accordingly, if
this condition regarding the ownership of Shares of the Fund is met, the
excise tax will be inapplicable to the Fund even if the calendar year
distribution requirement is not met.
The Fund may invest in shares of foreign corporation which may be
classified under the Code as passive foreign investment companies ("PFICs").
In general, a foreign corporation is classified as a PFIC if at least one-half
of its assets constitute investment-type assets or 75% or more of its gross
income is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to Shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which the Fund held the PFIC shares. The Fund itself will
be subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. Under an election that currently is available in some
circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year. If this
election were made, the special rules, discussed above, relating to the
taxation of excess distributions, would not apply. In addition, another
election may be available that would involve marking to market the Fund's PFIC
shares at the end of each taxable year (and on certain other dates prescribed
in the Code), with the result that unrealized gains are treated as though they
were realized. If this election were made, tax at the Fund level under the
PFIC rules would generally be eliminated, but the Fund could, in limited
circumstances, incur nondeductible interest charges. The Fund's intention to
qualify annually as a regulated investment company may limit its elections
with respect to PFIC shares.
Because the application of the PFIC rules may affect, among other
things, the character of gains, the amount of gain or loss and the timing of
the recognition of income with respect to PFIC shares, as well as subject the
Fund itself to tax on certain income from PFIC shares, the amount that must be
distributed to Shareholders, and which will be taxed to Shareholders as
ordinary income or long-term capital gain, may be increased or decreased
substantially as compared to a fund that did not invest in PFIC shares.
Income received by the Fund from sources within a foreign country
may be subject to withholding taxes and other taxes imposed by that country.
Tax conventions between certain countries and the U.S. may reduce or eliminate
such taxes.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues income or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time that Fund actually collects such receivables or pays
such liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of debt securities denominated in a foreign currency
and on disposition of certain types of financial contracts, gains or losses
attributable to fluctuations in the value of foreign currency between the date
of acquisition of the security or contract and the date of disposition also
are treated as ordinary gain or loss. These gains or losses, referred to
under the Code as "Section 988" gains or losses, may increase or decrease the
amount of the Fund's net investment income to be distributed to its
Shareholders as ordinary income.
Debt securities purchased by the Fund may be treated for federal income
tax purposes as having original issue discount. Original issue discount
essentially represents interest for federal income tax purposes and can be
defined generally as the excess of the stated redemption price at maturity
over the issue price. Original issue discount, whether or not any income is
actually received by the Fund, is treated for U.S. federal income tax purposes
as ordinary income earned by the Fund, and therefore is subject to the
distribution requirements of the Code. Generally, the amount of original
issue discount included in the income of the Fund each year is determined on
the basis of a constant yield to maturity which takes into account the
compounding of accrued but unpaid interest.
Some of the debt securities may be purchase by the Fund at a discount
which exceeds the original issue discount on such debt securities, if any.
This additional discount represents market discount for Federal income tax
purposes. The gain realized on the disposition of any taxable debt security
having market discount will be treated as ordinary income to the extent it
does not exceed the accrued market discount on such debt security. Generally,
market discount accrues on a daily basis for each day the debt security is
held by the Fund at a constant rate over the time remaining to the debt
security's maturity or, at the election of the Fund, at a constant yield to
maturity which takes into account the semi-annual compounding of interest.
Certain futures contracts in which the Fund may invest are "section
1256 contacts." Gains or losses on section 1256 contracts generally are
considered
60% long-term and 40% short-term capital gains or losses ("60-40"), except for
certain foreign currency gains and losses which will be treated as ordinary in
character. Also, section 1256 contracts held by the Fund at the end of each
taxable year (and, in some cases, for purposes of the 4% excise tax, on
October 31 of each year) are "marked-to-market" with the result that
unrealized gains or losses are treated as though they were realized.
The hedging transactions undertaken by the Fund may result in
"straddles" for federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by the Fund. In addition, losses
realized by the Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which such losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to the Fund of hedging transactions are not
entirely clear. The hedging transactions may increase the amount of short-
term capital gain realized by the Fund which is taxed as ordinary income when
distributed to Shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections,
the amount, character and timing of the recognition of gains or losses from
the affected straddle positions will be determined under rules that vary
according to the elections made. The rules applicable under certain of the
elections may operate to accelerate the recognition of gains or losses from
the affected straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to Shareholders, and which will be taxed to Shareholders as
ordinary income or long-term capital gain, may be increased or decreased
substantially as compared to a fund that did not engage in such hedging
transactions.
The requirements under the Code relating to the qualification of the
Fund as a regulated investment company may limit the extent to which the Fund
may engage in futures contracts.
Distributions of any investment company taxable income are treated as
ordinary income for tax purposes in the hands of the Separate Accounts, even
though distributed as additional Shares of the Fund rather than in cash.
Similarly, net capital gains (the excess of any net long-term capital gains
over net short-term capital losses) will be, to the extent distributed by the
Fund and designated by the Fund as capital gain dividends, treated as long-
term capital gains in the hands of the Separate Accounts, even though
distributed as additional Shares of the Fund, regardless of the length of time
the Separate Accounts may have held the Shares.
To comply with regulations under Section 817(h) of the Code, the Fund
must diversify its investments so that on the last day of each quarter of a
calendar year no more than 55% of the value of its assets is represented by
any one investment, no more than 70% is represented by any two investments, no
more than 80% is represented by any three investments, and no more than 90% is
represented by any four investments. Generally, securities of a single issuer
are treated as one investment. However, for this purpose, in the case of U.S.
Government securities, each U.S. Government agency or instrumentality is
treated as a separate issuer. Any security issued, guaranteed or insured (to
the extent so guaranteed or insured) by the United States or an
instrumentality of the United States is treated as a U.S. Government security.
Reference is made to the prospectus for the Separate Account for
information regarding the federal income tax treatment of distributions to the
Separate Account.
DESCRIPTION OF SHARES
The Shares have non-cumulative voting rights, so that the holders of a
plurality of the Shares voting for the election of Trustees at a meeting at
which 50% of the outstanding Shares are present can elect all the Trustees
and, in such event, the holders of the remaining Shares voting for the
election of Trustees will not be able to elect any person or persons to the
Board of Trustees.
The Declaration of Trust provides that the holders of not less than
two- thirds of the outstanding Shares of the Fund may remove a person serving as
Trustee either by declaration in writing or at a meeting called for such
purpose. The Trustees are required to call a meeting for the purpose of
considering the removal of a person serving as Trustee, if requested in
writing to do so by the holders of not less than 10% of the outstanding Shares
of the Fund.
Under Massachusetts law, Shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund.
However, the Declaration of Trust disclaims liability of the Shareholders,
Trustees or officers of the Fund for acts or obligations of the Fund, which
are binding only on the assets and property of the Fund. The Declaration of
Trust provides for indemnification out of Fund property for all loss and
expense of any Shareholder held personally liable for the obligations of the
Fund. The risk of a Shareholder incurring financial loss on account of
Shareholder liability is limited to circumstances in which the Fund itself
would be unable to meet its obligations and, thus, should be considered
remote.
PERFORMANCE INFORMATION
The Fund may, from time to time, include its total return in
advertisements or reports to Shareholders or prospective investors.
Performance information for the Fund will not be advertised unless accompanied
by comparable performance information for a separate account to which the Fund
offers its Shares.
Quotations of average annual total return for the Fund will be
expressed in terms of the average annual compounded rate of return for
periods in excess of one year or the total return for periods less than one
year of a
hypothetical investment in the Fund over a period of one year (or, if less, up
to the life of the Fund) calculated pursuant to the following formula: P(1 +
T)n = ERV (where P = a hypothetical initial payment of $1,000, T = the average
annual total return for periods of one year or more or the total return for
periods of less than one year, n = the number of years, and ERV = the ending
redeemable value of a hypothetical $1,000 payment made at the beginning of the
period). All total return figures reflect the deduction of a proportional
share of Fund expenses on an annual basis, and assume that all dividends and
distributions are reinvested when paid. The Fund's average annual total
return for the one- and five-year periods ended December 31, 1994 and for the
period from February 16, 1988 (commencement of operations) through December
31, 1994 were -4.06%, 11.39% and 13.65%, respectively.
Performance information for the Fund may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index, Dow
Jones Industrial Average, or other unmanaged indices so that investors may
compare the Fund's results with those of a group of unmanaged securities
widely regarded by investors as representative of the securities market in
general; (ii) other groups of mutual funds tracked by Lipper Analytical
Services, Inc., a widely used independent research firm which ranks mutual
funds by overall performance, investment objectives and assets, or tracked by
other services, companies, publications, or persons who rank mutual funds on
overall performance or other criteria; and (iii) the Consumer Price Index
(measure for inflation) to assess the real rate of return from an investment
in the Fund. Unmanaged indices may assume the reinvestment of dividends but
generally do not reflect deductions for administrative and management costs
and expenses.
Quotations of total return for the Fund will not take into account
charges and deductions against any separate accounts to which the Fund's
Shares are sold or charges and deductions against Templeton Retirement
Annuities, Templeton Immediate Variable Annuities, or any other participations
or policies for which the Fund may serve as the underlying investment vehicle,
although comparable performance information for a separate account will take
such charges into account. Performance information for the Fund reflects only
the performance of a hypothetical investment in the Fund during the particular
time period on which the calculations are based. Performance information
should be considered in light of the Fund's investment objective and policies,
characteristics and quality of the portfolio and the market conditions during
the given time period, and should not be considered as a representation of
what may be achieved in the future.
From time to time, the Fund and the Investment Manager may also
refer to the following information:
(1) The Investment Manager's and its affiliates' market share of
international equities managed in mutual funds prepared or
published by Strategic Insight or a similar statistical
organization.
(2) The performance of U.S. equity and debt markets relative to
foreign markets prepared or published by Morgan Stanley
Capital International or a similar financial organization.
(3) The capitalization of U.S. and foreign stock markets as
prepared or published by the International Finance Corp.,
Morgan Stanley
Capital International or a similar financial organization.
(4) The geographic distribution of the Fund's portfolio.
(5) The gross national product and populations, including age
characteristics, of various countries as published by various
statistical organizations.
(6) To assist investors in understanding the different returns and
risk characteristics of various investments, the Fund may show
historical returns of various investments and published
indices (E.G., Ibbotson Associates, Inc. Charts and Morgan
Stanley EAFE -Index).
(7) The major industries located in various jurisdictions as
published by the Morgan Stanley Index.
(8) Rankings by DALBAR Surveys, Inc. with respect to mutual fund
shareholder services.
(9) Allegorical stories illustrating the importance of persistent
long-term investing.
(10) The Fund's portfolio turnover rate and its ranking relative to
industry standards as published by Lipper Analytical Services,
Inc. or Morningstar, Inc.
(11) A description of the Templeton organization's investment
management philosophy and approach, including its worldwide
search for undervalued or "bargain" securities and its
diversification by
industry, nation and type of stocks or other securities.
(12) Quotations from the Templeton organization's founder, Sir John
Templeton <F1>, advocating the virtues of diversification and
long-term investing, including the following:
o "Never follow the crowd. Superior performance is
possbile only if you invest differently from the
crowd."
o "Diversify by company, by industry and by country."
o "Always maintain a long-term perspective."
o "Invest for maximum total real return."
o "Invest - don't trade or speculate."
o "Remain flexible and open-minded about types of
investment."
o "Buy low."
o "When buying stocks, search for bargains among
quality stocks."
o "Buy value, not market trends or the economic
outlook."
o "Diversify. In stocks and bonds, as in much else,
there is safety in numbers."
o "Do your homework or hire wise experts to help you."
o "Aggressively monitor your investments."
o "Don't panic."
o "Learn from your mistakes."
o "Outperforming the market is a difficult task."
o "An investor who has all the answers doesn't even
understand all the questions."
o "There's no free lunch."
o "And now the last principle: Do not be fearful or
negative too often."
<F1> Sir John Templeton, who formerly served as Chairman of the Trust's
Board, is not involved in investment decisions, which are made by the Fund's
Investment Manager.
In addition, the Fund and the Investment Manager may also refer to the
number of shareholders in the Fund or the aggregate number of shareholders in
the Franklin Templeton Group of Funds or the dollar amount of fund and private
account assets under management in advertising materials.
FINANCIAL STATEMENTS
The financial statements contained in the Fund's December 31, 1994
Annual Report to Shareholders are incorporated herein by reference.
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
Part A:
Financial Highlights
Part B:
Incorporated by reference to Registrant's 1994 Annual Report:
(1) Report of Independent Certified Public Accountants
(2) Statement of Assets and Liabilities as of December 31,
1994
(3) Statement of Operations for fiscal period ended
December 31, 1994
(4) Statement of Changes in Net Assets
(5) Investment Portfolio as of December 31, 1994
(6) Notes to Financial Statements
(b) Exhibits
1. Declaration of Trust*
2. By-Laws
3. N/A
4. N/A
5. Amended and Restated Investment Management
Contract
6. N/A
__________________
* Filed with Pre-Effective Amendment No. 1 on October 7, 1987.
<PAGE>
7. N/A
8. Custody Agreement*
9. Business Management Agreement***
10. Opinion and Consent of Counsel - filed with Rule
24f-2 Notice on February 28, 1995.
11. Consent of Independent Certified Public Accountants
12. N/A
13. Letter concerning initial capital**
14. Reference is made to Exhibits (4)(a) and (4)(b) filed on
February 12, 1988 in connection with Pre-Effective Amendment
No. 3 to the Registration Statement on Form N-4 for
Templeton Funds Retirement Annuity Separate Account
(Registration No. 33-11780).
15. N/A
16. Schedule showing computation of performance quotations
provided in response to Item 22 (unaudited).
ITEM 25. PERSON CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
As of March 31, 1995, Templeton Funds Annuity Company, on
behalf of Templeton Funds Retirement Annuity Separate
Account and Templeton Immediate Variable Annuity Separate
Account, owned 594,635 shares (100%) of the Trust.
Templeton Funds Annuity Company will vote shares in
accordance with the voting instructions of holders of the
Annuities or any other policies for which Registrant serves
as the underlying investment vehicle.
__________________
** Filed with Pre-Effective Amendment No. 3 on February 16, 1988.
*** Filed with Post-Effective Amendment No. 6 on March 2, 1993.
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
NUMBER OF
TITLE OF CLASS RECORDHOLDERS
Shares of Beneficial Interest, 1 as of
par value $0.01 per Share: March 31, 1995
ITEM 27. INDEMNIFICATION
Reference is made to Section 4.3 of Registrant's Declaration
of Trust, filed on October 7, 1987 with Pre-Effective
Amendment No. 1 to Registrant's Registration Statement.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees,
officers and controlling persons of the Registrant pursuant
to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public
policy as expressed in the Act and is therefore
unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a
trustee, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in
connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as
expressed in the Act and the Registrant will be governed by
the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Reference is made to information contained under the heading
"Management of the Fund - The Investment Manager" in Part B
of this Registration Statement.
ITEM 29. PRINCIPAL UNDERWRITER
N/A
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Accounts and records of Registrant are maintained by
Templeton Variable Annuity Company, 700 Central Avenue, St.
Petersburg, Florida 33733-8030.
ITEM 31. MANAGEMENT SERVICES
N/A
ITEM 32. UNDERTAKINGS
(a) N/A
(b) N/A
(c) Registrant undertakes to furnish to each person to
whom a prospectus is provided a copy of its latest
Annual Report, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant hereby certifies that
it has met the requirements for effectiveness of the Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and that it has duly
caused this Post-Effective Amendment No. 7 to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized in the City
of St. Petersburg, Florida on the 28th day of April, 1995.
TEMPLETON VARIABLE ANNUITY FUND
(Registrant)
By:
Daniel L. Jacobs*
President
*By: /s/ Thomas M. Mistele
-----------------------
Thomas M. Mistele
as attorney-in-fact**
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below
by the following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
President (Chief April 28, 1995
Daniel L. Jacobs* Executive Officer)
Trustee April 28, 1995
F. Bruce Clarke*
Trustee April 28, 1995
Hasso-G von Diergardt-Naglo*
Trustee April 28, 1995
Fred R. Millsaps*
Trustee April 28, 1995
Betty P. Krahmer*
Trustee April 28, 1995
John G. Bennett, Jr.*
Trustee April 28, 1995
Andrew H. Hines, Jr.*
Trustee April 28, 1995
Harris J. Ashton*
Trustee April 28, 1995
S. Joseph Fortunato*
Trustee April 28, 1995
Rupert H. Johnson, Jr.*
Trustee April 28, 1995
Gordon S. Macklin*
Trustee April 28, 1995
Nicholas F. Brady*
Treasurer (Chief April 28, 1995
James R. Baio* Financial and
Accounting Officer)
</TABLE>
*By: /s/ Thomas M. Mistele
-----------------------
Thomas M. Mistele
as attorney-in-fact**
** Powers of Attorney were previously filed with Registration Statement No.
33-11771 and are incorporated by reference, or are contained herewith.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, being a duly elected
Trustee of Templeton Variable Products Series Fund (the "Trust"), constitutes
and appoints Allan S. Mostoff, Jeffrey L. Steele, William J. Kotapish and
Thomas M. Mistele, and each of them, his true and lawful attorneys-in-fact
and agents with full power of substitution and resubstitution for him in his
name, place and stead, in any and all capacities, to sign the Trust's
registration statement and any and all amendments thereto, and to file the
same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and conforming all that said attorneys-in-fact and
agents, or any of them, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Dated: February 25, 1994 /s/ Nicholas F. Brady
---------------------------
Nicholas F. Brady
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, being a duly elected
Treasurer and Chief Financial Officer of Templeton Variable Products Series Fund
(the "Trust"), constitutes and appoints Allan S. Mostoff, Jeffrey L. Steele,
William J. Kotapish and Thomas M. Mistele, and each of them, his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution
for him in his name, place and stead, in any and all capacities, to sign the
Trust's registration statement and any and all amendments thereto, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and conforming all that said
attorneys-in-fact and agents, or any of them, or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Dated: February 25, 1994 /s/ James R. Baio
---------------------------
James R. Baio
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
FILED
WITH
POST-EFFECTIVE AMENDMENT NO. 8 TO
REGISTRATION STATEMENT
ON
FORM N-1A
TEMPLETON VARIABLE ANNUITY FUND
<PAGE>
EXHIBIT LIST
EXHIBIT NUMBER NAME OF EXHIBIT
(2) Bylaws
(5) Amended and Restated Investment
Management Agreement
(11) Consent of Independent Public
Accountants
(16) Schedule Showing Computation of
Performance Quotations Provided
in Response to Item 22
(Unaudited)
McGladrey & Pullen, LLP
555 Fifth Avenue
New York, NY 10017-2416
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use of our report dated February 3,
1995 on the financial statements of Templeton Variable Annuity Fund
referred to therein which appears in the 1994 Annual Report to
Shareholders, and which is incorporated herein by reference, in
Post-Effective Amendment No. 8 to the Registration Statement on
Form N-1A, File No. 33-11771, as filed with the Securities and
Exchange Commission.
We also consent to the reference to our firm in the Prospectus
under the caption "Financial Highlights" and in the Statement of
Additional Information under the caption "Independent Accountants".
McGladrey & Pullen, LLP
New York, New York
April 26, 1995
EXHIBIT 16
COMPUTATION OF PERFORMANCE QUOTATIONS
PROVIDED IN RESPONSE TO ITEM 22
(UNAUDITED)
TEMPLETON VARIABLE ANNUITY FUND
TOTAL RETURN FOR ONE YEAR
P (1 + T)N = ERV
$1000 (1 + T)1 = $959.42
(1 + T) = .9594
T = -.0406
T = -4.06%
TOTAL RETURN FOR FIVE YEARS
$1000 (1 + T)5 = $1,714.80
(1 + T)5 = 1.7148
1 + T = 1.1139
T = .1139
T = 11.39%
TOTAL RETURN SINCE INCEPTION ON FEBRUARY 16, 1988 - 6.88 YEARS
$1000 (1 + T)6.88 = $2,409.90
(1 + T)6.88 = 2.4099
(1 + T) = 1.1365
T = .1365
T = 13.65%
INVESTMENT MANAGEMENT CONTRACT
AGREEMENT made as of the 30th day of October, 1992, and
amended and restated as of February 25, 1994, between TEMPLETON
VARIABLE ANNUITY FUND, a Massachusetts business trust (the
"Fund"), and TEMPLETON INVESTMENT COUNSEL, INC., a Florida
corporation (the "Investment Manager").
In consideration of the mutual agreements herein made,
the Fund and the Investment Manager understand and agree as
follows:
(1) The Investment Manager shall manage the investment
and reinvestment of the Trust's assets consistent with the
provisions of the Trust's Agreement and Declaration of Trust and
the investment policies adopted and declared by the Trust's Board
of Trustees. In pursuance of the foregoing, the Investment
Manager shall make all determinations with respect to the
investment of the Trust's assets and the purchase and sale of its
investment securities, and shall take all such steps as may be
necessary to implement those determinations. Such determinations
and services shall include determining the manner in which any
voting rights, rights to consent to corporate action and any
other rights pertaining to the Trust's investment securities
shall be exercised, subject to the guidelines adopted by the
Board of Trustees.
(2) The Investment Manager is not required to furnish
any personnel, overhead items or facilities for the Fund.
(3) The Investment Manager shall be responsible for
selecting members of securities exchanges, brokers and dealers
<PAGE.
(such members, brokers and dealers being hereinafter referred to
as "brokers") for the execution of the Fund's portfolio trans-
actions and, when applicable, the negotiation of commissions in
connection therewith.
All recommendations, decisions and placements shall be
made in accordance with the following principles:
A. Purchase and sale orders will usually be placed
with brokers which are selected by the Investment
Manager as able to achieve "best execution" of
such orders. "Best execution" shall mean prompt
and reliable execution at the most favorable
securities price, taking into account the other
provisions as hereinafter set forth. The
determination of what may constitute best
execution and price in the execution of a
securities transaction by a broker involves a
number of considerations, including, without
limitation, the overall direct net economic result
to the Fund (involving both price paid or received
and any commissions and other costs paid), the
efficiency with which the transaction is effected,
the ability to effect the transaction at all where
a large block is involved, availability of the
broker to stand ready to execute possibly
difficult transactions in the future, and the
<PAGE>
financial strength and stability of the broker.
Such considerations are judgmental and are weighed
by the Investment Manager in determining the
overall reasonableness of brokerage commissions.
B. In selecting brokers for portfolio transactions,
the Investment Manager shall take into account its
past experience as to brokers qualified to achieve
"best execution," including brokers who specialize
in any foreign securities held by the Fund.
C. The Investment Manager is authorized to allocate
brokerage and principal business to brokers who
have provided brokerage and research services, as
such services are defined in Section 28(e)(3) of
the Securities Exchange Act of 1934 (the "1934
Act"), for the Fund and/or other accounts, if any,
for which the Investment Manager exercises
investment discretion (as defined in
Section 3(a)(35) of the 1934 Act) and, as to
transactions in which fixed minimum commission
rates are not applicable, to cause the Fund to pay
a commission for effecting a securities
transaction in excess of the amount another broker
would have charged for effecting that transaction,
if the Investment Manager in making the selection
in question determines in good faith that such
amount of commission is reasonable in relation to
the value of the brokerage and research services
provided by such broker, viewed in terms of either
that particular transaction or the Investment
Manager's overall responsibilities with respect to
the Fund and the other accounts, if any, as to
which it exercises investment discretion. In
reaching such determination, the Investment
Manager will not be required to place or attempt
to place a specific dollar value on the research
or execution services of a broker or on the
portion of any commission reflecting either of
said services. In demonstrating that such deter-
minations were made in good faith, the Investment
Manager shall be prepared to show that all
commissions were allocated and paid for purposes
contemplated by the Fund's brokerage policy; that
the research services provide lawful and
appropriate assistance to the Investment Manager
in the performance of its investment decision-
making responsibilities; and that the commissions
paid were within a reasonable range. The
determination that commissions are within a
reasonable range shall be based on any available
information as to the level of commission known to
be charged by other brokers on comparable transac-
tions, but there shall be taken into account the
Fund's policies that (i) obtaining a low
commission is deemed secondary to obtaining a
favorable securities price, since it is recognized
that usually it is more beneficial to the Fund to
obtain a favorable price than to pay the lowest
commission; and (ii) the quality, comprehensive-
ness and frequency of research studies that are
provided for the Investment Manager are useful to
the Investment Manager in performing its advisory
services under this Contract. Research services
provided by brokers to the Investment Manager are
considered to be in addition to, and not in lieu
of, services required to be performed by the
Investment Manager under this Contract. Research
furnished by brokers through whom the Fund effects
securities transactions may be used by the
Investment Manager for any of its accounts, and
not all such research may be used by the
Investment Manager for the Fund. When execution
of portfolio transactions is allocated to brokers
trading on exchanges with fixed brokerage
commission rates, account may be taken of various
services provided by the broker, including
quotations outside the United States for daily
pricing of foreign securities held in the Fund's
portfolio.
<PAGE>
D. Purchases and sales of portfolio securities within
the United States other than on a securities
exchange shall be executed with primary market
makers acting as principal except where, in the
judgment of the Investment Manager, better prices
and execution may be obtained on a commission
basis or from other sources.
(4) The Fund agrees during the term of this Contract
to pay to the Investment Manager the monthly prorated portion of
an annual fee equivalent for the first $200,000,000 of the Fund's
average daily net assets to 0.50% of such assets, reduced for
such assets over $200,000,000 to 0.45%, and further reduced for
such assets in excess of $1,300,000,000 to 0.40%, the monthly
portion in each case to be based on the Fund's average daily net
assets during the preceding month.
If the total expenses of the Fund (including the
fee to the Investment Manager) in any fiscal year of the Fund
exceed any expense limitation imposed by applicable State law,
the Investment Manager shall reimburse the Fund for such excess
in the manner and to the extent required by applicable State law.
The term "total expenses," as used in this paragraph, does not
include interest, taxes, litigation expenses, brokerage
commissions or other costs of acquiring or disposing of any of
the Fund's portfolio securities or any costs or expenses incurred
<PAGE>
or arising other than in the ordinary and necessary course of the
Fund's business.
(5) This Contract is amended and restated as of
February 25, 1994 and shall continue in effect until
April 30, 1995. If not sooner terminated, this Contract shall
continue in effect for successive periods of 12 months each
thereafter, PROVIDED that each such continuance shall be
specifically approved annually by the vote of a majority of the
Fund's Board of Trustees who are not parties to this Contract or
"interested persons" (as defined in the Investment Company Act of
1940 (the "1940 Act")) of any such party, cast in person at a
meeting called for the purpose of voting on such approval and
either the vote of (a) a majority of the outstanding voting
securities of the Fund, as defined in the 1940 Act, or (b) a
majority of the Fund's Board of Trustees as a whole.
(6) Notwithstanding the foregoing, this Contract may
be terminated at any time by the Fund, without the payment of any
penalty, upon the vote of a majority of the Fund's Board of
Trustees or a majority of the outstanding voting securities of
the Fund, or by the Investment Manager, on sixty (60) days'
written notice to the other party.
<PAGE>
(7) This Contract will terminate automatically and
immediately in the event of its "assignment" (as such term is
defined in the 1940 Act).
(8) In the event this Contract is terminated and the
Investment Manager no longer acts as Investment Manager to the
Fund, the Investment Manager reserves the right to withdraw from
the Fund the use of the name "Templeton" or any name misleadingly
implying a continuing relationship between the Fund and the
Investment Manager or any of its affiliates.
(9) The Fund may purchase and/or sell securities which
are also purchased or sold by the Investment Manager or its
owners or their affiliates or other investment advisory clients
of theirs.
(10) The Investment Manager may rely on information
reasonably believed by it to be accurate and reliable. Except as
may otherwise be provided by the 1940 Act, neither the Investment
Manager nor its officers, directors, employees or agents shall be
subject to any liability to the Fund or any Shareholder of the
Fund for any error of judgment, mistake of law or any loss
arising out of any investment or other act or omission in the
course of, connected with or arising out of any service to be
rendered hereunder or for any loss or damage resulting from the
imposition by any government of exchange control restrictions
which might affect the liquidity of the Fund's assets, or from
acts or omissions of custodians or securities depositories, or
<PAGE>
from any war or political act of any foreign government to which
such assets might be exposed, except for any liability, loss or
damage resulting from willful misfeasance, bad faith or gross
negligence in the performance of the Investment Manager's duties
or by reason of reckless disregard of the Investment Manager's
obligations and duties under this Contract.
(11) It is understood that the services of the
Investment Manager are not deemed to be exclusive, and nothing in
this Contract shall prevent the Investment Manager, or any
affiliate thereof, from providing similar services to other
investment companies and other clients (whether or not their
investment objectives and policies are similar to those of the
Fund) or from engaging in other activities. When other clients
of the Investment Manager desire to purchase or sell a security
at the same time such security is purchased or sold for the Fund,
it is understood that such purchases and sales will be made in a
manner designed to be fair to all parties.
(12) This Contract shall be construed in accordance
with the laws of the State of Florida, provided that nothing
herein shall be construed as being inconsistent with applicable
Federal or state securities laws and any rules, regulations and
orders thereunder.
(13) If any provision of this Contract shall be held or
made invalid by a court decision, statute, rule or otherwise, the
remainder of this Contract shall not be affected thereby and, to
<PAGE>
this extent, the provisions of this Contract shall be deemed to
be severable.
(14) Nothing herein shall be construed as constituting
the Investment Manager an agent of the Fund.
(15) It is understood and expressly stipulated that
neither the holders of shares of the Fund nor any Trustee,
officer, agent or employee of the Fund shall be personally liable
hereunder, nor shall any resort be had to other private property
for the satisfaction of any claim or obligation hereunder, but
the Fund only shall be liable.
TEMPLETON VARIABLE ANNUITY FUND
By: ______________________________
John R. Kay
Vice President
ATTEST:
________________________
Thomas M. Mistele
Secretary
TEMPLETON INVESTMENT COUNSEL, INC.
By: _______________________________
Donald F. Reed
President
ATTEST:
___________________________
Elizabeth M. Knoblock
Secretary
BY-LAWS
OF
TEMPLETON VARIABLE ANNUITY FUND
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I - DEFINITIONS 5
ARTICLE II - OFFICES 5
Section 1.Principal Office 5
Section 2.Other Offices 6
ARTICLE III - SHAREHOLDERS 6
Section 1.Meetings 6
Section 2.Notice of Meetings 6
Section 3.Record Date for Meetings
and Other Purposes 7
Section 4.Proxies 7
Section 5.Action without Meeting 8
ARTICLE IV - TRUSTEES 9
Section 1.Meetings of the Trustees 9
Section 2.Quorum and Manner of Acting 10
ARTICLE V - COMMITTEES 10
Section 1.Executive and Other Committees 10
Section 2.Meetings, Quorum and Manner of Acting 11
ARTICLE VI - OFFICERS 12
Section 1.General Provisions 12
Section 2.Term of Office and Qualifications 12
Section 3.Removal 13
Section 4.Powers and Duties of the President 13
Section 5.Powers and Duties of Vice Presidents 13
Section 6.Powers and Duties of the Treasurer 14
Section 7.Powers and Duties of the Secretary 14
Section 8.Powers and Duties of Assistant
Treasurers 15
Section 9.Powers and Duties of Assistant
Secretaries 15
Section 10.Compensation of Officers and Trustees
and Members of Advisory Board 15
<PAGE>
TABLE OF CONTENTS (continued) PAGE
ARTICLE VII - FISCAL YEAR 16
ARTICLE VIII - SEAL 16
ARTICLE IX - WAIVERS OF NOTICE 16
ARTICLE X - CUSTODY OF SECURITIES 17
Section 1.Employment of a Custodian 17
Section 2.Action Upon Termination of
Custodian Agreement 17
Section 3.Provisions of Custodian Agreement 18
Section 4.Central Certificate System 19
Section 5.Acceptance of Receipts in Lieu of
Certificates 20
Section 6.Custody of Fund Assets Outside the
United States 20
ARTICLE XI - AMENDMENTS 20
ARTICLE XII - INSPECTION OF BOOKS 21
ARTICLE XIII - MISCELLANEOUS 21
<PAGE>
BY-LAWS
OF
TEMPLETON VARIABLE ANNUITY FUND
AMENDED AND RESTATED AS OF JULY 29, 1992
ARTICLE I
DEFINITIONS
The terms "Commission", "Custodian", "Declaration", "Distributor",
"Investment Adviser", "Municipal Bonds", "1940 Act", "Shareholder", "Shares",
"Transfer Agent", "Trust", "Trust Property", "Trustees", and "vote of a majority
of the shares outstanding and entitled to vote", have the respective meanings
given them in the Declaration of Trust of Templeton Variable Annuity Fund dated
February 5, 1987, as amended from time to time.
<PAGE>
ARTICLE II
OFFICES
SECTION 1. PRINCIPAL OFFICE. Until changed by the Trustees, the
principal office of the Trust shall be located at 700 Central Avenue, St.,
Petersburg, Florida.
SECTION 2. OTHER OFFICES. The Trust may have offices in such other
places without as well as within the Commonwealth of Massachusetts as the
Trustees may from time to time determine.
ARTICLE III
SHAREHOLDERS
SECTION 1. MEETINGS. Meetings of the Shareholders shall be held as
provided in the Declaration of Trust at such place within or without the
Commonwealth of Massachusetts as the Trustees shall designate. The holders of
a majority of outstanding Shares present in person or by proxy shall constitute
a quorum at any meeting of the Shareholders.
SECTION 2. NOTICE OF MEETINGS. Notice of all meetings of the
Shareholders, stating the time, place and purposes of the meeting, shall be
given by the Trustees by mail to each Shareholder at his address as recorded
on the
register of the Trust mailed at least ten (10) days and not more than sixty (60)
days before the meeting. Only the business stated in the notice of the meeting
shall be considered at such meeting. Any adjourned meeting may be held as
adjourned without further notice. No notice need be given to any Shareholder
who shall have failed to inform the Trust of his current address or if a written
waiver of notice, executed before or after the meeting by the Shareholder or his
attorney thereunto authorized, is filed with the records of the meeting.
SECTION 3. RECORD DATE FOR MEETING AND OTHER PURPOSES. For the purpose
of determining the Shareholders who are entitled to notice of and to vote at any
meeting, or to participate in any distribution, or for the purpose of any other
action, the Trustees may from time to time close the transfer books for such
period, not exceeding thirty (30) days, as the Trustees may determine; or
without
<PAGE>
closing the transfer books the Trustees may fix a date not more than ninety (90)
days prior to the date of any meeting of Shareholders or distribution or other
action as a record date for the determinations of the persons to be treated as
Shareholders of record for such purposes, subject to the provisions of the
Declaration.
SECTION 4. PROXIES. At any meeting of Shareholders, any holder of
Shares entitled to vote thereat may vote by proxy, provided that no proxy shall
be voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote shall be taken.
Proxies may be solicited in the name of one or more Trustees or one or more of
the officers of the Trust. Only Shareholders of record shall be entitled to
vote. Each whole share shall be entitled to one vote as to any matter on which
it is entitled by the Declaration to vote, and each fractional Share shall be
entitled to a proportionate fractional vote. When any Share is held jointly by
several persons, any one of them may vote at any meeting in person or by proxy
in respect of such Share, but if more than one of them shall be present at such
meeting in person or by proxy, and such joint owners or their proxies so present
disagree as to any vote to be cast, such vote shall not be received in respect
of such Share. A proxy purporting to be executed by or on behalf of a
Shareholder shall be deemed valid unless challenged at or prior to its exercise,
and the burden of proving invalidity shall rest on the challenger. If the
holder of any such share is a minor or a person of unsound mind, and subject to
guardianship or the legal control of any other person as regards the charge or
management of such Share, he may vote by his guardian or such other person
appointed or having such control, and such vote may be given in person or by
proxy.
SECTION 5. ACTION WITHOUT MEETING. Any action which may be taken by
<PAGE>
Shareholders may be taken without a meeting if a majority of Shareholders
entitled to vote on the matter (or such larger proportion thereof as shall be
required by law, the Declaration or these By-Laws for approval of such matter)
consent to the action in writing and written consents are filed with the records
of the meetings of Shareholders. Such consents shall be treated for all
purposes as a vote taken at a meeting of Shareholders.
ARTICLE IV
TRUSTEES
SECTION 1. MEETINGS OF THE TRUSTEES. The Trustees may in their
discretion provide for regular or stated meetings of the Trustees. Notice of
regular or stated meetings need not be given. Meetings of the Trustees other
than regular or stated meetings shall be held whenever called by the President,
or by any one of the Trustees, at the time being in office. Notice of the time
and place of each meeting other than regular or stated meetings shall be given
by the Secretary or an Assistant Secretary or by the officer or Trustee calling
the meeting and shall be mailed to each Trustee at least two days before the
meeting, or shall be telegraphed, cabled, or wirelessed to each Trustee at his
business address, or personally delivered to him at least one day before the
meeting. Such notice may, however, be waived by any Trustee. Notice of a
meeting need not be given to any Trustee if a written waiver of notice, executed
by him before or after the meeting, is filed with the records of the meeting, or
to any Trustee who attends the meeting without protesting prior thereto or at
its commencement the lack of notice to him. A notice or waiver of notice need
not specify the purpose of any meeting. The Trustees may meet by means of a
telephone conference circuit or similar communications equipment by means of
which all persons participating in the meeting shall be deemed to have met at a
place designated by the Trustees at the meeting. Participation in a telephone
<PAGE>
conference meeting shall constitute presence in person at such meeting. Any
action required or permitted to be taken at any meeting of the Trustees may be
taken by the Trustees without a meeting if all the Trustees consent to the
action in writing and the written consents are filed with the records of the
Trustees' meetings. Such consents shall be treated as a vote for all purposes.
Section 2. Quorum and Manner of Acting. A majority of the Trustees
shall be present in person at any regular or special meeting of the Trustees in
order to constitute a quorum for the transaction of business at such meeting and
(except as otherwise required by law, the Declaration or these By-Laws) the act
of a majority of the Trustees present at any such meeting, at which a quorum is
present, shall be the act of the Trustees. In the absence of a quorum, a
majority of the Trustees present may adjourn the meeting from time to time until
a quorum shall be present. Notice of an adjourned meeting need not be given.
ARTICLE V
COMMITTEES
Section 1. Executive and Other Committees. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less than three (3) to hold office at the pleasure
of the Trustees, which shall have the power to conduct the current and ordinary
business of the Trust while the Trustees are not in session, including the
purchase and sale of securities and the designation of securities to be
delivered upon redemption of Shares of the Trust, and such other powers of
the Trustees as the Trustees may, from time to time, delegate to them except
those powers which by law, the Declaration or these By-Laws they are
prohibited from delegating. The Trustees may also elect from their own
number other Committees from time to time, the number composing such
Committees, the powers conferred upon the same (subject to the same
limitations as with respect to the Executive Committee) and
<PAGE>
the term of membership on such Committees to be determined by the Trustees. The
Trustees may designate a chairman of any such Committee. In the absence of such
designation, the Committee may elect its own Chairman.
SECTION 2. MEETINGS, QUORUM AND MANNER OF ACTING. The Trustees may (1)
provide for stated meetings of any Committee, (2) specify the manner of calling
and notice required for special meetings of any Committee, (3) specify the
number of members of a Committee required to constitute a quorum and the
number of
members of a Committee required to exercise specified powers delegated to such
Committee, (4) authorize the making of decisions to exercise specified powers by
written assent of the requisite number of members of a Committee without a
meeting, and (5) authorize the members of a Committee to meet by means of a
telephone conference circuit.
The Executive Committee shall keep regular minutes of its meetings and
records of decisions taken without a meeting and cause them to be recorded in a
book designated for that purpose and kept in the Office of the Trust.
ARTICLE VI
OFFICERS
SECTION 1. GENERAL PROVISIONS. The officers of the Trust shall be a
President, a Treasurer and a Secretary, who shall be elected by the Trustees.
The Trustees may elect or appoint such other officers or agents as the business
of the Trust may require, including one or more Vice Presidents, one or more
Assistant Secretaries, and one or more Assistant Treasurers. The Trustees may
delegate to any officer or Committee the power to appoint any subordinate
officers or agents.
SECTION 2. TERM OF OFFICE AND QUALIFICATIONS. Except as otherwise
provided by law, the Declaration or these By-Laws, the President, the Treasurer
and the Secretary shall each hold office until his successor shall have been
duly
<PAGE>
elected and qualified, and all other officers shall hold office at the pleasure
of the Trustees. The Secretary and Treasurer may be the same person. A Vice
President and the Treasurer or a Vice President and the Secretary may be the
same
person, but the offices of Vice President, Secretary and Treasurer shall not be
held by the same person. The President shall hold no other office. Except as
above provided, any two offices may be held by the same person. Any officer may
be, but none need be, a Trustee or Shareholder.
SECTION 3. REMOVAL. The Trustees, at any regular or special meeting
of the Trustees, may remove any officer without cause, by a vote of a majority
of the Trustees then in office. Any officer or agent appointed by an officer or
Committee may be removed with or without cause by such appointing officer or
Committee.
SECTION 4. POWERS AND DUTIES OF THE PRESIDENT. the President may call
meetings of the Trustees and of any Committee thereof when he deems it necessary
and shall preside at all meetings of the Shareholders. Subject to the control
of the Trustees and to the control of any Committees of the Trustees, within
their respective spheres, as provided by the Trustees, he shall at all times
exercise a general supervision and direction over the affairs of the Trust. He
shall have the power to employ attorneys and counsel for the Trust and to employ
such subordinate officers, agents, clerks and employees as he may find necessary
to transact the business of the Trust. He shall also have the power to grant,
issue, execute or sign such powers of attorney, proxies or other documents as
may be deemed advisable or necessary in furtherance of the interests of the
Trust. The President shall have such other powers and duties, as from time
to time may be conferred upon or, assigned to him by the Trustees.
SECTION 5. POWERS AND DUTIES OF VICE PRESIDENTS. In the absence or
disability of the President, the Vice President or, if there be more than one
Vice President, any Vice President designated by the Trustees shall perform all
<PAGE>
the duties and may exercise any of the powers of the President, subject to the
control of the Trustees. Each Vice President shall perform such other duties as
may be assigned to him from time to time by the Trustees and the President.
SECTION 6. POWERS AND DUTIES OF THE TREASURER. The Treasurer shall be
the principal financial and accounting officer of the Trust. He shall deliver
all funds of the Trust which may come into his hands to such Custodian as the
Trustees may employ pursuant to Article X of these By-Laws. He shall render a
statement of condition of the finances of the Trust to the Trustees as often as
they shall require the same and he shall in general perform all the duties
incident to the office of Treasurer and such other duties as from time to time
may be assigned to him by the Trustees. The Treasurer shall give a bond for the
faithful discharge of his duties, if required so to do by the Trustees, in such
sum and with such surety or sureties as the Trustees shall require.
SECTION 7. POWERS AND DUTIES OF THE SECRETARY. The Secretary shall
keep the minutes of all meetings of the Trustees and of the Shareholders in
proper books provided for that purpose; he shall have custody of the seal of the
Trust; he shall have charge of the Share transfer books, lists and records
unless the same are in the charge of the Transfer Agent. He shall attend to
the giving and serving of all notices by the Trust in accordance with the
provisions of these By-Laws, he shall in general perform all duties incident
to the office of Secretary and such other duties as from time to time may be
assigned to him by the Trustees.
SECTION 8. POWERS AND DUTIES OF ASSISTANT TREASURERS. In the absence
or disability of the Treasurer, any Assistant Treasurer designated by the
Trustees shall perform all the duties, and may exercise any of the powers, of
the Treasurer. Each Assistant Treasurer shall perform such other duties as
from time to time may be assigned to him by the Trustees. Each Assistant
Treasurer shall
<PAGE>
give a bond for the faithful discharge of his duties, if required so to do by
the Trustees, in such sum and with such surety or sureties as the Trustees shall
require.
SECTION 9. POWERS AND DUTIES OF ASSISTANT SECRETARIES. In the absence
or disability of the Secretary, any Assistant Secretary designated by the
Trustees shall perform all the duties, and may exercise any of the powers, of
the Secretary. Each Assistant Secretary shall perform such other duties as
from time to time may be assigned to him by the Trustees.
SECTION 10. COMPENSATION OF OFFICERS AND TRUSTEES AND MEMBERS OF THE
ADVISORY BOARD. Subject to any applicable provisions of the Declaration, the
compensation of the officers and Trustees and members of any Advisory Board
shall be fixed from time to time by the Trustees or, in the case of officers,
by any Committee or officer upon whom such power may be conferred by the
Trustees. No officer shall be prevented from receiving such compensation as
such officer by reason of the fact that he is also a Trustee.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust shall begin on the first day of January in
each year and shall end on the thirty-first day of December in each year,
provided, however, that the Trustees may from time to time change the fiscal
year.
ARTICLE VIII
SEAL
The Trustees may adopt a seal which shall be in such form and shall have
<PAGE>
such inscription thereon as the Trustees may from time to time prescribe.
ARTICLE IX
WAIVERS OF NOTICE
Whenever any notice whatever is required to be given by law, the
Declaration or these By-Laws, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto. A notice shall be deemed to have
been telegraphed, cabled or wirelessed for the purposes of these By-Laws when it
has been delivered to a representative of any telegraph, cable or wireless
company with instructions that it be telegraphed, cabled or wirelessed.
ARTICLE X
CUSTODY OF SECURITIES
SECTION 1. EMPLOYMENT OF A CUSTODIAN. The Trust shall place and at all
times maintain in the custody of a Custodian (including any sub-custodian for
the Custodian) all funds, securities and similar investments included in the
Trust Property. The Custodian (and any sub-custodian) shall be a bank having
not less than $2,000,000 aggregate capital, surplus and undivided profits and
shall be appointed from time to time by the Trustees, who shall fix its
remuneration.
SECTION 2. ACTION UPON TERMINATION OF CUSTODIAN AGREEMENT. Upon
termination of a Custodian Agreement or inability of the Custodian to continue
to serve, the Trustees shall promptly appoint a successor custodian, but in the
event that no successor custodian can be found who has the required
qualifications and is willing to serve, the Trustees shall call as promptly as
possible a special meeting of the Shareholders to determine whether the Trust
shall function without a custodian or shall be liquidated. If so directed by
<PAGE>
vote of the holders of a majority of the outstanding voting securities, the
Custodian shall deliver and pay over all Trust Property held by it as specified
in such vote.
SECTION 3. PROVISIONS OF CUSTODIAN AGREEMENT. The following provisions
shall apply to the employment of a Custodian and to any contract entered into
with the Custodian so employed:
The Trustees shall cause to be delivered to the Custodian all securities
included in the Trust Property or to which the Trust may become entitled, and
shall order the same to be delivered by the Custodian only in completion of
a sale, exchange, transfer, pledge, loan of portfolio securities to another
person, or other disposition thereof, all as the Trustees may generally or
from time to time require or approve or to a successor Custodian; and the
Trustees shall cause all funds included in the Trust Property or to which it
may become entitled to be paid to the Custodian, and shall order the same
disbursed only for investment against delivery of the securities acquired, or
the return of cash held as collateral for loans of portfolio securities, or
in payment of expenses, including management compensation, and liabilities of
the Trust, including distributions to shareholders, or to a successor
Custodian. Notwithstanding anything to the contrary in these By-Laws, upon
receipt of proper instructions, which may be standing instructions, the
custodian may deliver funds in the following cases. In connection with
repurchase agreements, the Custodian shall transmit, prior to receipt on
behalf of the Fund of any securities or other property, funds from the Fund's
custodian account to a special custodian approved by the Trustees of the Fund,
which funds shall be used to pay for securities to be purchased by the Fund
<PAGE>
subject to the Fund's obligation to sell and the seller's obligation to
repurchase such securities. In such case, the securities shall be held in the
custody of the special custodian. In connection with the Trust's purchase or
sale of financial futures contracts, the Custodian shall transmit, prior to
receipt on behalf of the Fund of any securities or other property, funds from
the Trust's custodian account in order to furnish to and maintain funds with
brokers as margin to guarantee the performance of the Trust's futures
obligations in accordance with the applicable requirements of commodities
exchanges and brokers.
SECTION 4. CENTRAL CERTIFICATE SYSTEM. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct the
Custodian to deposit all or any part of the securities owned by the Trust in a
system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission, or otherwise in accordance with the 1940
Act, pursuant to which system all securities of any particular class or
series of any issuer deposited within the system are treated as fungible and
may be transferred
or pledged by bookkeeping entry without physical delivery of such securities,
provided that all such deposits shall be subject to withdrawal only upon the
order of the Trust.
SECTION 5. ACCEPTANCE OF RECEIPTS IN LIEU OF CERTIFICATES. Subject to
such rules, regulations and orders as the Commission may adopt, the Trustees may
direct the Custodian to accept written receipts or other written evidences
indicating purchases of securities held in book-entry form in the Federal
Reserve System in accordance with regulations promulgated by the Board of
Governors of the Federal Reserve System and the local Federal Reserve Banks
in lieu of receipt
<PAGE>
of certificates representing such securities.
SECTION 6. CUSTODY OF FUND ASSETS OUTSIDE THE UNITED STATES. Nothing
in this Article X shall be construed to prohibit The Fund from placing and
maintaining in the case of an eligible foreign custodian (as defined in Rule
17f- 5(c)(2) under the 1940 Act). The Fund's foreign securities, cash and cash
equivalents in amounts reasonably necessary to effect The Fund's foreign
securities transactions in accordance with the provisions of such Rule 17f-5.
ARTICLE XI
AMENDMENTS
These By-Laws, or any of them, may be altered, amended or repealed, or
new By-Laws may be adopted by (a) vote of a majority of the Shares outstanding
and entitled to vote or (b) the Trustees, provided, however, that no By-Law may
be amended, adopted or repealed by the Trustees if such amendment, adoption or
repeal requires, pursuant to law, the Declaration or these By-Laws, a vote of
the Shareholders.
ARTICLE XII
INSPECTION OF BOOKS
The Trustees shall from time to time determine whether and to what
extent, and at what times and places, and under what conditions and regulations
the accounts and books of the Trust or any of them shall be open to the
inspection of the shareholders; and no shareholder shall have any right of
inspecting any account or book or document of the Trust except as conferred by
law or authorized by the Trustees or by resolution of the shareholders.
ARTICLE XIII
MISCELLANEOUS
(A) Except as hereinafter provided, no officer or Trustee of the Trust
<PAGE>
and no partner, officer, director or shareholder of the Investment Adviser of
the Trust (as that term is defined in the Investment Company Act of 1940) or
of the underwriter of the Trust, if any, and no Investment Adviser or under-
writer, if
any, of the Trust, shall take long or short positions in the securities issued
by the Trust.
(1) The foregoing provisions shall not prevent the underwriter,
if any, from purchasing Shares from the Trust if such purchases
are limited (except for reasonable allowance for clerical errors,
delays and errors of transmission and cancellation of orders) to
purchases for the purpose of filling orders for such Shares
received by the underwriter, and provided that orders to purchase
from the Trust are entered with the Trust or the Custodian
promptly upon receipt by the underwriter of purchase orders for
such Shares, unless the underwriter is otherwise instructed by its
customer.
(2) The foregoing provision shall not prevent the underwriter,
if any, from purchasing Shares of the Trust as agent for the
account of the Trust.
(3) The foregoing provisions shall not prevent the purchase from
the Trust or from the underwriter, if any, of Shares issued by the
Trust, by any officer, or Trustee of the Trust or by any partner,
officer, director or shareholder of the Investment Adviser of the
Trust or of the underwriter of the Trust at the price available
to the public generally at the moment of such purchase, or as
described in the then currently effective Prospectus of the Trust.
<PAGE>
(4) The foregoing shall not prevent the Investment Adviser, or
any affiliate thereof, of the Trust from purchasing Shares prior
to the effectiveness of the first registration statement relating
to the Shares under the Securities Act of 1933.
(B) The Trust shall not lend assets of the Trust to any officer or
Trustee of the Trust, or to any partner, officer, director or shareholder of, or
person financially interested in, the Investment Adviser of the Trust, or the
underwriter of the Trust, if any, or to the Investment Adviser of the Trust or
to the underwriter of the Trust, if any.
(C) The Trust shall not impose any restrictions upon the transfer of
the Shares of the Trust except as provided in the Declaration, but this
requirement shall not prevent the charging of customary transfer agent fees.
(D) The Trust shall not permit any officer or Trustee of the Trust,
or any partner, officer or director of the Investment Adviser or underwriter, if
any, of the Trust to deal for or on behalf of the Trust with himself as
principal
or agent, or with any partnership, association or corporation in which he has a
financial interest; provided that the foregoing provisions shall not prevent (a)
officers and Trustees of the Trust or partners, officers or directors of the
Investment Adviser or underwriter, if any, of the Trust from buying, holding or
selling shares in the Trust, or from being partners, officers or directors or
otherwise financially interested in the Investment Adviser or underwriter of the
Trust; (b) purchases or sales of securities or other property by the Trust from
or to an affiliated person or to the Investment Adviser or underwriter, if any,
of the Trust if such transaction is exempt from the applicable provisions of the
1940 Act; (c) purchases of investments for the portfolio of the Trust or sales
of investments owned by the Trust through a securities dealer who is, or one or
<PAGE>
more of whose partners, shareholders, officers or directors is, an officer or
Trustee of the Trust, or a partner, officer or director of the Investment
Adviser or underwriter, if any, of the Trust, if such transactions are
handled in the capacity of broker only and commissions charged do not exceed
customary brokerage
charges for such services; (d) employment of legal counsel, registrar, Transfer
Agent, dividend disbursing agent or Custodian who is, or has a partner,
shareholder, officer, or director who is an officer or Trustee of the Trust, or
a partner, officer or director of the Investment Adviser or underwriter, if any,
of the Trust, if only customary fees are charged for services to the Trust; (e)
sharing statistical research, legal and management expenses and office hire and
expenses with any other investment company in which an officer or Trustee of the
Trust, or a partner, officer or director of the Investment Adviser or
underwriter, if any, of the Trust, is an officer or director or otherwise
financially interested.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
TEMPLETON VARIABLE ANNUITY FUND, DECEMBER 31, 1994 ANNUAL REPORT
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000810355
<NAME> VARIABLE ANNUITY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 9545506
<INVESTMENTS-AT-VALUE> 12547918
<RECEIVABLES> 180662
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 3274
<TOTAL-ASSETS> 12731854
<PAYABLE-FOR-SECURITIES> 86678
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 76533
<TOTAL-LIABILITIES> 163211
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8504465
<SHARES-COMMON-STOCK> 699878
<SHARES-COMMON-PRIOR> 651133
<ACCUMULATED-NII-CURRENT> 145533
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 916233
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3002412
<NET-ASSETS> 12568643
<DIVIDEND-INCOME> 228015
<INTEREST-INCOME> 50544
<OTHER-INCOME> 0
<EXPENSES-NET> 133026
<NET-INVESTMENT-INCOME> 145533
<REALIZED-GAINS-CURRENT> 918388
<APPREC-INCREASE-CURRENT> (1595023)
<NET-CHANGE-FROM-OPS> (531102)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2879)
<DISTRIBUTIONS-OF-GAINS> (514109)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 103790
<NUMBER-OF-SHARES-REDEEMED> (82327)
<SHARES-REINVESTED> 27282
<NET-CHANGE-IN-ASSETS> (129057)
<ACCUMULATED-NII-PRIOR> 2879
<ACCUMULATED-GAINS-PRIOR> 511954
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 66500
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 197990
<AVERAGE-NET-ASSETS> 13300677
<PER-SHARE-NAV-BEGIN> 19.50
<PER-SHARE-NII> .21
<PER-SHARE-GAIN-APPREC> (.96)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.79)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.96
<EXPENSE-RATIO> 1.00<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>THE EXPENSE RATIO PER THE TEMPLETON VARIABLE ANNUITY FUND, ANNUAL REPORT
DECEMBER 31, 1994, WITHOUT REIMBURSEMENT EQUALED 1.49%.
</FN>
</TABLE>
