<PAGE>
Templeton Variable
Annuity Fund
- --------------------------------------------------------------------------------
YOUR FUND'S OBJECTIVE
The Templeton Variable Annuity Fund seeks long-term capital growth through a
flexible policy of investing primarily in stocks and debt obligations of
companies and governments of any nation.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Mutual funds, annuities, and other investment products:
. are not FDIC insured;
. are not deposits or obligations of, or guaranteed by, any financial
institution;
. are subject to investment risks, including possible loss of the
principal amount invested.
- --------------------------------------------------------------------------------
August 15, 1995
Dear Contract Owner:
We are pleased to bring you the semi-annual report of the Templeton Variable
Annuity Fund for the period ended June 30, 1995.
Although problems related to Mexico's December 1994 currency devaluation cast a
bearish pall over the world's financial markets in early 1995, the second
quarter of the year had a much more bullish feel to it. A combination of slower
economic growth, subdued inflation, falling interest rates, and better than
anticipated corporate earnings improved the flow of assets into mutual funds and
benefited many stock markets. Only Japanese and emerging markets turned in
negative performances, while many others were able to post double-digit
advances. European stocks moved higher as returns for U.S. investors improved
due to the rather sharp decline in the value of the dollar versus many European
currencies. Asian stock markets other than Japan's also improved, with Hong Kong
leading the rebound from last year's dismal returns. Overall, however, U.S.
stocks were the investment of
1
<PAGE>
choice during this time, as the Dow Jones Industrial Average/(R)/ achieved
all-time high levels.
These conditions presented us with challenges as we searched for undervalued
stocks -- particularly in the U.S. Although U.S. stocks appeared expensive
compared with those in other markets, we were able to find pockets of value when
industry groups temporarily fell out of favor with investors, and we purchased
shares of some retail and technology stocks at prices we considered excellent
relative to their earnings potential. Examples include DSC Communications Corp.,
Federated Department Stores Inc., and Toys R Us Inc. Our U.S. exposure increased
from 34.1% of total net assets on December 31, 1994, to 39.9% on June 30, 1995.
It has also become more difficult to identify bargain stocks in Europe,
especially in the hard currency countries (Germany, France, Switzerland, and the
Netherlands). However, we did add to our holdings of some European banks, which,
after improving their balance sheets, should be able to take advantage of a
growing demand for loans. An example is Sparbanken Sverige AB, which is the
central banking institution for the Swedish savings-bank system. We also added
to our pharmaceuti-
- --------------------------------------------------------------------------------
Templeton Variable Annuity Fund
Geographic Distribution on 6/30/95
Based on Total Net Assets
Australia/
New Zealand 5.3%
Latin America 6.1%
Asia 8.2%
[PIE CHART APPEARS HERE] Europe 30.7%
North America 41.4%
Short-Term Obligations &
Other Net Assets 8.3%
cal exposure by initiating a position in Pharmacia AB, a Swedish holding company
with operating divisions in pharmaceuticals, biotechnology, consumer products,
beverages and food. As a whole, the weakness of the U.S. dollar versus many
European currencies enhanced the performance of our European stocks during this
period.
Latin American stocks experienced volatility throughout the reporting period,
largely due to fears of export declines in Mexico and potential currency
weakness in Argentina. This gave us the opportunity to purchase several
telecommunications stocks at bargain prices. For
2
<PAGE>
example, we added to our positions in Telefonica de Argentina SA and Telefonos
de Mexico SA (Telmex). Although we are optimistic about the long-term outlook
for this region, we continue to be very selective by conducting in-depth
research before making any new stock purchases.
Looking forward, we believe the moderate economic growth and stable inflation
that characterized the first half of 1995 may persist into 1996. Economic
activity in the U.S. has clearly begun to slow, but with the U.S. financial
system in good health, corporate balance sheets improving, interest rates low,
and the dollar weak, a long period of decline does not appear likely.
Furthermore, the acceptance of capitalism by almost all nations, increasingly
free trade, and technological advancements all point toward economic growth and
improved corporate earnings.
We shall continue to implement the investment methodologies that have served our
clients well for so long, and although we are pleased with our results thus far
in 1995, we intend to intensify our bargain-hunting efforts in our search for
even better potential long-term investment opportunities for our contract
holders. There are, of
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Templeton Variable Annuity Fund
Top 10 Holdings on 6/30/95
Based on Total Net Assets
% of Total
Company, Industry, Country Net Assets
- --------------------------------------------------------------------------------
<S> <C>
News International PLC; Broadcasting &
Publishing, Australia 3.1%
- --------------------------------------------------------------------------------
Intel Corp.; Electronic Components &
Instruments, U.S. 2.8%
- --------------------------------------------------------------------------------
BankAmerica Corp.; Banking, U.S. 2.3%
- --------------------------------------------------------------------------------
BBC Brown Boveri Ltd., br.; Electrical &
Electronics, Switzerland 2.3%
- --------------------------------------------------------------------------------
Federated Department Stores Inc.;
Merchandising, U.S. 2.2%
- --------------------------------------------------------------------------------
Telebras-Telecomunicacoes Brasileiras
SA; Telecommunications, Brazil 2.2%
- --------------------------------------------------------------------------------
Astra AB, B; Health &
Personal Care, Sweden 2.2%
- --------------------------------------------------------------------------------
Bayer AG; Chemicals, Germany 2.2%
- --------------------------------------------------------------------------------
Ecco SA; Business & Public Services,
France 2.1%
- --------------------------------------------------------------------------------
Atlantic Southeast Airlines Inc.;
Transportation, U.S. 2.1%
- --------------------------------------------------------------------------------
</TABLE>
For a complete list of portfolio holdings, please see page 7 of this report.
course, special risks involved with global investing related to market,
currency, economic, political, and other factors; developing markets involve
similar but heightened risks. These risks are discussed in the prospectus.
In closing, we would like to mention that although Sir John Templeton has not
been involved in investment management of the Templeton Funds since October
3
<PAGE>
1992, we were saddened by his recent decision to step down as Chairman and
Director of the U.S.-registered Templeton funds. The Fund's Board of Trustees
have elected John Wm. Galbraith, former vice chairman of Templeton, Galbraith &
Hansberger, Ltd. to succeed him. The investment manager will continue to use the
investment philosophies and principles established by Sir John.
We appreciate your participation in the Templeton Variable Annuity Fund and look
forward to serving your investment needs in the years to come.
Sincerely,
/s/ Mark R. Beveridge
Mark R. Beveridge, CFA
Portfolio Manager
Templeton Variable Annuity Fund
4
<PAGE>
Performance Summary
The Templeton Variable Annuity Fund posted a total return of 14.90% for the six-
month period ended June 30, 1995. Total return represents the change in the
Fund's net asset value and includes reinvestment of dividends and capital gains.
It does not include deductions at the Fund or contract level for cost of
insurance charges, administrative charges, premium tax charges, mortality and
expense risk charges or other charges that may be incurred under the variable
annuity contract for which the Fund serves as an underlying investment vehicle.
Unit prices and total returns will fluctuate with market conditions, currencies,
and the economic and political climates of the countries where investments are
made. These risks are further discussed in the Fund's prospectus.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Templeton Variable Annuity Fund
Periods Ended 6/30/95
Since
Inception
1-Year 5-Year (2/16/88)
<S> <C> <C> <C>
Average Annual
Total Return/1/ 13.95% 13.78% 14.83%
Cumulative
Total Return/2/ 13.95% 90.63% 176.90%
</TABLE>
1. Average annual total return represents the average annual increase in the
value of an investment, assuming reinvestment of dividends and capital gains.
See note below.
2. Cumulative total return represents the change in the Fund's net asset value
over the specified periods, assuming reinvestment of dividends and capital
gains. See note below.
The Investment Manager has voluntarily agreed to reduce its investment
management fee to the extent necessary to limit total expenses (excluding
interest, taxes, brokerage commissions and extraordinary expenses) to 1.00% of
the Fund's average daily net assets. Without these reductions, the Fund's total
return would have been lower. The fee waiver may be discontinued at any time.
Note: Total return figures do not include deductions at the Fund or contract
level for cost of insurance charges, administrative charges, premium tax
charges, mortality and expense risk charges or other charges that may be
incurred under the variable annuity contract for which the Fund serves as an
underlying investment vehicle. Investment return and principal value will
fluctuate so that your shares, when redeemed, may be worth more or less than
their initial cost. Past performance is not indicative of future results.
5
<PAGE>
Templeton Variable Annuity Fund
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31
JUNE 30, 1995 ------------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990
------------- ------- ------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 17.96 $ 19.50 $ 14.99 $15.20 $11.76 $ 13.63
------- ------- ------- ------ ------ --------
Income from investment
operations:
Net investment income .18 .21 .24 .37 .31 .27
Net realized and
unrealized gain (loss) 2.29 (.96) 5.31 1.16 3.58 (1.80)
------- ------- ------- ------ ------ --------
Total from investment
operations 2.47 (.75) 5.55 1.53 3.89 (1.53)
------- ------- ------- ------ ------ --------
Distributions:
Dividends from net
investment income (.20) -- (.24) (.39) (.29) (.26)
Distributions from net
realized gains (1.35) (.79) (.80) (1.33) (.16) (.08)
Distributions from
other sources -- -- -- (.02) -- --
------- ------- ------- ------ ------ --------
Total distributions (1.55) (.79) (1.04) (1.74) (.45) (.34)
------- ------- ------- ------ ------ --------
Change in net asset
value .92 (1.54) 4.51 (.21) 3.44 (1.87)
------- ------- ------- ------ ------ --------
Net asset value, end of
period $ 18.88 $ 17.96 $ 19.50 $14.99 $15.20 $ 11.76
======= ======= ======= ====== ====== ========
TOTAL RETURN * 14.90% (4.06)% 37.24% 10.17% 33.29% (11.25)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (000) $13,782 $12,569 $12,698 $9,258 $9,147 $ 6,185
Ratio of expenses to
average net assets 1.05%** 1.49% 1.37% 1.52% 1.62% 2.00%
Ratio of expenses, net
of reimbursement,
to average net assets 1.00%** 1.00% 1.00% 1.00% 1.00% 1.00%
Ratio of net investment
income to
average net assets 2.05%** 1.09% 1.36% 2.06% 2.33% 2.24%
Portfolio turnover rate 7.26% 19.85% 22.13% 27.86% 25.84% 24.12%
</TABLE>
*NOT ANNUALIZED IN PERIODS OF LESS THAN ONE YEAR.
**ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
Templeton Variable Annuity Fund
Investment Portfolio, June 30, 1995 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMON STOCKS: 89.5%
- ------------------------------------------------------------------------------
Appliances & Household Durables: 1.4%
Sony Corp. Jpn. 4,000 $ 192,015
- ------------------------------------------------------------------------------
Automobiles: 2.0%
General Motors Corp. U.S. 4,000 187,500
Volvo AB, B Swe. 5,000 95,194
-----------
282,694
- ------------------------------------------------------------------------------
Banking: 12.5%
Banco de Andalucia Sp. 1,727 223,993
Bangkok Bank Public Co. Ltd., fgn. Thai. 10,000 110,188
BankAmerica Corp. U.S. 6,000 315,750
Bankinter SA Sp. 1,400 125,986
Banque Nationale de Paris NV, ADR Fr. 700 33,764
Barnett Banks Inc. U.S. 1,500 76,875
Chemical Banking Corp. U.S. 6,000 283,500
Grupo Financiero Banamex Accival SA, B Mex. 10,000 15,200
Grupo Financiero Banamex Accival SA, L Mex. 1,025 1,558
*Grupo Financiero Serfin SA de CV, rts. Mex. 22,100 47
Grupo Financiero Serfin SA, B Mex. 22,100 15,417
HSBC Holdings PLC H.K. 12,200 156,485
National Australia Bank Ltd. Aus. 14,000 110,650
NationsBank Corp. U.S. 4,200 225,225
Sparbanken Sverige AB, A Swe. 2,800 23,479
-----------
1,718,117
- ------------------------------------------------------------------------------
Broadcasting & Publishing: 3.2%
Grupo Televisa SA, GDS Mex. 1,000 20,375
News International PLC Aus. 87,200 421,490
-----------
441,865
- ------------------------------------------------------------------------------
Building Materials & Components: 0.7%
Pioneer International Ltd. Aus. 37,000 92,042
- ------------------------------------------------------------------------------
Business & Public Services: 5.0%
Columbia Healthcare Corp. U.S. 4,575 197,869
Ecco SA Fr. 1,875 294,125
*Healthcare Services Group Inc. U.S. 5,550 59,663
WMX Technologies Inc. U.S. 5,000 141,875
-----------
693,532
- ------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
Templeton Variable Annuity Fund
Investment Portfolio, June 30, 1995 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------
Chemicals: 3.9%
Akzo Nobel NV Neth. 2,000 $ 239,045
Bayer AG Ger. 1,200 298,221
-----------
537,266
- -------------------------------------------------------------------------
Data Processing & Reproduction: 2.2%
*Cap Gemini Sogeti SA, wts. Fr. 187 82
*Newbridge Networks Corp. Can. 6,000 211,500
Sligos SA Fr. 1,000 90,698
-----------
302,280
- -------------------------------------------------------------------------
Electrical & Electronics: 4.5%
BBC Brown Boveri Ltd., br. Swtz. 300 310,551
*DSC Communications Corp. U.S. 3,400 158,100
Hitachi Ltd. Jpn. 15,000 149,496
-----------
618,147
- -------------------------------------------------------------------------
Electronic Components & Instruments: 2.8%
Intel Corp. U.S. 6,000 379,875
- -------------------------------------------------------------------------
Energy Sources: 1.2%
Total SA, B Fr. 2,800 168,534
- -------------------------------------------------------------------------
Financial Services: 4.1%
Dean Witter Discover & Co. U.S. 6,000 282,000
Federal National Mortgage Assn. U.S. 3,000 283,125
-----------
565,125
- -------------------------------------------------------------------------
Food & Household Products: 2.3%
Cafe de Coral Ltd. H.K. 99,000 24,693
Grupo Embotellador de Mexico SA, B Mex. 3,500 18,200
Nestle SA Swtz. 230 239,488
Vitro SA Mex. 5,040 14,338
Vitro SA, ADR Mex. 2,520 21,735
-----------
318,454
- -------------------------------------------------------------------------
Forest Products & Paper: 3.0%
Carter Holt Harvey Ltd. N.Z. 44,226 108,217
*Cartiere Burgo SPA, wts. Itl. 3,600 317
Enso Gutzeit OY, R Fin. 12,000 108,721
Stora Kopparbergs Bergslags AB, B Swe. 15,000 203,104
-----------
420,359
- -------------------------------------------------------------------------
</TABLE>
8
<PAGE>
Templeton Variable Annuity Fund
Investment Portfolio, June 30, 1995 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Health & Personal Care: 7.5%
Astra AB, B Swe. 10,000 $ 301,047
Medeva PLC U.K. 34,430 136,859
Pfizer Inc. U.S. 2,680 247,565
Pharmacia AB, B Swe. 4,000 86,878
SmithKline Beecham PLC, ADR U.K. 5,800 262,450
-----------
1,034,799
- -------------------------------------------------------------------------------
Insurance: 5.0%
Aegon NV Neth. 3,750 129,719
Aetna Life & Casualty Co. U.S. 4,000 251,500
CCP Insurance Inc. U.S. 4,000 91,000
International Nederlanden Group Neth. 2,000 110,616
Torchmark Corp. U.S. 3,000 113,250
-----------
696,085
- -------------------------------------------------------------------------------
Merchandising: 8.6%
*Federated Department Stores Inc. U.S. 12,000 309,000
Home Depot Inc. U.S. 4,000 162,500
K Mart Corp. U.S. 10,000 146,250
*Kroger Co. U.S. 8,000 215,000
Limited Inc. U.S. 8,200 180,400
*Toys R Us Inc. U.S. 6,000 175,500
-----------
1,188,650
- -------------------------------------------------------------------------------
Metals & Mining: 0.1%
Bohler Uddeholm AG Aus. 90 6,228
Maanshan Iron & Steel Co. Ltd., H Chn. 32,000 6,700
-----------
12,928
- -------------------------------------------------------------------------------
Multi-Industry: 3.5%
Hutchison Whampoa Ltd. H.K. 55,000 265,838
Jardine Matheson Holdings Ltd. H.K. 29,800 219,030
-----------
484,868
- -------------------------------------------------------------------------------
Telecommunications: 8.3%
Alcatel Alsthom SA Fr. 1,000 90,039
Compania de Telecomunicaciones de Chile
SA, ADR Chil. 1,000 81,375
MCI Communications Corp. U.S. 9,200 202,400
STET (Sta Finanziaria Telefonica Torino)
SPA, di Risp Itl. 55,000 121,882
Telefonica de Argentina SA, B, ADR Arg. 3,000 74,250
Telefonica de Espana SA, ADR Sp. 4,200 162,750
</TABLE>
9
<PAGE>
Templeton Variable Annuity Fund
Investment Portfolio, June 30, 1995 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMON STOCKS (CONT.)
- ------------------------------------------------------------------------------
Telecommunications (cont.)
Telefonos de Mexico SA, L, ADR Mex. 7,300 $ 216,263
*Worldcom Inc. U.S. 7,100 191,700
-----------
1,140,659
- ------------------------------------------------------------------------------
Textiles & Apparel: 1.8%
*Fruit of the Loom Inc., A U.S. 3,500 73,937
Nike Inc., B U.S. 2,000 168,000
-----------
241,937
- ------------------------------------------------------------------------------
Transportation: 2.1%
Atlantic Southeast Airlines
Inc. U.S. 9,500 286,188
- ------------------------------------------------------------------------------
Utilities-Electrical & Gas: 3.8%
Electricidad de Caracas Venz. 61,722 54,869
Endesa-Empresa Nacional de
Electricidad SA, ADR Sp. 3,600 177,300
Southern Co. U.S. 4,000 89,500
VEBA AG Ger. 500 196,312
-----------
517,981
-----------
TOTAL COMMON STOCKS (cost $8,442,387) 12,334,400
- ------------------------------------------------------------------------------
PREFERRED STOCKS: 2.2%
- ------------------------------------------------------------------------------
Telebras-Telecomunicacoes
Brasileiras SA, pfd. Braz. 8,196,267 273,357
Telebras-Telecomunicacoes
Brasileiras SA, pfd., ADR Braz. 1,000 32,938
-----------
TOTAL PREFERRED STOCKS (cost $228,728) 306,295
- ------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL IN
LOCAL CURRENCY
- ------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT TERM OBLIGATIONS: 8.4% (cost $1,148,301)
- ------------------------------------------------------------------------------
U.S. Treasury Bills, 5.29% to
5.63% with
maturities to 8/17/95 U.S. 1,154,000 1,149,058
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS: 100.1% (cost
$9,819,416) 13,789,753
OTHER ASSETS, LESS LIABILITIES: (0.1)% (7,841)
-----------
TOTAL NET ASSETS: 100.0% $13,781,912
===========
</TABLE>
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
Templeton Variable Annuity Fund
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995 (unaudited)
<TABLE>
<S> <C>
Assets:
Investment in securities, at value (identified cost $9,819,416) $13,789,753
Cash 12,370
Dividends and interest receivable 36,091
-----------
Total assets 13,838,214
-----------
Liabilities:
Payables for investment securities purchased 3,351
Accrued expenses 52,951
-----------
Total liabilities 56,302
-----------
Net assets, at value $13,781,912
===========
Net assets consists of:
Undistributed net investment income $ 139,036
Net unrealized appreciation 3,970,337
Accumulated net realized gain 696,346
Net capital paid in on shares of beneficial interest 8,976,193
-----------
Net assets, at value $13,781,912
===========
Shares outstanding 729,997
===========
Net asset value per share
($13,781,912 / 729,997) $ 18.88
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF OPERATIONS
for the six months ended June 30, 1995 (unaudited)
<TABLE>
<S> <C> <C>
Investment Income: (net of $12,037 foreign taxes
withheld)
Dividends $163,577
Interest 31,585
--------
Total income $ 195,162
Expenses:
Management fees (Note 3) 31,974
Administrative fees (Note 3) 9,594
Custodian fees 1,679
Reports to shareholders 9,000
Audit fees 10,500
Legal fees 4,000
Trustees' fees and expenses 100
Other 80
--------
Total expenses 66,927
Less expenses reimbursed (Note 3) (3,106)
--------
Total expenses less reimbursement 63,821
----------
Net investment income 131,341
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 713,929
Foreign currency transactions (3,408)
--------
710,521
--------
Net unrealized appreciation on investments 967,925
--------
Net realized and unrealized gain 1,678,446
----------
Net increase in net assets resulting from operations $1,809,787
==========
</TABLE>
11
<PAGE>
Templeton Variable Annuity Fund
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1995 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1994
------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 131,341 $ 145,533
Net realized gain from security and foreign
currency transactions 710,521 918,388
Net unrealized appreciation (depreciation) 967,925 (1,595,023)
----------- -----------
Net increase (decrease) in net assets
resulting from operations 1,809,787 (531,102)
Distributions to shareholders:
From net investment income (137,838) (2,879)
From net realized gain (930,408) (514,109)
Fund share transactions (Note 2) 471,728 919,033
----------- -----------
Net increase (decrease) in net assets 1,213,269 (129,057)
Net assets:
Beginning of period 12,568,643 12,697,700
----------- -----------
End of period $13,781,912 $12,568,643
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
Templeton Variable Annuity Fund
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
Templeton Variable Annuity Fund (the Fund) is a Massachusetts business trust
and an open-end, diversified management investment company registered under the
Investment Company Act of 1940. The following summarizes the Fund's significant
accounting policies.
a. Securities Valuations:
Securities listed or traded on a recognized national or foreign stock exchange
or NASDAQ are valued at the last reported sales prices on the principal ex-
change on which the securities are traded. Over-the-counter securities and
listed securities for which no sale is reported are valued at the mean between
the last current bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
and approved in good faith by the Board of Trustees.
b. Foreign Currency Translations:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the rate of exchange of
such currencies against U.S. dollars on the date of valuation. Purchases and
sales of portfolio securities and income items denominated in foreign curren-
cies are translated into U.S. dollar amounts on the respective dates of such
transactions. When the Fund purchases or sells foreign securities it customar-
ily enters into foreign exchange contracts to minimize foreign exchange risk
between the trade date and the settlement date of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of for-
eign currencies, currency gains or losses realized between the trade and set-
tlement dates on security transactions, the differences between the amounts of
dividends, interest, and foreign withholding taxes recorded on the Fund's
books, and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities at the end
of the period, resulting from changes in the exchange rates.
c. Income Taxes:
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all its
taxable income to its shareholders. Therefore, no provision has been made for
income taxes.
d. Security Transactions, Investment Income, Distributions, and Expenses:
Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date. Certain dividend income on foreign securi-
ties is recorded as soon as information is available to the Fund. Interest in-
come and estimated expenses are accrued daily. Distributions to shareholders,
which are determined in accordance with income tax regulations, are recorded on
the ex-dividend date.
2. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
At June 30, 1995, there were an unlimited number of shares of beneficial inter-
est authorized ($0.01 par value). Transactions in the Fund's shares were as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1995 DECEMBER 31, 1994
------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
------- ---------- ------- -----------
<S> <C> <C> <C> <C>
Shares sold......................... 15,172 $ 275,840 103,790 $ 1,963,386
Shares issued on reinvestment of
distributions...................... 64,120 1,068,246 27,282 516,988
Shares redeemed..................... (49,173) (872,358) (82,327) (1,561,341)
------- ---------- ------- -----------
Net increase........................ 30,119 $ 471,728 48,745 $ 919,033
======= ========== ======= ===========
</TABLE>
13
<PAGE>
Templeton Variable Annuity Fund
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------
3. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund pays monthly an investment management fee to Templeton Investment
Counsel, Inc. equal, on an annual basis, to 0.50% of the average daily net as-
sets of the Fund, reduced to 0.45% of such net assets in excess of $200 million
up to $1.3 billion and further reduced to 0.40% of such net assets in excess of
$1.3 billion. The Fund pays to Templeton Funds Annuity Company (TFAC) an admin-
istrative fee equivalent to 0.15% of the average daily net assets of the Fund
during the year, reduced to 0.135% of such net assets in excess of $200 mil-
lion, to 0.10% of such net assets in excess of $700 million, and to 0.075% of
such assets in excess of $1.2 billion. TFAC voluntarily limited total expenses
of the Fund to an annual rate of 1.00% of the Fund's average net assets through
May 1, 1996. The amount of reimbursement for the six months ended June 30,
1995, is set forth in the Statement of Operations.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the six
months ended June 30, 1995 aggregated $857,441 and $1,424,890, respectively.
The cost of securities for federal income tax purposes is the same as that
shown in the investment portfolio. Realized gains and losses are reported on an
identified cost basis.
At June 30, 1995, the aggregate gross unrealized appreciation and depreciation
of portfolio securities, based on cost for federal income tax purposes, was as
follows:
<TABLE>
<S> <C>
Unrealized appreciation $4,343,591
Unrealized depreciation (373,254)
----------
Net unrealized appreciation $3,970,337
==========
</TABLE>
14
<PAGE>
Templeton Funds Retirement Annuity Separate Account
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995 (unaudited)
<TABLE>
<S> <C>
Assets
Investment in Templeton Variable Annuity Fund, at value
(cost $8,981,322) $11,071,650
Liabilities
Payable to Templeton Funds Annuity Company 12,710
-----------
Net assets $11,058,940
===========
Net assets attributable to annuitants--Annuity reserves
(Note 1) $11,058,940
===========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1995 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1994
---------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets from op-
erations:
Net investment income $ 766,854 $ 340,663
Net realized gain on investments 159,916 469,901
Unrealized appreciation (depreciation) of
investments for the period 439,725 (1,356,713)
----------- -----------
Net increase (decrease) in net assets
from operations 1,366,495 (546,149)
----------- -----------
Annuity unit transactions:
Proceeds from units sold 228,833 350,411
Annuity payments (634,706) (1,274,550)
Increase in annuity reserves for mortality
experience (Note 1) 66,600 9,728
----------- -----------
Net decrease in net assets derived from
annuity unit transactions (339,273) (914,411)
----------- -----------
Total increase (decrease) in net assets 1,027,222 (1,460,560)
Net assets:
Beginning of period 10,031,718 11,492,278
----------- -----------
End of period $11,058,940 $10,031,718
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF OPERATIONS
Six months ended
June 30, 1995 (unaudited)
<TABLE>
<S> <C> <C>
Investment Income:
Income:
Dividend distributions $110,058
Capital gains distributions 742,890
--------
Total income $ 852,948
Expenses:
Periodic charge (Note 2) 86,094
--------
Net investment income 766,854
Realized and unrealized gain on investments:
Net realized gain on investments 159,916
Unrealized appreciation of investments for the period 439,725
--------
Net gain on investments 599,641
----------
Net increase in net assets from operations $1,366,495
==========
</TABLE>
15
<PAGE>
Templeton Funds Retirement Annuity Separate Account
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
The Templeton Funds Retirement Annuity Separate Account (the Separate Account)
was established on February 4, 1987 by resolution of the Board of Directors of
Templeton Funds Annuity Company (the Company) and is registered under the In-
vestment Company Act of 1940 as a unit investment trust. The Separate Account
is sold exclusively for use with the Templeton Retirement Annuity, an immediate
variable annuity designed for distributing the benefits of tax deferred retire-
ment plans. The Separate Account invests all its assets in the Templeton Vari-
able Annuity Fund (the Fund). The following is a summary of significant ac-
counting policies followed by the Separate Account in the preparation of its
financial statements.
a. Valuation of Securities:
Investment in shares of the Fund are carried in the Statement of Assets and Li-
abilities at net asset value (market value).
b. Dividends:
Dividend income and capital gain distributions are recorded as income on the
ex-dividend date and reinvested in additional shares of the Fund.
c. Income Taxes:
Operations of the Separate Account form a part of the Company, which is taxed
as a life insurance company under the Internal Revenue Code (the Code). Under
current law, no federal income taxes are payable with respect to the Separate
Account. Under the principles set forth in Internal Revenue Service Ruling 81-
225 and Section 817(h) of the Code and regulations thereunder, the Company un-
derstands that it will be treated as owner of the assets invested in the Sepa-
rate Account for federal income tax purposes, with the result that earnings and
gains, if any, derived from those assets will not be included in an Annuitant's
gross income until amounts are received pursuant to an Annuity.
d. Annuity Reserves:
Annuity reserves are computed according to the 1983a Blended Unisex Mortality
Table, with a 50% male/female content. The assumed interest rates are 9%, 7%
and 3%. Charges to annuity reserves for mortality experience are reimbursed to
the Company if the reserves required are less than originally estimated. If ad-
ditional reserves are required, the Company reimburses the Separate Account.
2. PERIODIC CHARGE
The Company assesses a Periodic Charge against the Separate Account, equal on
an annual basis to 1.1% of Separate Account assets. The Periodic Charge, in the
following amounts, compensates the Company for expenses of administering the
Separate Account and for assuming the risks that mortality experience will be
lower than the rate assumed and that expenses will be greater than what is as-
sumed: 0.3% of average annual net assets to cover expenses, 0.3% to cover ex-
pense risk and 0.5% to cover the mortality risk. The Periodic Charge is guaran-
teed as to Annuities issued prior to the effective date of any change in the
Periodic Charge.
3. INVESTMENT TRANSACTIONS
During the six months ended June 30, 1995, purchases and sales of Templeton
Variable Annuity Fund shares aggregated $1,081,781 and $497,493, respectively.
Realized gains and losses are reported on an identified cost basis.
16
<PAGE>
NOTES
-----
<PAGE>
NOTES
-----
<PAGE>
The Franklin Templeton Group
- --------------------------------------------------------------------------------
To receive a free brochure and prospectus, which contain more complete informa-
tion, including charges and expenses on each of the funds listed below, call
Franklin Fund Information, toll free, at 1-800-DIAL-BEN (1-800-342-5236) or
Templeton Fund Information at 1-800-292-9293. Please read the prospectus care-
fully before you invest or send money.
TEMPLETON
FAMILY OF FUNDS
Franklin
Templeton Japan
Fund
Templeton
American Trust
Templeton
Americas
Government
Securities Fund
Templeton
Developing
Markets Trust
Templeton
Foreign Fund
Templeton
Global
Infrastructure
Fund
Templeton
Global
Opportunities
Trust
Templeton
Growth Fund
Templeton
Growth and
Income Fund
Templeton
Income Fund
Templeton Money
Fund
Templeton Real
Estate
Securities Fund
Templeton
Smaller
Companies
Growth Fund
Templeton World
Fund
FRANKLIN GROUP OF FUNDS(R)
FRANKLIN
GLOBAL/
INTERNATIONAL
FUNDS
Franklin Global
Health Care
Fund
Franklin Global
Government
Income Fund
Franklin Global
Utilities Fund
Franklin
International
Equity Fund
Franklin
Pacific Growth
Fund
FUNDS SEEKING CAPITAL GROWTH
Franklin
California
Growth Fund
Franklin
DynaTech Fund
Franklin Equity
Fund
Franklin Gold
Fund
Franklin Growth
Fund
Franklin Rising
Dividends Fund
Franklin Small
Cap Growth Fund
FUNDS SEEKING GROWTH AND
INCOME
Franklin
Balance Sheet
Investment Fund
Franklin
Convertible
Securities Fund
Franklin Income
Fund
Franklin Equity
Income Fund
Franklin
Utilities Fund
FUNDS SEEKING HIGH CURRENT
INCOME
Franklin's AGE
High Income
Fund
Franklin
Investment
Grade Income
Fund
Franklin
Premier Return
Fund
Franklin U.S.
Government
Securities Fund
FUNDS SEEKING TAX-FREE
INCOME
Franklin
Federal Tax-
Free Income
Fund
Franklin High
Yield Tax-Free
Income Fund
Franklin
California High
Yield Municipal
Fund
Franklin
Alabama Tax-
Free Income
Fund
Franklin
Arizona Tax-
Free Income
Fund
Franklin
California Tax-
Free Income
Fund
Franklin
Colorado Tax-
Free Income
Fund
Franklin
Connecticut
Tax-Free Income
Fund
Franklin
Florida Tax-
Free Income
Fund
Franklin
Georgia Tax-
Free Income
Fund
Franklin Hawaii
Municipal Bond
Fund
Franklin
Indiana Tax-
Free Income
Fund
Franklin
Kentucky Tax-
Free Income
Fund
Franklin
Louisiana
Tax-Free
Income Fund
Franklin
Maryland Tax-
Free Income
Fund
Franklin
Missouri Tax-
Free Income
Fund
Franklin New
Jersey Tax-
Free Income
Fund
Franklin New
York Tax-Free
Income Fund
Franklin
North
Carolina Tax-
Free Income
Fund
Franklin
Oregon Tax-
Free Income
Fund
Franklin
Pennsylvania
Tax-Free
Income Fund
Franklin
Puerto Rico
Tax-Free
Income Fund
Franklin
Texas Tax-
Free Income
Fund
Franklin
Virginia Tax-
Free Income
Fund
Franklin
Washington
Municipal
Bond Fund
FUNDS SEEKING TAX-FREE
INCOME THROUGH INSURED
PORTFOLIOS
Franklin
Insured Tax-
Free Income
Fund
Franklin
Arizona
Insured Tax-
Free Income
Fund
Franklin
California
Insured Tax-
Free Income
Fund
Franklin
Florida
Insured Tax-
Free Income
Fund
Franklin
Massachusetts
Insured Tax-
Free Income
Fund
Franklin
Michigan
Insured Tax-
Free Income
Fund
Franklin
Minnesota
Insured Tax-
Free Income
Fund
Franklin New
York Insured
Tax-Free
Income Fund
Franklin Ohio
Insured Tax-
Free Income
Fund
FUNDS SEEKING HIGH CURRENT
INCOME AND STABILITY OF
PRINCIPAL
Franklin
Adjustable
Rate
Securities
Fund
Franklin
Adjustable
U.S.
Government
Securities
Fund
Franklin
Short-
Intermediate
U.S.
Government
Securities
Fund
FUND SEEKING HIGH AFTER-TAX
INCOME FOR CORPORATIONS
Franklin
Corporate
Qualified
Dividend Fund
MONEY MARKET FUNDS SEEKING
SAFETY OF PRINCIPAL AND
INCOME
Franklin
Money Fund
Franklin
Federal Money
Fund
Franklin Tax-
Exempt Money
Fund
Franklin
California
Tax-Exempt
Money Fund
Franklin New
York Tax-
Exempt Money
Fund
IFT Franklin
U.S. Treasury
Money Market
Portfolio
FUNDS FOR
NON-U.S. INVESTORS
FRANKLIN PARTNERS FUNDS(R)
Franklin Tax-
Advantaged
High Yield
Securities
Fund
Franklin Tax-
Advantaged
International
Bond Fund
Franklin Tax-
Advantaged
U.S.
Government
Securities
Fund
To ensure the highest quality of service, telephone calls to or from our serv-
ice departments may be monitored, recorded and accessed. These calls can be de-
termined by the presence of a regular beeping tone.
<PAGE>
- -------------------------------------------------------------------------------
TEMPLETON AMERICAN TRUST, INC.
PRINCIPAL UNDERWRITER:
Franklin Templeton
Distributors, Inc.
700 Central Avenue
St. Petersburg,
Florida 33701-3628
Account Services
1-800-354-9191
Sales Information
1-800-292-9293
This report must be preceded or accompanied by the prospectus of the Templeton
American Trust, Inc., which contains more complete information including
charges and expenses. Like any investment in securities, the value of the
Fund's portfolio will be subject to the risk of loss from market, currency,
economic, political, and other factors, as well as investment decisions by the
investment manager which will not always be profitable or wise. The Fund and
its investors are not protected from such losses by the investment manager.
Therefore, investors who cannot accept this risk should not invest in shares of
the Fund.
To ensure the highest quality of service, telephone calls to or from our
service departments may be monitored, recorded, and accessed. These calls can
be determined by the presence of a regular beeping tone.
- -------------------------------------------------------------------------------
TL100 S95 6/95
[RECYCLING LOGO
APPEARS HERE]
TEMPLETON
AMERICAN
TRUST, INC.
Semi-Annual Report
June 30, 1995
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
