<PAGE> 1
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.
February 18, 1997
Dear Contract Owner:
We are pleased to bring you the annual report of the Templeton Variable Annuity
Fund for the fiscal year ended December 31, 1996. The Fund delivered a total
return of 24.71% for the 12 months under review, as discussed in the Performance
Summary on page 5. Its benchmark, the unmanaged Morgan Stanley Capital
International(R)(1) (MSCI) World Index posted a total return of 14.00% for the
same period. The Fund's strong performance versus its benchmark was in part the
result of our bottom-up, value style of investing and relative overweighting in
markets that performed exceptionally well during the period. 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.
During 1996, many U.S. stocks rose in value due to subdued inflation, moderate
economic growth and strong corporate earnings. The share price of two of
1. A registered trademark of Morgan Stanley and Co., Inc. Total return
includes reinvested dividends. One cannot invest directly in an index.
<PAGE> 2
TEMPLETON VARIABLE ANNUITY FUND
Geographic Distribution on 12/31/96
Based on Total Net Assets
[PIE CHART]
Europe 47.6%
North America 22.9%
Asia 10.2%
Australia/New Zealand 10.1%
Latin America 7.4%
Middle East/Africa 0.7%
Short-Term Obligations &
Other Net Assets 1.1%
our largest holdings, Fruit of the Loom Inc. and Federal National Mortgage
Assn., appreciated 55.4% and 20.0%, respectively, and had a positive impact on
the Fund's performance. The Fund also benefited from the strength of the banking
sector, prompting us to sell our holdings of BankAmerica Corp., NationsBank
Corp., and Barnett Banks Inc. at a profit. We realized additional gains by
selling our shares of Columbia Healthcare Corp. and Aetna Life & Casualty Co. As
a result of our sales of domestic equities, our exposure to the U.S. decreased
from 31.8% of total net assets on December 31, 1995 to 20.4% at the end of the
reporting period.
Most European stocks performed well during the fiscal year. The equity markets
of France, Norway, Spain and Sweden delivered impressive returns, helping the
Fund's performance because, compared with the MSCI World Index, we were
overweighted in all four countries. Among the Fund's ten largest holdings, the
share price of Telefonica de Espana SA appreciated more than 65% and
Rhone-Poulenc SA 59.5%. Although the Austrian stock market turned in a
lackluster performance compared with other European markets, the share price of
one of our holdings, Austrian utilities company Evn Energie-Versorgung
Niederoesterreich AG, rose 31.7% during the period. This is a good example of
how our bottom-up, value style of investing can often help us discover
2
<PAGE> 3
TEMPLETON VARIABLE ANNUITY FUND
Top 10 Holdings on 12/31/96
Based on Total Net Assets
<TABLE>
<CAPTION>
% of Total
Company, Industry, Country Net Assets
<S> <C>
News Corp. Ltd.
Broadcasting, Australia 3.3%
Federal National Mortgage Assn.
Financial Services, U.S. 2.9%
Alcatel Alsthom SA
Electrical & Electronics, France 2.1%
Telefonica de Espana SA, ADR
Telecommunications, Spain 1.9%
Evn Energie-Versorgung Niederoesterreich AG
Utilities - Electrical & Gas, Austria 1.9%
VEBA AG
Utilities - Electrical & Gas, Germany 1.8%
Rhone-Poulenc SA, A
Chemicals, France 1.8%
Fruit of the Loom Inc., A
Textiles & Apparel, U.S. 1.8%
Kuoni Reisen Holding AG, B
Leisure & Tourism, Switzerland 1.8%
Akzo Nobel NV
Chemicals, Netherlands 1.7%
</TABLE>
For a complete list of portfolio holdings, please see page 8 of this report.
companies that tend to perform well regardless of the direction of the overall
markets.
Although some Asian stock markets performed poorly in 1996 because of slowing
economies and weakening currencies, Hong Kong's equity market gained 37.5% as
concerns about China's takeover in 1997 faded, and investors focused on the
growth prospects of Hong Kong companies with established operations in China(2)
During the period, our holdings of Consolidated Electric Power Asia Ltd.
provided a significant gain for the Fund.
Latin American equity markets rebounded strongly in 1996 as a result of improved
economic fundamentals and renewed interest from foreign investors. The
tele-communications and electric utility industries performed well, and the
share price of one of the Fund's holdings, Telebras-Telecomunicacoes Brasileiras
SA (Telebras), appreciated nearly 60% during the fiscal year. We believe demand
for utility services will continue to increase, and the expected deregulation of
the Brazilian telephone industry could provide Telebras with strong growth
potential.
2. Price appreciation measured in U.S. dollars, and includes reinvested
dividends.
3
<PAGE> 4
This discussion reflects the strategies we employed for the Fund during the 12
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> 5
PERFORMANCE SUMMARY
The Templeton Variable Annuity Fund delivered a total return of 24.71% for the
one-year period ended December 31, 1996. Total return represents the change in
the Fund's share price, as measured by 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, premium load,
administrative charges, maintenance fees, 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.
If they had been included, performance would have been lower. For a complete
description of expenses, including any applicable sales charges, please refer to
the contract prospectus.
The graph on the following page shows how a $10,000 investment in the Fund since
inception has outperformed the unmanaged Morgan Stanley Capital International
(MSCI) World Index.* It also shows how an investment in the Fund over the same
period has kept your purchasing power ahead of inflation, as measured by the
Consumer Price Index (CPI).** Please remember that the Fund's performance
differs from that of an index because an index does not contain cash (the Fund
generally carries a certain percentage of cash at any given time) and includes
no management charges or other expenses. Of course, one cannot invest directly
in an index.
*The Morgan Stanley Capital International (MSCI) World Index includes
approximately 1,500 companies representing the stock markets of 22 countries
including the U.S., Europe, Canada, Australia, New Zealand, and the Far East.
The "average company in the index has a market capitalization of about $3.5
billion.
**The Consumer Price Index is a measure of the average change in prices for a
fixed basket of goods and services regularly bought in the U.S.
5
<PAGE> 6
[LINE CHART]
TEMPLETON VARIABLE ANNUITY FUND
<TABLE>
<CAPTION>
Inception: 2/16/88
Date Templeton Variable Annuity Fund MSCI World Index CPI
<S> <C> <C> <C> <C> <C>
2/16/88 $10,000 $10,000 $10,000
2/29/88 $10,030 2.61% $10,261 0.12% $10,012
3/31/88 $9,890 3.04% $10,573 0.43% $10,055
4/30/88 $9,890 1.28% $10,708 0.52% $10,107
5/31/88 $9,690 -1.98% $10,496 0.34% $10,141
6/30/88 $9,970 -0.12% $10,484 0.43% $10,185
7/31/88 $9,770 1.90% $10,683 0.42% $10,228
8/31/88 $9,730 -5.48% $10,097 0.42% $10,271
9/30/88 $10,170 4.26% $10,527 0.67% $10,340
10/31/88 $10,540 6.67% $11,230 0.33% $10,374
11/30/88 $10,310 3.50% $11,623 0.08% $10,382
12/31/88 $10,371 0.92% $11,730 0.17% $10,400
1/31/89 $11,259 3.64% $12,157 0.50% $10,452
2/28/89 $11,219 -0.61% $12,082 0.41% $10,494
3/31/89 $11,483 -0.62% $12,008 0.58% $10,555
4/30/89 $11,969 2.32% $12,286 0.65% $10,624
5/31/89 $12,020 -2.44% $11,986 0.57% $10,684
6/30/89 $11,989 -1.11% $11,853 0.24% $10,710
7/31/89 $12,993 11.32% $13,195 0.24% $10,736
8/31/89 $13,530 -2.40% $12,878 0.16% $10,753
9/30/89 $13,864 2.84% $13,244 0.32% $10,787
10/31/89 $13,256 -3.32% $12,804 0.48% $10,839
11/30/89 $13,702 4.01% $13,318 0.24% $10,865
12/31/89 $14,053 3.23% $13,748 0.16% $10,883
1/31/90 $13,136 -4.65% $13,109 1.03% $10,995
2/28/90 $13,177 -4.27% $12,549 0.47% $11,046
3/31/90 $13,363 -6.02% $11,794 0.55% $11,107
4/30/90 $13,114 -1.42% $11,626 0.16% $11,125
5/31/90 $14,391 10.55% $12,853 0.23% $11,150
6/30/90 $14,525 -0.70% $12,763 0.54% $11,211
7/31/90 $14,671 0.93% $12,881 0.38% $11,253
8/31/90 $13,239 -9.34% $11,678 0.92% $11,357
9/30/90 $11,963 -10.53% $10,449 0.84% $11,452
10/31/90 $11,900 9.36% $11,426 0.60% $11,521
11/30/90 $12,212 -1.62% $11,241 0.22% $11,546
12/31/90 $12,481 2.11% $11,479 0.00% $11,546
1/31/91 $13,319 3.68% $11,901 0.60% $11,616
2/28/91 $14,220 9.27% $13,004 0.15% $11,633
3/31/91 $14,134 -2.93% $12,623 0.15% $11,650
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
4/30/91 $14,315 0.80% $12,724 0.15% $11,668
5/31/91 $14,655 2.28% $13,014 0.30% $11,703
6/30/91 $13,805 -6.16% $12,213 0.29% $11,737
7/31/91 $14,804 4.74% $12,791 0.15% $11,754
8/31/91 $15,176 -0.30% $12,753 0.29% $11,789
9/30/91 $15,346 2.64% $13,090 0.44% $11,840
10/31/91 $15,537 1.64% $13,304 0.15% $11,858
11/30/91 $15,112 -4.34% $12,727 0.29% $11,893
12/31/91 $16,610 7.30% $13,656 0.07% $11,901
1/31/92 $16,829 -1.83% $13,406 0.15% $11,919
2/29/92 $17,387 -1.71% $13,177 0.36% $11,962
3/31/92 $16,961 -4.69% $12,559 0.51% $12,023
4/30/92 $17,435 1.41% $12,736 0.14% $12,039
5/31/92 $18,120 4.00% $13,245 0.14% $12,056
6/30/92 $17,723 -3.33% $12,804 0.36% $12,100
7/31/92 $17,822 0.27% $12,839 0.21% $12,125
8/31/92 $17,634 2.45% $13,154 0.28% $12,159
9/30/92 $17,447 -0.90% $13,035 0.28% $12,193
10/31/92 $17,579 -2.69% $12,685 0.35% $12,236
11/30/92 $17,988 1.81% $12,914 0.14% $12,253
12/31/92 $18,311 0.83% $13,021 -0.07% $12,244
1/31/93 $18,702 0.35% $13,067 0.49% $12,304
2/28/93 $19,008 2.39% $13,379 0.35% $12,347
3/31/93 $19,789 5.82% $14,158 0.35% $12,391
4/30/93 $20,095 4.65% $14,816 0.28% $12,425
5/31/93 $20,449 2.32% $15,160 0.14% $12,443
6/30/93 $20,425 -0.82% $15,036 0.14% $12,460
7/31/93 $20,571 2.08% $15,348 0.00% $12,460
8/31/93 $22,245 4.60% $16,054 0.28% $12,495
9/30/93 $22,391 -1.83% $15,761 0.21% $12,521
10/31/93 $23,442 2.77% $16,197 0.41% $12,573
11/30/93 $23,259 -5.64% $15,284 0.07% $12,581
12/31/93 $25,131 4.91% $16,034 0.00% $12,581
1/31/94 $26,522 6.61% $17,094 0.27% $12,615
2/28/94 $25,711 -1.28% $16,875 0.34% $12,658
3/31/94 $24,501 -4.29% $16,151 0.34% $12,701
4/30/94 $24,837 3.11% $16,653 0.14% $12,719
5/31/94 $25,146 0.27% $16,698 0.07% $12,728
6/30/94 $24,300 -0.27% $16,653 0.34% $12,771
7/31/94 $25,468 1.92% $16,973 0.27% $12,806
8/31/94 $26,367 3.02% $17,486 0.40% $12,857
9/30/94 $25,736 -2.61% $17,029 0.27% $12,892
10/31/94 $25,642 2.87% $17,518 0.07% $12,901
11/30/94 $24,555 -4.32% $16,761 0.13% $12,917
12/31/94 $24,099 0.99% $16,927 0.00% $12,917
1/31/95 $23,750 -1.48% $16,677 0.40% $12,969
2/28/95 $24,434 1.48% $16,923 0.40% $13,021
3/31/95 $25,080 4.84% $17,743 0.33% $13,064
4/30/95 $25,989 3.51% $18,365 0.33% $13,107
5/31/95 $26,898 0.87% $18,525 0.20% $13,133
6/30/95 $27,690 -0.01% $18,523 0.20% $13,160
7/31/95 $29,040 5.02% $19,453 0.00% $13,160
8/31/95 $28,776 -2.21% $19,023 0.26% $13,194
9/30/95 $29,670 2.93% $19,581 0.20% $13,220
10/31/95 $28,556 -1.56% $19,275 0.33% $13,264
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
11/30/95 $29,480 3.49% $19,948 -0.07% $13,255
12/31/95 $30,242 2.94% $20,534 -0.07% $13,245
1/31/96 $31,078 1.83% $20,910 0.59% $13,323
2/29/96 $31,706 0.63% $21,042 0.32% $13,366
3/31/96 $32,774 1.68% $21,395 0.52% $13,436
4/30/96 $33,565 2.37% $21,902 0.39% $13,488
5/31/96 $34,082 0.10% $21,924 0.19% $13,514
6/30/96 $34,615 0.52% $22,038 0.06% $13,522
7/31/96 $32,619 -3.52% $21,263 0.19% $13,547
8/31/96 $33,927 1.17% $21,511 0.19% $13,573
9/30/96 $34,770 3.93% $22,357 0.32% $13,617
10/31/96 $35,218 0.72% $22,518 0.32% $13,660
11/30/96 $37,180 5.62% $23,783 0.19% $13,686
12/31/96 $37,714 -1.58% $23,407 0.00% $13,686
</TABLE>
Total Return Index Comparison
$10,000 Investment (2/16/88 - 12/31/96)
*Templeton Variable **MSCI World ***Consumer
Annuity Fund(1) Index(2) Price Index(3)
1. Total return measures the change in the Fund's net asset value over the
period shown, assuming reinvestment of dividends and capital gains. It does not
include any variable annuity contract fees and charges, which are described in
the Performance Summary. Past performance is not predictive of future results.
2. Index is unmanaged and includes reinvested dividends.
3. Source: U.S. Bureau of Labor Statistics.
Periods Ended 12/31/96
<TABLE>
<CAPTION>
Since
Inception
One-Year Five-Year (2/16/88)
<S> <C> <C> <C>
Cumulative
Total Return (1) 24.71% 127.05% 277.14%
Average Annual
Total Return (2) 24.71% 17.81% 16.14%
Value of $10,000
Investment (3) $12,471 $22,705 $37,714
</TABLE>
One-Year Total Return(4)
12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
10.17% 37.24% -4.06% 25.49% 24.71%
1.Cumulative total return represents the change in the Fund's net asset value
over the periods indicated and assumes reinvestment of dividends and capital
gains.
2.Average annual total return represents the average annual increase in value
of an investment and assumes reinvestment of dividends and capital gains.
3.These figures represent the value of a hypothetical $10,000 investment in the
Fund over the specified periods and assume reinvestment of dividends and
capital gains.
4.Total return represents the actual change in value of an investment over the
one-year periods ended on the specified dates.
Note: Total return figures do not include any variable annuity contract fees
and charges, which are described in the Performance Summary. Investment return
and principal value will fluctuate with market conditions, currencies and the
economic and political climates of the countries where investments are made,
and shares, when redeemed, may be worth more or less than their initial cost.
Past performance is not predictive of future results.
6
<PAGE> 7
TEMPLETON VARIABLE ANNUITY FUND
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 20.62 $ 17.96 $ 19.50 $ 14.99 $15.20
------- ------- ------- ------- ------
Income from investment operations:
Net investment income .35 .32 .21 .24 .37
Net realized and unrealized gain (loss) 4.14 3.89 (.96) 5.31 1.16
------- ------- ------- ------- ------
Total from investment operations 4.49 4.21 (.75) 5.55 1.53
------- ------- ------- ------- ------
Distributions:
Dividends from net investment income (.32) (.20) -- (.24) (.39)
Distributions from net realized gains (2.88) (1.35) (.79) (.80) (1.33)
Distributions from other sources -- -- -- -- (.02)
------- ------- ------- ------- ------
Total distributions (3.20) (1.55) (.79) (1.04) (1.74)
------- ------- ------- ------- ------
Change in net asset value 1.29 2.66 (1.54) 4.51 (.21)
------- ------- ------- ------- ------
Net asset value, end of year $ 21.91 $ 20.62 $ 17.96 $ 19.50 $14.99
======= ======= ======= ======= ======
TOTAL RETURN* 24.71% 25.49% (4.06)% 37.24% 10.17%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000) $15,649 $14,120 $12,569 $12,698 $9,258
Ratio of expenses to average net assets .96% 1.06% 1.49% 1.37% 1.52%
Ratio of expenses, net of reimbursement, to average
net assets .96% 1.00% 1.00% 1.00% 1.00%
Ratio of net investment income to average net assets 1.64% 1.62% 1.09% 1.36% 2.06%
Portfolio turnover rate 30.27% 33.64% 19.85% 22.13% 27.86%
Average commission rate paid (per share) $ .003
* TOTAL RETURN DOES NOT INCLUDE DEDUCTIONS AT THE FUND OR CONTRACT LEVEL FOR COST OF INSURANCE CHARGES, PREMIUM LOAD,
ADMINISTRATIVE 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.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE> 8
TEMPLETON VARIABLE ANNUITY FUND
Investment Portfolio, December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCKS: 93.8%
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
APPLIANCES & HOUSEHOLD DURABLES: 1.7%
Sony Corp. Jpn. 4,000 $ 262,154
- --------------------------------------------------------------------------------------------------------------------------
AUTOMOBILES: 3.7%
Fiat Spa Itl. 53,800 162,216
General Motors Corp. U.S. 4,000 223,000
Volvo AB, B Swe. 8,600 189,784
------------
575,000
- --------------------------------------------------------------------------------------------------------------------------
BANKING: 8.1%
Bankinter SA Sp. 1,400 217,077
Banque Nationale de Paris Fr. 3,050 118,118
Banque Nationale de Paris, ADR, 144A Fr. 700 27,109
Deutsche Bank AG Ger. 3,300 154,222
HSBC Holdings PLC H.K. 12,488 267,214
National Australia Bank Ltd. Aus. 14,000 164,693
Sparbanken Sverige AB, A, 144A Swe. 7,900 135,531
Unidanmark AS, A Den. 3,700 191,628
------------
1,275,592
- --------------------------------------------------------------------------------------------------------------------------
BUILDING MATERIALS & COMPONENTS: 1.9%
Cie de Saint Gobain Fr. 1,300 184,031
Pioneer International Ltd. Aus. 37,000 110,285
------------
294,316
- --------------------------------------------------------------------------------------------------------------------------
BUSINESS & PUBLIC SERVICES: 2.2%
Wheelabrator Technologies Inc. U.S. 11,000 178,750
WMX Technologies Inc. U.S. 5,000 163,125
------------
341,875
- --------------------------------------------------------------------------------------------------------------------------
CHEMICALS: 4.7%
Akzo Nobel NV Neth. 2,000 273,385
Rhone-Poulenc SA, A Fr. 8,386 286,111
Solvay SA Bel. 300 183,673
------------
743,169
- --------------------------------------------------------------------------------------------------------------------------
DATA PROCESSING & REPRODUCTION: 2.0%
* Bay Networks Inc. U.S. 6,100 127,338
* Newbridge Networks Corp. Can. 6,700 189,275
------------
316,613
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
TEMPLETON VARIABLE ANNUITY FUND
Investment Portfolio, December 31, 1996 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ELECTRICAL & ELECTRONICS: 5.6%
Alcatel Alsthom SA Fr. 4,000 $ 321,543
* DSC Communications Corp. U.S. 3,400 60,775
Hitachi Ltd. Jpn. 15,000 139,884
Motorola Inc. U.S. 3,800 233,225
Scitex Corp. Ltd. Isl. 12,100 114,950
------------
870,377
- --------------------------------------------------------------------------------------------------------------------------
ELECTRONIC COMPONENTS & INSTRUMENTS: 2.8%
BICC U.K. 38,000 180,320
Intel Corp. U.S. 2,000 261,875
------------
442,195
- --------------------------------------------------------------------------------------------------------------------------
ENERGY SOURCES: 4.1%
Societe Elf Aquitane SA Fr. 2,600 236,833
Total SA, B Fr. 2,862 232,934
Transportadora de Gas del Sur SA, ADR, B Arg. 14,000 171,500
------------
641,267
- --------------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES: 5.4%
AXA SA Fr. 3,061 194,818
Dean Witter Discover & Co. U.S. 3,000 198,750
Federal National Mortgage Assn. U.S. 12,000 447,000
------------
840,568
- --------------------------------------------------------------------------------------------------------------------------
FOOD & HOUSEHOLD PRODUCTS: 1.7%
Burns Philp & Co. Ltd. Aus. 78,550 139,855
Chareon Pokphand Feedmill Public Co. Ltd., fgn. Thai. 500 1,813
Nestle SA Swtz. 115 123,463
------------
265,131
- ---------------------------------------------------------------------------------------------------------------------------
FOREST PRODUCTS & PAPER: 4.5%
* Asia Pacific Resources International, A Indo. 20,000 112,500
Carter Holt Harvey Ltd. N.Z. 44,226 100,362
* Enso OY, R Fin. 12,000 97,304
Fletcher Challenge Ltd., Forestry Division N.Z. 116,365 194,966
Stora Kopparbergs Bergslags AB, B Swe. 15,000 204,550
------------
709,682
- --------------------------------------------------------------------------------------------------------------------------
HEALTH & PERSONAL CARE: 4.2%
Astra AB, B Swe. 3,600 173,670
* Novartis AG Swtz. 213 243,951
* Nycomed ASA, A Nor. 16,000 244,591
------------
662,212
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
TEMPLETON VARIABLE ANNUITY FUND
Investment Portfolio, December 31, 1996 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INDUSTRIAL COMPONENTS: 1.2%
Madeco Manufacturera de Cobre SA, ADR Chil. 7,500 $ 181,875
- --------------------------------------------------------------------------------------------------------------------------
INSURANCE: 7.0%
GIO Austrailia Holdings Ltd. Aus. 85,017 217,594
HIH Winterthur International Holdings Ltd. Aus. 54,065 135,367
ING Groep NV Neth. 5,076 182,871
Partnerre Ltd. Bmu. 6,000 204,000
Reliastar Financial Corp. U.S. 3,500 202,125
Torchmark Corp. U.S. 3,000 151,500
------------
1,093,457
- --------------------------------------------------------------------------------------------------------------------------
LEISURE & TOURISM: 1.8%
Kuoni Reisen Holding AG, B Swtz. 115 279,230
- --------------------------------------------------------------------------------------------------------------------------
MERCHANDISING: 1.3%
Home Depot Inc. U.S. 4,000 200,500
- --------------------------------------------------------------------------------------------------------------------------
METALS & MINING: 0.9%
Boehler Uddeholm AG Aust. 2,000 143,114
- --------------------------------------------------------------------------------------------------------------------------
MULTI-INDUSTRY: 4.8%
Hutchison Whampoa Ltd. H.K. 25,500 200,288
Jardine Matheson Holdings Ltd. H.K. 30,544 201,590
La Cemento Nacional CA, GDR Ecu. 600 137,400
La Cemento Nacional CA, GDR, 144A Ecu. 300 68,700
Metro Pacific Corp. Phil. 600,000 148,289
------------
756,267
- --------------------------------------------------------------------------------------------------------------------------
REAL ESTATE: 2.7%
* Fastighets AB Tornet, A Swe. 790 12,047
National Health Investors Inc. U.S. 5,000 189,375
Summit Properties Inc., REIT U.S. 9,700 214,613
------------
416,035
- --------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS: 10.6%
Lucent Technologies Inc. U.S. 1,300 60,125
Nokia AB, A Fin. 4,200 243,783
* SPT Telecom AS Csk. 1,900 236,574
STET (Sta Finanziaria Telefonica Torino) SPA, di
Risp Itl. 79,600 268,939
Telecom Italia Spa Itl. 94,400 245,340
Telefonica de Argentina SA, B, ADR Arg. 3,000 77,625
Telefonica de Espana SA, ADR Sp. 4,200 290,850
Telefonos de Mexico SA, L, ADR Mex. 7,300 240,900
------------
1,664,136
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
TEMPLETON VARIABLE ANNUITY FUND
Investment Portfolio, December 31, 1996 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TEXTILES & APPAREL: 1.8%
*Fruit of the Loom Inc., A U.S. 7,457 $ 282,434
- --------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION: 1.4%
Helikopter Services Group ASA Nor. 16,600 216,024
- --------------------------------------------------------------------------------------------------------------------------
UTILITIES-ELECTRICAL & GAS: 7.7%
*CEZ Csk. 3,600 129,602
Consolidated Electric Power Asia Ltd. H.K. 108,300 254,140
Endesa-Empresa Nacional de Electricidad SA, ADR Sp. 3,600 252,000
Evn Energie-Versorgung Niederoesterreich AG Aust. 1,920 288,962
VEBA AG Ger. 5,000 287,618
------------
1,212,322
------------
TOTAL COMMON STOCKS (cost $10,849,086) 14,685,545
- --------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS: 5.1%
- --------------------------------------------------------------------------------------------------------------------------
News Corp. Ltd., pfd. Aus. 116,842 520,082
Telebras-Telecomunicacoes Brasileiras SA, pfd. Braz. 2,496,267 192,187
Telebras-Telecomunicacoes Brasileiras SA, pfd.,
ADR Braz. 1,000 76,500
------------
TOTAL PREFERRED STOCKS (cost $607,265) 788,769
- --------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
IN
LOCAL
CURRENCY**
- --------------------------------------------------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS: 1.2% (cost $188,331)
- --------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bill, 4.87%, 3/06/97 U.S. 190,000 188,356
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS: 100.1% (cost $11,644,682) 15,662,670
OTHER ASSETS, LESS LIABILITIES: (0.1)% (13,327)
------------
TOTAL NET ASSETS: 100.0% $15,649,343
============
</TABLE>
* NON-INCOME PRODUCING.
** CURRENCY OF COUNTRIES INDICATED.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 12
TEMPLETON VARIABLE ANNUITY FUND
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C>
Assets:
Investments in securities, at value
(identified cost $11,644,682) $15,662,670
Dividends receivable 39,085
------------
Total assets 15,701,755
------------
Liabilities:
Accrued expenses 52,412
------------
Total liabilities 52,412
------------
Net assets, at value $15,649,343
============
Net assets consist of:
Undistributed net investment income $ 243,664
Net unrealized appreciation 4,017,988
Accumulated net realized gain 2,904,851
Net capital paid in on shares of
beneficial interest 8,482,840
------------
Net assets, at value $15,649,343
============
Shares outstanding 714,416
============
Net asset value per share
($15,649,343 / 714,416) $ 21.91
============
</TABLE>
STATEMENT OF OPERATIONS
for the year ended December 31, 1996
<TABLE>
<S> <C> <C>
Investment income:
(net of $30,977 foreign
taxes withheld)
Dividends $ 364,114
Interest 22,270
-----------
Total income $ 386,384
Expenses:
Management fees (Note 3) 74,375
Administrative fees (Note 3) 22,315
Custodian fees 7,969
Reports to shareholders 5,200
Audit fees 20,500
Legal fees 10,000
Registration and filing fees 1,020
Other 937
-----------
Total expenses 142,316
-----------
Net investment income 244,068
Realized and unrealized gain:
Net realized gain on:
Investments 2,905,760
Foreign currency
transactions 2,489
-----------
2,908,249
-----------
Net unrealized appreciation on:
Investments 126,747
Foreign currency translation
of other assets and
liabilities 1,750
-----------
128,497
-----------
Net realized and unrealized
gain 3,036,746
-----------
Net increase in net assets
resulting from operations $3,280,814
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 13
TEMPLETON VARIABLE ANNUITY FUND
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 244,068 $ 218,775
Net realized gain on investment and foreign currency transactions 2,908,249 1,942,231
Net unrealized appreciation 128,497 887,079
----------- -----------
Net increase in net assets resulting from operations 3,280,814 3,048,085
Distributions to shareholders:
From net investment income (215,833) (137,838)
From net realized gain (1,942,495) (930,408)
Fund share transactions (Note 2) 407,120 (428,745)
----------- -----------
Net increase in net assets 1,529,606 1,551,094
Net assets:
Beginning of year 14,119,737 12,568,643
----------- -----------
End of year $15,649,343 $14,119,737
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 14
TEMPLETON VARIABLE ANNUITY FUND
Notes to Financial Statements
- --------------------------------------------------------------------------------
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 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. The following summarizes the Fund's
significant accounting policies.
A. SECURITIES VALUATIONS:
Securities listed or traded on a recognized national or foreign exchange or
NASDAQ are valued at the last reported sales prices on the principal exchange on
which the securities are traded. Over-the-counter 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 TRANSACTIONS:
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 currencies
are translated into U.S. dollar amounts on the respective dates of such
transactions. When the Fund purchases or sells foreign securities it customarily
enters into a foreign exchange contract 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
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities 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
fiscal 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 of 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
securities is recorded as soon as information is available to the Fund. Interest
income 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.
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.
14
<PAGE> 15
TEMPLETON VARIABLE ANNUITY FUND
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
2. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
At December 31, 1996, there were an unlimited number of shares of beneficial
interest authorized ($0.01 par value). Transactions in the Fund's shares were as
follows:
<TABLE>
<CAPTION>
1996 1995
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Shares sold 4,369 $ 85,896 17,647 $ 325,840
Shares issued on reinvestment of distributions 117,110 2,158,328 64,121 1,068,246
Shares redeemed (91,811) (1,837,104) (96,898) (1,822,831)
------- ----------- ------- -----------
Net increase (decrease) 29,668 $ 407,120 (15,130) $ (428,745)
======= =========== ======= ===========
</TABLE>
3. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Certain officers of the Fund are also directors of Templeton Investment Counsel,
Inc. (TICI), and Templeton Funds Annuity Company (TFAC), the Fund's investment
manager, and administrative manager, respectively.
The Fund pays monthly an investment management fee to TICI equal, on an annual
basis, to 0.50% of the average daily net assets of the Fund, reduced to 0.45% of
such average daily net assets in excess of $200 million, and to 0.40% of such
net assets in excess of $1.3 billion.
The Fund pays to TFAC an administrative 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 million, 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 has
voluntarily agreed 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 ended May 1, 1997. The
amount of the reimbursement is set forth in the Statement of Operations.
An officer of the Fund is a partner of Dechert Price & Rhoads, legal counsel for
the Fund, which firm received fees for the year ended December 31, 1996.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the year
ended December 31, 1996 aggregated $4,392,409 and $5,730,445, 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 December 31, 1996, 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 $4,397,254
Unrealized depreciation (379,266)
----------
Net unrealized appreciation $4,017,988
==========
</TABLE>
15
<PAGE> 16
TEMPLETON VARIABLE ANNUITY FUND
Independent Auditor's Report
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholders
Templeton Variable Annuity Fund
We have audited the accompanying statement of assets and liabilities, including
the investment portfolio, of Templeton Variable Annuity Fund as of December 31,
1996, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Templeton Variable Annuity Fund as of December 31, 1996, the results of its
operations, the changes in its net assets and the financial highlights for the
periods indicated, in conformity with generally accepted accounting principles.
[McGLADREY & PULLEN, LLP SIGNATURE]
New York, New York
January 31, 1997
16
<PAGE> 17
TEMPLETON FUNDS RETIREMENT ANNUITY SEPARATE ACCOUNT
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C>
Assets
Investment in Templeton Variable Annuity
Fund, at value (cost $9,278,901.37) $12,393,537
-----------
Liabilities
Payable to Templeton Funds Annuity
Company 75,360
-----------
Net assets $12,318,177
===========
Net assets attributable to annuitants --
Annuity reserves (Note 1) $12,318,177
===========
</TABLE>
STATEMENT OF OPERATIONS
Twelve months ended December 31, 1996
<TABLE>
<S> <C>
Investment Income:
Income:
Dividend distributions $ 172,002
Capital gains distributions 1,548,017
----------
Total income 1,720,019
Expenses:
Periodic charge (Note 2) 130,177
----------
Net investment income 1,589,842
----------
Realized and unrealized gain on investments:
Net realized gain on investments 583,838
Unrealized appreciation of investments for
the year 308,083
----------
Net gain on investments 891,921
----------
Net increase in net assets from operations $2,481,763
==========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
DECEMBER DECEMBER
31, 1996 31, 1995
------------ ------------
<S> <C> <C>
Increase in net assets from operations:
Net investment income $ 1,589,842 $ 733,808
Net realized gain on investments 583,838 436,311
Unrealized appreciation of investments for the year 308,083 1,155,950
----------- -----------
Net increase in net assets from operations 2,481,763 2,326,069
----------- -----------
Annuity unit transactions:
Proceeds from units sold 65,647 228,833
Annuity payments (1,481,530) (1,368,267)
Increase (decrease) in annuity reserves for mortality
experience (Note 1) (29,903) 63,847
----------- -----------
Net decrease in net assets derived from annuity
unit transactions (1,445,786) (1,075,587)
----------- -----------
Total increase in net assets 1,035,977 1,250,482
Net Assets:
Beginning of year 11,282,200 10,031,718
----------- -----------
End of year $12,318,177 $11,282,200
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE> 18
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 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, 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
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 the 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 year ended December 31, 1996, purchases and sales of Templeton
Variable Annuity Fund shares aggregated $1,803,170 and $982,412, 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 December 31, 1996, in
management's opinion, the Separate Account had no significant concentration of
credit risk.
18
<PAGE> 19
TEMPLETON FUNDS RETIREMENT ANNUITY SEPARATE ACCOUNT
Report of Independent Accountants
- --------------------------------------------------------------------------------
The Participants of
Templeton Funds Retirement Annuity Separate Account
We have audited the accompanying statement of assets and liabilities of
Templeton Funds Retirement Annuity Separate Account as of December 31, 1996, and
the related statement of operations for the year then ended and the statements
of changes in net assets for the years ended December 31, 1996 and 1995. These
financial statements are the responsibility of the Separate Account's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at December 31, 1996, by correspondence with
the Templeton Variable Annuity Fund. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Templeton Funds Retirement
Annuity Separate Account as of December 31, 1996, and the results of its
operations for the year then ended and the changes in its net assets for the
years ended December 31, 1996 and 1995 in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Jacksonville, Florida
February 7, 1997
19
<PAGE> 20
NOTES
--------
<PAGE> 21
NOTES
--------
<PAGE> 22
NOTES
--------
<PAGE> 23
FRANKLIN TEMPLETON GROUP OF FUNDS
LITERATURE REQUEST -- Call 1-800/DIAL BEN (1-800/342-5236) today for a free
descriptive brochure and prospectus on any of the funds listed below. The
prospectus contains more complete information, including fees, charges and
expenses, and should be read carefully before investing or sending money.
GLOBAL GROWTH
Franklin Global Health Care Fund
Franklin Templeton Japan Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller
Companies Fund
Templeton Global Infrastructure Fund
Templeton Global
Opportunities Trust
Templeton Global Real Estate Fund
Templeton Global Smaller
Companies Fund
Templeton Greater European Fund
Templeton Growth Fund
Templeton Latin America Fund
Templeton Pacific Growth Fund
Templeton World Fund
GLOBAL GROWTH AND INCOME
Franklin Global Utilities Fund
Franklin Templeton German
Government Bond Fund
Franklin Templeton
Global Currency Fund
Mutual European Fund
Templeton Global Bond Fund
Templeton Growth and Income Fund
GLOBAL INCOME
Franklin Global Government
Income Fund
Franklin Templeton Hard
Currency Fund
Franklin Templeton High
Income Currency Fund
Templeton Americas
Government Securities Fund
GROWTH
Franklin Blue Chip Fund
Franklin California Growth Fund
Franklin DynaTech Fund
Franklin Equity Fund
Franklin Gold Fund
Franklin Growth Fund
Franklin MidCap Growth Fund
Franklin Small Cap Growth Fund
Mutual Discovery Fund
GROWTH AND INCOME
Franklin Asset Allocation Fund
Franklin Balance Sheet
Investment Fund
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Franklin MicroCap Value Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Rising Dividends Fund
Franklin Strategic Income Fund
Franklin Utilities Fund
Franklin Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Shares Fund
Templeton American Trust, Inc.
FUND ALLOCATOR SERIES:
Franklin Templeton
Conservative Target Fund
Franklin Templeton
Moderate Target Fund
Franklin Templeton
Growth Target Fund
INCOME
Franklin Adjustable Rate
Securities Fund
Franklin Adjustable U.S.
Government Securities Fund
Franklin's AGE High Income Fund
Franklin Investment
Grade Income Fund
Franklin Short-Intermediate U.S.
Government Securities Fund
Franklin U.S. Government
Securities Fund
Franklin Money Fund
Franklin Federal Money Fund
FOR NON-U.S. INVESTORS:
Franklin Tax-Advantaged
High Yield Securities Fund
Franklin Tax-Advantaged
International Bond Fund
Franklin Tax-Advantaged U.S.
Government Securities Fund
FOR CORPORATIONS:
Franklin Corporate Qualified
Dividend Fund
FRANKLIN FUNDS SEEKING
TAX-FREE INCOME
Federal Intermediate-Term
Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund
Puerto Rico Tax-Free Income Fund
Tax-Exempt Money Fund
FRANKLIN STATE-SPECIFIC
FUNDS SEEKING
TAX-FREE INCOME
Alabama
Arizona*
Arkansas**
California*
Colorado
Connecticut
Florida*
Georgia
Hawaii**
Indiana
Kentucky
Louisiana
Maryland
Massachusetts***
Michigan*
Minnesota***
Missouri
New Jersey
New York*
North Carolina
Ohio***
Oregon
Pennsylvania
Tennessee**
Texas
Virginia
Washington**
VARIABLE ANNUITIES
Franklin Valuemark(R)
Franklin Templeton
Valuemark Income Plus
(an immediate annuity)
*TWO OR MORE FUND OPTIONS AVAILABLE: LONG-TERM PORTFOLIO, INTERMEDIATE-TERM
PORTFOLIO, A PORTFOLIO OF INSURED MUNICIPAL SECURITIES,
AND/OR A HIGH YIELD PORTFOLIO (CA) AND A MONEY MARKET PORTFOLIO (CA AND NY).
**THE FUND MAY INVEST UP TO 100% OF ITS ASSETS IN BONDS THAT PAY INTEREST
SUBJECT TO THE FEDERAL ALTERNATIVE MINIMUM TAX.
***PORTFOLIO OF INSURED MUNICIPAL SECURITIES.
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.
12/96.1
<PAGE> 24
TEMPLETON
VARIABLE
ANNUITY
FUND
Annual Report
December 31, 1996
Templeton Variable Annuity Fund
Auditors McGladrey & Pullen, LLP
555 Fifth Avenue
New York, New York 10017-2416
Principal Underwriter:
Franklin Templeton
Distributors, Inc.
700 Central Avenue
St. Petersburg,
Florida 33701-3628
Shareholder Services
1-800-632-2301
Fund Information
1-800-342-5236
This report must be preceded or accompanied by the prospectus of Templeton
Variable Annuity Fund 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.
[Global Backround]
TRA A96 2/97
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