ANNUAL REPORT
DECEMBER 31, 1999
TEMPLETON FUNDS RETIREMENT ANNUITY
SEPARATE ACCOUNT
/BULLET/ TEMPLETON VARIABLE
PRODUCTS SERIES FUND
TEMPLETON STOCK FUND - CLASS 1
[LOGO/R/]
FRANKLIN/R/ TEMPLETON/R/
<PAGE>
A WORD ABOUT RISK
All of the portfolios are subject to certain risks, which will cause investment
returns and the value of your principal to increase or decrease. Generally,
investments offering the potential for higher returns are accompanied by a
higher degree of risk. Stocks and other equities, representing an ownership
interest in an individual company, have historically outperformed other asset
classes over the long term, but tend to fluctuate more dramatically over the
shorter term. Securities of smaller companies, and companies involved in
reorganization or bankruptcy, may have greater price swings and greater credit
and other risks.
Bonds and other debt obligations are affected by the creditworthiness of their
issuers and changes in interest rates, with prices declining as interest rates
increase. High yield, lower-rated ("junk") bonds generally have greater price
swings and higher default risks than investment grade bonds.
Foreign investing, especially in emerging market countries, has additional
risks such as changes in currency values, market price swings, and economic,
political, or social instability. These, and other risks pertaining to specific
portfolios, such as specialized industry or geographic sectors or use of
complex securities, are discussed in the prospectus. Your investment
representative can help you determine which portfolios may be right for you.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Contract Owners ......................... 2
Manager's Discussion .............................. TS-1
Performance ....................................... TS-4
Financial Highlights .............................. TS-6
Statement of Investments .......................... TS-8
Financial Statements .............................. TS-12
Notes to Financial Statements ..................... TS-15
Tax Designation ................................... TS-20
Templeton Funds Retirement
Annuity Separate Account
Financials ........................................ SA-1
Report of Special Meeting of Shareholders ......... R-1
</TABLE>
Please retain this document with your current prospectus for reference.
<PAGE>
LETTER TO CONTRACT OWNERS
Dear Contract Owner:
We are pleased to bring you this annual report of Templeton Retirement Annuity
for the 12 months ended December 31, 1999. The period was a challenging one for
investors forced to deal with diverse factors, ranging from currency
devaluations to the introduction of the euro, and from rising interest rates to
the enormous impact of the Internet upon global economies.
The U.S. economy barreled along, enjoying strong growth for the ninth
consecutive year. Inflation remained benign, and domestic stock indexes, led by
large-capitalization, blue-chip, technology and Internet-related stocks, hit
record highs. On March 29, 1999, the Dow Jones/R/ Industrial Average broke
through the 10000 barrier for the first time and went on to close at 11484 on
December 31--up 27.18% for the year./1/ The Standard & Poor's/R/ 500 Index,
representing 500 large companies, rose 21.04%./2/ Small cap stocks also
performed well, and the Russell 2000/R/ Index rose 21.26% for the period./3/
Even value stocks, after underperforming growth stocks for two years, appeared
to return to life in April and May. But the big news was made by
Internet-related shares, as the Nasdaq/R/ Composite Index, comprising many
high-technology and Internet companies, posted a return of 85.87% for the fiscal
year./4/
European securities markets produced mixed results during the reporting period.
Although some European economies began to grow due to increasing Asian demand,
the trend did not exert a positive influence on all European securities. The
stock markets of France, Germany, Norway and Sweden each rose significantly
during the period, while those of Belgium, Ireland and Switzerland each fell in
U.S. dollar terms.
1. Source: Standard & Poor's Micropal (Dow Jones). Total return measured by
Wilshire & Associates, Inc.
2. Source: Standard & Poor's Micropal (S&P 500).
3. Source: Standard & Poor's Micropal (Frank Russell).
4. Source: Standard & Poor's Micropal (Nasdaq).
2
<PAGE>
Equity markets in many emerging market countries experienced significant
volatility throughout the period and surged as investors poured money into many
Asian and South American stocks. As measured in U.S. dollars, Hong Kong's,
Indonesia's and South Korea's equity indexes each rose more than 68%, while
Mexico's Bolsa Index climbed 90.39% and Brazil's Bovespa Index appreciated
76.63%./5/
Of course, it is important to remember that securities markets always have, and
always will, fluctuate. And no one knows when they will drop, or when they will
soar to new heights. But prudent investors realize that good years can be mixed
with bad years, and that long-term results matter more than short-term
volatility. That is why we urge you to focus not on short-term market
movements, but on your long-term investment goals.
As always, we appreciate your participation in Templeton Retirement Annuity and
look forward to serving your investment needs in the years to come.
Sincerely,
/s/CHARLES E. JOHNSON
Charles E. Johnson
President
Templeton Variable Products Series Fund
/s/RICHARD P. AUSTIN
Richard P. Austin
President
Templeton Funds Annuity Company
5. Sources: Mexico Bolsa Index and Brazil Bovespa Index.
Total returns measured in U.S. dollars. Indexes are unmanaged and include
reinvested dividends and/or interest. One cannot invest directly in an index,
nor is an index representative of the Funds' portfolios.
3
<PAGE>
TEMPLETON STOCK FUND
- --------------------------------------------------------------------------------
INVESTMENT GOAL AND PRINCIPAL INVESTMENTS: TEMPLETON STOCK FUND
SEEKS CAPITAL GROWTH THROUGH A POLICY OF INVESTING PRIMARILY IN COMMON STOCKS
ISSUED BY COMPANIES, LARGE AND SMALL, IN VARIOUS NATIONS THROUGHOUT THE WORLD.
- --------------------------------------------------------------------------------
During the 12 months under review, global equity markets provided generally
strong results. The U.S. experienced its ninth consecutive year of growth,
while many European economies improved, a number of Asian nations rebounded
from their recent crises, and most Latin American economies enjoyed an upswing
due to increasing commodity prices.
[INSERT PIE CHART]
[This chart shows in pie format the geographic distribution of
Templeton Stock Fund, based on total net assets as of 12/31/99.]
Europe 38.4%
North America 24.8%
Asia 17.8%
Latin America 7.0%
Australia & New Zealand 5.2%
Fixed-Income Securities 0.5%
Short-Term Investments & Other Net Assets 6.3%
NORTH AMERICA
In the U.S., employment and consumer confidence reached new highs, raising
concerns that inflation might reappear. Rising crude oil prices also
contributed to inflation worries during the year and, in an attempt to ward of
potential future inflation, the Federal Reserve Board (the Fed) raised
short-term interest rates three times in 1999.
This, however, did not seem to deter the U.S. equity market, which rose to new
heights by the end of the year. Some of the Fund's holdings, including
Motorola, a communication equipment manufacturer, and retailer Home Depot, rose
significantly during the period, and we took the opportunity to realize
considerable gains by selling our shares of Antec, a telecommunications
equipment provider. Because we believed that U.S. stocks were generally
overvalued, we remained underweighted in such stocks versus the Morgan Stanley
Capital International (MSCI/R/) World Index.
EUROPE
During the reporting period, Europe began to enjoy economic growth as many
European exporters appeared to benefit from improving Asian economies. This
strength was particularly evident in the Scandinavian region and the United
Kingdom. Along with this general economic recovery, many European industries
began to participate in a trend toward consolidation. Scandinavian and German
banks merged; French pharmaceutical company Rhone-Poulenc and Germany's Hoechst
AG combined; and two French giants, Total Fina SA and Societe Elf Aquitaine SA,
agreed to consolidate into the world's fourth largest oil company. During the
fiscal year, we found European equities increasingly attractive, and we
continued to be overweighted in Europe versus the MSCI World Index.
TS-1
<PAGE>
[This chart lists the top 10 countries represented in the Templeton Stock Fund,
based on total net assets as of 12/31/99.]
<TABLE>
<CAPTION>
TOP 10 COUNTRIES
Templeton Stock Fund
12/31/99
% OF TOTAL
COUNTRY NET ASSETS
-----------------------------
<S> <C>
United States 19.7%
United Kingdom 13.5%
Japan 9.5%
Hong Kong 6.8%
Netherlands 6.7%
France 5.8%
Australia 4.5%
Germany 3.8%
Brazil 3.7%
Canada 3.1%
</TABLE>
ASIA
Asian equity markets, especially Japan's, performed extremely well during the
reporting period. Having found several investment opportunities during the
financial crises in the region in 1997-1998, we became overweighted in Hong
Kong compared to the MSCI World Index. However, the same is not true of Japan,
where we were underweighted because we believed share prices of companies there
were expensive relative to other companies in the world.
In our opinion, Japanese stock prices rose during 1999 because of an improved
outlook for its economy, which has been mired in recession for the past 10
years. However, we believe the obstacle to Japanese recovery is twofold. First,
Japan appears to suffer from chronic overcapacity in many industries, causing
prices to remain depressed, forcing companies to charge lower prices, and
ultimately affecting profitability. Second, Japan is experiencing a lack of
consumer spending, probably as a result of employment concerns for most
Japanese. Nevertheless, during the year under review, our holdings in Japan's
Nippon Telegraph & Telephone and Hong Kong's Hutchison Whampoa Ltd., a large
telecommunications and shipping conglomerate, appreciated significantly in
value, and we took the opportunity to capture profits by liquidating some
shares in our Sony Corp. position.
LATIN AMERICA
During the reporting period, most Latin American economies experienced an
upswing which, along with improved commodity prices, appeared to increase
investors' confidence in the region. Mexico, which exports oil, and Chile,
which exports copper, reaped significant benefits from this pickup in world
demand for raw materials. Mexico also benefited from the growth of the U.S.
economy, which created a strong U.S. demand for Mexican exports. During the
reporting period, the Fund's holdings of Telefonos de Mexico (Telmex)
appreciated dramatically.
TS-2
<PAGE>
LOOKING FORWARD
We remain optimistic about long-term prospects for global equity markets and
Templeton Stock Fund. However, if inflation re-emerges and the financial
markets reach more extreme valuations, then the Fed may aggressively raise
interest rates. If U.S. interest rates increase, Latin American economies would
likely suffer. In Asia, we believe economies need to grow further to maintain
the recent luster in stock markets there. We feel that Hong Kong and South
Korean shares have become expensive and would not be surprised to see some
setback in Asia in 2000. As always, we will continue to monitor these
conditions as we search the globe for undervalued stocks in an effort to
benefit the Fund's shareholders.
It is important to remember that foreign securities investments involve special
risks including changes in currency values, market price swings, and economic,
social, and political developments in the countries where the Fund is invested.
Developing markets involve similar but heightened risks related to their
smaller size and lesser liquidity. These risks are discussed in the prospectus.
We thank you for investing in Templeton Stock Fund and welcome your comments or
suggestions.
Sincerely,
/s/MARK R. BEVERIDGE
Mark R. Beveridge, CFA, CIC
Portfolio Manager
Templeton Stock Fund
This discussion reflects our views, opinions and portfolio holdings as of
December 31, 1999, the end of the reporting period. However, they are not
necessarily complete analyses of every aspect of any industry, security or
investment. Our strategies and the Fund's portfolio composition will change
depending on market and economic conditions. Although historical performance
is no guarantee of future results, these insights may help you understand our
investment and management philosophy.
<PAGE>
[This chart lists the top 10 holdings, including industry and country, of the
Templeton Stock Fund, based on total net assets as of 12/31/99.]
<TABLE>
<CAPTION>
TOP 10 HOLDINGS
Templeton Stock Fund
12/31/99
COMPANY, % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
-----------------------------------------
<S> <C>
Sony Corp.,
APPLIANCES & HOUSEHOLD
DURABLES, JAPAN 4.2%
Alcatel SA,
ELECTRICAL & ELECTRONICS,
FRANCE 2.6%
Nomura Securities
Co. Ltd.,
FINANCIAL SERVICES, JAPAN 2.5%
Koninklijke Philips
Electronics NV,
ELECTRICAL & ELECTRONICS,
NETHERLANDS 2.4%
Australia & New Zealand
Banking Group Ltd.,
BANKING, AUSTRALIA 2.0%
Hutchison Whampoa Ltd.,
MULTI-INDUSTRY,
HONG KONG 1.7%
Portugal Telecom SA,
TELECOMMUNICATIONS,
PORTUGAL 1.6%
Home Depot Inc.,
MERCHANDISING, U.S. 1.5%
Cheung Kong
Holdings Ltd,
MULTI-INDUSTRY, HONG
KONG 1.5%
3Com Corp.,
DATA PROCESSING &
REPRODUCTION,
UNITED STATES 1.5%
</TABLE>
For a complete list of portfolio holdings, please see the Fund's Statement of
Investments.
TS-3
<PAGE>
TEMPLETON STOCK FUND
- -- CLASS 1
EXPENSES: Performance reflects the Fund's Class 1 operating expenses, but
does NOT include any Contract fees, expenses or sales charges. If they had
been included, performance would be lower. These Contract charges and
deductions, particularly for variable life policies, can have a significant
effect on Contract values and insurance benefits. See the Contract
prospectus for a complete description of these expenses, including sales
charges.
PERFORMANCE SUMMARY AS OF 12/31/99
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT (1/1/90 -- 12/31/99)
The graph below compares the performance of Templeton Stock Fund -- Class 1 and
the Morgan Stanley Capital International (MSCI/R/) World Index, including
reinvested dividends, and the Consumer Price Index (CPI). The Fund's total
return represents the change in value of an investment over the periods shown
and assumes reinvestment of dividends and capital gains at net asset value. The
MSCI World Index includes approximately 1,450 companies representing the stock
markets of 22 countries, including the U.S., Europe, Canada, Australia, New
Zealand, and the Far East. The CPI is a commonly used measure of inflation. The
Fund's performance differs from an index's because an index is not managed, does
not contain cash (the Fund generally carries a certain percentage of cash at any
given time), and includes no sales charges or management expenses. Of course,
one cannot invest directly in an index, nor is an index representative of the
Fund's portfolio. The indexes' sources are MSCI and Standard & Poor's/R/
Micropal (U.S. Bureau of Labor Statistics).
[The following line graph compares the performance of the Templeton Stock Fund -
Class 1 to that of the Morgan Stanley Capital International World Index and the
Consumer Price Index, based on a $10,000 investment from 1/1/90 - 12/31/99.]
Templeton MSCI World CPI
Stock Fund -
Class I
------------------------------------------------------------
01/01/1990 $10,000 $10,000 $10,000
01/31/1990 $9,634 $9,535 1.03% $10,103
02/28/1990 $9,694 $9,127 0.47% $10,150
03/31/1990 $9,866 $8,578 0.55% $10,206
04/30/1990 $9,493 $8,456 0.16% $10,223
05/31/1990 $10,213 $9,348 0.23% $10,246
06/30/1990 $10,221 $9,283 0.54% $10,301
07/31/1990 $10,221 $9,369 0.38% $10,341
08/31/1990 $9,484 $8,493 0.92% $10,436
09/30/1990 $8,617 $7,599 0.84% $10,523
10/31/1990 $8,505 $8,310 0.60% $10,587
11/30/1990 $8,765 $8,175 0.22% $10,610
12/31/1990 $8,912 $8,348 0.00% $10,610
01/31/1991 $9,398 $8,655 0.60% $10,674
02/28/1991 $10,030 $9,458 0.15% $10,690
03/31/1991 $9,961 $9,181 0.15% $10,706
04/30/1991 $9,970 $9,254 0.15% $10,722
05/31/1991 $10,291 $9,465 0.30% $10,754
06/30/1991 $9,765 $8,882 0.29% $10,785
07/31/1991 $10,354 $9,303 0.15% $10,801
08/31/1991 $10,505 $9,275 0.29% $10,832
09/30/1991 $10,595 $9,520 0.44% $10,880
10/31/1991 $10,728 $9,676 0.15% $10,896
11/30/1991 $10,434 $9,256 0.29% $10,928
12/31/1991 $11,344 $9,932 0.07% $10,936
01/31/1992 $11,379 $9,750 0.15% $10,952
02/29/1992 $11,745 $9,583 0.36% $10,992
03/31/1992 $11,505 $9,133 0.51% $11,048
04/30/1992 $11,887 $9,262 0.14% $11,063
05/31/1992 $12,325 $9,632 0.14% $11,079
06/30/1992 $12,024 $9,311 0.36% $11,118
07/31/1992 $12,051 $9,336 0.21% $11,142
08/31/1992 $11,796 $9,565 0.28% $11,173
09/30/1992 $11,805 $9,479 0.28% $11,204
10/31/1992 $11,696 $9,225 0.35% $11,243
11/30/1992 $11,906 $9,391 0.14% $11,259
12/31/1992 $12,152 $9,469 -0.07% $11,251
01/31/1993 $12,316 $9,502 0.49% $11,306
02/28/1993 $12,598 $9,729 0.35% $11,346
03/31/1993 $13,005 $10,295 0.35% $11,386
04/30/1993 $13,209 $10,774 0.28% $11,418
05/31/1993 $13,627 $11,024 0.14% $11,434
06/30/1993 $13,701 $10,933 0.14% $11,450
07/31/1993 $13,906 $11,160 0.00% $11,450
08/31/1993 $14,816 $11,674 0.28% $11,482
09/30/1993 $14,928 $11,460 0.21% $11,506
10/31/1993 $15,559 $11,777 0.41% $11,553
11/30/1993 $15,169 $11,113 0.07% $11,561
12/31/1993 $16,284 $11,659 0.00% $11,561
01/31/1994 $17,185 $12,430 0.27% $11,592
02/28/1994 $16,572 $12,271 0.34% $11,632
03/31/1994 $15,803 $11,744 0.34% $11,671
04/30/1994 $16,048 $12,109 0.14% $11,688
05/31/1994 $16,264 $12,142 0.07% $11,696
06/30/1994 $15,794 $12,111 0.34% $11,736
07/31/1994 $16,593 $12,343 0.27% $11,767
08/31/1994 $17,195 $12,717 0.40% $11,814
09/30/1994 $16,668 $12,385 0.27% $11,846
10/31/1994 $16,837 $12,739 0.07% $11,854
11/30/1994 $16,123 $12,190 0.13% $11,870
12/31/1994 $15,925 $12,310 0.00% $11,870
01/31/1995 $15,728 $12,127 0.40% $11,917
02/28/1995 $16,203 $12,307 0.40% $11,965
03/31/1995 $16,490 $12,902 0.33% $12,005
04/30/1995 $17,122 $13,354 0.33% $12,044
05/31/1995 $17,763 $13,471 0.20% $12,068
06/30/1995 $18,174 $13,469 0.20% $12,092
07/31/1995 $19,074 $14,146 0.00% $12,092
08/31/1995 $18,873 $13,833 0.26% $12,124
09/30/1995 $19,409 $14,239 0.20% $12,148
10/31/1995 $18,969 $14,018 0.33% $12,188
11/30/1995 $19,418 $14,507 -0.07% $12,180
12/31/1995 $19,945 $14,934 -0.07% $12,171
01/31/1996 $20,337 $15,206 0.59% $12,243
02/29/1996 $20,671 $15,301 0.32% $12,282
03/31/1996 $21,109 $15,559 0.52% $12,346
04/30/1996 $21,568 $15,928 0.39% $12,394
05/31/1996 $21,888 $15,944 0.19% $12,418
06/30/1996 $22,048 $16,028 0.06% $12,425
07/31/1996 $21,109 $15,465 0.19% $12,449
08/31/1996 $21,845 $15,646 0.19% $12,472
09/30/1996 $22,368 $16,261 0.32% $12,512
10/31/1996 $22,710 $16,377 0.32% $12,552
11/30/1996 $23,916 $17,298 0.19% $12,576
12/31/1996 $24,417 $17,024 0.00% $12,576
01/31/1997 $25,442 $17,231 0.32% $12,616
02/28/1997 $25,351 $17,433 0.31% $12,655
03/31/1997 $25,481 $17,091 0.25% $12,687
04/30/1997 $25,339 $17,653 0.12% $12,702
05/31/1997 $26,576 $18,746 -0.06% $12,695
06/30/1997 $28,013 $19,683 0.12% $12,710
07/31/1997 $29,344 $20,593 0.12% $12,725
08/31/1997 $27,683 $19,219 0.19% $12,749
09/30/1997 $30,051 $20,265 0.25% $12,781
10/31/1997 $27,377 $19,202 0.25% $12,813
11/30/1997 $27,094 $19,545 -0.06% $12,806
12/31/1997 $27,318 $19,786 -0.12% $12,790
01/31/1998 $27,012 $20,341 0.19% $12,814
02/28/1998 $28,861 $21,720 0.19% $12,839
03/31/1998 $30,773 $22,640 0.19% $12,863
04/30/1998 $31,009 $22,865 0.18% $12,886
05/31/1998 $30,576 $22,582 0.18% $12,910
06/30/1998 $30,222 $23,121 0.12% $12,925
07/31/1998 $30,169 $23,087 0.12% $12,941
08/31/1998 $24,524 $20,012 0.12% $12,956
09/30/1998 $23,868 $20,369 0.12% $12,972
10/31/1998 $26,060 $22,214 0.24% $13,003
11/30/1998 $27,793 $23,539 0.00% $13,003
12/31/1998 $27,662 $24,693 -0.06% $12,995
01/31/1999 $27,806 $25,237 0.24% $13,026
02/28/1999 $27,045 $24,568 0.12% $13,042
03/31/1999 $28,170 $25,595 0.30% $13,081
04/30/1999 $30,879 $26,608 0.73% $13,176
05/31/1999 $29,634 $25,639 0.00% $13,176
06/30/1999 $31,157 $26,838 0.00% $13,176
07/31/1999 $31,142 $26,762 0.30% $13,216
08/31/1999 $30,996 $26,718 0.24% $13,248
09/30/1999 $30,425 $26,463 0.48% $13,311
10/31/1999 $31,274 $27,842 0.18% $13,335
11/30/1999 $33,119 $28,628 0.06% $13,343
12/31/1999 $35,710 $30,950 0.00% $13,343
The historical performance figures shown pertain only to the Fund's Class 1
shares.
Past performance does not guarantee future results.
TS-4
<PAGE>
PERFORMANCE
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.
<TABLE>
<CAPTION>
Templeton Stock Fund -- Class 1
Periods ended 12/31/99
SINCE
INCEPTION
1-YEAR 5-YEAR 10-YEAR (8/31/88)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return 29.10% 124.23% 257.10% 320.39%
Average Annual Total Return 29.10% 17.53% 13.58% 13.49%
Value of $10,000 Investment $ 12,910 $ 22,423 $ 35,710 $ 42,039
12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ---------------------------------------------------------------------------------------------------------
One-Year Total Return 25.24% 22.48% 11.88% 1.26% 29.10%
</TABLE>
TEMPLETON STOCK FUND
- -- CLASS 1
Since markets can go down as well as up, investment return and principal
value will fluctuate with market conditions, currency volatility and the
social, economic and political climates of countries where the Fund invests.
Emerging markets involve heightened risks related to the same factors, in
addition to those associated with their relatively small size and lesser
liquidity. You may have a gain or loss when you sell your shares.
Past performance does not guarantee future results.
TS-5
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Financial Highlights
<TABLE>
<CAPTION>
CLASS 1
-------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1999/dagger/ 1998 1997 1996 1995
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year .......... $21.07 $23.19 $22.88 $20.83 $16.94
-------------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .21 .39 .47 .41 .40
Net realized and unrealized gains .......... 5.22 .04 2.11 3.88 3.80
-------------------------------------------------------------------------
Total from investment operations ............ 5.43 .43 2.58 4.29 4.20
-------------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.37) (.49) (.40) (.40) (.27)
Net realized gains ......................... (1.74) (2.06) (1.87) (1.84) (.04)
-------------------------------------------------------------------------
Total distributions ......................... (2.11) (2.55) (2.27) (2.24) (.31)
-------------------------------------------------------------------------
Net asset value, end of year ................ $24.39 $21.07 $23.19 $22.88 $20.83
=========================================================================
Total Return* ............................... 29.10% 1.26% 11.88% 22.48% 25.24%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $641,849 $646,865 $732,248 $644,366 $498,777
Ratios to average net assets:
Expenses ................................... .85% .89% .81% .65% .66%
Net investment income ...................... .99% 1.65% 2.05% 2.06% 2.18%
Portfolio turnover rate ..................... 45.63% 37.27% 25.82% 23.40% 33.93%
</TABLE>
*TOTAL RETURN DOES NOT INCLUDE DEDUCTIONS AT THE 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.
/dagger/BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.
TS-6
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS 2
----------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999/dagger//dagger/ 1998 1997/dagger/
----------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year .................. $20.99 $23.15 $21.62
----------------------------------------------------
Income from investment operations:
Net investment income .............................. .13 .40 .06
Net realized and unrealized gains (losses) ......... 5.23 (.03) 1.47
----------------------------------------------------
Total from investment operations .................... 5.36 .37 1.53
----------------------------------------------------
Less distributions from:
Net investment income .............................. (.32) (.47) --
Net realized gains ................................. (1.74) (2.06) --
----------------------------------------------------
Total distributions ................................. (2.06) (2.53) --
----------------------------------------------------
Net asset value, end of year ........................ $24.29 $20.99 $23.15
====================================================
Total Return* ....................................... 28.79% .99% 7.08%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................... $47,741 $25,593 $16,414
Ratios to average net assets:
Expenses ........................................... 1.10% 1.14% 1.14%**
Net investment income .............................. .62% 1.37% .75%**
Portfolio turnover rate ............................. 45.63% 37.27% 25.82%
</TABLE>
*TOTAL RETURN DOES NOT INCLUDE DEDUCTIONS AT THE 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. TOTAL
RETURN IS NOT ANNUALIZED.
**ANNUALIZED.
/dagger/FOR THE PERIOD MAY 1, 1997 (EFFECTIVE DATE) TO DECEMBER 31, 1997.
/dagger//dagger/BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.
See Notes to Financial Statements.
TS-7
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS 89.0%
AEROSPACE & MILITARY TECHNOLOGY 4.1%
BAE Systems PLC ...................................... United Kingdom 71,043 $ 470,160
Boeing Co. ........................................... United States 182,500 7,585,156
Lockheed Martin Corp. ................................ United States 330,700 7,234,063
Raytheon Co., A ...................................... United States 240,730 5,973,113
Rolls-Royce PLC ...................................... United Kingdom 1,986,100 6,852,827
-----------
28,115,319
-----------
APPLIANCES & HOUSEHOLD DURABLES 4.4%
Guangdong Kelon Electrical Holdings Ltd., H .......... China 1,123,000 852,345
Sony Corp. ........................................... Japan 98,800 29,296,276
-----------
30,148,621
-----------
AUTOMOBILES 3.3%
Fiat SpA ............................................. Italy 130,768 3,732,279
Ford Motor Co. ....................................... United States 117,000 6,252,187
Volkswagen AG ........................................ Germany 102,400 5,773,080
Volvo AB, B .......................................... Sweden 269,200 6,963,433
-----------
22,720,979
-----------
BANKING 6.6%
Australia & New Zealand Banking Group Ltd. ........... Australia 1,936,200 14,085,222
* Banca Nazionale del Lavoro SpA ....................... Italy 1,781,960 5,920,133
Bank Austria AG ...................................... Austria 84,650 4,772,375
Banque Nationale de Paris ............................ France 62,054 5,722,487
Deutsche Bank AG, Br. ................................ Germany 100,700 8,520,925
HSBC Holdings PLC .................................... Hong Kong 460,212 6,453,092
-----------
45,474,234
-----------
BROADCASTING & PUBLISHING 2.5%
* Gartner Group Inc., B ................................ United States 224,400 3,099,525
Television Broadcasts Ltd. ........................... Hong Kong 1,023,000 6,974,850
Wolters Kluwer NV .................................... Netherlands 215,100 7,276,110
-----------
17,350,485
-----------
BUSINESS & PUBLIC SERVICES 1.4%
Kurita Water Industries Ltd. ......................... Japan 604,000 9,599,217
-----------
CHEMICALS 2.3%
Akzo Nobel NV ........................................ Netherlands 195,200 9,786,530
BASF AG .............................................. Germany 112,300 5,867,683
-----------
15,654,213
-----------
DATA PROCESSING & REPRODUCTION 2.4%
* 3Com Corp. ........................................... United States 215,800 10,142,600
* Newbridge Networks Corp. ............................. Canada 274,200 6,186,638
-----------
16,329,238
-----------
ELECTRICAL & ELECTRONICS 6.2%
Alcatel SA ........................................... France 78,835 18,095,621
Koninklijke Philips Electronics NV ................... Netherlands 121,532 16,517,487
Motorola Inc. ........................................ United States 53,100 7,818,975
-----------
42,432,083
-----------
</TABLE>
TS-8
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
ELECTRONIC COMPONENTS & INSTRUMENTS 3.7%
* Agilent Technologies Inc. .................. United States 80,200 $ 6,200,462
Hewlett-Packard Co. ........................ United States 85,000 9,684,688
Intel Corp. ................................ United States 121,400 9,992,738
------------
25,877,888
------------
ENERGY EQUIPMENT & SERVICES .4%
TransCanada PipeLines Ltd. ................. Canada 323,900 2,800,159
------------
ENERGY SOURCES 3.4%
Burlington Resources Inc. .................. United States 213,400 7,055,537
Occidental Petroleum Corp. ................. United States 323,100 6,987,038
Perez Companc SA, B ........................ Argentina 415,400 2,127,146
Shell Transport & Trading Co. PLC .......... United Kingdom 866,800 7,203,838
------------
23,373,559
------------
FINANCIAL SERVICES 6.2%
AXA SA ..................................... France 46,391 6,463,822
ING Groep NV ............................... Netherlands 157,637 9,512,496
Lend Lease Corp. Ltd. ...................... Australia 485,500 6,801,711
Mutual Risk Management Ltd. ................ Bermuda 174,500 2,933,781
Nomura Securities Co. Ltd. ................. Japan 960,000 17,333,268
------------
43,045,078
------------
FOOD & HOUSEHOLD PRODUCTS .8%
Archer-Daniels-Midland Co. ................. United States 455,878 5,556,013
------------
FOREST PRODUCTS & PAPER .7%
* Asia Pulp & Paper Co. Ltd., ADR ............ Indonesia 423,500 3,335,062
Carter Holt Harvey Ltd. .................... New Zealand 1,155,252 1,509,045
------------
4,844,107
------------
HEALTH & PERSONAL CARE 4.8%
Astrazeneca PLC, fgn. ...................... United Kingdom 152,291 6,446,180
Aventis SA ................................. France 170,002 9,875,280
Medeva PLC ................................. United Kingdom 2,761,300 7,854,111
Nycomed Amersham PLC ....................... United Kingdom 791,920 4,932,511
* Skyepharma PLC ............................. United Kingdom 4,859,873 3,789,597
------------
32,897,679
------------
INDUSTRIAL COMPONENTS 1.9%
Goodyear Tire & Rubber Co. ................. United States 99,000 2,790,563
Granges AB ................................. Sweden 379,525 7,920,716
Yamato Kogyo Co. Ltd. ...................... Japan 539,000 2,431,658
------------
13,142,937
------------
INSURANCE 5.4%
Ace Ltd. ................................... Bermuda 176,500 2,945,344
Allstate Corp. ............................. United States 242,700 5,824,800
Partnerre Ltd. ............................. Bermuda 84,100 2,727,994
ReliaStar Financial Corp. .................. United States 204,700 8,021,681
Torchmark Corp. ............................ United States 113,400 3,295,688
XL Capital Ltd., A ......................... Bermuda 92,100 4,777,688
Zurich Allied PLC .......................... United Kingdom 826,000 9,798,213
------------
37,391,408
------------
</TABLE>
TS-9
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
MACHINERY & ENGINEERING 1.8%
CNH Global NV ................................................ Netherlands 259,400 $ 3,453,262
Invensys PLC ................................................. United Kingdom 1,621,958 8,728,801
------------
12,182,063
------------
MERCHANDISING 3.3%
Home Depot Inc. .............................................. United States 154,200 10,572,338
Marks & Spencer PLC .......................................... United Kingdom 1,644,100 7,818,356
Safeway PLC .................................................. United Kingdom 1,305,220 4,492,976
------------
22,883,670
------------
METALS & MINING 1.4%
AK Steel Holding Corp. ....................................... United States 195,400 3,688,175
Barrick Gold Corp. ........................................... Canada 348,800 6,169,400
------------
9,857,575
------------
MULTI-INDUSTRY 5.3%
Cheung Kong Holdings Ltd. .................................... Hong Kong 815,000 10,353,284
Cheung Kong Infrastructure Holdings Ltd. ..................... Hong Kong 963,000 1,858,236
* DESC SA de CV DESC, B ........................................ Mexico 5,237,300 4,311,445
* DESC SA de CV DESC, C ........................................ Mexico 2,671,800 2,227,675
Hutchison Whampoa Ltd. ....................................... Hong Kong 802,100 11,659,780
Swire Pacific Ltd., A ........................................ Hong Kong 1,042,000 6,152,673
------------
36,563,093
------------
REAL ESTATE .4%
National Health Investors Inc. ............................... United States 187,700 2,792,038
------------
TELECOMMUNICATIONS 7.1%
Cia de Telecomunicaciones de Chile SA, ADR ................... Chile 117,300 2,140,725
Korea Telecom Corp., ADR ..................................... South Korea 88,900 6,645,275
Nippon Telegraph & Telephone Corp. ........................... Japan 390 6,679,062
Portugal Telecom SA .......................................... Portugal 976,500 10,705,814
Telecom Corp. of New Zealand Ltd. ............................ New Zealand 745,000 3,503,354
Telecom Italia SpA, di Risp .................................. Italy 476,400 6,690,607
Telecomunicacoes Brasileiras SA (Telebras), ADR .............. Brazil 41,800 5,371,300
Telefonos de Mexico SA (Telmex), L, ADR ...................... Mexico 65,900 7,413,750
------------
49,149,887
------------
TRANSPORTATION 3.5%
British Airways PLC .......................................... United Kingdom 928,000 6,043,991
Burlington Northern Santa Fe Corp. ........................... United States 223,700 5,424,725
Canadian National Railway Co. ................................ Canada 227,600 6,013,085
Firstgroup PLC ............................................... United Kingdom 425,500 1,667,562
Peninsular & Oriental Steam Navigation Co. ................... United Kingdom 294,200 4,887,722
------------
24,037,085
------------
UTILITIES ELECTRICAL & GAS 5.7%
Centrais Eletricas Brasileiras SA (Eletrobras), ADR .......... Brazil 514,400 5,625,221
CLP Holdings Ltd. ............................................ Hong Kong 697,500 3,212,260
Evn AG ....................................................... Austria 32,995 4,982,634
Iberdrola SA, Br. ............................................ Spain 486,500 6,739,394
National Power PLC ........................................... United Kingdom 1,054,800 6,068,633
Thames Water Group PLC ....................................... United Kingdom 500,300 6,173,199
Veba AG ...................................................... Germany 129,600 6,327,998
------------
39,129,339
------------
TOTAL COMMON STOCKS (COST $466,374,382)....................... 613,347,967
------------
</TABLE>
TS-10
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PREFERRED STOCKS 4.2%
Banco Itau SA, pfd. ....................................................... Brazil 63,094,000 $ 5,413,546
Embotelladora Andina SA, B, ADR, pfd. ..................................... Chile 302,900 4,429,912
News Corp. Ltd., pfd. ..................................................... Australia 1,177,909 10,091,524
Petroleo Brasileiro SA (Petrobras), pfd. .................................. Brazil 15,747,000 4,009,754
* Telecomunicacoes Brasileiras SA (Telebras), ADR, pfd. ..................... Brazil 41,800 652
Telecomunicacoes de Sao Paulo SA, ADR, pfd. ............................... Brazil 205,300 5,017,019
------------
TOTAL PREFERRED STOCKS (COST $22,497,583).................................. 28,962,407
------------
PRINCIPAL
AMOUNT**
--------------
BONDS (COST $3,911,844) .5%
AXA SA, cvt., 144A, 2.50%, 1/01/14 ........................................ France 3,445,200 EUR 3,512,231
------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS (COST $492,783,809)......... 645,822,605
------------
(A) REPURCHASE AGREEMENTS 6.3%
Barclays Bank PLC, 3.00%, 1/03/00 (Maturity Value $14,003,500)
Collaterized by U.S. Treasury Notes and Bonds ............................United States 14,000,000 14,000,000
Morgan Stanley Group Inc., 3.00%, 1/03/00 (Maturity Value $29,594,397)
Collaterized by U.S. Treasury Notes and Bonds ............................United States 29,587,000 29,587,000
------------
TOTAL REPURCHASE AGREEMENTS (COST $43,587,000)............................. 43,587,000
------------
TOTAL INVESTMENTS (COST $536,370,809) 100.0%............................... 689,409,605
OTHER ASSETS, LESS LIABILITIES ............................................ 180,068
------------
TOTAL NET ASSETS 100.0% ................................................... $689,589,673
============
</TABLE>
CURRENCY ABBREVIATION:
EUR--European Unit
*NON-INCOME PRODUCING.
**SECURITIES DENOMINATED IN U.S. DOLLARS UNLESS OTHERWISE INDICATED.
(A)AT DECEMBER 31, 1999, ALL REPURCHASE AGREEMENTS HELD BY THE FUND HAD BEEN
ENTERED INTO ON THAT DATE.
See Notes to Financial Statements.
TS-11
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $492,783,809)............................ $ 645,822,605
Repurchase agreements, at value and cost .......................................... 43,587,000
Receivables:
Investment securities sold ....................................................... 34,682,380
Fund shares sold ................................................................. 22,452
Dividends and interest ........................................................... 1,437,543
-------------
Total assets .................................................................... 725,551,980
-------------
Liabilities:
Payables:
Investment securities purchased .................................................. 510,791
Fund shares redeemed ............................................................. 563,320
To affiliates .................................................................... 467,340
Funds advanced by custodian ....................................................... 34,138,994
Accrued expenses .................................................................. 281,862
-------------
Total liabilities ............................................................... 35,962,307
-------------
Net assets, at value ............................................................... $ 689,589,673
=============
Net assets consist of:
Undistributed net investment income ............................................... $ 5,470,586
Net unrealized appreciation ....................................................... 153,038,796
Accumulated net realized gain ..................................................... 109,151,709
Beneficial shares ................................................................. 421,928,582
-------------
Net assets, at value ............................................................... $ 689,589,673
=============
CLASS 1:
Net asset value per share ($641,848,812 /divided by/ 26,312,122 shares outstanding) $ 24.39
=============
CLASS 2:
Net asset value per share ($47,740,861 /divided by/ 1,965,579 shares outstanding).. $ 24.29
=============
</TABLE>
See Notes to Financial Statements.
TS-12
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $1,032,325)
Dividends ................................................... $ 11,337,859
Interest .................................................... 406,650
------------
Total investment income ................................... $ 11,744,509
Expenses:
Management fees (Note 4) .................................... 4,458,962
Administrative fees (Note 4) ................................ 616,251
Distribution fees - Class 2 (Note 4) ........................ 77,935
Custodian fees .............................................. 137,300
Reports to shareholders ..................................... 151,300
Professional fees ........................................... 68,500
Trustees' fees and expenses ................................. 400
Other ....................................................... 1,182
------------
Total expenses ............................................ 5,511,830
------------
Net investment income .................................... 6,232,679
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ................................................ 113,535,358
Foreign currency transactions .............................. (992,164)
------------
Net realized gain ......................................... 112,543,194
Net unrealized appreciation on investments ................ 45,757,412
------------
Net realized and unrealized gain ............................. 158,300,606
------------
Net increase in net assets resulting from operations ......... $164,533,285
============
</TABLE>
See Notes to Financial Statements.
TS-13
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-----------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............................................... $ 6,232,679 $ 12,029,676
Net realized gain from investments and foreign currency transactions 112,543,194 47,568,957
Net unrealized appreciation (depreciation) on investments ........... 45,757,412 (47,396,839)
-----------------------------------
Net increase in net assets resulting from operations ............... 164,533,285 12,201,794
Distributions to shareholders from:
Net investment income: ...............................................
Class 1 ............................................................. (10,783,247) (15,083,722)
Class 2 ............................................................. (372,246) (357,002)
Net realized gains:
Class 1 ............................................................. (49,890,491) (63,413,199)
Class 2 ............................................................. (1,972,049) (1,560,086)
Fund share transactions (Note 3):
Class 1 ............................................................. (100,093,706) (19,220,136)
Class 2 ............................................................. 15,710,115 11,228,384
-----------------------------------
Net increase (decrease) in net assets .............................. 17,131,661 (76,203,967)
Net assets:
Beginning of year .................................................... 672,458,012 748,661,979
-----------------------------------
End of year .......................................................... $ 689,589,673 $ 672,458,012
===================================
Undistributed net investment income included in net assets:
End of year .......................................................... $ 5,470,586 $ 11,403,074
===================================
</TABLE>
See Notes to Financial Statements.
TS-14
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton Stock Fund (the Fund) is a separate, diversified series of Templeton
Variable Products Series Fund (the Trust), which is an open-end investment
company registered under the Investment Company Act of 1940. The Fund seeks
capital growth through a policy of investing primarily in common stocks issued
by companies, large and small, in various nations throughout the world. The
following summarizes the Fund's significant accounting policies.
A. SECURITY 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. When
the Fund purchases or sells foreign securities it will customarily enter into a
foreign exchange contract to minimize foreign exchange risk from the trade date
to the settlement date of such transactions.
The Fund does not separately report the effect of 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, and the difference 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 currency denominated assets and liabilities other than investments
in securities held at the end of the reporting period.
C. 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.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
Common expenses incurred by the Trust are allocated among the funds comprising
the Trust based on the ratio of net assets of each fund to the combined net
assets. Other expenses are charged to each fund on a specific identification
basis.
D. 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.
TS-15
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Notes to Financial Statements (continued)
2. MERGER OF TEMPLETON VARIABLE ANNUITY FUND
On May 8, 1998, the Fund acquired all of the net assets of Templeton Variable
Annuity Fund (Variable Annuity Fund) pursuant to a plan of reorganization
approved by Variable Annuity Fund's shareholders. The merger was accomplished
by a tax-free exchange of 699,965 Class 1 shares of the Fund (valued at $23.84
per share) for the net assets of the Variable Annuity Fund which aggregated
$16,687,175, including $4,980,981 of unrealized appreciation. The combined net
assets of the Fund immediately after the merger were $839,071,006.
3. BENEFICIAL SHARES
The Fund offers two classes of shares: Class 1 and Class 2 shares. The shares
differ by their distribution fees, voting rights on matters affecting a single
class, and the exchange privilege of each class.
At December 31, 1999, there were an unlimited number of shares authorized
($0.01 par value). Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1999 1998
----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 1 SHARES: ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 3,853,882 $ 81,887,246 1,862,209 $ 34,187,929
Shares issued on reinvestment of distributions 3,313,694 60,673,738 3,523,201 78,496,920
Shares issued on merger ....................... -- -- 699,965 16,687,175
Shares redeemed ............................... (11,555,092) (242,654,690) (6,963,562) (148,592,160)
----------------------------------------------------------------------
Net decrease .................................. (4,387,516) $ (100,093,706) (878,187) $ (19,220,136)
======================================================================
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1999 1998
----------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS 2 SHARES: ----------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................... 912,104 $ 19,443,978 641,741 $ 14,204,072
Shares issued on reinvestment of distributions 128,314 2,344,295 86,200 1,917,088
Shares redeemed ............................... (294,245) (6,078,158) (217,530) (4,892,776)
----------------------------------------------------------
Net increase .................................. 746,173 $ 15,710,115 510,411 $ 11,228,384
==========================================================
</TABLE>
4. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Trust are also officers or directors of Templeton
Investment Counsel, Inc. (TICI), Franklin Templeton Services, Inc. (FT
Services), and Franklin/Templeton Distributors, Inc. (Distributors), the Fund's
investment manager, administrative manager, and principal underwriter,
respectively.
The Fund pays an investment management fee to TICI based on the average daily
net assets of the Fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
0.75% First $200 million
0.675% Over $200 million, up to and including $1.3 billion
0.60% Over $1.3 billion
</TABLE>
TS-16
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Notes to Financial Statements (continued)
4. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
The Fund pays its allocated share of an administrative fee to FT Services based
on the Trust's aggregate average daily net assets as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
0.15% First $200 million
0.135% Over $200 million, up to and including $700 million
0.10% Over $700 million, up to and including $1.2 billion
0.075% Over $1.2 billion
</TABLE>
The Fund reimburses Distributors up to 0.25% per year of its average daily net
assets of Class 2 shares, for costs incurred in marketing the Fund's Class 2
shares.
5. 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
to distribute all of its taxable income.
At December 31, 1999, the net unrealized appreciation based on the cost of
investments for income tax purposes of $537,940,376 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation ............. $ 197,659,684
Unrealized depreciation ............. (46,190,455)
-------------
Net unrealized appreciation ......... $ 151,469,229
=============
</TABLE>
Net realized gains differ for financial statement and tax purposes primarily
due to differing treatments of wash sales.
At December 31, 1999, the Fund has deferred currency losses occurring
subsequent to October 31, 1999 of $596,000. For tax purposes, such losses will
be reflected in the year ending December 31, 2000.
6. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
year ended December 31, 1999 aggregated $286,049,156 and $471,031,775,
respectively.
7. CREDIT FACILITY
Certain Franklin Templeton Funds, including Templeton Stock Fund, are
participants in a $750 million senior unsecured credit agreement for temporary
borrowing purposes. The termination date of the agreement is March 1, 2000.
Interest is calculated on the Fund's borrowings at market rates. At December
31, 1999, the Fund had not utilized this credit facility.
8. SUBSEQUENT EVENT
On February 8, 2000, shareholders approved a proposal to merge the Fund into
Franklin Templeton Variable Insurance Products Trust Templeton Global Growth
Fund.
TS-17
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
INDEPENDENT AUDITOR'S REPORT
To the Board of Trustees and Shareholders of
Templeton Variable Products Series Fund
In our opinion, the accompanying statement of asset and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Templeton Stock Fund, series of
Templeton Variable Products Series Fund at December 31, 1999, and the results
of its operations, the changes in its net assets and the financial highlights
for the year then ended, in conformity with accounting principles generally
accepted in the United States. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audit of these financial statements in accordance with auditing standards
generally accepted in the United States which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit, which included confirmation of
securities at December 31, 1999 by correspondence with the custodian and
brokers, provides a reasonable basis for the opinion expressed above. The
financial statements for the year ended December 31, 1998, including the
financial highlights for each of the four years in the period then ended were
audited by other independent accountants whose report dated January 28, 1999
expressed an unqualified opinion on those financial statements.
/s/PRICEWATERHOUSECOOPERS LLP
Ft. Lauderdale, Florida
January 28, 2000 except for Note 8, as to which the date is February 8, 2000.
TS-18
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
CHANGE IN INDEPENDENT AUDITOR
On August 13, 1999, McGladrey & Pullen, LLP (McGladrey) resigned as independent
auditors of the Fund. McGladrey resigned pursuant to their agreement to sell
their investment company practice to PricewaterhouseCoopers LLP (PwC). The
McGladrey partners and professionals previously serving the Fund, have joined
PwC and performed the December 31, 1999 audit.
None of the reports of McGladrey on the financial statements of the Fund,
including those of the past two fiscal years have ever contained an adverse
opinion or disclaimer of opinion, or was qualified or modified as to
uncertainty, audit scope or accounting principles.
During the period McGladrey served the Fund, including the two most recent
fiscal years and subsequent interim period, there were no disagreements with
McGladrey on any matter of accounting principle or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of McGladrey would have caused it to make
reference to the subject matter of disagreement in connection with its report.
On October 21, 1999, the Fund, with the approval of its Board of Trustees and
its Audit Committee, engaged PwC as its independent auditors.
TS-19
<PAGE>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
TEMPLETON STOCK FUND
Tax Designation
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby
designates $88,455,613 as a capital gain dividend for the fiscal year ended
December 31, 1999.
Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby
designates 11.63% of ordinary income dividends as income qualifying for the
dividends received deduction for the fiscal year ended December 31, 1999.
TS-20
<PAGE>
TEMPLETON FUNDS RETIREMENT ANNUITY SEPARATE ACCOUNT
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C>
Assets:
Investment in Templeton Variable Products Series Fund Stock Fund - Class 1, at market $ 11,775,764
value - (cost $11,027,742)
Receivable from Templeton Funds Annuity Company .......................................... 4,344
------------
Net assets ............................................................................... $ 11,780,108
============
Net assets attributable to annuitants - Annuity reserves (Note 1) ........................ $ 11,780,108
============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
SA-1
<PAGE>
TEMPLETON FUNDS RETIREMENT ANNUITY SEPARATE ACCOUNT
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C>
Investment Income:
Income:
Dividend distributions ...................................... $ 184,313
Capital gains distributions ................................. 852,755
----------
Total income ............................................... 1,037,068
Expenses:
Periodic charge (Note 2) .................................... 118,564
----------
Net investment income ........................................ 918,504
----------
Realized and unrealized gain on investments:
Net realized gain on investments ............................ 120,868
Unrealized appreciation of investments for the year ......... 1,654,417
----------
Net gain on investments ..................................... 1,775,285
----------
Net increase in net assets from operations ................... $2,693,789
==========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
SA-2
<PAGE>
TEMPLETON FUNDS RETIREMENT ANNUITY SEPARATE ACCOUNT
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------------------------------
<S> <C> <C>
Increase (decrease) in net assets from operations:
Net investment income ................................................... $ 918,504 $ 2,262,499
Net realized gain on investments ........................................ 120,868 208,281
Unrealized appreciation (depreciation) of investments for the year ...... 1,654,417 (2,513,058)
---------------------------------
Net increase (decrease) in net assets from operations ................... 2,693,789 (42,278)
---------------------------------
Annuity unit transactions:
Annuity payments ........................................................ (1,405,865) (1,517,338)
Decrease in annuity reserves for mortality experience (Note 1) ........... (85,386) (23,139)
---------------------------------
Net decrease in net assets derived from annuity unit transactions ....... (1,491,251) (1,540,477)
---------------------------------
Total increase (decrease) in net assets ................................ 1,202,538 (1,582,755)
Net Assets:
Beginning of period ..................................................... 10,577,570 12,160,325
---------------------------------
End of period ........................................................... $ 11,780,108 $ 10,577,570
=================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-3
<PAGE>
TEMPLETON FUNDS RETIREMENT ANNUITY SEPARATE ACCOUNT
Notes to Financial Statements
December 31, 1999
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 Products Series Fund - Stock Fund Class 1 (the Fund). The following is
a summary of significant accounting policies followed by the Separate Account
in the preparation of its financial statements.
VALUATION OF SECURITIES
Investments in shares of the Fund are carried in the Statement of Assets and
Liabilities at net asset value (market value).
DIVIDENDS
Dividend income and capital gain distributions are recorded as income on the
ex-dividend date and are reinvested in additional shares of the Fund.
INCOME TAXES
Operations of the Separate Account form a part of the Company, which is taxed
as a life insurance company under the Internal Revenue Code (the Code). Under
current law, no federal income taxes are payable with respect to the Separate
Account. Under the principles set forth in Internal Revenue Service Ruling
81-225 and Section 817(h) of the Code and regulations thereunder, the Company
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.
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.
SA-4
<PAGE>
TEMPLETON FUNDS RETIREMENT ANNUITY SEPARATE ACCOUNT
Notes to Financial Statements (continued)
December 31, 1999
3. INVESTMENT TRANSACTIONS
During the period ended December 31, 1999, purchases and sales of Templeton
Variable Products Series Fund - Stock Fund Class 1 shares aggregated $1,061,676
and $1,489,694 respectively. Realized gains and losses are reported on an
identified cost basis.
4. CONCENTRATIONS OF CREDIT RISKS
Financial instruments which potentially subject the Separate Account to
concentrations of credit risk consist of investments in the Templeton Variable
Products Series Fund - Stock Fund Class 1. The Fund's investment securities are
managed by professional investment managers within established guidelines. As
of December 31, 1999, in management's opinion, the Separate Account had no
significant concentration of credit risk.
SA-5
<PAGE>
TEMPLETON FUNDS RETIREMENT ANNUITY SEPARATE ACCOUNT
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Participants of
Templeton Funds Retirement Annuity Separate Account
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets present fairly,
in all material respects, the financial position of the Templeton Funds
Retirement Annuity Separate Account at December 31, 1999, and the results of
its operations for the year then ended and the changes in its net assets for
each of the two years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States. 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 of these statements in accordance with
auditing standards generally accepted in the United States which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Jacksonville, Florida
January 28, 2000
SA-6
<PAGE>
REPORT OF SPECIAL MEETING
OF SHAREHOLDERS
At a Special Meeting on February 8, 2000, the shareholders of Templeton
Variable Products Series Fund (TVP) approved an Agreement and Plan of
Reorganization (Reorganization) pursuant to which each TVP fund will merge with
the similar, corresponding fund of the Franklin Templeton Variable Insurance
Products Trust (VIP), to be effective as of May 1, 2000. The Reorganization
provides that TVP shareholders will receive VIP shares equal in value to their
current TVP shares.
In addition, at a Special Meeting of shareholders of Templeton Developing
Markets Equity, Templeton Global Asset Allocation, and Templeton International
Equity Funds, each a series of VIP, shareholders approved new investment
advisory agreements and changes to, and elimination of, certain of the
fundamental investment restrictions of each series, to be effective as of May
1, 2000.
The VIP Board of Trustees approved name changes for several of
the combined TVP/VIP funds which will also take effect, as of
May 1, 2000.
<TABLE>
<CAPTION>
NEW VIP COMBINED FUND NAME
YOUR CURRENT TVP FUND NAME AS OF MAY 1, 2000
--------------------------------------------------------------------------------------------
<S> <C>
Franklin Strategic Income Investments Fund Franklin Strategic Income Securities Fund
Templeton Asset Allocation Fund Templeton Asset Strategy Fund
Templeton Developing Markets Fund Templeton Developing Markets Securities Fund
Templeton International Fund Templeton International Securities Fund
</TABLE>
R-1
<PAGE>
At the Special Meeting of Shareholders of each series of Templeton Variable
Products Series Fund (TVP) held on February 8, 2000, shareholders voted as
follows:
1. Regarding the approval of the Agreement and Plan of Reorganization between
the Franklin Large Cap Growth Investments Fund and the Franklin Large Cap
Growth Securities Fund, a series of the Franklin Templeton Variable Insurance
Products Trust:
<TABLE>
<CAPTION>
Shares % of Shares % of Shares % of
Shares Voted Shares Voted Shares Voted to Shares
Voted For Voted Against Voted Abstain Voted
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
88,108.591 82,549.531 93.691% 0.000 0.000% 5,559.060 6.309%
</TABLE>
2. Regarding the approval of the Agreement and Plan of Reorganization between
the Franklin Small Cap Investments Fund and the Franklin Small Cap Fund, a
series of the Franklin Templeton Variable Insurance Products Trust:
<TABLE>
<CAPTION>
Shares % of Shares % of Shares % of
Shares Voted Shares Voted Shares Voted to Shares
Voted For Voted Against Voted Abstain Voted
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3,910,681.268 3,676,403.633 94.009% 44,760.236 1.145% 189,517.399 4.846%
</TABLE>
3. Regarding the approval of the Agreement and Plan of Reorganization between
the Franklin S&P 500 Index Fund and the Franklin S&P 500 Index Fund, a series
of the Franklin Templeton Variable Insurance Products Trust:
<TABLE>
<CAPTION>
Shares % of Shares % of Shares % of
Shares Voted Shares Voted Shares Voted to Shares
Voted For Voted Against Voted Abstain Voted
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
666,529.442 627,225.217 94.103% 13,207.807 1.982% 26,096.418 3.915%
</TABLE>
4. Regarding the approval of the Agreement and Plan of Reorganization between
the Franklin Strategic Income Investments Fund and the Franklin Strategic
Income Securities Fund, a series of the Franklin Templeton Variable Insurance
Products Trust:
<TABLE>
<CAPTION>
Shares % of Shares % of Shares % of
Shares Voted Shares Voted Shares Voted to Shares
Voted For Voted Against Voted Abstain Voted
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
413,690.850 410,740.206 99.287% 0.000 0.000% 2,950.644 0.713%
</TABLE>
R-2
<PAGE>
5. Regarding the approval of the Agreement and Plan of Reorganization between
the Mutual Shares Investments Fund and the Mutual Shares Securities Fund, a
series of the Franklin Templeton Variable Insurance Products Trust:
<TABLE>
<CAPTION>
Shares % of Shares % of Shares % of
Shares Voted Shares Voted Shares Voted to Shares
Voted For Voted Against Voted Abstain Voted
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
481,079.686 462,972.399 96.236% 5,433.373 1.130% 12,673.914 2.634%
</TABLE>
6. Regarding the approval of the Agreement and Plan of Reorganization between
the Templeton Asset Allocation Fund and the Templeton Global Asset Allocation
Fund, a series of the Franklin Templeton Variable Insurance Products Trust:
<TABLE>
<CAPTION>
Shares % of Shares % of Shares % of
Shares Voted Shares Voted Shares Voted to Shares
Voted For Voted Against Voted Abstain Voted
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
30,053,798.611 27,094,661.662 90.154% 1,263,049.081 4.202% 1,696,087.868 5.644%
</TABLE>
7. Regarding the approval of the Agreement and Plan of Reorganization between
the Templeton Bond Fund -- Class 1 and the Templeton Global Income Securities
Fund -- Class 1, a series of the Franklin Templeton Variable Insurance Products
Trust:
<TABLE>
<CAPTION>
Shares % of Shares % of Shares % of
Shares Voted Shares Voted Shares Voted to Shares
Voted For Voted Against Voted Abstain Voted
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
2,085,176.738 1,838,325.020 88.162% 92,878.521 4.454% 153,973.197 7.384%
</TABLE>
8. Regarding the approval of the Agreement and Plan of Reorganization between
the Templeton Bond Fund -- Class 2 and the Templeton Global Income Securities
Fund -- Class 2, a series of the Franklin Templeton Variable Insurance Products
Trust:
<TABLE>
<CAPTION>
Shares % of Shares % of Shares % of
Shares Voted Shares Voted Shares Voted to Shares
Voted For Voted Against Voted Abstain Voted
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
50,207.875 44,120.171 87.875% 4,594.020 9.150% 1,493.684 2.975%
</TABLE>
R-3
<PAGE>
9. Regarding the approval of the Agreement and Plan of Reorganization between
the Templeton Developing Markets Fund and the Templeton Developing Markets
Equity Fund, a series of the Franklin Templeton Variable Insurance Products
Trust:
<TABLE>
<CAPTION>
Shares % of Shares % of Shares % of
Shares Voted Shares Voted Shares Voted to Shares
Voted For Voted Against Voted Abstain Voted
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
43,104,307.479 38,032,307.453 88.233% 995,683.149 2.310% 4,076,316.877 9.457%
</TABLE>
10. Regarding the approval of the Agreement and Plan of Reorganization between
the Templeton International Fund and the Templeton International Equity Fund, a
series of the Franklin Templeton Variable Insurance Products Trust:
<TABLE>
<CAPTION>
Shares % of Shares % of Shares % of
Shares Voted Shares Voted Shares Voted to Shares
Voted For Voted Against Voted Abstain Voted
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
50,011,973.703 44,879,630.867 89.738% 1,787,919.242 3.575% 3,344,423.594 6.687%
</TABLE>
11. Regarding the approval of the Agreement and Plan of Reorganization between
the Templeton Stock Fund and the Templeton Global Growth Fund, a series of the
Franklin Templeton Variable Insurance Products Trust:
<TABLE>
<CAPTION>
Shares % of Shares % of Shares % of
Shares Voted Shares Voted Shares Voted to Shares
Voted For Voted Against Voted Abstain Voted
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
28,354,704.714 25,499,530.878 89.931% 973,896.763 3.434% 1,881,277.073 6.635%
</TABLE>
There being no further business to come before the Meeting, upon motion duly
made, seconded and carried, the Meeting was adjourned.
R-4
<PAGE>
[LOGO/R/]
FRANKLIN/R/ TEMPLETON/R/
100 FOUNTAIN PARKWAY
ST. PETERSBURG, FLORIDA 33716-1205
ANNUAL REPORT
INSURANCE ISSUER
Templeton Funds Annuity Company
100 Fountain Parkway
St. Peterburg, Florida 33716-1205
1-800-774-5001
INVESTMENT MANAGER
Templeton Investment Counsel, Inc.
500 Est Broward Blvd.
Fort Lauderdale, Florida 33394-3091
PRINCIPAL UNDERWRITER
Franklin Templeton Distributors Inc.
777 Mariners Island Blvd.
San Mateo, CA 94404-1585
This report was prepared for contract owners who have previously received a
prospectus for their annuity contract and for Templeton Stock Fund, a series of
Templeton Variable Products Series Fund.
To ensure the highest quality of service, telephone calls to or from our
service departments may be monitored, recorded and accessed. These calls can be
determined by the presence of a regular beaping tome.
TRA A99 02/00 [LOGO] Printed on recycled paper
