SEMI ANNUAL
June 30, 1997
REPORT
TEMPLETON RETIREMENT ANNUITY
- - TRA SEPARATE ACCOUNT
- - TEMPLETON VARIABLE ANNUITY FUND
[TEMPLETON LOGO]
Franklin Templeton
<PAGE>
[CELEBRATING 50 YEARS SEAL]
CELEBRATING 50 YEARS
This year marks 50 years of business for Franklin Templeton. Over these
years, we have experienced profound changes in technology, regulations and
customer expectations within the mutual fund industry. As one of the largest
mutual fund families, we're proud to be an innovative industry leader, providing
people like you with an opportunity to invest in companies and governments
around the globe.
In addition, we want to stress that all securities markets move both up
and down. Mixed in with the good years can be some bad years. Accordingly,
annuity unit values and portfolio share prices also move up and down. Every
investor should expect such fluctuations, which can be wide. When markets are
going down, as well as up, we encourage investors to maintain a long-term
perspective. We thank you for your past support and look forward to serving your
investment needs in the years ahead.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Letter to Shareholders ................................... 1
Performance Summary ...................................... 5
Statement of Investments ................................. 7
Financial Statements ..................................... 10
Notes to Financial Statements ............................ 12
Templeton Funds Retirement Annuity
Separate Account Financial Statements .................... 14
</TABLE>
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
We are pleased to bring you the semi-annual report of the Templeton Retirement
Annuity and the Templeton Variable Annuity Fund for the six months ended June
30, 1997.
During the period under review, stock markets around the world generally
performed well. In the U.S., moderate economic growth, benign inflation, and
rising corporate earnings supported a strong but volatile equity market. From
December 31, 1996 through June 30, 1997, the Dow Jones(R) Industrial Average
rose 20.1% and the Standard & Poor's(R) 500 Stock Index rose 20.6%.*
Many European stocks also appreciated in value, as companies there generated
healthy profits due to privatization, restructuring, and cost-reduction
programs. Switzerland, Spain, Finland, and the Netherlands were among the
region's best-performing markets.
Emerging market equities generally experienced substantial gains during the
reporting period, with Latin America in particular delivering stellar returns.
For example, as measured in U.S. dollars, Brazil's Bovespa Index soared 79.5%
and Mexico's Bolsa Index surged 32.9%.* Asian developing markets, however,
provided mixed results. The Hong Kong and Indonesian markets advanced, while
those in Thailand and the Philippines declined.
It is important to remember, of course, that securities markets always have been
- -- and always will be -- subject to volatility. No one can predict exactly how
they will
*Indices are unmanaged, and price appreciation includes reinvested dividends.
One cannot invest directly in an index. Dow Jones Industrial Average's total
return is calculated by Wilshire Associates, Inc.
<PAGE>
perform in the near future. For this reason, we urge you to exercise
patience and focus not on short-term market movements, but on long-term
investment goals.
We appreciate your participation in the Templeton Retirement Annuity and the
Templeton Variable Annuity Fund and look forward to serving your investment
needs in the years to come.
Sincerely,
/s/ Chuck Johnson
Charles E. Johnson
President
Templeton Variable Annuity Fund
/s/ Richard P. Austin
Richard P. Austin
President
Templeton Funds Annuity Company
2
<PAGE>
MANAGER'S DISCUSSION
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.
During the reporting period, the U.S. economy grew moderately, inflation
remained under control, and the U.S. stock market reached record highs. In
Europe, most equity markets rose as many companies there reduced costs, invested
in new plants and equipment, and implemented programs designed to enhance
shareholder value. And strong economic fundamentals, rising corporate profits,
and renewed interest from foreign investors contributed to the excellent
performance of Latin American markets. Asian stock markets, however, turned in
mixed performances. Hong Kong's market advanced 14.7% during the six-month
period, and Japanese stocks rallied when exports rose and the country's economy
started to recover.(1) But many Thai shares declined in value due to a slowing
economy and a weakening currency. Within this environment, the Fund delivered a
total return of 14.37% for the period, as discussed in the Performance Summary
on page 5. You should keep in mind that Fund performance does not reflect
expenses associated with the variable contract; had those expenses been
included, performance would have been lower.
Between December 31, 1996 and June 30, 1997, the share price of the Fund's
largest holding, Telebras-Telecomunicacoes Brasileiras SA, pfd., rose more than
96%.(2) Our positions in Telefonica de Espana SA, Telmex-Telefonos de Mexico SA,
and Telefonica de Argentina SA also contributed to the Fund's performance, as
did the appreciable gain in share prices of Volvo AB,B (Sweden), Alcatel Alsthom
SA (France), and Newbridge Networks Corp. (Canada). During the six months under
review, we initiated a position in AXA SA, a French financial services company
operating in Europe, Asia, and North America, and purchased shares of Japanese
steelmaker Yamato Kogyo Co. Ltd. and BTR PLC, a diversified industrial products
company based in the United Kingdom. In our opinion, these companies offer
exciting prospects for growth.
1. Price appreciation is measured in U.S. dollars and includes reinvested
dividends.
2. Price appreciation is measured in U.S. dollars.
GEOGRAPHIC DISTRIBUTION
BASED ON TOTAL NET ASSETS
6/30/97
[PIE CHAR APPEARS HERE]
<TABLE>
<CAPTION>
<S> <C>
Europe 46.7%
Asia 9.5%
North America 22.9%
Latin America 9.6%
Australia/New Zealand 8.0%
Middle East/Africa and Short-Term
Obligations & Other Net Assets 3.3%
</TABLE>
TOP 10 COUNTRIES
REPRESENTED IN THE FUND
6/30/97
<TABLE>
<CAPTION>
% of Total
Country Net Assets
- -------------------------------------------------------
<S> <C>
United States 18.9%
France 10.6%
Hong Kong 6.0%
Switzerland 5.8%
Australia 5.1%
Italy 4.6%
Spain 4.0%
Sweden 3.8%
Brazil 3.2%
Netherlands 3.0%
</TABLE>
3
<PAGE>
TOP 10 HOLDINGS
6/30/97
<TABLE>
<CAPTION>
COMPANY,
INDUSTRY, % OF TOTAL
COUNTRY NET ASSETS
- --------------------------------------------------
<S> <C>
Telebras-Telecomunicacoes
Brasileiras SA, pfd.
Telecommunications, Brazil 3.2%
Kuoni Reisen Holdings AG, B
Leisure & Tourism,
Switzerland 2.3%
HSBC Holdings PLC
Banking, Hong Kong 2.2%
Telefonica de Espana SA, ADR
Telecommunications, Spain 2.2%
Rhone-Poulenc SA, A
Chemicals, France 2.0%
Novartis AG
Health & Personal Care,
Switzerland 2.0%
Alcatel Alsthom SA
Electrical & Electronics,
France 2.0%
Endesa-Empresa Nacional
de Electricidad SA, ADR
Utilities Electrical & Gas,
Spain 1.8%
Telecom Italia SpA
Telecommunications, Italy 1.8%
Newbridge Networks Corp.
Data Processing &
Reproduction, Canada 1.7%
</TABLE>
For a complete list of portfolio holdings, please see page 7 of this report.
Although we are concerned about current stock valuations, we are optimistic
about the long-term potential of international equity markets. Our analysts
continue to scour the globe looking for out-of-favor securities trading at
depressed levels relative to their long-term "normalized" earnings. To us,
normalized represents what a company could earn in the middle of a typical
economic cycle and requires us to estimate earnings and cash flow for the next
five years. We believe that such an approach should produce superior returns
over the long term. Of course, it is important to remember that investments in
foreign securities involve special risks including changes in currency values,
market price swings, and economic, social, and political developments in the
countries where the portfolios are invested. Developing markets involve similar
but higher risks related to the smaller size and lesser liquidity of those
markets. These risks are discussed in the prospectus.
This discussion reflects the strategies we employed for the Fund during the six
months under review, and includes our opinions as of the close of the period.
Since economic and market conditions are constantly changing, our strategies,
evaluations, conclusions and decisions regarding portfolio holdings may change
as new circumstances arise. Although past performance of a specific investment
or sector cannot guarantee future performance, such information can be useful in
analyzing securities we purchase or sell for the Fund.
As always, we will strive to build and improve our ability to serve investors
while maintaining the traditional values and principles that have served our
clients well for so long. We appreciate your participation in the Templeton
Variable Annuity Fund and welcome any comments or suggestions you may have.
Sincerely,
/s/ Mark R. Beveridge
Mark R. Beveridge, CFA, CIC
Portfolio Manager
Templeton Variable Annuity Fund
4
<PAGE>
PERFORMANCE SUMMARY
Templeton Variable Annuity Fund provided a total return of 14.37% for the
six-month period ended June 30, 1997. Total return represents the cumulative or
average annual change in value, assuming reinvestment of dividends and capital
gains. Average returns smooth out variations in returns, which can be
significant; they are not the same as year-by-year results. Past expense
reductions by the manager increased returns. Performance data is historical and
cannot predict or guarantee future results.
We have always maintained a long-term perspective when managing the Fund, and we
encourage you to view your investments in a similar manner. As you can see from
the table below, the Fund delivered a cumulative total return of more than 331%
since its inception on February 16, 1988.
NOTE: PERFORMANCE REFLECTS THE FUND'S OPERATING EXPENSES, BUT DOES NOT INCLUDE
ANY FEES, EXPENSES, OR SALES CHARGES IMPOSED BY THE VARIABLE INSURANCE CONTRACT
FOR WHICH THE FUND IS AN INVESTMENT OPTION. IF THEY HAD BEEN INCLUDED,
PERFORMANCE WOULD BE LOWER. THESE CHARGES AND DEDUCTIONS CAN AFFECT CONTRACT
VALUES AND INSURANCE BENEFITS. FOR A COMPLETE DESCRIPTION OF EXPENSES, INCLUDING
ANY APPLICABLE SALES CHARGES, PLEASE REFER TO THE CONTRACT PROSPECTUS.
<TABLE>
<CAPTION>
TEMPLETON VARIABLE ANNUITY FUND
Periods ended 6/30/97 SINCE
INCEPTION
1-YEAR 5-YEAR (2/16/88)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average Annual Total Return 24.60% 19.47% 16.88%
Cumulative Total Return 24.60% 143.37% 331.32%
Value of $10,000 Investment $12,460 $24,337 $43,132
6/30/93 6/30/94 6/30/95 6/30/96 6/30/97
- ------------------------------------------------------------------------------------------
One-Year Total Return 15.25% 18.98% 13.95% 25.01% 24.60%
</TABLE>
Investment return and the value of your principal will go up and down with
market conditions, currencies and the economic, social, and political climates
of the countries where investments are made. Emerging markets involve similar
but higher risks related to the smaller size and lesser liquidity of those
markets. You may have a gain or loss when you sell your shares.
Past performance is not predictive of future results.
5
<PAGE>
TEMPLETON VARIABLE ANNUITY FUND
Financial Highlights
<TABLE>
<CAPTION>
Six months ended Year ended December 31,
June 30, 1997 ---------------------------------------------------------
(unaudited) 1996 1995 1994 1993 1992
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
(For a share outstanding throughout the period)
Net asset value, beginning of period.............. $21.91 $20.62 $17.96 $19.50 $14.99 $15.20
----------------------------------------------------------------------
Income from investment operations:
Net investment income........................... .31 .35 .32 .21 .24 .37
Net realized and unrealized gain (loss)......... 2.47 4.14 3.89 (.96) 5.31 1.16
----------------------------------------------------------------------
Total from investment operations.................. 2.78 4.49 4.21 (.75) 5.55 1.53
----------------------------------------------------------------------
Distributions:
Dividends from net investment income............ (.35) (.32) (.20) (.24) (.39)
Distributions from net realized gains........... (4.14) (2.88) (1.35) (.79) (.80) (1.33)
Distributions from other sources................ -- -- -- -- -- (.02)
-----------------------------------------------------------------------
Total distributions............................... (4.49) (3.20) (1.55) (.79) (1.04) (1.74)
-----------------------------------------------------------------------
Change in net asset value......................... (1.71) 1.29 2.66 (1.54) 4.51 (.21)
-----------------------------------------------------------------------
Net asset value, end of period.................... $20.20 $21.91 $20.62 $17.96 $19.50 $14.99
-----------------------------------------------------------------------
Total Return*..................................... 14.37% 24.71% 25.49% (4.06)% 37.24% 10.17%
Ratios /Supplemental Data
Net assets, end of period (000)................... $16,820 $15,649 $14,120 $12,569 $12,698 $9,258
Ratio of expenses to average net assets........... .86%** .96% 1.06% 1.49% 1.37% 1.52%
Ratio of expenses, net of reimbursement, to
average net assets.............................. .86%** .96% 1.00% 1.00% 1.00% 1.00%
Ratio of net investment income to average net
assets.......................................... 3.15%** 1.64% 1.62% 1.09% 1.36% 2.06%
Portfolio turnover rate........................... 13.81% 30.27% 33.64% 19.85% 22.13% 27.86%
Average commission rate paid (per share).......... $.0257 $.0030
</TABLE>
*Total return does not include deductions at the Fund or contract level for
costs of insurance charges, premium load, administrative charges, mortality
and expense risk charges that may be incurred under the variable annuity
contract for which the Fund serves as an underlying investment vehicle. Not
annualized for periods of less than one year.
**Annualized.
6
<PAGE>
TEMPLETON VARIABLE ANNUITY FUND
Investment Portfolio, June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stocks 94.0%
Automobiles 4.6%
Ciadea SA............................................ Arg. 30,900 $ 132,890
Fiat SpA............................................. Itl. 53,800 193,432
General Motors Corp.................................. U.S. 4,000 222,750
Volvo AB, B.......................................... Swe. 8,600 230,134
-----------
779,206
-----------
Banking 6.2%
Banque Nationale de Paris............................ Fr. 3,050 125,701
Banque Nationale de Paris, ADR, 144A................. Fr. 700 28,850
Deutsche Bank AG..................................... Ger. 3,300 193,773
HSBC Holdings Plc.................................... H.K. 12,488 375,577
* Philippine National Bank............................. Phil. 17,188 116,642
Unidanmark AS, A..................................... Den. 3,700 207,850
-----------
1,048,393
-----------
Broadcasting & Publishing 1.0%
News Corp. Ltd. ..................................... Aus. 44,742 176,344
-----------
Building Materials & Components 2.0%
Cie de Saint Gobain.................................. Fr. 1,300 189,579
Pioneer International Ltd. .......................... Aus. 37,000 143,036
-----------
332,615
-----------
Business & Public Services 3.3%
Lex Service Plc...................................... U.K. 32,000 200,636
Waste Management Inc. ............................... U.S. 5,000 160,625
Wheelabrator Technologies Inc. ...................... U.S. 11,000 169,813
-----------
531,074
-----------
Chemicals 3.2%
Akzo Nobel NV........................................ Neth. 1,400 191,859
Rhone-Poulenc SA, A.................................. Fr. 8,386 342,478
-----------
534,337
-----------
Data Processing & Reproduction 2.7%
* Bay Networks Inc. ................................... U.S. 6,100 162,031
* Newbridge Networks Corp. ............................ Can. 6,700 291,450
-----------
453,481
-----------
Electrical & Electronics 5.4%
Alcatel Alsthom SA................................... Fr. 2,700 338,149
* DSC Communications Corp. ............................ U.S. 8,100 180,225
Motorola Inc. ....................................... U.S. 3,800 288,800
Scitex Corp. Ltd. ................................... Isl. 12,100 106,631
-----------
913,805
-----------
Electronic Components & Instruments 2.5%
BICC................................................. U.K. 38,000 111,691
Intel Corp. ......................................... U.S. 2,000 283,625
-----------
395,316
-----------
Energy Sources 4.4%
Societe Elf Aquitane SA.............................. Fr. 2,600 280,497
Total SA, B.......................................... Fr. 2,862 289,283
Transportadora de Gas del Sur SA, ADR, B............. Arg. 14,000 175,000
-----------
744,780
-----------
Financial Services 2.5%
AXA SA............................................... Fr. 3,061 190,377
Federal National Mortgage Association ............... U.S. 5,300 231,213
-----------
421,590
-----------
</TABLE>
7
<PAGE>
TEMPLETON VARIABLE ANNUITY FUND
Investment Portfolio, June 30, 1997 (unaudited) (continued)
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stocks (cont.)
Food & Household Products 1.9%
Burns Philp & Co. Ltd. .............................. Aus. 78,550 $ 145,900
Oshawa Group Ltd. (The).............................. Can. 11,100 165,984
-----------
311,884
-----------
Forest Products & Paper 4.4%
* Asia Pacific Resources International, A.............. Indo. 20,000 97,500
Carter Holt Harvey Ltd. ............................. N.Z. 44,226 114,455
Enso OY, R........................................... Fin. 12,000 110,924
Fletcher Challenge Ltd., Forestry Division........... N.Z. 118,728 172,583
Stora Kopparbergs Bergslags AB, B.................... Swe. 15,000 244,328
-----------
739,790
-----------
Health & Personal Care 4.4%
Astra AB, B.......................................... Swe. 9,600 169,401
Novartis AG.......................................... Swtz. 213 340,392
Nycomed ASA, A....................................... Nor. 16,000 235,769
-----------
745,562
-----------
Industrial Components 4.1%
BTR Plc.............................................. U.K. 41,500 142,022
Exide Corp. ......................................... U.S. 8,300 182,081
Madeco Manufacturera de Cobre, SA ADR................ Chil. 7,500 183,750
Yamato Kogyo Co. Ltd. .............................. Jpn. 19,000 187,331
-----------
695,184
-----------
Insurance 9.3%
GIO Australia Holdings Ltd. ........................ Aus. 85,310 264,093
HIH Winterthur International Holdings Ltd. ......... Aus. 55,469 134,022
Ing Groep NV......................................... Neth. 5,076 234,030
Partnerre Ltd. ...................................... Bmu. 6,000 228,750
Reliastar Financial Corp. .......................... U.S. 3,500 255,938
Torchmark Corp. ..................................... U.S. 3,000 213,750
Zuerich Versicherung, new............................ Swtz. 600 238,685
-----------
1,569,268
-----------
Leisure & Tourism 2.3%
Kuoni Reisen Holding AG, B........................... Swtz. 115 393,701
-----------
Merchandising 2.1%
Home Depot Inc. ..................................... U.S. 4,000 275,750
Macintosh NV......................................... Neth. 4,247 84,598
-----------
360,348
-----------
Metals & Mining 0.9%
Boehler Uddeholm AG.................................. Aust. 2,000 155,094
-----------
Multi-Industry 5.3%
DESC SA, B........................................... Mex. 18,000 131,452
DESC SA, C........................................... Mex. 180 1,299
Hutchison Whampoa Ltd. .............................. H.K. 25,500 220,528
Jardine Matheson Holdings Ltd. ...................... H.K. 31,310 222,301
La Cemento Nacional CA, GDR.......................... Ecu. 600 124,800
La Cemento Nacional CA, GDR, 144A.................... Ecu. 300 62,400
Metro Pacific Corp. ................................. Phil. 600,000 129,663
-----------
892,443
-----------
Real Estate 2.4%
National Health Investors Inc. ...................... U.S. 5,000 196,250
Summit Properties Inc., REIT......................... U.S. 9,700 200,063
-----------
396,313
-----------
</TABLE>
8
<PAGE>
TEMPLETON VARIABLE ANNUITY FUND
Investment Portfolio, June 30, 1997 (unaudited) (continued)
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stocks (cont.)
Telecommunications 9.0%
Jasmine International Public Co. Ltd., fgn. ......... Thai. 98,000 $ 87,010
Nokia AB, A.......................................... Fin. 2,600 196,273
STET (Sta Finanziaria Telefonica Torino) SpA, di
Risp................................................. Itl. 79,600 275,701
Telecom Italia SpA................................... Itl. 94,400 303,020
Telefonica de Argentina SA, B, ADR................... Arg. 3,000 103,875
Telefonica de Espana SA, ADR......................... Sp. 4,200 362,250
Telmex-Telefonos de Mexico SA, L, ADR................ Mex. 4,000 191,000
-----------
1,519,129
-----------
Textiles & Apparel 0.9%
* Fruit of the Loom Inc., A............................ U.S. 5,057 156,767
-----------
Transportation 2.5%
Air New Zealand Ltd., B.............................. N.Z. 69,000 210,907
Helikopter Services Group ASA........................ Nor. 16,600 212,902
-----------
423,809
-----------
Utilities Electrical & Gas 6.7%
* CEZ.................................................. Csk. 3,600 99,359
Endesa-Empresa Nacional de Electricidad SA, ADR...... Sp. 3,600 306,224
Evn Energie-Versorgung Niederoesterreich AG.......... Aust. 1,920 247,368
Hong Kong Electric Holdings Ltd. .................... H.K. 47,000 189,279
VEBA AG.............................................. Ger. 5,000 282,413
-----------
1,124,643
-----------
Total Common Stocks (Cost $11,411,875)............... 15,814,876
===========
Preferred Stocks 3.2%
Telebras-Telecomunicacoes Brasileiras SA, pfd ADR.... Braz. 1,000 151,750
Telebras-Telecomunicacoes Brasileiras SA, pfd. ...... Braz. 2,496,267 378,654
-----------
Total Preferred Stocks (Cost $85,692)................ 530,404
===========
PRINCIPAL IN
LOCAL CURRENCY**
---------------
Short Term Obligations (Cost $331,142) 2.0%
U.S. Treasury Bill, 4.725% to 5.080% with maturities
to 9/25/97........................................... U.S. 334,000 331,151
-----------
Total Investments: (Cost $11,828,709) 99.2%......... 16,676,431
Other Assets, less liabilities 0.8%................. 143,916
-----------
Total Net Assets: 100.0%............................ $16,820,347
===========
</TABLE>
*Non-income producing.
**Currency of countries indicated.
See Notes to Financial Statements.
9
<PAGE>
TEMPLETON VARIABLE ANNUITY FUND
Financial Statements
Statement of Assets and Liabilities
June 30, 1997 (unaudited)
Assets:
Investments in securities, at value
(identified cost $11,828,709) $16,676,431
Receivables:
Investment securities sold 124,742
Dividends and interest 64,456
--------------
Total assets 16,865,629
--------------
Liabilities:
Accrued expenses 45,282
--------------
Total liabilities 45,282
--------------
Net assets, at value 16,820,347
==============
Net assets consist of:
Undistributed net investment income $ 248,292
Net unrealized appreciation 4,845,217
Accumulated net realized gain 1,089,001
Net capital paid in on shares of
beneficial interest 10,637,837
--------------
Net assets, at value $16,820,347
==============
Shares outstanding 832,692
==============
Net asset value per share
($16,820,347 / 832,692 shares
outstanding) $ 20.20
==============
Statement of Operations
for the six months ended June 30, 1997 (unaudited)
Investment income:
(net of $25,068 foreign taxes
withheld)
Dividends $312,017
Interest 7,051
------------
Total income $ 319,068
Expenses:
Management fees (Note 3) 39,758
Administrative fees (Note 3) 11,929
Custodian fees 4,140
Reports to shareholders 2,350
Audit fees 5,500
Legal fees (Note 3) 3,600
Registration and filing fees 450
Other 498
------------
Total expenses 68,225
------------
Net investment income 250,843
Realized and unrealized gain (loss):
Net realized gain on:
Investments 1,087,655
Foreign currency transactions 5,353
------------
1,093,008
------------
Net unrealized appreciation
(depreciation) on:
Investments 829,734
Foreign currency translation of
other assets and liabilities (2,505)
------------
827,229
------------
Net realized and unrealized gain 1,920,237
------------
Net increase in net assets
resulting from operations $2,171,080
============
See Notes to Financial Statements.
10
<PAGE>
TEMPLETON VARIABLE ANNUITY FUND
Financial Statements (continued)
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six months ended
June 30, 1997 Year ended
(unaudited) December 31, 1996
--------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income........................................................ $ 250,843 $ 244,068
Net realized gain on investments and foreign currency transactions........... 1,093,008 2,908,249
Net unrealized appreciation.................................................. 827,229 128,497
--------------------------------------
Net increase in net assets resulting from operations...................... 2,171,080 3,280,814
--------------------------------------
Distributions to shareholders:
From net investment income................................................... (246,215) (215,833)
From net realized gain....................................................... (2,908,858) (1,942,495)
Fund share transactions (Note 2).............................................. 2,154,997 407,120
--------------------------------------
Net increase in net assets................................................ 1,171,004 1,529,606
Net assets:
Beginning of period........................................................... 15,649,343 14,119,737
--------------------------------------
End of period................................................................. $ 16,820,347 $15,649,343
======================================
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
TEMPLETON VARIABLE ANNUITY FUND
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton Variable Annuity Fund (the Fund) is registered under the Investment
Company Act of 1940 as a diversified, open-end investment company. Shares of
the Fund are only sold to Templeton Funds Annuity Company to fund the benefits
of Templeton Retirement Annuities and Templeton Immediate Variable Annuities.
The Fund seeks long-term capital growth through a flexible policy of investing
in stocks and debt obligations of companies and governments of any nation. The
following summarizes the Fund's significant accounting policies.
a. Securities Valuation:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Trustees.
b. Foreign Currency Translation:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales
of securities and income items denominated in foreign currencies are
translated into U.S. dollars at the exchange rate in effect on the transaction
date.
The Fund does not separately report the effect of the changes in foreign
exchange rates from changes in market prices on securities held. Such changes
are included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions, the differences between the recorded amounts
of dividends, interest, and foreign withholding taxes, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in
securities held at the end of the reporting period.
c. Income Taxes:
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and
distribute substantially all of its taxable income.
d. Security Transactions, Investment Income, Expenses and Distributions:
Security transactions are accounted for on trade date. Realized gains and
losses on security transactions are determined on a specific identification
basis. Certain income from foreign securities is recorded as soon as
information is available to the Fund. Interest income and estimated expenses
are accrued daily. Dividend income and distributions to shareholders are
recorded on the ex-dividend date.
e. Accounting Estimates:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the
reporting period. Actual results could differ from those estimates.
12
<PAGE>
TEMPLETON VARIABLE ANNUITY FUND
Notes to Financial Statements (unaudited) (continued)
2. BENEFICIAL SHARES
At June 30, 1997, there were an unlimited number of shares authorized ($0.01
par value). Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
Six months ended Year ended
June 30, 1997 December 31, 1996
-----------------------------------------------------
Shares Amount Shares Amount
-----------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold................................................................ 2,279 $ 52,451 4,369 $ 85,896
Shares issued on reinvestment of distributions............................. 169,173 3,155,074 117,110 2,158,328
Shares redeemed............................................................ (53,176) (1,052,528) (91,811) (1,837,104)
-----------------------------------------------------
Net increase............................................................... 118,276 $2,154,997 29,668 $ 407,120
=====================================================
</TABLE>
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Fund are also directors or officers of Templeton
Investment Counsel, Inc. (TICI), and Templeton Funds Annuity Company (TFAC),
the funds investment manager and administrative manager, respectively.
The Fund pays an investment management fee to TICI based on the average daily
net assets of the Fund as follows: 0.50% of the first $200 million, reduced to
0.45% in excess of $200 million, and to 0.40% in excess of $1.3 billion. The
Fund pays an administrative fee to TFAC based on the Fund's average daily net
assets as follows: 0.15% of the first $200 million, 0.135% of the next $500
million, 0.10% of the next $500 million, and 0.075% in excess of $1.2 billion.
TFAC agreed in advance to limit the total expenses of the Fund to an annual
rate of 1.00% of the Fund's average net assets through the period ending May
1, 1998.
During the period ended June 30, 1997 , legal fees of $3,600 were paid to a
law firm in which an officer of the Company is a partner.
4. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended June 30, 1997 aggregated $2,154,948 and $3,201,636, respectively.
5. INCOME TAXES
At June 30, 1997, the net unrealized appreciation based on cost of investments
for income tax purposes of $11,828,709 was as follows:
Unrealized appreciation....................................... $5,425,684
Unrealized depreciation....................................... (577,962)
--------------
Net unrealized appreciation................................... $4,847,722
==============
13
<PAGE>
TEMPLETON FUNDS RETIREMENT ANNUITY SEPARATE ACCOUNT
Financial Statements
Statement of Assets and Liabilities
June 30, 1997 (unaudited)
Assets:
Investments in Templeton Variable
Annuity
Fund, at value (cost $11,216,050) $13,276,662
Liabilities:
Payable to Templeton Funds Annuity
Company $ 31,756
--------------
Net assets $13,244,906
==============
Net assets attributable to annuitants --
Annuity reserves (Note 1) $13,244,906
==============
Statement of Operations
Six months ended June 30, 1997 (unaudited)
Investment income:
Income:
Dividend distributions $ 194,617
Capital gains distributions 2,299,260
------------
Total income 2,493,877
Expenses:
Periodic charge (Note 2) 69,285
============
Net investment income 2,424,592
------------
Realized and unrealized gain on
investments:
Net realized gain on investments 274,858
Unrealized depreciation of investments (1,054,024)
============
Net loss on investments (779,166)
------------
Net increase in net assets from
operations $ 1,645,426
============
See Notes to Financial Statements.
14
<PAGE>
TEMPLETON FUNDS RETIREMENT ANNUITY SEPARATE ACCOUNT
Financial Statements (continued)
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six months ended
June 30, 1997 Year ended
(unaudited) December 31, 1996
--------------------------------------
<S> <C> <C>
Increase (decrease) in net assets from operations:
Net investment income $ 2,424,592 $ 1,589,842
Net realized gain on investments 274,858 583,838
Unrealized appreciation (depreciation) of investments for the year (1,054,024) 308,083
--------------------------------------
Net increase in net assets from operations 1,645,426 2,481,763
--------------------------------------
Annuity unit transactions:
Proceeds from units sold 42,451 65,647
Annuity payments (798,677) (1,481,530)
Increase (decrease) in annuity reserves for mortality experience (Note 1) 37,529 (29,903)
--------------------------------------
Net decrease in net assets derived from annuity unit transactions (718,697) (1,445,786)
--------------------------------------
Total increase in net assets 926,729 1,035,977
Net assets:
Beginning of period 12,318,177 11,282,200
--------------------------------------
End of period 13,244,906 12,318,177
======================================
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
TEMPLETON FUNDS RETIREMENT ANNUITY SEPARATE ACCOUNT
Notes to Financial Statements
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
Investment 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 retirement plans. The Separate Account invests all of its assets in
the Templeton Variable Annuity Fund (the Fund). The following is a summary of
significant accounting policies followed by the Separate Account in the
preparation of its financial statements.
a. Valuation of Securities:
Investments in shares of the Fund are carried in the Statement of Assets and
Liabilities at net asset value (market value).
b. Dividends:
Dividend income and capital gain distributions are recorded as income on the
ex-dividend date and reinvestment in additional shares of the Fund.
c. Income Taxes:
Operations of the Separate Account from a part of the Company 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
understands that it will be treated as owner of the assets invested in the
Separate 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
additional 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
assumed: 0.3% of average annual net assets to cover expenses, 0.3% to cover
expense risk and 0.5% to cover mortality risk. The Periodic Charge is
guaranteed 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, 1997, purchases and sales of Templeton
Variable Annuity Fund shares aggregated $2,536,328 and $874,038, respectively.
Realized gains and losses are reported on an identified cost basis.
4. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Separate Account to
concentrations of credit risk consist of investments in the Templeton Variable
Annuity Fund. The Fund's investment securities are managed by professional
investment managers within established guidelines. As of June 30, 1997, in
management's opinion, the Separate Account had no significant concentration of
credit risk.
16
<PAGE>
FRANKLIN TEMPLETON
700 Central Avenue
St. Petersburg, Florida 33701-3628
INSURANCE ISSUER
Templeton Funds Annuity Company
700 Central Avenue
St. Petersburg, Florida 33701-3628
1-800-774-5001
INVESTMENT MANAGER
Templeton Investment Counsel, Inc.
500 East Broward Blvd.
Fort Lauderdale, FL 33394-3091
FUND UNDERWRITER:
Franklin Templeton Distributors Inc.
700 Central Avenue
St. Petersburg, Florida 33701-3628
This report was prepared for Templeton Variable Annuity Fund shareholders who
have previously received a prospectus. To ensure the highest quality of service,
telephone calls to or from our service department may be monitored, recorded,
and accessed. These calls can be determined by the presence of a regular beeping
tone.
TRA 597 08/97 [RECYCLE LOGO] Printed on recycled paper
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