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
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
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.
T-1
<PAGE>
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.
T-2
<PAGE>
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,
--------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988*
- -----------------------------------------------------------------------------------------------------------------
<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
- -----------------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------
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)
- -----------------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------
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%
- -----------------------------------------------------------------------------------------------------------------
</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.
T-2
<PAGE>
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
T-3
<PAGE>
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.
T-4
<PAGE>
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.
T-5
<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,
T-6
<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
T-7
<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
T-8
<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
T-9
<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.
T-10
<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.
------------------------------
T-11
<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
